Odeta Kushi, everyone's favorite economist and the Deputy Chief Economist for First American spoke at #NEXTWINTER20 on the state of the housing economy. Here's the slide deck for your enjoyment!

1. Odeta Kushi
Deputy Chief Economist
First American Financial
February, 2020
#FirstAmEcon
@odetakushi
The State of the Housing Market:
Macroeconomics, Growing Demand, A Nation of Homebodies
and Builder Woes

2. 2

3. 3

4. 0
2
4
6
8
10
12
14
16
18
20
NotToo Hot, NotToo Cold
Federal Funds Rate, Long-Term Neutral Rate of Interest, %
Recessions Federal Funds Rate Long-Term Neutral Rate of Interest
Source: Federal Reserve Bank of New York, FRED, Q3 2019

5. 54.0
56.0
58.0
60.0
62.0
64.0
66.0
68.0
Jan-47 Jan-51 Jan-55 Jan-59 Jan-63 Jan-67 Jan-71 Jan-75 Jan-79 Jan-83 Jan-87 Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11 Jan-15 Jan-19
Automation Angst- Labor's Declining Influence in Production
Labor Share of Output in U.S. Nonfarm Business Sector, %
Recessions Labor share
Source: Bureau of Labor Statistics, Q4 2019

6. 0
50
100
150
200
250
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Intellectual Property Products Structures and Equipment
A Shift Towards "Soft CapEx"
Private Nonresidential Investment in Intellectual Property Products (IP, Software, R&D) & Structures and Equipment, Jan. 2002= 100
Source: Bureau of Economic Analysis, Q4 2019

7. 0
1
2
3
4
5
6
7
8
9
Jan-00
Jun-00
Nov-00
Apr-01
Sep-01
Feb-02
Jul-02
Dec-02
May-03
Oct-03
Mar-04
Aug-04
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
May-18
Oct-18
Mar-19
Aug-19
Jan-20
The Relationship Between theTreasury Rate and Mortgage Rates
30-Year Fixed Rate Mortgage Average, 10-YearTreasury Constant Maturity Rate, %, NSA
30-Year Fixed Rate Mortgage Average 10-Year Treasury Constant Maturity Rate
Source: Freddie Mac, Federal Reserve Board of Governors, FRED, Feb. 2020
Trade
War
Brexit Election

8. -3
-3
-2
-2
-1
-1
0
1
1
2
2
3
3
Source: Federal Reserve, FRED, January 2020
Risking the Upside Down
10-Year Constant Maturity Minus 2-Year Constant MaturityYields (%, NSA)
Recessions 10Y-2Y Yield Spread

10. 10
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18
Source: U.S. BEA,CBO, FRED,Q4 2019
Not too Cold, Not too Hot, Just Right GDP Growth
Real & PotentialGDPYear-Over-Year (SAAR, Chained 2009 $)
Recessions Real GDP Real Potential GDP

11. 11
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019
Source: U.S. BEA, BLS, FRED,Q4 2019
Labor Force Expansion Drives Economic Growth
Percent Change from aYearAgo (SA)
Recessions Prime-Age Labor Force (25-54 Years Old) Real GDP Poly. (Prime-Age Labor Force (25-54 Years Old)) Poly. (Real GDP)

12. 12
80.0
81.0
82.0
83.0
84.0
85.0
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Prime-Age Labor Force Participation Rate Wage Growth Predicted Wage Growth Phillips Curve Wage Growth Pre-Recession Average
Connecting Wage Growth and the Prime-Age Labor Force Participation Rate
Average Hourly Earning Yearly Growth (%, Left Axis), Prime Age Labor Force Particpation Rate (%, Right Axis)
Source: Bureau of Labor Statistics, First American Calculations, Jan. 2020

13. 13
20
25
30
35
40
45
50
55
60
65
Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16
Thousands
Source: BLS, Census, FRED, 2018
Household Income Stagnating for Decades
Median Household Income ($Thousands,Annual)
Recessions 2018 Current Dollars Nominal

14. “It ain’t what you don’t know that
gets you into trouble. It’s what you
know for sure that just ain’t so.”
- Mark Twain

15. 15
62
63
64
65
66
67
68
69
70
Jul-65 Jul-70 Jul-75 Jul-80 Jul-85 Jul-90 Jul-95 Jul-00 Jul-05 Jul-10 Jul-15
Source: US Census Bureau, Q4 2019
Homeownership Demand Resurgent
Homeownership Rate (%)

16. 16
-4
-3
-2
-1
0
1
2
3
4
5
6
Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19
Source: Census Bureau, FREDQ4 2019
TheTenure ChoiceTransition is On Again
Household Formation by OccupancyType (Year-Over-Year InventoryGrowth, %)
Recession Rented Owned Rented Three Year Moving Average

17. 17
33
35
37
39
41
43
Source: Census Bureau CPS/HVS,Q4 2019
Gen Why? Why Own a Home?
Homeownership Rate for Households Under 35

18. 18
-2
-1
1
2
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19
Millennials Drive Homeownership Growth
Homeownership Rate by Age Cohort (%)
Under 35 Years 35-44 45-54 55-64 65+
Source: Source: US Census Bureau, Q4 2019

19. 19
10%
20%
30%
40%
50%
60%
70%
80%
90%
22 27 32 37 42 47 52 57 62 67 72
Millennials Playing Catchup
Homeownership Rate by Generation
Baby Boomers Gen X Millennials
Source: IPUMS CPS, First American Calculations, 2019

20. 20
0
5
10
15
20
25
30
35
40
45
20 26 32 38 44 50 56 62 68
Delaying Homeownership- EducationTakesTime
Percent Share of Population with Bachelors Degree or Higher
Baby Boomers Gen X Millennials
Source: ACS IPUMS, 2019

21. 21
5
10
15
20
25
30
35
40
1992 1995 1998 2001 2004 2007 2010 2013 2016
Rising Student Loan Burdens
Average Outstanding Balance for all Student Loans, $ (Thousands)
Source: Federal Reserve Board of Governors SCF, 2017

22. 22
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
6
7
8
9
10
11
12
13
14
15
1992 1995 1998 2001 2004 2007 2010 2013 2016
Where’s the Burden
Average LoanTerm (Years) and Payment-to-Income Ratio
Average Repayment Term for Largest Student Loan Mean P/I (Right Axis) Median P/I (Right Axis)
Source: Federal Reserve Board of Governors SCF, 2016

23. 23
0
10
20
30
40
50
60
70
80
90
20 26 32 38 44 50 56 62 68
Millennials Outpace Baby Boomers
Median Income by Generational Cohort,Thousands ($)
Baby Boomers Gen X Millennials
Source: IPUMS CPS, First American Calculations, 2019

24. But is It (Education) Worth it?
Source: IPUMS CPS, 2019
24
1.6
1.5
2.1
2.2
2.8
3.7
4.1
5.6
Doctoral degree
Professional degree
Master's degree
Bachelor's degree
Associate's degree
Some college, no degree
High school diploma
Less than a high school
diploma
Unemployment rate (%)
1,825
1,884
1,434
1,198
862
802
730
553
Median usual weekly earnings ($)

25. 25
48%
50%
52%
54%
56%
58%
60%
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
KnowYour Customer?
First-Time Homebuyer Market Share (% )
Source: AEI International Center on Housing Risk ,Oct. 2019

26. 0
5
10
15
20
25
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Source: Census Bureau, FirstAm Calculations
Wait For it….
Cumulative Net New Owner-Occupied Households (17-35Yrs. Old in 2015, Millions)
Non-Hispanic White Other
26

27. 27
0
4
8
12
16
20
24
28
Under 5 5 to 13 14 to 17 18 to 24 25 to 44 45 to 64 65 and over
The Dawning of A New Age of Homeownership
Percent Share ofTotal U.S. Population
2015 2060
Source: Census Bureau, 2015

28. The Existing Owner’s Dilemma
A Nation of Homebodies

29. 29
3
5
7
9
11
13
15
17
19
Recessions Effective Rate of Interest 30-Year Fixed Rate Mortgage
Source: Bureau of Labor Statistics, FRED, Q4 2019
Never Shall We See Those Rates Again
30-year Fixed Rate (%), Effective Rate of Interest on Mortgage Debt Outstanding Residential Housing (%), NSA

30. 30
2
52
102
152
202
252
302
The Duality of Mortgage Rates
AverageTenure Length, Existing Home Sales, House-Buying Power, (Jan. 2000=100)
Average Tenure Existing-Home Sales House-Buying Power
Source: DataTree by First American, NAR, FRED, Dec. 2019

31. 31
1.3%
1.8%
2.3%
2.8%
3.3%
3.8%
400
900
1,400
1,900
2,400
2,900
3,400
3,900
4,400
Existing Home Inventory (LHS) New Home Inventory For Sale (LHS) Inventory Turnover (RHS)
Supply At Quarter Century Low
New and Existing Inventory for Sale (Thousands, SA, % of Households)
Source: NAR, Census, FRB St. Louis, First American Calculations, Dec. 2019

32. Builders’ Woes
The Challenges of Building More Homes

33. 0
0.4
0.8
1.2
1.6
2
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Supply 2-Yr Avg Demand
Keeping Up With Increasing Demand
New Housing Units and Households (Year-Over-Year, Millions)
Source: Census Bureau, HUD (obsolescence rate of 0.31% of existing stock), 2018
33

34. 34
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
A Lack of Labor
Months Supply- Ratio of Construction Job Openings to Hires (Thousands, SA)
Source: JOLTS BLS, First American Calculations, Nov. 2019

35. 35
0%
1%
2%
3%
4%
5%
6%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Best Retention and Attraction Policy? Pay More
Average Hourly Earnings of All Employees, Construction, SA
Source: BLS, Jan. 2020

36. 1.4%
3.1%
3.1%
2.6%
4.4%
3.5%
6.1%
9.7%
14.6%
1.7%
3.3%
3.8%
2.9%
4.7%
3.6%
5.1%
8.6%
16.4%
"Pure" Cost of Delay
Cost of applying for zoming/subdivion approval
Costs incurred after approval/before construction
Value of land dedicated/left unbuilt
Impact of changes in development standards
Permit, hook-up, impact, other fees paid by builder
Changes in codes/standards over past 10 year
Regulatory cost as a share of home price during construction
Regulatory cost as a share of home price during development
The Process Costs MoreToo
Costs as a Share of Final Price of the Home Sold to the Ultimate Buyer
2011 2016
Source: NAHB, 2016
$50,887
$33,784
$42,709
$22,535
Average cost of regulation in the price of a new home
during development
Average cost of regulation in the price of a new home
during construction
36

37. 37

38. Supply or Demand Restricted?
A Supply Restricted Market Drives up Prices

39. 50
100
150
200
250
300
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
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Jan-15
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Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jul-19
RHPI Recessions Purchasing Power (3- Month Moving Average) Nominal HPI Income
Source: First American Calculations, BLS, Census, Q3 2019
How Much Home Can A Renter Buy?
Index= 100, Jan. 2000

40. 40

41. When It Comes to Affordability, Place Matters
Median Renter: Share of Sold Homes
Source: DataTree by First American, Standard & Poor's, Freddie Mac, Census, Q3 2019

42. Detroit, Michigan
The median renter in Detroit
had the house-buying power to
afford 63% of homes on
the market in Q3 2019
San Francisco,
California
The median renter in San
Francisco had the house-buying
power to afford 11% of homes
on the market in Q3 2019
80/50
The 80th percentile renter in Los Angeles can only afford 51%
of homes for sale, with a house buying power of 654,179 and
an income of 105,080
 This same renter could afford 98% of homes for sale in
Detroit, Cleveland, and Oklahoma City

43. First American’s
Office of Economic Research
FirstAm.com/Economics
@odetakushi
#FirstAmEcon