Residential Issues And Trends Forum Robert Dietz, PhD NAHB
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Growth Potential and Headwinds for New Home Construction examines factors influencing new home construction in the United States. While overall housing recovery is occurring, single-family home construction continues to lag due to relatively weak demand and supply constraints limiting inventory. On the demand side, rental housing leads as fewer millennials get married or buy first homes. Supply is restricted by shortages in labor, lots, and lending for builders. Material prices are also rising. Forecasts predict a continued recovery in multifamily building and a normalization of total housing starts by the second half of the decade as the population in prime household formation years increases.
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Residential Issues And Trends Forum Robert Dietz, PhD NAHB
- 1. Growth Potential and Headwinds for New Home Construction Robert Dietz, Ph.D. Vice President, Tax and Market Analysis @dietz_econ www.eyeonhousing.org NATIONAL ASSOCIATION OF REALTORS RESIDENTIAL ECONOMIC ISSUES AND TRENDS FORUM May 14, 2015
- 2. Home Construction (Single-Family) Continues to Lag the Overall Housing Recovery Why? Demand is relatively weak Rental continues to lead Supply Production constraints hold back inventory
- 3. Presentation Macroeconomic Conditions Demand and What Builders are Building Supply Side Headwinds Forecasts Long-Run Optimism for Housing
- 5. Real GDP Growth Weak First Quarters Holding Back Annual Gains
- 6. Real Consumption Growth rate returning to pre-recession levels
- 7. Employment Growth Improving employment growth to continue over 2015 and 2016
- 8. Consumer Confidence Back to pre-recession levels
- 9. Household Formations on the Rise? Uptick in year-over-year change in households Thousands Avg: 1.4 million (12% renters) Avg: 0.5 million (130% renters ) Avg: 0.7 million (128% renters)
- 10. Effects on Housing Demand… And What Builders are Building
- 11. First-Time Home Buyer Share of Existing Home Sales
- 12. First-Time Home Buyer Share of New Home Sales
- 13. Homeownership and Marriage Both declining for Millennials
- 14. Composition of Home Construction 80% Typical Single-Family Share Currently Only 66%
- 15. Builders Shifted Production to Higher End of the Market
- 16. Custom Building Share Is Elevated
- 17. Condo Market Dormant – Multifamily Size Lower on Rental Concentration
- 18. Single-Family Rental Production Remains Small – But Elevated
- 19. When First-Time Buyers Come Back – Townhouse Market is Leading Indicator
- 20. Inventory of New Homes Growing…..Slowly
- 21. Supply Side Headwinds The 3 Ls (and 1M)
- 22. Labor Supply A leading challenge for builders Starts (000s) Low Supply
- 23. Lot Supply Shortage indicators rise and fall with level of starts, except recently
- 25. …But Easing BetterWorse *SLOS – Senior Loan Officer Survey
- 26. Building Material Prices Builders Reporting Increases in Last 6 Months
- 28. Forecasts
- 29. Remodeling Market Index (RMI) At or above 50 most of past 2+ years
- 30. Residential Remodeling Billions 2009 $, SAAR Actual Adjusted
- 31. Multifamily Production Index 2+ years at or above 50
- 32. 1995-2003 331,000 ”Normal” 2011 178,000 2012 247,000 39% 2013 309,000 25% 2014 355,000 15% 2015 333,000 -6% 2016 334,000 0% Multifamily Housing Starts Healthy Response from Growth in Renters Trough to Current: 4th Q 09 = 82,000 1st Q 15 = 333,000 +306% 2015Q1: 97% of “Normal”
- 33. NAHB/Wells Fargo Housing Market Index Builders remain optimistic
- 34. Single-Family Starts Continuing to recover Trough to Current: Mar 09 = 353,000 Mar 15 = 618,000 +75% 2015Q1: 47% of “Normal” 2016Q4: 81% 2000-2003 1,343,000 ”Normal ” 2011 434,000 2012 537,000 24% 2013 621,000 16% 2014 646,000 4% 2015 704,000 9% 2016 977,000 39%
- 35. Positive Long-Run Outlook for Housing
- 36. Population by Single-Year of Age Rising population in prime household formation years Millions Born 1979 or later Born 1965-78 Born 1946-64 Born 1945 or earlier
- 37. Total Housing Starts Expected to normalize by second half of decade Millions
- 38. Thank you to NAR and for your attendance Questions? Robert Dietz, Ph.D. Vice President, Tax and Market Analysis @dietz_econ www.eyeonhousing.org
Editor's Notes
- Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013. Source: Bureau of Economic Analysis, National Association of Home Builders
- Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013. Source: Bureau of Economic Analysis, National Association of Home Builders
- Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013. Source: Bureau of Economic Analysis, National Association of Home Builders
- Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013. Source: Bureau of Economic Analysis, National Association of Home Builders
- Household formations have finally started to pick up, especially compared to the very low rates of net additions to the total number of households in 2007 through 2010. The fully normal rate of additions should be around 1.2 million per year, so the 860,000 recent average is moving in that direction. Many of these newly formed households are renters, but still represents more home building and eventually, many of those renters will become home owners as well as more homeowners trading up.
- So economy is growing, jobs are growing….there’s pent-up demand…..what about the supply side. Growth – and building is growing – creates its own challenges. Let’s look at lots, labor, lending (and materials)….4th L????
- Up about 17% for res ADC over last 4 qtrs.: (sf starts up 20% YOY)….
- Of the three legs of home building, remodeling had the least collapse and has recovered to levels of early 2000s. The remodeler index has been at or above the tipping point of 50 for six of the last seven quarters.
- Remodeling has improved as home owners decide to remain in place rather than move. The first half of 2013 is expected to be weak, but growth should pick back up by the second half of the year. And, as moving does return, remodeling will benefit from existing home buyers fixing their homes after a move. Source: U.S. Census Bureau, NAHB Economic and Housing Forecast.
- Multifamily sentiment has also passed the 50 tipping point for nine consecutive quarters and has demonstrated some predictive power to actual multifamily starts.
- Multifamily has been a different story as rental demand picks up. 2011 was a banner year and 2012 followed closely with an almost identical increase in number of additional starts (64,000 and 65,000). The improvement continues because all of the added household formations are becoming renters. For a while, excess vacancies and conversion of foreclosures into rental satisfied that demand, but that cannot continue to more rental production is needed. Real rents have started to increase reflecting the increased demand and some return to a normal market. The sector will continue to grow but at lower rates.
- Of the three legs of home building, remodeling has recovered the most and is back up to levels of early 2000s. The remodeler index has been at or above the tipping point of 50 for two out of the last three quarters.
- Once home sales pick up, housing starts will follow. 2011 was the worst year since the early 1940s so there is a lot of room for improvement. 2012 and 2103 saw modest improvements. 2014 will temper that speed as consumers readjust to a slower growing economy.
- 5 to 6 million additional population over next 10 years