RISI Housing Report - Fastmarkets RISI · •Buoyant housing market integral to supporting consumption ... Household formations (demand) growing faster than additions to shelter

© Copyright 2018 RISI, Inc. | Proprietary Information

RISI Housing Report

Senior Economist

North American ConferenceOctober 2018

Jennifer Coskren

An Update on the Housing Market

2© Copyright 2018 RISI, Inc. | Proprietary Information

• Current housing demand and demographic conditions

• Supply and impediments to faster production growth

• Housing starts forecast and the tax reform bill

• Other end‐use markets

Agenda


• Housing accounts for 15‐18% of GDP according to data compiled by the NAHB

• Buoyant housing market integral to supporting consumption The Multiplier Effect

• Housing is “one of the last games left in town”

With Housing Goes the Economy


• Ingredients for a housing crisis Shelter occupancy high Household formations (demand) growing faster than additions to shelter stock (supply) Shelter prices (rent and home prices) escalating significantly faster than inflation

• This time around is different Solid employment and wage gains More stringent lending standards Speculative building nearly non‐existent

US Housing Market: Crisis of Undersupply


US Job Growth Remains HealthyChange in US Total Payroll Employment, Millions

‐6

‐4

‐2

0

2

4

6

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18


Household Formations Are Growing…Millions, Trend Level = 1.1

‐0.20.00.20.40.60.81.01.21.41.61.82.0

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18


But, Not Strong Enough to Have a Meaningful Impact on Pent‐Up DemandDemand, Millions of Households

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2011 2012 2013 2014 2015 2016 2017 2018


Mortgage Rates Remain Near Historical Lows, but Rates Are Rising and Access Is Restricted30‐Year Fixed Mortgage Rate, Monthly

02468

101214161820

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017


Mortgage Availability on the Rise…but Nowhere Near Previous LevelsMortgage Credit Availability Index

Source: Mortgage Bankers Association


As Mortgage Debt to Income Remains LowMortgage Debt Service Payments as a Percent of Disposable Personal Income, Percent, Quarterly, Seasonally Adjusted

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016


Despite Delayed Marriage Rates, Population Distribution Bodes Well for Housing Demand

21

29

42

54

0 20 40 60 80 100

Millenial

Generation X

Boomer

Silent

Marital Status When They Were 18‐28

Married Separated/Divorced Never Married

Source: Pew Research Center


Net Additions to Shelter Stock Fall Short of Household FormationsAnnual Net Additions to Shelter, Millions

0.0

0.5

1.0

1.5

2.0

2.5

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Delta Shelter Stock (Annual,Millions)

Avg: 1990s

Avg: 2000‐2008

Avg: 2009‐2018

1.29

1.62

0.874


Market Has Tightened Now That the Correction in Transactional Inventory Excess Is CompleteExcess Inventory of Vacant Units (Million Units)

‐1.0

‐0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1Q02 4Q03 3Q05 2Q07 1Q09 4Q10 3Q12 2Q14 1Q16 4Q17

For Sale

For Rent

Off the Market


Most of these held off market are no longer foreclosuresQuarterly Distribution of Other Vacant Housing Units (%), Second Quarter 2018

0 5 10 15 20 25 30

Specific Use Housing

Foreclosure

Possibly Abandoned/to be Demolished/Condemned

Legal Proceedings

Extended Absence

Storage

Preparing to Rent/Sell

Other Write‐in/Don't Know

Being Repaired

Needs Repairs

Personal/Family Reasons


• Demand Limited access to credit and school debt burden bolstered rental market demand This held back the recovery for single‐family starts, although that market had a stronger 2017

• Supply Scarcity of lots along with increased regulatory fees and policies Construction labor difficult to find and material prices have been much higher in 2018 Now the rental development market is weakening as developers find it difficult to switch from luxury construction to more affordable rental units

US Housing Production Hampered by Factor Inputs


Constraints Make It Difficult to Supply First‐Time Buyers

0

100

200

300

400

500

600

700

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

New Home Sales by Price

Under $200K

Over $500K


Net Result: Very Tight Shelter MarketShelter Occupancy Rate, Adjusted*

93.5%

94.0%

94.5%

95.0%

95.5%

96.0%

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017* Adjustment: Shelter stock, second homes, bank‐owned homes.


Limited Supply Tempers Home Sales Gains

0

200

400

600

800

1,000

1,200

1,400

1,600

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000New and Existing Home Sales (X 1,000)

Existing

New (R)


Escalation in Home Prices Running Well Above Overall Inflation and WagesCase‐Shiller US National Home Price Index and CPI

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Case‐Shiller CPI‐U


Multifamily Completions Outpacing Single‐Family CompletionsUS Housing Completions (Millions) and Multifamily Share (Right‐Hand Scale)

0%5%10%15%20%25%30%35%40%45%50%

0.00.20.40.60.81.01.21.41.61.8

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Single‐family Multifamily Multifamily Share


Despite Additional Supply, Apartment Market Is Still TightUS Rental Vacancy Rate, Not Seasonally Adjusted

0%

2%

4%

6%

8%

10%

12%

1Q95 1Q97 1Q99 1Q01 1Q03 1Q05 1Q07 1Q09 1Q11 1Q13 1Q15 1Q17

Source: FRED.


The Residential Construction Market Grows More ConcentratedTop Ten Homebuilders’ Market Share (%)

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Source: Builder Online.


Skilled Construction Labor Still Difficult to FindJob Openings and Hires, Thousands

0

50

100

150

200

250

300

350

400

450

500

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Openings Hires Linear (Openings) Linear (Hires)


Immigration Policy Matters…Foreign Born Share of the Civilian Labor Force

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


Residential Construction Labor Force Down, But Not Out

‐0.5

0.5

1.5

2.5

3.5

4.5

5.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2001 2003 2005 2007 2009 2011 2013 2015 2017

Billion

Squ

are Feet of R

esiden

tial

Starts

Reside

ntial C

onstruction Labo

r (M

illions)

Specialty Trade Contractors

Buliding Construction

Sq. Ft. Starts (R)


Fundamental Demand for Shelter Continues to ImproveBeware of “New Paradigms”

1970s 1980s 1990s 2000‐2017 2018‐2022

Household Formations 1.61 1.24 1.23 0.99 1.26

Net Removals 0.26 0.27 0.30 0.26 0.28

Second Homes 0.04 0.05 0.15 0.06 0.04

Total 1.91 1.56 1.68 1.31 1.58


Housing Outlook: Demand Shifts to New Construction with the Single‐Family Share Improving SlowlyUS Housing Starts, Millions, Annual

40%

50%

60%

70%

80%

90%

0.0

0.5

1.0

1.5

2.0

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Single‐FamilyMultifamilySingle‐Family Share (R)


Pace and Magnitude of Current Recovery Well Behind Past RecoveriesTrough to Peak Housing Starts, Million Units

0.00

0.50

1.00

1.50

2.00

2.50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1975‐1978 1982‐19861991‐2005 2009‐2020


• Tax Reform Bill of 2017• Doubles the standard deductions• Caps the amount of state and local deductions to $10,000• Limits the amount of mortgage homeowners can deduct to $750,000 worth of

debt, down from $1 million• Interest on home equity loans and lines continues to be deductible, but only if

the credit is used to make home improvements• Bill not likely to impact the housing market in aggregate But could make coastal cities less attractive

May shift buyer demand to the South and Midwest

Implications from the Tax Reform Bill

Remodeling Market IndexConsistent growth in additions and alterations

Source: National Association of Home Builders.*Major additions and alterations are valued at $25,000 or more.

© Copyright 2018 RISI, Inc. | Proprietary Information 30

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Major Additions & AlterationsMinor Additions & AlterationsMaintenance and RepairNeutral Market

Major US End‐Use Markets for Wood Products


Average Annual Growth 2018-2020

Housing Starts (Million Units)

% Change 7.1%

R&R (Billion 2005$)

% Change 5.3%

Nonresidential (Billion 2005$)

% Change 6.2%

Industrial Production (2007=1)

% Change 2.6%

Thank you for your attentionFor more information:

North American Lumber & Wood Panels 5‐ and 15‐Year Forecastswww.risi.com/lumber5yearwww.risi.com/lumber15yearwww.risi.com/woodpanel5yearwww.risi.com/woodpanel15year

Lumber, Structural Paneland PB/MDF Commentarieswww.risi.com/lumbercommentarywww.risi.com/structuralpanelcommentarywww.risi.com/pbandmdfcommentary


Jennifer Coskren, [email protected]

Documents

RISI Housing Report - Fastmarkets RISI · •Buoyant housing market integral to supporting consumption ... Household formations (demand) growing faster than additions to shelter