economic headwinds and policy concerns for new home construction robert dietz, ph.d. vice president...
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Economic Headwinds and Policy Concernsfor New Home Construction
Robert Dietz, Ph.D.Vice President Tax and Market AnalysisNAHB Economics
December 18, 2014REALTOR® University Lecture Series
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Macroeconomic Conditions and HousingSupply Side HeadwindsForecastsPolicy Wild CardsLong-Run Optimism for Housing
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Real GDP GrowthEconomy returns to growth after Q1 ‘14 blip
Annual Growth2013 2.2%2014f 2.3%
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Payroll Employment US has returned to pre-recession peak, will surpass trend by 2016
Trend in US Employment
Total US Employment
Millions
-7%
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Shift in Total Home SalesNew share went from 20% to 10%
2001-2007 average5.6 million sales/yr
20134.1 million sales
Source: AHS
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Industry HeadwindsThe 3 Ls (and 1M)
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Labor SupplyA leading challenge for builders
Starts (000s)Low Supply
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Lot SupplyShortage indicators rise and fall with level of starts, except recently
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AD&C Access Tight…
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AD&C Access …But Easing
Bet
ter
W
orse
*SLOS – Senior Loan Officer Survey
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Building Material PricesBuilders Reporting Increases in Last 6 Months
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Forecasts
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Remodeling Market Index (RMI)At or above 50 for most of last two years
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Residential Remodeling Billions 2009 $, SAAR
Actual
Adjusted
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NAHB Multifamily Housing Production Index & 5+ Housing Starts
(000s)
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NAHB Multifamily Vacancy Index & Census Vacancy Rate
NAHB MVI (L)
Vacancy Rate (R)
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1995-2003 331,000 ”Normal”2011 178,0002012 247,000 39%2013 309,000 25%2014 352,000 14%
Multifamily Housing Starts Healthy Response from Growth in Renters
Trough to Current:4th Q 09 = 82,0003rd Q 14 = 379,000
+362%
2014Q3:111% of “Normal”
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NAHB/Wells Fargo Housing Market IndexBuilder sentiment has recovered from recession depth, early 2014 weather
Single-family starts (R)
NAHB HMI (L)
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Single-Family Starts – Continuing to recover
Trough to Current:Mar 09 = 353,000Oct 14 = 696,000
+97%
2014Q3: 49% of “Normal”
2016Q4:90%
2000-2003 1,343,000 ”Normal”2011 434,000 2012 537,000 24%2013 621,000 16%2014 641,000 3%
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Policy ChallengesThe Three Rs
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Housing Finance ReformA healthy secondary mortgage marketCurrent system is unsustainablePrivate capital and a federal backstop neededWhat impacts will this have on mortgage access?
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Tax ReformBusiness-only or comprehensive?“Corporate” reform could have major impacts on real estate
LIHTCLike-kind exchangePass-thru rulesDepreciationBusiness interest deductionsTax Rates
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Tax ReformComprehensive – Everything is on the tableMortgage Interest Deduction
Direct CutsPrincipal CapsSecond HomesHome Equity Loans (Remodeling)
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Tax ReformComprehensive – Everything is on the tableMortgage Interest Deduction
Direct CutsPrincipal CapsSecond HomesHome Equity Loans (Remodeling)
Indirect CutsSchedule A impactsHow Many Itemize?
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Tax ReformComprehensive – Everything is on the tableMortgage Interest DeductionProperty Tax DeductionCapital Gain ExclusionIndividual Rates
GDP growthDynamic scoring (macro analysis)
Housing vs Business Investment
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Positive Long-Run Outlook for Housing
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Household Formations – Still Weak
Thousands
Avg: 1.4 million(12% renters)
Avg: 0.5 million(130% renters )
Avg: 0.6 million(123% renters)
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Population by Single-Year of AgeRising population in prime household formation years
Millions
Born 1979 or later Born 1965-78 Born 1946-64 Born 1945 or earlier
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Total Housing StartsExpected to normalize by second half of decade
Millions