outlook for us housing markets · 2016. 10. 4. · us housing market: boom, bust, ... green = 2016...

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Outlook for US Housing Markets

North American ConferenceOctober 2016

Economic Advisor, Wood ProductsRobert Berg

Outlook for US Housing Market

• Current shelter market conditions

• Outlook for shelter production

• Risks

© Copyright 2016 RISI, Inc. | Proprietary Information 2

Current Shelter Market: More of the Same• Strong demand for shelter (realized and postponed)• Excess inventory of “for sale” and “for rent” eliminated

• Lagging housing starts stunting growth in shelter stock

• Net result Continued tightening of shelter markets (occupancy rate) Escalation in home prices and rent outpacing overall inflation


From Last Year’s Presentation:US Housing Market: Boom, Bust, Crisis (?)

• 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


Fundamental Demand for Shelter: How many homes do we need?

1970s 1980s 1990s 2000‐2015 2016‐2021

Household Formations 1.61 1.24 1.23 0.98 1.29

Net Removals 0.26 0.27 0.30 0.26 0.28

Second Homes 0.04 0.05 0.15 0.06 0.05

Total 1.91 1.56 1.68 1.38 1.69


• Demand for shelter will average around 1.5 million units per year in 2010‐2020

• Household formations will average around 1.1 million

Demand Gap: Market and policy pressure to close the gap is building

0.0

0.5

1.0

1.5

2.0

2.5

Millions

US Housing StartsMonthly, SAAR

Single‐Family

Multifamily

1.21

Fundamental Demand (1.45 million)


7© Copyright 2016 RISI, Inc. | Proprietary Information

14%

15%

16%

17%

18%

19%

20%

-7-6-5-4-3-2-1012345

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

Change in US Total Payroll EmploymentMillions and Share of Part-Time Employment (Right-Hand Scale)

Demand: Job growth continues to improve along with the quality of jobs

Source: BLSGreen = 2016 year-to-date thru August, annualized

Household Formations Have Fallen Well Below Trend and Underlying Demographic Fundamentals…

1.72

0.00.20.40.60.81.01.21.41.61.82.0

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

*

Household FormationsMillions, Average 1990-1999 = 1.17 Million


* First half annualized

…And Have Pushed Pent‐Up Demand for Shelter Higher

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2009 2010 2011 2012 2013 2014 2015 2016*

Millions


* First half annualized

Net Additions to Shelter Fall Short of Household Formations

1.24

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

Net Additions to ShelterAnnual, Millions

Delta Shelter StockAvg: 1990sAvg: 2000‐2008Avg: 2009‐2015

1.29

1.62

0.63


Transactional Inventory Excess Has Been Worked Off

‐1.0

‐0.5

0.0

0.5

1.0

1.5

2.0Excess Inventory of Vacant Units (Million Units)

For Sale

For Rent


Net Result: Very Tight Shelter Market

93.5%

94.0%

94.5%

95.0%

95.5%

96.0%

Shelter Occupancy Rate, Adjusted*


* Adjustment: Shelter Stock (ADJ) =Shelter Stock - Second Homes - Bank Owned Homes

Apartment Vacancy Rates: Drift lower nationally but edge up in major metropolitan areas…

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014Q1

2014Q3

2015Q1

2015Q3

2016Q1

Percen

t

Vacancy Rate

Federal Reserve

Reis


But the upturn in apartment vacancy rates in metropolitan areas reflects overbuilding in luxury apartments


Escalation in Home Prices Running Well Above Overall Inflation

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

US Home PricesPercentage Change Year‐over‐Year

FHF

Case Shiller


Prices: Some Markets Are Extremely Tight

0% 2% 4% 6% 8% 10% 12% 14%

OR‐PortlandWA‐SeattleCO‐DenverTX‐DallasFL‐Tampa

CA‐San FranciscoFL‐Miami

CA‐San DiegoGA‐Atlanta

NV‐Las VegasCA‐Los Angeles

MI‐DetroitMA‐BostonAZ‐Phoenix

Composite‐20MN‐Minneapolis

NC‐CharlotteComposite‐10

IL‐ChicagoOH‐ClevelandNY‐New York

DC‐Washington

Case Shiller Home Price Indices, Average Sept‐Nov 2015Year‐over‐Year Percent Change


Warnings of a Housing Bubble: Source of the bubble matters

020406080100120140160180200

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%Case‐Shiller US National Home Price Index

Index (R)%Ch Year‐over‐Year


And Inflation in Rents Is Rising

‐1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Consumer Price Index‐Shelter RentMonthly Percentage Change, Year‐over‐Year


US Census

Constraints on Production: Cost of buying a home is not the problem with mortgage rates hovering at historical lows

02468

101214161820

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

30‐Year Conventional Mortgage RatePercent, Weekly, Not Seasonally Adjusted


Affordability, while down, is still very attractive

50%

70%

90%

110%

130%

150%

170%

190%

210%

230%

250%

1981

1982

1984

1985

1987

1988

1990

1991

1993

1994

1996

1997

1999

2000

2002

2003

2005

2006

2008

2009

2011

2012

2014

2015

Affordability Index


Source: Federal Reserve

But Home Sales Remain Muted

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 Single-Family Home Sales (X 1,000)

ExistingNew (R)


And Home Ownership Is Falling (Historical Averages Around 64%)

0.63

58%

60%

62%

64%

66%

68%

70%

1970

s19

80s

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

*

Portion of Households That Own Their Home

Federal Housing Enterprises Financial Safety and Soundness

Act (GSE Act, 1992)


* Year-to-date through the first half

Constraints on Shelter Production

• Mortgage finance lending conditions remain restrictive

• Labor slow to return to the construction market

• Land in high demand markets Availability Drawn‐out permitting process


Access to Financing: The thaw in the mortgage credit market has a long way to goMortgage availability index up 90%... …but a little perspective helps.


Source: Mortgage Bankers Association 2004‐2011: Point estimates (Dots) and Interpolation

Shelter Market Outlook: Key Trends in the Shelter Market• Mortgage lending Announcements of credit easing almost on a daily basis

• Increased government policy activity• Strong investment performance of housing• Spillover into suburbs and second‐ and third‐tier cities

• Persistently low mortgage lending rates


Shelter Market Outlook (Continued)

• Desire to form households will be strong as employment gains remain strong

• But shelter supply will hold back household formations

• Land and labor constraints will ease through market forces, policy and geographic shifts in demand

• Home prices and rent will continue to move higher as supply lags


Government Policy: Issue has and will continue to gain increasing attention from policymakers• Traditional demand‐focused policy will not help

Rent controls Rent subsidies Lower cost of financing

• Policy must be directed at shelter supply Streamline permitting process Ease anti‐growth policies Tax incentives to builders of low and middle income apartments. Labor training programs Infrastructure investment to open access to suburbs and improve

second‐ and third‐tier cities


Shelter Production: Vacant inventory overhang absorbed and demand is shifting to new construction

0.0

0.5

1.0

1.5

2.0

2.5

Total Shelter ProductionMillions

Conventional StartsMobile HomesFundamental Demand


Multifamily units led the housing recovery, but the single-family share has stabilized

0.4

0.5

0.6

0.7

0.8

0.9

0.0

0.5

1.0

1.5

2.0

2.5

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

Percen

t

Millions

US Housing StartsAnnual

Single‐Family Multifamily Single‐Family Share (R)


Risk: Upside

• Shelter inventory Lower than reported as estimated demolitions very low

• Demographics Millennials housing requirements

• Excessive policy response to housing crisis• Spillover into suburbs and second‐ and third‐tier cities


Risk: Downside

• Timing• US economy• Demographics Further decline in household formations for the 34 years old and under age group


outlook for us housing markets · 2016. 10. 4. · us housing market: boom, bust, ... green = 2016...

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