Economic and Housing Market Trends

Gay Cororaton Senior Economist and Director of Housing & Commercial Research

National Association of REALTORS® January 16, 2020

Decade-long growth slowed in 2019

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GDP

Source: BEA

Business investment contracts, but consumer spending still strong

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Private Consumption Gross Domestic Investment

Source: BEA

Non-residential investment falls while residential investment recovered in 2019 Q3

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10.015.0

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Real Private Nonresidential Fixed Investment (%Chg) Real Private Residential Investment (%Chg)

Source: BEA

Slower export and import growth in 2019 as tariff war escalated

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Real Exports of Goods & Services (%Chg)

Real Imports of Goods & Services (%Chg)

Source: BEA

Oregon is growing faster than the U.S.

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GDP Growth RateUS OR

Strong job growth (2.2 Mil) with lowest unemployment rate (3.5%) since 1951

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12-Month Payroll Change ('000) Unemployment Rate

Source: BLS

Job gains except in utilities and mining (y/y as of Dec 2019)

-22.0-2.0

15.318

506471

122143.0

158400401

645

Mining/LoggingUtilities

Retail TradeInformation

ManufacturingWholesale Trade

Transportation/WarehousingFinancial and Real Estate Activities

ConstructionGovernment

Prof./Bus. ServicesLeisure/Hospitality

Educ./Health

Annual Change in Payroll Employment as of December 2019 (in thousands)

Source: BLS

1.5 million more job openings than job-seekers

5753

7267

02000400060008000

1000012000140001600018000

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Unemployed, 16 Years & Over (SA, Thous) JOLTS: Job Openings: Total (EOP, SA, Thous)

Oregon’s job growth is picking up compared to U.S

1.411.93

0.000.501.001.502.002.503.003.504.00

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US OR

Oregon: 37,200 net new jobs in past 12 months

Jobs created by metro area

Oregon benefiting from CA movers

Mortgage rates fell in 2019 as FOMC cut rates by 0.75% amid global economic risks

1.75

3.72

0.001.002.003.004.005.006.007.008.009.00

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Federal Open Market Committee: Fed Funds Target Rate: Upper Limit (EOP, %)FHLMC: 30-Year Fixed-Rate Mortgages: U.S. (%)

Source: FRB, Freddie Mac

Existing home sales and prices rebounded in 2019

5.40

-4.00-2.000.002.004.006.008.0010.0012.0014.0016.00

-15.00-10.00

-5.000.005.00

10.0015.0020.00

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NAR Total Existing Home Sales, United States (SAAR, Units) % Change - Year to YearNAR Median Sales Price: Total Existing Homes, United States ($) % Change - Year to Year

Housing starts steadily improving but still inadequate relative to household formation

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Annual Net HH Formation Housing Starts, SAAR

Housing permits not keeping pace with new jobs in many metro areas (ratio > 2)

Months’ supply remains low in many metro areas

Lack of affordable homes at <$500K and <$1 M in the West

5.5

2.8 2.6 2.93.8

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3.14.5

3.4 4.0 4.86.4

9.7

4.1

02468

10121416

$0-100,000 $100,000-250,000 $250,000-500,000 $500,000-750,000 $750,000-1,000,000 $1,000,000+ ALL RANGES

Months' Supply of Existing Home SalesNortheast Midwest South West U.S.

Home price appreciation at ~4X than wage growth since 2012

5.4%

3.1%

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10.0%15.0%20.0%

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Y/Y NAR Median Price Y/Y Average Weekly Wage

Sources of data: NAR, BLS

Oregon: Home price appreciation moderating but still growing 2x wage growth (~5x since 2012)

2.634.41

-4.00-2.000.002.004.006.008.00

10.0012.00

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Oregon: Y/Y Percent Change Home Prices vs. Wage Growth as of 2019 Q3Weekly Wage Growth House Prices

Based on FHFA House Price Index

Home prices rising faster than income in many metro areas (ratio >1)

Less than 50% of affordable inventory available for households at 50% income percentile

Rental vacancy rates are below 8% in several metro areas

49.7% of Renter HH spent more than 30% of income on rent in 2018

Steady But Modest Gain in First-time Homebuyer Share Since 2015

45%

39%33% 32%

29% 29% 30% 32% 32% 31% 32%

0%5%

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

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-Nov2019

First-time Buyers

Steady But Modest Increase in Homeownership Rates Among Under 35 and 35-44

34.137.5

58.060.364.8

30.035.040.045.050.055.060.065.070.075.0

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Under 35 35-44 U.S.

Source: U.S. Census Bureau, Housing Vacancies and Homeownership Table 4SA , downloaded from Haver Analytics

200,000 Fewer Workers in Residential Construction in 2019 vs. 2005

1008.7

803.9

0.0

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19851988

19911994

19972000

20032006

20092012

20152018

Employees in Residential Construction Industry

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Fewer Workers Looking for Construction Jobs

JOLTS: Job Openings: Construction (EOP, SA, Thous)

Total Unemployed: Construct ion (NSA, Thous.)

Fewer Specialty Trade Workers Per 1000 People in in 2005 vs. 2018 in Nearly All States

31 States Have Lost Specialty Trade Contractors since 2005

Increasing Land Use and Zoning Regulations Over Time

Figure 2: Land-use regulation growth over time: national (1941–2010)

Figure 3: Zoning regulation growth over time: national (1941–2010)

Unpublished dataset provided by Daniel Shoag of the Harvard Kennedy School. Copy in author’s files (Paper of Vanessa Brown Calder, Zoning, Land-Use Planning, and Housing Affordability, Cato Institute,PolicyAnalysis #823, October 18, 2017; https://www.cato.org/publications/policy-analysis/zoning-land-use-planning-housing-affordability

2020 outlook: modest growth

2017 2018 2019F 2020F

EconomyReal GDP, % Growth 2.4% 2.9% 2.1% 2.2%Inflation Rate 2.1% 2.4% 2.0% 1.9%Unemployment Rate 4.4% 3.9% 3.7% 3.8%

Housing Market30-Yr Fixed Rate 4.0% 4.5% 4.0% 3.8%

Housing Market Existing home sales('000) 5,510 5,340 5,362 5,560 % change 1.1% -3.1% 0.4% 3.7%Median existing home sales price ($ '000) $247.2 $259.3 $270.4 $280.2 % change 5.7% 4.9% 4.3% 3.6%

U.S. ECONOMIC OUTLOOK — November 2019

The Millennials and Baby Boomers will have the biggest impact on housing demand in next 20 years

46.542.4 40.6 42.8

56.146.9 48.2 48.1

41.0

80.8

0.010.020.030.040.050.060.070.080.090.0

25-34 35-44 45-54 55-64 65 and over

Mill

ions

Population Projections2020 2030 2040

US Census Bureau defines millennials as those born between 1982-2000 and Harvard delineates the time as 1985-2004. Using Census definition, eldest millennial is 38 years old in 2020 and youngest millennial is 20 years old in 2020. The youngest millennial will be 40 years old by 2040.

Sustained Growth in E-Commerce

$154.54

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100120140160180

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U.S. is not as dependent on oil imports

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Thank You. Gay Cororaton

Senior Economist and Director of Housing & Commercial ResearchNational Association of REALTORS®

January 16, 2020

Studies Show Land Use Regulations Decrease Housing Supply, Increase Prices, and Reduce Growth

134 percent price difference between construction costs and mean price due to the “regulatory tax” of zoning and other land-use regulations that increase the cost of obtaining building permits and also restrict housing supply; New York, Boston, Los Angeles, Newport News, Oakland, Salt Lake City, San Francisco, San Jose, and Washington, DC, all have “zoning taxes” that account for more than 10 percent of housing costs; Edward Glaeser et al., “Why Is Manhattan So Expensive? Regulation and the Rise in House Prices,” Journal of Law and Economics 48, no. 2 (October 2005): 331–70.

each regulation in Californian cities is associated with a 4.5 percent increase in the cost of owner-occupied housing and a 2.3 percent increase in the cost of rental housing; John M. Quigley and Steven Raphael, “Regulation and the High Cost of Housing in California,” American Economic Review 95, no. 2 (January 2005): 323–28.

zoning regulations decrease the number of building permits issued, especially for apartments and condominiums: Jenny Schuetz, “No Renters in My Suburban Backyard: Land Use Regulation and Rental Housing,” Journal of Policy Analysis and Management 28, no. 2 (2009): 296–320.

Studies Show Land Use Regulations Decrease Housing Supply, Increase Prices, and Reduces Growth

residents of high-cost coastal cities would pay 20 percent less in homeownership costs and 9 percent less in rent if cities adopted zoning regulations typical of the rest of the country; Salim Furth, “Costly Mistakes: How Bad Policies Raise the Cost of Living,” Heritage Foundation Backgrounder no. 3081, November 23, 2015, http://www.heritage.org/research/reports/2015/11/costly-mistakes-how-bad-policies-raise-the-cost-of-living.

2006 study, Glaeser, Schuetz, and Ward find that the factor that contributes most to restricting the supply and increasing the cost of housing is minimum-lot-size requirements; Edward L. Glaeser, Jenny Schuetz, and Bryce Ward, “Regulation and the Rise of Housing Prices in Greater Boston,” Pioneer Institute for Public Policy Research and Rappaport Institute for Greater Boston, January 5, 2006, http://www.hks.harvard.edu/content/download/68821/1248094/version /1/file/regulation_housingprices.pdf.; each additional acre of minimum lot size requirement is associated with a 50 percent drop in building permits; Edward L. Glaeser and Bryce A. Ward, “The Causes and Consequences of Land Use Regulation: Evidence from Greater Boston,” Journal of Urban Economics 65 (2008): 265–78, doi:10.3386/w12601.

In a study of San Francisco neighborhoods, Wenyu Jia and Martin Wachs find that housing that’s built to comply with parking requirements costs 10 percent more than housing with no off-street parking; Wenyu Jia and Martin Wachs, “Parking Requirements and Housing Affordability: A Case Study of San Francisco,” University of California Transportation Center No. 380, July 1998, http://escholarship.org/uc/item/0fm8k169#page-3.

Studies Show Land Use Regulations Decrease Housing Supply, Increase Prices, and Reduces Growth

roughly 20 percent of the variation in metropolitan housing growth can be explained through density regulations: Jonathan T. Rothwell, “The Effects of Density Regulation on Metropolitan Housing Markets,” working paper, the Woodrow Wilson School of Public and International Affairs, Princeton University, 2009, https://dx.doi.org/10.2139/ssrn.1154146.

A broad review of the academic literature by Keith Ihlanfeldt found the evidence strongly suggests that zoning regulation increases the cost of housing within suburban communities; Keith Ihlanfeldt, “Exclusionary Land-Use Regulations within Suburban Communities: A Review of the Evidence and Policy Prescriptions,” Urban Studies 41, no. 2 (2004): 261–83.

land-use zoning is contributing to a sort of geographical segregation by income; Jonathan T. Rothwell and Douglas S. Massey, “Density Zoning and Class Segregation in U.S. Metropolitan Areas,” Social Science Quarterly 51, no. 9 (December 2010):1223–43.

mismatch between regional labor supply and job opportunities caused by land-use rules had the effect of reducing U.S. economic output by 8.9 percent; Hsieh and Moretti, “Housing Constraints and Spatial Misallocation.”

Studies Show Land Use Regulations Decrease Housing Supply, Increase Prices, and Reduces Growth

land-use regulations have played a role in reducing income convergence between more and less productive areas of the United States ; Peter Ganong and Daniel Shoag, “Why Has Regional Income Convergence in the U.S. Declined?” (HKS Working Paper No. RW12-028, John F. Kennedy School of Government, Harvard University, Cambridge, MA, May 2013),

Within the United States New York, San Francisco, and San Jose are the three cities with the highest labor productivity; lowering the level of regulation in these three cities to the level of regulation in the median US city would be expected to increase GDP by 9.5 percent; Chang-Tai Hsieh and Enrico Moretti, “Why Do Cities Matter? Local Growth and Aggregate Growth” (working paper, Econometrics Laboratory, University of California, Berkeley, April 2015). 71.

Literature Review. How Land-Use Regulation Undermines Affordable Housing, Sanford Ikeda and Emily Washington, Mercatus Center, George Mason University; https://www.mercatus.org/system/files/Ikeda-Land-Use-Regulation.pdf