Policy and Pricing - Constant Contact · Multifamily Housing Starts Leveling oﬀ 1995-2003 331,000...

Policy and Pricing

HBAofFaye+evilleJanuary25th,2018

RobertDietz,Ph.D.NAHBChiefEconomist

Policy and Pricing – Economic Update

TaxReform–policychangeandeconomicimpactMacroeconomicupdate

InterestratesandhousingdemandSupply-sidefactorsupdateLocaleconomicfactors

ForecastsA?ppingpointforhomeownership?

Tax Reform

Tax Reform – Policy Changes and • IndividualTaxpayers

• Lowertaxrates,withtoprateof37%

• $1.2trilliontaxcutforratereduc?on• Personalexemp?onseliminatedbutstandarddeduc?onnearlydoubles,childcreditexpands

• $70billiontaxcutonnetbasis• Housingdeduc?ons

• Feweritemizers,butoffsetbylargerstandarddeduc?on

• $750KcapforMID,secondhomeruleretained• Propertytaxandincome/salesSALTdeduc?oncappedat$10,000

• Capitalgainexclusionforprincipalresidences• Protectedwiththeexis?ng2of5yearoccupancyrule

Tax Reform – Policy Changes and • IndividualTaxpayers

• AMTthresholdsraised:$637billiontaxcut

• Estatetaxexemp?onamountsdoubledto$11millionperperson:$83billiontaxcut

• BusinessTaxpayers

• Specialpass-thrudeduc?onof20%:$415billiontaxcut

• LIHTCandprivateac?vitybondsprotected• Carriedinterestnowhasthree-yearholdingperiodrequirement

• Businessinterestdeduc?onprotectedforrealestate

• Ac?velosslimitof$500Kperyearagainstpassiveincome• Likekindexchangeprotectedforrealestate

• Completedcontractaccoun?ngrulesprotectedandexpanded

Tax Reform – Policy Changes and • Economicimpacts

• GDP

• Markedup2018forecastto2.6%• Dynamicscoringmodelsuggests0.8%moreGDPa_er10years

• Businessinvestment• 1.1%highera_ertenyears

• Laborsupplyandemployment

• 0.6%higher• 0.9millionmoreworkersinlaborforce

• Reducedhomepricegrowthtoaposi?ve2.9%growthratein2018

Macroeconomics

-25%

0%

25%

50%

75%

100%

36556368913722537560378943823038564388983923339568399034023740574409084124341578419124224742582429164325143585

Q/Q Percent Change, SAAR Annual GrowthLT avg (‘58-’07) 3.4%2015 2.9%2016 1.5%2017f 2.3%2018f 2.6%2019f 2.1%

GDP GrowthStrongergrowthexpectedpost-taxreform

ff

Source:U.S.BureauofEconomicAnalysis(BEA).

Probability of US Recession

0%

25%

50%

75%

100%

21946229502395424958259642696827972289752998230986319893299334000350033600737011380173902140025410294203543039

Nov 2018 = 10.9%

Recessionprobabilitysmallfor2018

Source:NAHBcalcula:onsandFederalReserveBankofNewYorkdata.

Tight Labor MarketHowlowcanunemploymentgo?

0.041

3.781

7.520

11.260

15.000

1/31/06 11/30/06 9/30/07 6/30/08 3/31/09 1/31/10 11/30/10 9/30/11 6/30/12 3/31/13 1/31/14 11/30/14 9/30/15 6/30/16 3/31/17

Job Openings Rate

Unemployment Rate

Percent, SA Percent, SA

Source:U.S.BureauofLaborSta:s:cs(BLS).

Labor Force Participation RateStabilizedlaborforceparJcipaJonkeytofuturegrowth

0

17.5

35.0

52.5

70.0


Average Hourly Wages

0%

25%

50%

75%

100%

39202393863956839752399334011740298404824066340847410294121341394415784175941943421244230842490426744285543039

Y/Y Percent Change, SA

Tightlabormarketplustaxreformshouldboostwagegrowth


Interest Rates and Demand

Consumer and Core Inflation

-10

-5

0

5

10

15

20

3/31/796/30/869/30/93 3/31/016/30/089/30/158/31/931/31/966/30/98 1/31/016/30/03 1/31/066/30/08 1/31/116/30/13 1/31/166/30/18

Core PCE

CPI

Percent, SAAR

Source:U.S.BureauofLaborSta:s:cs(BLS)andNAHBforecast.

InflaJonpressuresbuilding

Target Federal Funds RateFedwillconJnuetoraiserates

0.10000000000000000%

1.82500000000000026%

3.55000000000000051%

5.27500000000000077%

7.00000000000000102%

33238 33969 34699 35430 36160 36891 37621 38352 39082 39813 40543 41274 42004 42735 43465

2.56%

1.88%

1.12%

0.62%

0.20%0.12%0.12%0.12%0.12%0.12%0.12%0.12%

4.25%

5.25%

4.25%

2.25%

1.00%1.25%

1.75%

6.50%

5.50%

4.75%

5.50%5.25%

5.50%5.50%

3.00%3.00%

4.00%

7.00%

Source:NAHBforecastandFederalReservedata.

Federal Reserve Balance SheetBalancesheetreducJonunderway

$0

$1,250,000

$2,500,000

$3,750,000

$5,000,000

USTreasurySecuri:es

Agency-andGSE-MBS

AllElse

Federal Reserve Balance Sheet ($Tr.)

Agency-andGSE-MBSShare

Source:U.S.BoardofGovernorsoftheFederalReserveSystem(FRB).

30-Year Fixed Rate and 10-Year RateswillriseduetoFedpolicyandJghtlabormarkets

0%

25%

50%

75%

100%

1/31/9012/31/91 1/31/9412/31/95 1/31/9812/31/99 1/31/0212/31/03 1/31/0612/31/07 1/31/1012/31/11 1/31/1412/31/15 1/31/1812/31/19

October31,201630-YearFixedRateMortgage

10-YearTreasury

Difference

Source:NAHBforecastandFederalReserveandFreddieMacdata.

Housing Affordability

National

Source:NAHB/WellsFargoHousingOpportunityIndex.

Affordabilitydeclining

S&P/Case-Shiller National US Home

-15

-10

-5

0

5

10

15

20

1/31/87 1/31/89 1/31/91 1/31/93 1/31/95 1/31/97 1/31/99 1/31/01 1/31/03 1/31/05 1/31/07 1/31/09 1/31/11 1/31/13 1/31/15 1/31/17 1/31/19

Percent Growth, SAAR

Source:NAHBforecastandS&PDowJonesIndicesLLC;CoreLogic,Inc..

Pricesgrowingfasterthanincome

Supply-Side Headwind Update

LaborElevatedcountofunfilledconstrucJonjobs

0

3.75

7.50

11.25

15.00 Jobopeningsrate-Construc?on12-monthmovingaverage


Lending – AD&C Access

$0

$50,000

$100,000

$150,000

$200,000

39172 39447 39721 39994 40268 40543 40816 41090 41364 41639 41912 42185 42460 42735

Year-over-YearGrowthRates1-4unitResiden?alConstruc?onLoans

Millions

Source:FederalDepositInsuranceCorpora:on.

Loansgrowingbutataslowerrate

Building Materials – Softwood Lumber

150.0

172.5

195.0

217.5

240.0

40939 41060 41182 41305 41425 41547 41670 41790 41912 42035 42155 42277 42400 42521 42643 42766 42886 43008

Index 1982=100, NSA


SinceJanuary2017,soWwoodlumberincreased14.6%

Local Look

North Carolina GDP Growth

-3.900%

22.075%

48.050%

74.025%

100.000%

3728737560378333810738383386563892939202394783975240025402984057440847411214139441670419434221642490

1.90%2.70%2.10%1.70%

-0.30%

1.20%1.10%

-3.90%

2.40%0.10%5.50%4.50%3.90%2.20%1.50%

Y/Y Percent Change

Fayetteville MSA GDP Growth

-25%

0%

25%

50%

75%

100%

37287 37560 37833 38107 38383 38656 38929 39202 39478 39752 40025 40298 40574 40847 41121 41394 41670 41943 42216 42490

0.20%

-1.10%-3.70%-2.30%-2.60%

1.30%2.60%5.60%5.20%1.80%2.30%5.10%2.40%2.40%4.50%

Y/Y Percent Change

Share of GDP by Major Industries –

0%

15%

30%

45%

60%

Wholesaletrade Construction Professionalandbusinessservices Government

15.34%12.00%

19.75%

11.68%12.81%

8.49%6.06%

3.95%3.86%6.06% 6.56%

52.73%

9.19%8.64%5.58%5.47%5.15%

2.44%2.42%1.81%

FayedevilleMSA U.S.

0

100,000

200,000

300,000

400,000

38037837837837437336810,15710,0429,9419,8509,7559,6639,574

323,406321,040318,623316,235313,993311,644309,338

United States North Carolina Fayetteville, NC

Thousands Thousands

Population GrowthFaye[evilleMSApopulaJongrowingslowerthannaJonalandstatewiderates

Payroll EmploymentFaye[evilleMSAabovepre-recessionpeak

113.80

1,210.35

2,306.90

3,403.45

4,500.00

1/31/00 3/31/01 5/31/02 7/31/03 9/30/04 12/31/05 3/31/07 5/31/08 7/31/09 9/30/10 12/31/11 3/31/13 5/31/14 7/31/15 9/30/16

101%

Thousands, SA Thousands, SA

98%

107%

92%

North Carolina

Fayetteville, NC

Existing House Price IndexFaye[evilleMSAbelowpre-recessionpeak

1.00

50.75

100.50

150.25

200.00

3/31/00 3/31/03 3/31/06 3/31/09 3/31/12 3/31/15 1/31/06 1/31/07 1/31/08 1/31/09 1/31/10 1/31/11 1/31/12 1/31/13 1/31/14 1/31/15 1/31/16

2000Q1 = 100, SA

United States

Relative to Pre-recession Peak US FayettevilleRecession-era Low 81% 93%Current 107% 93%

Fayetteville, NC

Affordability Higher Than National Level

Forecasts

Household Formation

-1,125-750-375

0375750

1,1251,500

Y/Y Change in Household Count, Thousands, NSA

Owner-Occupied

0

1

2

3

4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Renter-Occupied

Source:U.S.CensusBureau(BOC):HousingVacancies&Homeownership.

Demandforhomeownershipstrengthening

Homeownership Rate

0.610%

375.458%

750.305%

1125.153%

1500.000%

Percentage, Quarterly, SA

Source:U.S.CensusBureau(BOC):HousingVacancies&Homeownership.

NAHB/Wells Fargo Housing Market

0

500

1,000

1,500

2,000

1/31/05 12/31/0511/30/0610/31/07 9/30/08 7/31/09 5/31/10 3/31/11 1/31/12 12/31/1211/30/1310/31/14 9/30/15 7/31/16 5/31/17

Index Thousands, SAAR

Single-Family Starts

HMI

Nearlytwo-decadehighforbuilderconfidence

Source:CensusBureauandNAHB/WellsFargoHMIsurvey.

0

500

1,000

1,500

2,000

1/31/00 4/30/01 7/31/02 11/30/03 3/31/05 6/30/06 9/30/07 1/31/09 4/30/10 7/31/11 11/30/12 3/31/14 6/30/15 9/30/16 1/31/18 4/30/19

Thousands of units, SAAR

80% fall2017Q3: 63% of

“Normal”

2019Q4:73% of

“Normal”

2000-2003 1,343,000 “Normal”2014 647,0002015 712,000 10%2016 784,000 10%2017 854,000 9%2018 893,000 5%2019 940,000 5%

Single-Family StartsGrowthahead

Trough to Current:Mar 09 = 353,000Nov 17 = 930,000

+163%

Source:CensusBureauandNAHBforecast.

Single-Family Building Permits –

500.00

21,618.75

42,737.50

63,856.25

84,975.00

33238 33969 34699 35430 36160 36891 37621 38352 39082 39813 40543 41274 42004 42735

Number of Units

Fayetteville, NC

North Carolina

North Carolina Single-Family Housing Market Somemetroareasareclosertoarecoverythanothers

Rank2016

Bo#om20%

20%to40%

40%to60%

60%to80%

Top20%

Relative to Normal

<36%

36%-46%

46%-62%

62%-84%

84%<

Multifamily Housing StartsLevelingoff

1995-2003 331,000 “Normal”2014 355,0002015 395,000 11%2016 393,000 -1%2017 360,000 -8%2018 354,000 -2%2019 344,000 -3%

Source:CensusBureauandNAHBforecast

0

50

100

150

200

250

300

350

400

450

500

550

3/31/00 3/31/04 3/31/08 3/31/12 3/31/16 9/30/06 1/31/08 4/30/09 7/31/10 11/30/11 3/31/13 6/30/14 9/30/15 1/31/17 4/30/18 7/31/19

Trough to Current:4th Q 09 = 82,0003rd Q 17 = 324,000

+295%

2017Q3:98% of

“Normal”

Thousands of units, SAAR

76% fall

Avg=344,000

2019Q4: 104% of “Normal”

Multifamily Building Permits –

0

7,500

15,000

22,500

30,000

12/31/90 12/31/92 12/31/94 12/31/96 12/31/98 12/31/00 12/31/02 12/31/04 12/31/06 12/31/08 12/31/10 12/31/12 12/31/14 12/31/16

Number of Units

Fayetteville, NC

North Carolina

Residential RemodelingStrongmarketcondiJons

0

75

150

225

300

3/31/94 3/31/99 3/31/04 3/31/09 3/31/14 3/31/19 1/31/04 8/31/05 3/31/0711/30/087/31/10 2/29/12 9/30/13 4/30/1512/31/168/31/18

Billions, SAAR

Adjusted

Actual

Year Percent Change2016 11%2017 17%2018 7%2019 3%

Source:CensusBureauandNAHBforecast.

Homeownership

Geography of Homeownership

Alaska

Hawaii

HomeownershipRatesintheU.S.byCounty

Determinants of Homeownership

NAHBEconomicAnalysis

Importantfactorsforcountylevelanalysis:• Age• Marriage• Localhomecosts• Localincomes

Determinants of HomeownershipModelingResults

Increaseaverageageincountyby5years• Adds3percentagepointstorate

Increaseshareofmarriedhouseholdsby10%• Added5.1percentagepointstorate

Increaselocalincomesby$10,000• Adds0.6percentagepointstorate

Decreasehousingcostsby$75,000• Adds4.1percentagepointstorate

Policy ImplicationsEconomic/SocialPolicyThatPromoteHousing

Provideaffordablehousing(rentalandowned)foryoungpeoplesotheycandeveloproots

Tax/economicpolicythatdoesn’tdiscouragemarriage

Incomegrowthisalwaysgood

Reducecostofhousing• Lowerregulatorycosts(up29%overlast5years)

Regulatory Costs Rising – Up 29% Totaleffectofbuildingcodes,landuse,environmentalandotherrules

Thank youQues%[email protected]@dietz_econ

eyeonhousing.orghousingeconomics.com

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Policy and Pricing - Constant Contact · Multifamily Housing Starts Leveling oﬀ 1995-2003 331,000...

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