Growth Potential and Headwinds for

New Home Construction

NATIONAL ASSOCIATION OF REALTORS
RESIDENTIAL ECONOMIC ISSUES AND TRENDS FORUM
May 14, 2015
Robert Dietz, Ph.D.
Vice President, Tax and Market Analysis
@dietz_econ
www.eyeonhousing.org

Home Construction (Single-Family) Continues to Lag

the Overall Housing Recovery
Why?
Demand is relatively weak
Rental continues to lead
Supply
Production constraints hold back inventory

Presentation
Macroeconomic Conditions
Demand and What Builders are Building
Supply Side Headwinds
Forecasts
Long-Run Optimism for Housing

Macroeconomic Conditions

Real GDP Growth

Weak First Quarters Holding Back Annual Gains

Real Consumption
Growth rate returning to pre-recession levels

Employment Growth
Improving employment growth to continue over 2015 and 2016

Consumer Confidence
Back to pre-recession levels

Household Formations on the Rise?

Uptick in year-over-year change in households
Thousands

Avg: 1.4 million

(12% renters)
Avg: 0.5 million
(130% renters )

Avg: 0.7 million

(128% renters)

Effects on Housing Demand

And What Builders are Building

First-Time Home Buyer Share of Existing Home Sales

First-Time Home Buyer Share of New Home Sales

Homeownership and Marriage

Both declining for Millennials

Composition of Home Construction

80% Typical Single-Family Share
Currently Only 66%

Builders Shifted Production to Higher End of the Market

Custom Building Share Is Elevated

Condo Market Dormant Multifamily Size Lower on Rental Concentration

Single-Family Rental Production Remains Small But Elevated

When First-Time Buyers Come Back Townhouse Market is Leading Indicator

Inventory of New Homes Growing..Slowly

Supply Side Headwinds

The 3 Ls (and 1M)

Labor Supply
A leading challenge for builders

Starts (000s)

Low Supply

Lot Supply
Shortage indicators rise and fall with level of starts, except recently

Lending (AD&C loans)

Tight

Better Worse

But Easing

*SLOS Senior Loan Officer Survey

Building Material Prices

Builders Reporting Increases in Last 6 Months

Building Material Prices

Forecasts

Remodeling Market Index (RMI)

At or above 50 most of past 2+ years

Residential Remodeling
Billions 2009 $, SAAR

Actual
Adjusted

Multifamily Production Index

2+ years at or above 50

Multifamily Housing Starts

Healthy Response from Growth in Renters
1995-2003
2011
2012
2013
2014
2015
2016

331,000 Normal
178,000
247,000
39%
309,000
25%
355,000
15%
333,000
-6%
334,000
0%

2015Q1:
97% of
Normal
Trough to Current:
4th Q 09 = 82,000
1st Q 15 = 333,000
+306%

NAHB/Wells Fargo Housing Market Index

Builders remain optimistic

Single-Family Starts
Continuing to recover
2000-2003
2011
2012
2013
2014
2015
2016

Trough to Current:
Mar 09 = 353,000
Mar 15 = 618,000
+75%

Normal
1,343,000
434,000
537,000
24%
621,000
16%
646,000
4%
704,000
9%
977,000
39%

2015Q1:
47% of Normal

2016Q4:
81%

Positive Long-Run Outlook for Housing

Population by Single-Year of Age

Rising population in prime household formation years
Millions

Born 1979 or later

Born 1965-78

Born 1946-64

Born 1945 or earlier

Total Housing Starts

Expected to normalize by second half of decade
Millions

Thank you to NAR and for your attendance

Questions?
Robert Dietz, Ph.D.
Vice President, Tax and Market Analysis
@dietz_econ
www.eyeonhousing.org