Bond multi 2014 la jolla, ca_apr 2014

BONDMulti 2014 Conference

April 24, 2014

Outlook for the Economy and

Multifamily Housing

Presented by: Bernard M. Markstein

Reed U.S. Chief Economist

About Reed Construction Data

Reed Construction Data is a leading construction

information provider.

We deliver targeted and timely project leads, market intelligence,

marketing solutions and RSMeans cost data to construction

professionals throughout the US and Canada.

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Increase Profits

Drive Growth

Our products and services simplify decision-making and help

organizations:

How we do it: our channels

Our coverage and penetration

Private projects

22% increase year over year

80% acquisition rate

Plans and specs

TOTAL ACTIVE PROJECTS: 15.2% increase over 4 years

130,000 public and private

Non-residential construction information

industry sources

22.9% increase over four years

Plans and specs

Every state and every area in

USA covered including

Alaska and Hawaii

More coverage in

Canadathan anyone in the

construction industry

Our coverage and penetration

7

The U.S. Economy

8

Economic growth – improving, but should be better

Employment growing, but should be faster

Inflation remains moderate, too low?

Washington less of an obstacle, but will wrangling

break out again and hinder basic business?

Federal Reserve has started to taper, when do

interest rates rise?

Overview of the economy

9

Risks to the economy

Spike in interest rates due to Fed unwinding its

Quantitative Easing program too fast

Sharp cuts to federal government spending in the

near term

European government debt default

The euro

Energy (oil) prices

Russia?

10

Construction Outlook

11

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

353-Month Moving Average, Year-over-Year % Change

Reed Total Starts (3-Mo MA YoY)

Source: Reed Construction Data

Shaded area represents recession

Overview of construction

12

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Residential Nonresidential Building Heavy Construction

$ Billions

History

Source: History – U.S. Census Bureau; Forecast – Reed Construction Data

Forecast

Forecast: Construction to improve Construction Spending and its Components

Overview of construction

13

47%

32%

20%

2002

Residential

Nonresidential Building

Heavy Construction

56% 27%

17%

2005

Residential

Nonresidential Building

Heavy Construction

2002 Total - $848 Billion 2005 Total - $1,104 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of construction

14

56% 27%

17%

2005

Residential

Nonresidential Building

Heavy Construction

31%

36%

33%

2010

Residential

Nonresidential Building

Heavy Construction

2005 Total - $1,104 Billion 2010 Total - $805 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of construction

15

38%

33%

29%

2013

Residential

Nonresidential Building

Heavy Construction

2005 Total - $1,104 Billion 2013 Total - $900 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of construction

56% 27%

17%

2005

Residential

Nonresidential Building

Heavy Construction

16

2002 Total - $848 Billion 2013 Total - $900 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of construction

38%

33%

29%

2013

Residential

Nonresidential Building

Heavy Construction

47%

32%

20%

2002

Residential

Nonresidential Building

Heavy Construction

17

Residential construction is

recovering, but from a low level

Single-family housing market is on the mend, but much

further to go before it is back to normal

Multifamily market has largely recovered, but still some

room for growth

Overview of housing

18

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

Low Estimate

(1.4 million starts per year)

Nation’s long-run (trend)

need for the next decade

High Estimate

(1.8 million starts per year)

Total Housing Starts (3-Month Moving Average)

Source: U.S. Census Bureau

Shaded areas represent recession

Overview of housing

19

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

Low Estimate

(1.15 million starts per year)

Nation’s long-run (trend)

need for the next decade

High Estimate

(1.45 million starts per year)

Single-Family Housing Starts (3-Month Moving Average)

Overview of housing

Source: U.S. Census Bureau

Shaded areas represent recession

20

0

50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

Low Estimate

(250,000 starts per year)

Nation’s long-run (trend)

need for the next decade

High Estimate

(350,000 starts per year)

Multifamily Housing Starts (3-Month Moving Average)

Overview of housing

Source: U.S. Census Bureau

Shaded areas represent recession

21

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

High Estimate

(350,000 starts per year)

Nation’s long-run (trend)

need for the next decade

Low Estimate

(250,000 starts per year)

Multifamily Housing Starts (3-Month Moving Average)

Overview of housing

Source: U.S. Census Bureau

Shaded areas represent recession

22

-50

-40

-30

-20

-10

0

10

20

30

40

50

603-Month Moving Average, Year-over-Year % Change

Reed Residential Starts (3-Mo MA YoY)

Overview of housing

Source: Reed Construction Data

Shaded area represents recession

23

0

100

200

300

400

500

600

700

800

02 03 04 05 06 07 08 09 10 11 12 13 14 15

Improvements Single-family Multifamily

$ Billions

Residential Spending Components

Source: History – U.S. Census Bureau; Forecast – Reed Construction Data

History Forecast

Overview of housing

24

0

50

100

150

200

250

300

350

400

450

Single-Family Multifamily Improvements

$ Billions

2006 to 2013 ’14 ’15

Residential Construction Spending

Source: History – U.S. Census Bureau; Forecast – Reed Construction Data

Overview of housing

25

Issues Facing

Housing

26

Headwinds for housing

Builders’ inventory of land for development and

construction is low prices for land rising

Shortages of skilled labor in some markets

Lending standards easing, but still rigorous by

historical standards

Debt burden by young adults—student debt

Fear of homeownership?

27

Changing lending

standards for

residential real

estate loans

28

-20

-10

0

10

20

30

40

50

60

70

80

90

100

Overall (discontinued series) Prime loans

Nontraditional

Sub-prime

Net % of Banks Tightening Standards

for Mortgage Loans Percent

Lending standards

Source: Federal Reserve Board of Governors

Shaded areas represent recession

29

Net % of Banks Tightening Standards

for Commercial Real Estate Loans Percent

Lending standards

-40

-20

0

20

40

60

80

100

Source: Federal Reserve Board of Governors

Shaded areas represent recession

30

Net % of Banks Reporting Stronger Demand

for Commercial Real Estate Loans Percent

Lending standards

-80

-60

-40

-20

0

20

40

60

Source: Federal Reserve Board of Governors

Shaded areas represent recession

31

Would you lend to a person

carrying a large amount of

student debt?

Would you want to borrow

more money if you were

such a person?

The debt burden headwind

32

Headwinds for housing

33

Headwinds for housing

34

Are views about

homeownership

changing ?

35

0

5

10

15

20

25

30

15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

2006

2008

2010

2012

Millions

Head of Household by Age Cohort in 2012

Source: U.S. Census Bureau, American Community Survey (ACS)

Demographics and housing

36

0

5

10

15

20

25

30

15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

Millions

Head of Household by Age Cohort in 2012

Demographics and housing

Source: U.S. Census Bureau, American Community Survey (ACS)

37

0

5

10

15

20

25

30

35

40

45

50

15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

Millions

Population by Age Cohort in 2012

Source: U.S. Census Bureau

Demographics

38

63

64

65

66

67

68

69

70

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Homeownership Rate Percent

Lowest rate:

Q4 1985

63.6%

Peak rate:

Q2 2004

69.4%

65.1%

Demographics and housing

Source: U.S. Census Bureau

Shaded areas represent recession

39

30

31

32

33

34

35

36

37

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Rental Rate Percent

Highest rate:

Q4 1985

36.4%

Lowest rate:

Q2 2004

30.6%

34.9%

Demographics and housing

Source: U.S. Census Bureau

Shaded areas represent recession

40

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Rental Vacancy Rate (SA) Percent

Peak rate:

Q3 2009

10.9%

8.2%

Demographics and housing

Source: U.S. Census Bureau

Shaded areas represent recession

41

Regional Economic

Performance

42 Source: Philadelphia Federal Reserve Bank

Regional economic performance

43 Source: Philadelphia Federal Reserve Bank

Regional economic performance

44

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web www.reedconstructiondata.com

Contact

45

Contact Information and Links

Bernard M. Markstein

Office: 301-588-5190

Mobile: 404-952-3381

b.markstein@reedbusiness.com

U.S. Forecast and Commentary: http://www.reedconstructiondata.com/market-

intelligence/articles/

Blog: http://www.reedconstructiondata.com/market-

intelligence/bernie-markstein/

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