Economic and Housing Outlook - NCSHA...Economic and Housing Outlook Sam Khater Chief Economist January 2019. ... Household Wealth Soaring, But Wealth Has Declined for All But Wealthiest

Economic and Housing Outlook

Sam Khater

Chief Economist

January 2019

© Freddie MacCONFIDENTIALEconomic and Housing Research 2

Overview

▪ Economic Growth is Strong, but Growth is Decelerating

▪ Job Market is Tight, but Income Growth Remains Weak and Inequality is

Rising

▪ Home Sales are Declining, but Recently Lower Rates Firming Up Demand

▪ Entry-Level Supply Remains Very Low, Driving Up Prices

▪ Strong Migration to Affordable Markets in the ‘Open West’


-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Economic Growth is Strong, but Likely to Decelerate

Source: US Bureau of Economic Analysis, Freddie Mac January 2019 Economic and Housing Research Outlook

Trend

Growth Rate

Average growth by decade

1970-1979: 3.3%

1980-1989: 3.2%

1990-1999: 3.4%

2000-2009: 1.7%

2010-2017: 2.2%

Re

al E

co

no

mic

Gro

wth


Lowest Unemployment Rate in Decades…

Source: US Bureau of Labor Statistics

0

2

4

6

8

10

12

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Un

em

plo

ym

en

t R

ate

(P

erc

en

t)


…But Until Very Recently, it Has Not Led to Much

Stronger Wage Growth

Source: US Bureau of Labor Statistics

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan-9

0

Fe

b-9

1

Mar-

92

Apr-

93

May-9

4

Jun-9

5

Jul-96

Aug-9

7

Sep-9

8

Oct-

99

No

v-0

0

De

c-0

1

Ja

n-0

3

Fe

b-0

4

Mar-

05

Ap

r-06

May-0

7

Jun-0

8

Jul-09

Aug-1

0

Sep-1

1

Oct-

12

No

v-1

3

De

c-1

4

Jan-1

6

Fe

b-1

7

Mar-

18

Pe

rcen

t C

ha

nge

fro

m Y

ea

r E

arlie

r


Even Fast Growing Employment Segments Have

Struggling Wage Growth…

(60)

(40)

(20)

-

20

40

60

80

100

1990 1994 1998 2002 2006 2010 2014

Employment Growth (in Thousands)

-15%

-10%

-5%

0%

5%

10%

15%

20%

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Earnings Relative to US Average

(30)

(20)

(10)

-

10

20

30

40

50

60

1990 1994 1998 2002 2006 2010 2014

Employment Growth (in Thousands)

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Earnings Relative to US Average

Warehousing & Storage Employment

Food Manufacturing


…Which is Why Income Growth for Lower

Middle Class is Lagging

Note: Bureau of the Census 1967 to 2017 Incomes

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

10th 20th 40th 50th 60th 80th 90th

Cumulative Percent Change in Income Last 50 Years

$14K

$25K$47K

$61K

$78K

$127K

$179K

Income Percentile

Income for Each Segment

Pe

rcen

t C

ha

nge


Household Wealth Soaring, But Wealth Has

Declined for All But Wealthiest Americans

Source: Flow of Funds and Fed Notes “A Wealthless Recovery? Asset Ownership and the Uneven Recovery from the Great Recession

Lisa Dettling, Joanne Hsu and Elizabeth Llanes” Sept, 2018. The 2016 data in the wealth change is the latest available.

-10%

-40%

-22%

-14%

-31%

-35%

-17%

11%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

0-30 31-60 61-90 91-100

Percentile of Income

Percent Change in Real Wealth(by Income Distribution)

2007-2010 (Great Recession)

2007-2016 (Great Recession + Recovery)

0

20

40

60

80

100

120

198

0Q

3

198

2Q

3

198

4Q

3

198

6Q

3

198

8Q

3

199

0Q

3

199

2Q

3

199

4Q

3

199

6Q

3

199

8Q

3

200

0Q

3

200

2Q

3

200

4Q

3

200

6Q

3

200

8Q

3

201

0Q

3

201

2Q

3

201

4Q

3

201

6Q

3

201

8Q

3

Household Wealth ($Trillions)


Home Sales Crested in 2017 and Declined in 2018

Source: NAR and Census

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

19

99

19

99

20

00

20

01

20

02

20

02

20

03

20

04

20

05

20

05

20

06

20

07

20

08

20

08

20

09

20

10

20

11

20

11

20

12

20

13

20

14

20

14

20

15

20

16

20

17

20

17

20

18

Mill

ion U

nits


400

450

500

550

600

650

700

750

800

Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

New Homes(Thousands)

4,800

4,900

5,000

5,100

5,200

5,300

5,400

5,500

5,600

5,700

5,800

Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18

Existing Homes(Thousands)

Home Sales Declined in Most of 2018

Source:National Association of Realtors (NAR)-SA, U.S. Census Bureau (BOC) – SA


Home Sales Weakened After Rates Rose This Year, But

Sales Depend More on the Economy than Rates


Home Sales Activity 12 Months After Large Rate Shocks

80%

85%

90%

95%

100%

105%

110%

115%

Jan 1994 May 2013 Dec 2017 Apr 1999 Feb 1996 Jun 2003

+200 bps

+80 bps

+130 bps

+110 bps

+100 bps+90 bps


Despite the Various Headwinds, Homeownership is Rising,

Especially for Below AMI Borrowers


45

46

47

48

49

50

51

52

53

54

55

75

76

77

78

79

80

81

82

83

84

85

Q1 1

99

4

Q2 1

99

5

Q3 1

99

6

Q4 1

99

7

Q1 1

99

9

Q2 2

00

0

Q3 2

00

1

Q4 2

00

2

Q1 2

00

4

Q2 2

00

5

Q3 2

00

6

Q4 2

00

7

Q1 2

00

9

Q2 2

01

0

Q3 2

01

1

Q4 2

01

2

Q1 2

01

4

Q2 2

01

5

Q3 2

01

6

Q4 2

01

7

Low Income Homeownership is Rising

Above Median Income - L

Below Median Income - R

27

28

29

30

31

32

33

Q1 1

99

4

Q2 1

99

5

Q3 1

99

6

Q4 1

99

7

Q1 1

99

9

Q2 2

00

0

Q3 2

00

1

Q4 2

00

2

Q1 2

00

4

Q2 2

00

5

Q3 2

00

6

Q4 2

00

7

Q1 2

00

9

Q2 2

01

0

Q3 2

01

1

Q4 2

01

2

Q1 2

01

4

Q2 2

01

5

Q3 2

01

6

Q4 2

01

7

Income Homeownership Gap Lowest in Nearly 25 Years


Purchase Applications ‘Soar’ in Early 2019

Source: Freddie Mac and MBA

3.8

4.0

4.2

4.4

4.6

4.8

5.0

200

210

220

230

240

250

260

270

280

290

Purchase Applications Index 30-Year FRM


Large Wave of Entry-Level Buyers Coming…

4.0

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

5.0

18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

Age Cohort

Population by Age Cohort, 2018

Largest Age Cohorts

Num

be

r o

f P

eo

ple

in 2

01

8 (

Mill

ion

s)

Source: U.S. Census Bureau

Median Age

of First Time

Buyer


…But New Housing Supply Remains Low…

Source: Census


…And Entry-Level Supply is a Fraction of Historical

Trends

0

100

200

300

400

500

600

700

800

New Supply of Traditionally Affordable Segments

Manufactured Housing 2 to 4 Single-Family 5 to 19 MultifamilySource: Census

Th

ou

sa

nd

s


Housing is Overvalued and Affordability is

Worsening

Source: Census and NAR

0

50

100

150

200

250

300

350

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Cumulative Growth since 1980 (%)

U.S. Existing single-family

median home price

U.S. median

household income

Max gap

(2005) = 89

points

2017 gap =

53 points


Affordability Gap is Rapidly RisingSupply Gap Between Entry Home Prices and Luxury Home Prices Rapidly Worsening

Source: CoreLogic

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

Ja

n-0

0

Se

p-0

0

Ma

y-0

1

Ja

n-0

2

Se

p-0

2

Ma

y-0

3

Ja

n-0

4

Se

p-0

4

Ma

y-0

5

Ja

n-0

6

Se

p-0

6

Ma

y-0

7

Ja

n-0

8

Se

p-0

8

Ma

y-0

9

Ja

n-1

0

Se

p-1

0

Ma

y-1

1

Ja

n-1

2

Se

p-1

2

Ma

y-1

3

Ja

n-1

4

Se

p-1

4

Ma

y-1

5

Ja

n-1

6

Se

p-1

6

Ma

y-1

7

Ja

n-1

8

Se

p-1

8

Ho

me

Price

In

de

x

Entry Home

Price Index

Luxury Home

Price Index


High Housing Costs Largest Hurdle For The 1.6 Million

Fewer Households Formed Since 2000

Other


-15%

-10%

-5%

0%

5%

10%

15%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

House Price Appreciation(Year over Year Change)

Home Price Growth Decelerates

Source: Freddie Mac House Price Index, NSA

Annual change

2018E 4.7%

2019F 4.1%

2020F 2.7%


Home Price Performance by State –

December 2017 to December 20181

1 The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the value weights are based on Freddie Mac’s single-family

credit guarantee portfolio. Other indices of home prices may have different results, as they are determined using different pools of mortgage loans and calculated

under different conventions. The Freddie Mac House Price Index for the U.S. is a non-seasonally adjusted monthly series. Percent changes were rounded to nearest

whole percentage point

Source: Freddie Mac

≥ 7%

4 to 6%

˂ 0%

0 to 3%

United States: 5.6%Significant Variability by Region and State Since the Peak

7%

AL0%

AK

3%

AR7%

AZ

6%

CA

8%

CO

CT 3%

DC 12%

DE 4%

7%

FL

8%

GA

2%

HI

4%

IA

13%

ID

3%

IL

7%

IN

5%

KSKY 7%

-1%

LA

7%

ME

7%

MI

5%

MN

5%

MO

4%

MS

9%

MT

NC 7%

0%

ND

5%

NE

NJ 3%

4%

NM

12%

NV

5%

NY

7%

OH

4%

OK

4%

OR

5%

PA

RI 7%

6%

SC

6%

SD

TN 5%

5%

TX

9%

UT

4%

VA

6%

WA

7%

WI

2%

WV

5%

WY

3%

VT

MD 3%

6%

NH

MA 4%


Older Millennials Are Migrating to Many

Southern and Western Markets

Source: Census and Freddie Mac

Note: The data tracks the percent change in the share of the 1980 to 1985 birth year cohorts in 2000 and 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

Where Are 31 to 36 Year Old Population Moving To?*

-30%

-25%

-20%

-15%

-10%

-5%

0%

Where Are 31 to 36 Year Old Population Migrating Away From?*


Texas Still Tops Among Large Markets for

Population Growth….

Source: Moody’s

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

10-Year 1-Year

Annual Average Population Growth Rate, Top 100 Markets


The End!

Economic & Housing Research: www.freddiemac.com/research

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@TheSamKhater

Documents

Economic and Housing Outlook - NCSHA...Economic and Housing Outlook Sam Khater Chief Economist January 2019. ... Household Wealth Soaring, But Wealth Has Declined for All But Wealthiest