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The Fed Changes Course
Blue Ridge Home Builders AssociationFebruary 28, 2019
Robert Dietz, Ph.D.NAHB Chief Economist
309,326 311,580 313,874 316,058 318,386320,743 323,071 325,147 327,167
8,025 8,108 8,189 8,262 8,317 8,367 8,414 8,470 8,518
219 221 223 224 226 229 231 234 236*
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
200,000
227,000
254,000
281,000
308,000
335,000
362,000
389,000
United States Virginia Charlottesville, VA
Thousands Thousands
2010 2011 2012 2013 2014 2015 2016 2017 2018
U.S. 0.8% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.6%
Virginia 1.2% 1.0% 1.0% 0.8% 0.7% 0.6% 0.6% 0.6% 0.6%
Charlottesville MSA 0.9% 0.9% 0.8% 0.6% 1.0% 1.1% 1.0% 1.1% 0.8%*
Population GrowthCharlottesville MSA population growing faster than national and statewide rates
Source: U.S. Census Bureau (BOC).* U.S. Census Bureau (BOC): Population Estimates, Projections; Moody's Analytics Estimated and Forecasted
Payroll EmploymentCharlottesville MSA above pre-recession peak
3,789
107
90
95
100
105
110
115
120
125
130
3,000
3,200
3,400
3,600
3,800
4,000
4,200
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
114%
Thousands, SA Thousands, SA
95%
106%
95%
Virginia
Charlottesville, VA
Source: U.S. Bureau of Labor Statistics (BLS).
Existing House Price IndexCharlottesville MSA above pre-recession peak
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
100
120
140
160
180
200
2202000Q1 = 100, SA
United States
Relative to Pre-recession Peak
US Charlottesville
Recession-era Low 81% 83%
Current 114% 102% Charlottesville, VA
Source: U.S. Federal Housing Finance Agency (FHFA).
GDP GrowthEconomic slowdown approaching
Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Q/Q Percent Change, SAAR
Annual Growth
LT avg (‘58-’07) 3.4%
2016 1.6%
2017 2.2%
2018f 2.9%
2019f 2.5%
2020f 1.3%
Expansion is AgingCurrent expansion is 117 months old – second longest
106
92
120
73
0
20
40
60
80
100
120
Dec 1
85
4
Dec 1
85
8
Ju
n 1
861
Dec 1
86
7
Dec 1
87
0
Mar
1879
May 1
885
Ap
r 1
888
May 1
891
Ju
n 1
894
Ju
n 1
897
Dec 1
90
0
Au
g 1
904
Ju
n 1
908
Jan
1912
Dec 1
91
4
Mar
1919
Ju
l 1921
Ju
l 1924
No
v 1
927
Mar
1933
Ju
n 1
938
Oc
t 194
5
Oc
t 194
9
May 1
954
Ap
r 1
958
Fe
b 1
961
No
v 1
970
Mar
1975
Ju
l 1980
No
v 1
982
Mar
1991
No
v 2
001
Trough to Peak, Months
Source: National Bureau of Economic Research, (NBER).
Tight Labor Market
Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast.
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Job Openings Rate
Unemployment Rate
Percent, SA Percent, SA
Lack of labor represents a macro risk
Cumulative Change in Employment by Age Group
-10
-5
0
5
10
15
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Millions of Employees, SA
55 and Older
Under 55
Source: U.S. Bureau of Labor Statistics (BLS).
Mind the Gen-X gap
Fed Funds Rate
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Federal Funds – Top Rate
10-Year Treasury
Source: U.S. Board of Governors of the Federal Reserve System (FRB).
The Easiest Game of Clue …. Ever
“Expansions don’t die of old age. They are murdered.”
Ben Bernanke
Who Killed the Expansion?
The Easiest Game of Clue …. Ever
The Suspects
Who Killed the Expansion?
Professor Plumb Miss Scarlett Mr. Powell
The Easiest Game of Clue …. Ever
The Weapons
Who Killed the Expansion?
Candlestick Lead Pipe Monetary Policy
The Easiest Game of Clue …. Ever
The Room
Who Killed the Expansion?
The BoardroomThe LoungeThe Study
NAHB FedCast
Increase fed funds rate to 2.75% in the first half of the year
“Powell pause” during much of 2019
Possibility of final rate hike during 4th quarter 2019
Slowing of sales of Treasury bond holdings, ongoing drawdown of MBS
30-Year Fixed Rate Mortgage and 10-Year TreasurySome increases ahead but nearing peak rates for the cycle
Source: Federal Reserve and Freddie Mac data and NAHB forecast.
0%
2%
4%
6%
8%
10%
12%
0%
2%
4%
6%
8%
10%
12%
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
October 31,
2016
30-Year Fixed Rate Mortgage
10-Year Treasury
Mortgage Risk Premium
(Difference)
Housing Demand
and Affordability
Consumer Confidence Continues Positive Run
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
20
40
60
80
100
120
140
160
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Index 1985=100, SA
Source: The Conference Board.
Near two-decade high but stock market declines took a toll at end of year
Household Balance Sheets
5.8%
7.2%
5.0%
4.2%
6.7%
6.3% 6.0%
4.9%
5.6%
0
1
2
3
4
5
6
7
8
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mortgage
Consumer
Source: U.S. Board of Governors of the Federal Reserve System (FRB).
% of Disposable Inc., SA
A shift in debt away from mortgages
Consumer DebtRise in student and auto loans
Source: Federal Reserve Bank of New York.
157%
101%
239%
9/30/2008, 100%
99%
0
1
2
3
4
5
6
7
8
0%
50%
100%
150%
200%
250%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Auto Loans
Student Loans
Credit Cards
Other
Total Student Loan Balances
$148 $162 $196 $220 $251 $276 $301 $316 $323 $362 $371 $376 $383 $384$112 $128$155
$174$205
$232$261 $282 $320
$354 $383 $408 $437 $461
$49$56
$70$80
$94$109
$128$142
$167
$188$208
$230$256
$279
$30$36
$48$56
$68$78
$90$97
$111
$125$136
$150$163
$177
$6$8
$12$16
$20$25
$31$35
$43
$50$58
$67$76
$85
0
200
400
600
800
1,000
1,200
1,400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
under 30 30-39 40-49 50-59 60+
Billions of Dollars
Source: New York Fed Consumer Credit Panel / Equifax.
Two-Year Cohort Default Rates
17%
6%5%
29%
18%
15%
0%
5%
10%
15%
20%
25%
30%
35%
Public Two-Year Public Four-Year Private Nonprofit Four-Year
Borrowers Who Graduated
Borrowers Who Did Not Graduate
SOURCE: U.S. Department of Treasury calculations based on National Student Loan Data.
Share of Young Adults Living with Parents
9%
11%
13%
15%
17%
19%
21%
23%
25%
40%
42%
44%
46%
48%
50%
52%
54%
56%
58%
60%
1990 2000 2005 2007 2009 2011 2013 2015 2017
Ages 18 to 24
Ages 25 to 34
Source: US Census 1990, 2000, PUMS, 2000-2017 ACS, PUMS, NAHB Estimates.
Almost doubled
Household Formation
-1,000
-500
0
500
1,000
1,500
2,000Y/Y Change in Household Count, Thousands, NSA
Owner-Occupied
-1,000
-500
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013 2014 2015 2016 2017 2018
Renter-Occupied
Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.
Demand for home ownership strengthening
Homeownership Rate
69.4%
64.4%
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
61%
62%
63%
64%
65%
66%
67%
68%
69%
70%
71%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Percentage, Quarterly, SA
Source: U.S. Census Bureau (BOC): Housing Vacancies & Homeownership.
Nine quarters of growth
Geography of Homeownership
Alaska
Hawaii
Homeownership Rates in the U.S. by County
Homeownership rate for Charlottesville MSA was 64.2%
Determinants of Homeownership
Modeling Results
Increase average age in county by 5 years
• Adds 3 percentage points to rate
Increase share of married households by 10%
• Added 5.1 percentage points to rate
Increase local incomes by $10,000
• Adds 0.6 percentage points to rate
Decrease housing costs by $75,000
• Adds 4.1 percentage points to rate
S&P/Case-Shiller National US Home Price Index
Source: S&P Dow Jones Indices LLC; CoreLogic, Inc. and NAHB forecast.
Price growth slowing
-20
-15
-10
-5
0
5
10
15
20
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Percent Growth, SAAR
Housing Affordability – NAHB/Wells Fargo HOI
Source: NAHB/Wells Fargo Housing Opportunity Index.
78
57
20
30
40
50
60
70
80
90
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
National
The Geography of Housing Affordability-NAHB/Wells Fargo HOICoastal markets least affordable
Source: NAHB/Wells Fargo Housing Opportunity Index (HOI).
Existing Single-Family Home Sales
Source: National Association of Realtors (NAR) and NAHB forecast .
0
1
2
3
4
5
6
7
79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Million Units, SAAR
New Home Sales and Months’ Supply
0
200
400
600
800
1,000
1,200
1,400
1,600
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
0
2
4
6
8
10
12
14
New home sales: Months supply at current sales rate, (mo. SA)
New home sales: New single-family houses sold, (Ths. #, SAAR)
Thousands, SAAR Months Supply, SA
Source: U.S. Census Bureau (BOC).
Single-Family Starts vs Existing Home Sales (1972-present)
Source: NAHB econometric analysis of Census Housing Starts and NAR EHS data
SF starts = 2E-05(EHS)2 + 0.3312(EHS) - 31.104R² = 0.5569
-800
-600
-400
-200
0
200
400
600
800
-2000 -1500 -1000 -500 0 500 1000 1500 2000
Sin
gle
-Fam
ily S
tart
s
Existing Home Sales
43% of these “good” data are post-Great Recession
20% occurrence in green
Supply-Side Factors
Building Materials – Lumber Prices
1/6/2017, 357
582
2/1/2019, 354
$250
$300
$350
$400
$450
$500
$550
$600
2015 2016 2017 2018 2019
$ per thousand board feet
Since January 2017, lumber prices decreased 1%; 63% at peak
Source: NAHB Analysis; Random Lengths Composite Index.
37
LaborLabor shortage continued through 2018
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Job openings rate - Construction
12-month moving average
Source: U.S. Bureau of Labor Statistics (BLS).
Construction Sector ProductivityLagging overall economy
0.4
0.6
0.8
1.0
1.2
1.4
1.6
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Construction Worker Productivity
Overall Worker Productivity
Index, 1993 = 1
Source: U.S. Bureau of Labor Statistics (BLS).
Lending – AD&C Access
Source: Federal Deposit Insurance Corporation.
Loans growing but at a slower rate
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
07 08 09 10 11 12 13 14 15 16 17 18
1-4 unit Residential Construction Loans
Year-over-Year Growth Rates
Millions
LotsHousing Starts (Area) and Low/Very Low Lot Supply (bars)
0%
10%
20%
30%
40%
50%
60%
70%
0
300
600
900
1,200
1,500
1,800
2,100
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Starts (Thousands) Low Supply
Source: Census Bureau and NAHB/Wells Fargo HMI survey.
Median Lot Value and Size
8,560
$47,400
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
8,200
8,400
8,600
8,800
9,000
9,200
9,400
9,600
9,800
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Square Feet
Median Lot Size
(For Sale: Single-Family Detached)
Median Lot Value
(Single-Family Starts)
Lot size declining --- lot value increasing
Source: 2017 Survey of Construction (SOC) and NAHB Economics Estimates.
Regulatory Costs Rising – Up 29% Over 2011-2016Total effect of building codes, land use, environmental and other rules
Regulations - 32% of Multifamily Development Costs
4.8%7.3%
2.3%2.3%4.2%
5.5%4.0%
5.3%3.9%
5.4%5.9%
8.4%
5.2%
7.0%
7.1%
Lower Quartile Average Upper Quartile
Cost increases from changes to buildingcodes over the past 10 yearsDevelopment requirements that go beyondthe ordinaryFees charged when building construction isauthorizedCost of applying for zoning approval
Other (non-refundable) fees charged whensite work beginsCost of complying with OSHA requirements
Others
21.7%*
32.1%
42.6%*
Government Regulations as a Share of Multifamily Development Costs
Note: * For quartiles, all types of costs do not sum to the total.Source: NAHB/Wells Fargo HMI survey.
New NAHB-NMHC research
Construction
Outlook
NAHB/Wells Fargo Housing Market Index
62
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
10
20
30
40
50
60
70
80
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Index Thousands, SAAR
Single-Family Starts
HMI
Lower interest rates stabilize builder confidence
Source: Census Bureau and NAHB/Wells Fargo HMI survey.
Year Units % Change
2015 713,000
2016 785,000 10%
2017 852,000 9%
2018f 876,000 3%
2019f 894,000 2%
2020f 928,000 4%
Single-Family StartsLimited growth as economy slows
Trough to Current:
Mar 09 = 353,000
Nov 18 = 824,000
+133%
Source: U.S. Census Bureau (BOC) and NAHB forecast.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Thousands of units, SAAR
80% fall
Growth in Single-Family Permits
November 2018 YTD vs. November 2017 YTD
Source: U.S. Census Bureau (BOC).
Rank
Decline
Growth rate < U.S.
Growth rate ≥ U.S. (5.1%)
No Changes
New NAHB Home Building Geography Index
Source: NAHB Analysis of Census data (Building Permits and ACS)
New economic geography measure of building conditions
• First index metric is metro areas – third quarter data
Smaller metro areas – core counties (29% of single-family permits)
• Smaller towns like Xenia, Ohio and Darlington, South Carolina
• 9.8% annual growth rate, 7.4% year-over-year
Large metro areas – suburban counties (26% share)
• Fairfax, Virginia
• 4.1% annual growth rate, 3.2% year-over-year
Large metro areas – core counties (18% share)
• Columbus, Ohio and Orange County, California
• 6.5% annual growth rate, 6.8% year-over-year
Smaller metro, outlying areas (8% market share)
• Rural areas near small towns
• 2.7% growth rate, -2.4% year-over-year
49,959
15,625
20,705*1,678
616
968*
0
700
1,400
2,100
2,800
3,500
0
11,000
22,000
33,000
44,000
55,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Number of Units
Single-Family Building Permits – VA and Charlottesville MSA
Charlottesville, VA
Virginia
Source: Census Bureau.
Note: * 2018 permits are projected based on YTD data.
Single-Family Permits 12-Month Growth Rate
Rank
Growth Rate < 0
0 < Growth Rate < U.S. (5.1%)
Growth Rate > U.S. (5.1%)
Source: U.S. Census Bureau (BOC).
Charlottesville
Richmond
Winchester,
VA-WV
Washington-
Arlington-Alexandria,
DC-VA-MD-WV
Virginia Beach-
Norfolk-Newport
News, VA-NC
Lynchburg
Staunton-
Waynesboro
Harrison
-burg
Blacksburg-
Christiansburg-
Radford
Kingsport-Bristol-
Bristol, TN-VA
Typical New Home Size
1600
1700
1800
1900
2000
2100
2200
2300
2400
2500
2600
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
SF Starts: Median Floor Area SF Starts: Median 1 Year MA
Square Feet
Decline after market shift
Source: U.S. Census Bureau (BOC).
Townhouse Market Expanding
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
10
20
30
40
50
60
70
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
SF Starts: Attached
Townhouse Share: 1-Year Moving Average
Thousands, NSA
Source: U.S. Census Bureau (BOC).
24% annualized growth rate
Custom Home Building Market
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
20
40
60
80
100
120
140
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Owner/Contractor Built Units
Owner/Contractor Built Share: 1-year Moving Average
Thousands, NSA
Source: U.S. Census Bureau (BOC).
Flat market conditions
Single-Family Built-for-Rent a Niche Market
0%
1%
2%
3%
4%
5%
6%
7%
0
2
4
6
8
10
12
14
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Built for Rent Built for Rent Share 1-Year Moving Average
Thousands, NSA
Share of Single-Family
Year Built for Rent
2015 3.67%
2016 4.32%
2017 4.36%
Percentage
Source: U.S. Census Bureau (BOC).
Modular ConstructionModular Share of All Single-family Homes Started in 2017
7.4%
4.8%
3.0%
1.7%1.3%
1.1%0.8%
0.3%0.1%
MiddleAtlantic
NewEngland
East NorthCentral
SouthAtlantic
West NorthCentral
East SouthCentral
Mountain West SouthCentral
Pacific
U.S. Overall: 13,254/847,830= 1.6%
Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.
Panelized ConstructionPanelized/Precut Share of All Single-family Homes Started in 2017
5.4%
2.9%2.7%
1.8% 1.7%
1.0% 1.0%0.7%
0.4%
East SouthCentral
MiddleAtlantic
SouthAtlantic
West NorthCentral
Pacific East NorthCentral
West SouthCentral
NewEngland
Mountain
U.S. Overall: 16,138/847,830 = 1.9%
Source: NAHB tabulation of data from the Survey of Construction, U.S. Census Bureau.
Multifamily Housing StartsLeveling off
Year Units % Change
2015 394,000
2016 393,000 0%
2017 356,000 -9%
2018f 386,000 8%
2019f 379,000 -2%
2020f 384,000 1%
Source: U.S. Census Bureau (BOC) and NAHB forecast.
0
50
100
150
200
250
300
350
400
450
500
550
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Trough to Current:
4th Q 09 = 82,000
3rd Q 18 = 357,000
+335%
Thousands of units, SAAR
76% fall
Avg=344,000
14,230
4,843
10,982*
1,185
82
371*
0
600
1,200
1,800
2,400
3,000
0
3,000
6,000
9,000
12,000
15,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Number of Units
Multifamily Building Permits – VA and Charlottesville MSA
Charlottesville, VA
Virginia
Source: Census Bureau.
Note: * 2018 permits are projected based on YTD data.
Residential RemodelingGrowth ahead but softening
0
25
50
75
100
125
150
175
200
225
250
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Billions, SAAR
Adjusted
Actual
Year Percent Change
2016 10%
2017 19%
2018f 10%
2019f 4%
2020f 2%
Source: U.S. Census Bureau (BOC) and NAHB Forecast.
The Age of the Housing StockTypical home is almost 40 years old
30%
11%
16%
14%16%
13%
37%
14% 13%15% 16%
5%
48 years old or more 38-47 28-37 18-27 8- 17 7 years old or less
0%
5%
10%
15%
20%
25%
30%
35%
40%
2007 2017
Rising Population Entering Housing Demand Years
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100+
Avg=4.3
Millions
Gen Z:
Born After 1997Gen X:
Born 1965-1980
Baby Boomers:
Born 1946-1964
Silent
Generation:
Born 1928-1945
v
Head
sh
ip r
ate
s i
ncre
ase f
rom
15%
to
45%
Greatest
Generation:
Born
Before 1928
Millennials:
Born 1981-1997
