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Viral Recession and Housing
Home Builders Association of VirginiaApril 14, 2020
Robert Dietz, Ph.D.NAHB Chief Economist
Viral Uncertainty
Hard to model the effects of a virus outbreak
Virus: no vaccine, easily spread, severity rate
2-months, 2-quarters, and 2-years
Stock market declines
Supply-chain impacts
Declining consumer confidence
Sharp mid-year decline, bounce back after
Two-Month Considerations
Event, school and business closures
Test for the @home economy
Consumption: 40% goods economy; 60% services (half social)
Hospital limits (beds and machines) – flatten the curve
Economy pause is only a pause to ramp up medical infrastructure
Medically-induced coma for the economy (recession)
Home building and remodeling as “essential services”
Flatten the Curve….But Raise the Line Too!!!
Two-Quarter Considerations
Virus cases subside
Financial markets stabilize
Terrible 2Q, decline in 3Q, rebound in 4Q
Aggressive fiscal policy
Federal Reserve finances restoration and recovery
Spring forward after the Fall
Two-Year Considerations
Vaccine
Interest rate normalization (low until then)
Baby boom???
Checkerboard pauses?
Changes for how we live?
GDP Growth – Sharp RecessionVirus mitigation will bring on a significant recession with declines in Q1, Q2 and Q3
Source: U.S. Bureau of Economic Analysis (BEA) and NAHB forecast.
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Annual Growth
LT avg (‘58-’07) 3.4%
2018 2.9%
2019 2.3%
2020f -4.6%
2021f 4.6%
2022f 3.2%
Q/Q Percent Change, SAAR
Sudden Labor Market Reversal
Source: U.S. Bureau of Labor Statistics (BLS) and NAHB forecast.
2%
4%
6%
8%
10%
12%
14%
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 21 22
Job Openings Rate
Unemployment Rate
Percent, SA Percent, SA
Unemployment is rising sharply but starts recovery during second half of 2020
Fed Funds Rate – Fed All In on Supporting Economy
Source: U.S. Board of Governors of the Federal Reserve System (FRB).
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 20
Federal Funds – Top Rate
10-Year Treasury
Lender and buyer of last resort
30-Year Fixed Rate Mortgage and 10-Year TreasuryLow interest rates thanks to aggressive Federal Reserve action
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 21 22
October 31,
201630-Year Fixed Rate Mortgage
10-Year Treasury
Consumer Confidence Dropped Sharply in March
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 19 20
Index 1985=100, SA
Source: The Conference Board.
Declines ahead
Supply-Side Factors
Virus Related Business Challenges
Source: NAHB Survey
NAHB/Wells Fargo HMI Special Analysis
79%
20%
1%
0% 20% 40% 60% 80% 100%
No
Yes to a minor extent
Yes to a major extent
21% builders report supply disruptions due to coronavirus concerns in other countries
Source: NAHB/Wells Fargo HMI Survey, Special Analysis, March 2020.
Share of Building Materials Imports in 2019
31.0%
16.1%
16.0%
6.0%
3.7%
3.5%
2.7%
2.2%
2.1%
1.6% 15.2%
China
Mexico
Canada
Taiwan
Germany
Japan
South Korea
Thailand
Italy
Brazil
Others
Totally $65 billion imports in 2019 and 31% from China
Source: NAHB Analysis of U.S. International Trade Commission data.
Building Materials – Lumber Prices
1/5/2018, 436
582
3/27/2020, 381
$250
$300
$350
$400
$450
$500
$550
$600
2015 2016 2017 2018 2019 2020
$ per thousand board feet
Lumber prices rose 63% to a peak from January 2017; declined 13% since January 2018
Source: NAHB Analysis; Random Lengths Composite Index
Residential Construction as an “Essential” Business: April 9
Source: NAHB; https://www.nahb.org/Advocacy/Industry-Issues/Emergency-Preparedness-and-Response/Coronavirus-Preparedness/Stay-on-the-Jobsite
NAHB/Wells Fargo Housing Market Index (HMI)
72
0
200
400
600
800
1,000
1,200
0
10
20
30
40
50
60
70
80
2013 2014 2015 2016 2017 2018 2019 2020
Index Thousands, SAAR
Single-Family Starts
HMI
Sharp drop for HMI in April
Source: Census Bureau and NAHB/Wells Fargo HMI survey
Construction
Outlook
Multifamily Housing StartsSharp decline and a return to trend
Year Units % Change
2017 357,000 -9%
2018 377,000 6%
2019 404,000 7%
2020f 356,000 -12%
2021f 406,000 14%
2022f 411,000 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 21 22
Trough to Current:
4th Q 09 = 82,000
4th Q 19 = 470,000
+474%
Thousands of units, SAAR
76% fall
Avg=344,000
Residential RemodelingRemodeling market weakening along with other housing metrics, existing home sales
0
50
100
150
200
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 21 22
Billions, USD, SAAR
Adjusted
Actual
Year Percent Change
2017-2019 Avg 5%
2020f -9%
2021f 9%
2022f 4%
Source: U.S. Census Bureau (BOC) and NAHB forecastNote: In the analysis, 1-year moving average is used for adjusted data to smooth the trend
Year Units % Change
2017 852,000 8%
2018 873,000 2%
2019 894,000 2%
2020f 728,000 -19%
2021f 923,000 27%
2022f 1,018,000 10%
Single-Family StartsSharp declines in the near-term due to coronavirus mitigation efforts
Trough to Current:
Mar 09 = 353,000
Feb 20 = 1,072,000
+204%
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 21 22
80% fall
Thousands of units, SAAR
Single-Family Starts by Decade: Population Adjusted
Source: Census Bureau and NAHB analysis
47,998
53,138
41,588 41,710 41,671
21,288
0
10,000
20,000
30,000
40,000
50,000
60,000
1960s 1970s 1980s 1990s 2000s 2010s
Starts per Million Population (averaged)
New NAHB Home Building Geography Index
Q4 20194-Quarter MA of YOY growth rate:
1.9% in red counties-1.4% in blue counties
Source: NAHB Analysis of Census data (Building Permits)
Red counties represent 45.3% of U.S. population
60.9% of single-family construction takes place in Red Counties
New NAHB Home Building Geography Index
Q4 20194-Quarter MA of YOY growth rate:
24.3% in red counties7.2% in blue counties
Source: NAHB Analysis of Census data (Building Permits)
Blue counties represent 54.7% of U.S. population
68.2% of multifamily construction takes place in Blue Counties
Economic/Housing Conclusions
Currently modeling an 8 week pause for the economy
High level of fear – calm and perspective are needed
Virus spread will end
Baby boom???
Keep in mind the 2-month, 2-quarter, 2-year targets
Very weak mid-year economic performance, bounce back after