Real Estate 2014 Housing Outlook Wells Fargo

This report is available on wellsfargo.com/economics and on Bloomberg WFRE.

February 10, 2014

Economics Group

Diminished Expectations for Housing in 2014 Surprisingly weak new home sales figures for December and downward revisions to the prior two months have lowered expectations for housing in 2014. Despite diminished expectations, we do not believe the underlying fundamentals of the housing recovery have suddenly taken a turn for the worse. We have long held that the housing recovery would be a long, difficult slog and now that investors appear to be backing away from the market, it has become abundantly clear how modestly the underlying fundamentals have actually improved. Sluggish job and income growth have weighed on household formation and encouraged a larger proportion of households to rent rather than buy a home. We see this trend gradually shifting as the economy moves to firmer ground, but the shift will be gradual and doubts will periodically resurface when bad weather or unsettling political events send chills throughout the economy.

December’s disappointing new homes sales figures and the continuing slide in pending home sales is all the more disappointing because there has been so much positive anecdotal evidence that home sales and new home construction were set to improve. Home builder confidence has been gradually improving. The NAHB/Wells Fargo Home Builders’ Index fell 1 point to 56 in January, as both the present and future sales indices fell slightly. The overall index, however, remains above its October and November level and improved over the course of the year. Many builders also reported rising order backlogs at the end of 2013 and are planning to increase land development in 2014. Confidence also seems to be gradually returning to the existing home market, despite the recent slide in pending home sales. With home prices rising nearly 12 percent over the past year, more homeowners now feel comfortable putting their homes on the market. Existing home inventories have risen from their historic lows, and homes are selling relatively quickly across much of the county.

Figure 1

Figure 2

Source: NAR, CoreLogic, NAHB, U.S. Dept. of Commerce and Wells Fargo Securities, LLC

0

10

20

30

40

50

60

0

10

20

30

40

50

60

Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14

Total Distressed: Dec @ 14.0%

NAHB Housing Market Index: Jan @ 56.0

NAHB Housing Market Index & Distressed Sales

62%

64%

66%

68%

70%

-10%

-5%

0%

5%

10%

87 89 91 93 95 97 99 01 03 05 07 09 11 13

CoreLogic National Home Price Index vs. Homeownership RateYear-over-Year Percent Change, Rate

CoreLogic HPI: Q4 @ 2.7% (Left Axis)

Homeownership Rate: Q4 @ 65.2% (Right Axis)

Special Commentary

Mark Vitner, Senior Economist [email protected] ● (704) 410-3277

Anika R. Khan, Senior Economist [email protected] ● (704) 410-3271

Housing Chartbook: February 2014

Housing Chartbook: February 2014 WELLS FARGO SECURITIES, LLC February 10, 2014 ECONOMICS GROUP

2

Sluggish Household Formations Continue to Weigh on Housing Demand

The most recent data on residential vacancies and homeownership are reflective of the diminished expectations for housing in 2014. The total number occupied housing units increased by an incredibly modest 265,000 in 2013. Once again, all of the growth occurred in rental households, which grew by 315,000. The number of owner occupied homes fell by just under 50,000 during the year. The sluggish pace of household formations is likely due to the shaky recovery in employment and income. Nonfarm payrolls grew by an average of 182,000 jobs a month in 2013 and many of those jobs were in relatively low-paying industries, which weighed on wage and salary growth. We expect hiring to improve in 2014 and are currently looking for job gains to average around 195,000 per month this year. We also expect the quality of jobs to improve, with a larger proportion of new jobs created in higher paying industries.

The rental vacancy rate fell 0.5 percentage points over the past year and ended 2013 at 8.2 percent. The homeowner vacancy rate rose 0.2 percentage points over the past year to 2.1 percent, however, with the number of vacant homes for sale rising by 92,000 units. The drop in the rental vacancy rate reflects tightening rental markets across much of the country, with the biggest declines coming in the Northeast and Midwest. The West remains the tightest market, however, with a rental vacancy rate at just 6.3 percent. The drop in residential vacancy rates has lifted rents across the country and made homeownership relatively more attractive.

There is mounting evidence that the nine-year slide in the homeownership rate is nearing an end. The homeownership rate was unchanged in the fourth quarter at 65.1 percent on a seasonally-adjusted basis, which is where it has been for the past three quarters. The rate had peaked at 69.0 percent back in the fourth quarter of 2004.

We have slightly lowered our forecast for 2014 and 2015 to reflect the lower yearend home sales and new home construction figures. Sales of new homes are expected to rise 19.4 percent to 510,000 units in 2014, while sales of existing home rise 4.5 percent to 5.3 million units. With sales improving, new single-family starts should rise 19 percent in 2014 and by nearly 25 percent the following year. Overall housing starts are expected to rise nearly 16 percent to 1.07 million units in 2014 and another 14 percent to 1.22 million units the following year.

The gradual ramp up in new home construction will keep new home inventories relatively lean, which means new home prices will likely once again post gains well above their historic norm. We look for the median price of a new home to rise 4.6 percent in 2014 and look for median price of existing homes to rise 4.0 percent. In addition to tight inventories, new home prices are also being bolstered by rising construction costs and higher lot prices. Home price measures from Case-Shiller and CoreLogic will likely post somewhat larger gains but the pace of home price appreciation is expected to moderate in all measures, as more new and existing homes come on the market.

Figure 3

Figure 4

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

66 70 74 78 82 86 90 94 98 02 06 10

U.S. Homeowners vs. RentersAnnual Change in Occupied Units, In Thousands

Renters: 2013 @ 525.5 Thousand

Homeowners: 2013 @ -76.5 Thousand

Series Break 1981

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Thousands

Housing StartsMillions of Units

Multifamily Starts

Multifamily Forecast

Single-family Starts

Single-family Forecast

Forecast

There is mounting evidence that the 9 year slide in the homeownership rate is nearing an end.


3

2008

2009

2010

2011

2012

2013

2014

2015

Real GDP,

perc

ent

change

-0.3

-2.8

2.5

1.8

2.8

1.9

2.6

2.9

Nonfa

rm E

mplo

ym

ent,

perc

ent

change

-0.6

-4.4

-0.7

1.2

1.7

1.6

1.6

1.7

Unem

plo

ym

ent

Rate

5.8

9.3

9.6

8.9

8.1

7.4

6.7

6.3

Hom

e C

onstr

uction

Tota

l Housin

g S

tart

s,

in t

housands

905.5

553.9

586.9

608.8

780.6

923.4

1,1

00.0

1,2

50.0

Sin

gle

-Fam

ily S

tart

s,

in t

housands

622.0

445.0

471.1

430.5

535.3

617.9

750.0

880.0

Multifam

ily S

tart

s,

in t

housands

283.5

108.9

115.8

178.3

245.3

305.5

340.0

370.0

Hom

e S

ale

s

New

Hom

e S

ale

s,

Sin

gle

-Fam

ily,

in t

housands

485.0

374.0

321.0

305.0

369.0

427.0

520.0

630.0

Tota

l Exis

ting H

om

e S

ale

s,

in t

housands

4,1

10.0

4,3

40.0

4,1

90.0

4,2

60.0

4,6

50.0

5,0

73.0

5,3

00.0

5,5

00.0

Exis

ting S

ingle

-Fam

ily H

om

e S

ale

s,

in t

housands

3,6

60.0

3,8

70.0

3,7

08.0

3,7

87.0

4,1

27.0

4,4

70.0

4,6

70.0

4,8

50.0

Exis

ting C

ondom

iniu

m &

Tow

nhouse S

ale

s,

in t

housands

450.0

464.0

474.0

477.0

528.0

603.0

630.0

650.0

Hom

e P

rices

Media

n N

ew

Hom

e,

$ T

housands

232.1

216.7

221.8

227.2

245.2

265.8

272.5

279.5

Perc

ent

Change

-6.4

-6.6

2.4

2.4

7.9

8.4

2.5

2.6

Media

n E

xis

ting H

om

e,

$ T

housands

198.1

172.5

172.9

166.1

176.6

198.1

205.0

210.0

Perc

ent

Change

-9.5

-12.9

0.2

-3.9

6.3

12.2

3.5

2.4

FHFA (

OFHEO

) Hom

e P

rice I

ndex (

Purc

h O

nly

), P

ct

Chg

-7.8

-5.6

-3.0

-4.1

3.4

7.8

3.8

2.7

Case-Shiller

C-10 H

om

e P

rice I

ndex,

Perc

ent

Change

-16.7

-12.9

2.1

-3.5

0.3

12.2

8.1

3.3

Inte

rest

Rate

s -

Annual Avera

ges

Prim

e R

ate

4.8

83.2

53.2

53.2

53.2

53.2

53.2

53.4

4

Ten-Year

Tre

asury

Note

3.6

63.2

63.2

22.7

81.8

02.3

53.1

03.4

6

Conventional 30-Year

Fix

ed R

ate

, Com

mitm

ent

Rate

6.0

45.0

44.6

94.4

63.6

63.9

84.8

05.0

5

One-Year

ARM

, Eff

ective R

ate

, Com

mitm

ent

Rate

5.1

84.7

13.7

93.0

32.6

92.6

12.7

02.9

0

Fore

cast

as o

f: F

ebru

ary

10,

2014

Sourc

e:

Federa

l R

eserv

e B

oard

, FH

FA

, M

BA

, N

AR

, S

&P,

U.S

. D

epart

ment

of

Com

merc

e,

U.S

. D

epart

ment

of

Labor

and W

ells F

arg

o S

ecuri

ties,

LLC

Na

tio

na

l H

ou

sin

g O

utl

oo

k

Forecast


4

Mortgages

§ Following a spike in mortgage rates, applications for mortgages to purchase a home fell 18.5 percent from their summer peak before rebounding over the past few weeks. The recent improvement provides a hint that the recent soft housing data may be due to unseasonably cold weather. The gain in purchase applications foreshadows a modest rebound in home sales.

§ Rising mortgage rates over the balance of this year should not significantly impede affordability but will shift the mix of home sales toward smaller and less expensive homes.

§ Refinance applications have also been weak in recent months and are down more than 70 percent from their mid-2012 peak.

Source: Mortgage Bankers Association, FHLMC, U.S. Department of Commerce, Federal Reserve and Wells Fargo Securities, LLC

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%0

200

400

600

800

1,000

1,200

1,400

1,600

90 92 94 96 98 00 02 04 06 08 10 12 14

New Home Sales vs. 30-Year Mortgage RateThousands; SAARFHLMC Conventional Fixed Rate Mortgage

New Home Sales: Dec @ 414,000 (Left Axis)

30-Year Fixed Mortg. Rate: Feb @ 4.2% (Inverted Right Axis)

100

125

150

175

200

225

250

275

300

100

125

150

175

200

225

250

275

300

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Conventional Mortgage to 10-Year Treasury SpreadBasis Points

Mortgage Spread: Feb @ 159 bps

0

100

200

300

400

500

0

100

200

300

400

500

92 94 96 98 00 02 04 06 08 10 12 14

Mortgage Applications for PurchaseSeasonally Adjusted Index, 1990=100

Weekly Figure: Jan-31 @ 180.5

Down From 187.6 on Jan-24

8-Week Average Down 9.1% From Same Period Last Year

Mort. Appl.: 8-Week Average: Jan 31 @ 179.1

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Apr 07 Apr 08 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13

Residential Loan Standards and DemandPrime Mortgages, Net Percent of Banks Reporting Change

Tightening Standards: Q4 @ -8.7%

Reporting Stronger Demand: Q4 @ -7.2%

0

2,000

4,000

6,000

8,000

10,000

12,000

0

2,000

4,000

6,000

8,000

10,000

12,000

94 96 98 00 02 04 06 08 10 12 14

Mortgage Applications for Refinancing4-Week Moving Average, Seasonally Adjusted

Weekly Figure: Jan-31 @ 1,693Up from 1,645 on Jan-244-Week Average: Jan-31 @ 1,5584-Week Average Down 63.3% from Same Period Last Year


5

Single-Family Construction

§ Following two straight monthly gains, single-family starts dropped 7 percent in December. Although swings in the monthly data are expected during the seasonally slow winter months, non-seasonally adjusted figures plummeted more than 17 percent in December.

§ We suspect the dip in starts is weather-related, which suggests construction activity may remain soft through January and February.

§ The more forward-looking single-family permits data have also been disappointing. Single-family permits were down 4.8 percent in December and have risen just 4.5 percent over last year.

Source: U.S. Dept. of Commerce, National Association of Realtors, NAHB and Wells Fargo Securities, LLC

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

94 96 98 00 02 04 06 08 10 12 14

Existing & New Single-Family Home SalesIn Millions, Seasonally Adjusted Annual Rate

New Home Sales: Dec @ 414 Thousand (Left Axis)

Existing Home Sales: Dec @ 4.3 Million (Right Axis)

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Thousands

Single-Family Housing StartsSAAR, In Millions, 3-Month Moving Average

Single-family Housing Starts: Dec @ 661K

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

90 92 94 96 98 00 02 04 06 08 10 12 14

Thousands

Single-Family Building Permits SAAR, In Millions, 3-Month Moving Average

Single-family Building Permits: Dec @ 624K

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

87 89 91 93 95 97 99 01 03 05 07 09 11 13

Expected Single-Family Home SalesPercent, NAHB Housing Market Index

In the Next 6 Months: Jan @ 60.0%

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

87 89 91 93 95 97 99 01 03 05 07 09 11 13

Single-Family Housing Completions Seasonally Adjusted Annual Rate, In Millions

Single-family Housing Completions: Dec @ 550K


6

Multifamily Construction

§ Despite summer slowdown, multifamily starts are running nearly 25 percent ahead of last year’s pace, reaching the highest level in seven years in 2013. Multifamily construction accounts for a third of total housing starts and is expected to continue to grow this year, albeit at a more modest pace.

§ Multifamily starts are expected to rise only modestly in coming years as the supply of newly completed units begins to run ahead of demand and sluggish income gains limit rent growth. Even with the dynamics shifting, the apartment market appears set for several years of gains.

Source: U.S. Dept. of Commerce, REIS Inc. and Wells Fargo Securities, LLC

0

50

100

150

200

250

300

350

400

450

0

50

100

150

200

250

300

350

400

450

90 92 94 96 98 00 02 04 06 08 10 12 14

Multifamily Housing StartsSAAR, In Thousands, 3-Month Moving Average

Multifamily Housing Starts: Dec @ 340K

0

100

200

300

400

500

600

0

100

200

300

400

500

600

90 92 94 96 98 00 02 04 06 08 10 12 14

Multifamily Building Permits SAAR, In Thousands, 3-Month Moving Average

Multifamily Building Permits: Dec @ 390K

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

94 96 98 00 02 04 06 08 10 12 14

Private Multifamily Construction Spending Percent

3-Month Annual Rate: Dec @ 23.3%

Year-over-Year Percent Change: Dec @ 27.3%

-75

-50

-25

0

25

50

75

100

2%

3%

4%

5%

6%

7%

8%

9%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Apartment Supply & DemandPercent, Thousands of Units

Apartment Net Completions: Q4 @ 41,651 Units (Right Axis)

Apartment Net Absorption: Q4 @ 50,627 Units (Right Axis)

Apartment Vacancy Rate: Q4 @ 4.1% (Left Axis)

-1.6%

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%

1.2%

1.6%

-1.6%

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%

1.2%

1.6%

2006 2007 2008 2009 2010 2011 2012 2013

Apartment Effective Rent GrowthQuarter-over-Quarter Percent Change

Apartment Effective Rent Growth: Q4 @ 0.8%


7

Buying Conditions

§ With the Fed winding down its unprecedented asset purchase program, many are concerned that rising long-term rates could derail the housing recovery. With the summer spike in mortgage rates and rise in home prices, housing affordability has edged lower over the past year. First-time home buyers, which now account for an exceptionally small portion of sales, are particularly sensitive to rising mortgage rates.

§ Tight lending conditions and investors paying all-cash for properties have played the largest role in keeping first-time home buyers on the sidelines. According to the latest Senior Loan Officer Survey, few banks reported any change in lending standards or demand.

Source: CoreLogic, S&P, Federal Reserve, NAR, U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities, LLC

80

100

120

140

160

180

200

220

80

100

120

140

160

180

200

220

92 94 96 98 00 02 04 06 08 10 12 14

Housing Affordability, NAR-Home Sales Base = 100

Housing Affordability Index: Nov @ 170.3

6-Month Moving Average: Nov @ 164.9

50

70

90

110

130

150

170

190

50

70

90

110

130

150

170

190

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

U.S. Real Home PricesIndex, Jan. 2000=100, Not Seasonally Adjusted

U.S. Real Home Prices: Nov @ 118.2

Trough Trend

* CoreLogic HPI Deflated with CPI Less Shelter

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Apr 07 Apr 08 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14

Net Percent of Banks Tightening StandardsNontraditional Mortgages

Nontraditional Mortgages: Q1 @ 8.6%

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.8

1.0

1.2

1.4

1.6

1.8

2.0

87 89 91 93 95 97 99 01 03 05 07 09 11 13

S&P Case-Shiller Home Price Index P/E RatioJanuary 1987=100

S&P Case-Shiller P/E Ratio: Nov @ 1.28

S&P Case-Shiller C-10 Home Price Index Divided by CPI Owners' Equivalent Rent

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

85 88 91 94 97 00 03 06 09 12

Occupied Housing UnitsYear-over-Year Percent Change

Owner Occupied: Q3 @ -0.2%

Renter Occupied: Q3 @ 1.4%


8

New Home Sales

§ Reflecting unseasonably cold weather, new-home sales dropped more than expected in December to a 414,000-unit pace and sales for the previous three months were revised lower. The weaker new home sales data are at odds with improving builder sentiment.

§ Although inventories remain exceptionally tight, they are 15 percent higher than one year ago. Completions may have been slowed by unseasonably wet weather. Units “not started” and “under construction” have seen a meaningful increase over the past year.

§ Sales of new homes below $150,000 rose in December, but activity in this segment has been a weak spot during the past year.

Source: U.S. Department of Commerce, National Association of Realtors and Wells Fargo Securities, LLC

100

150

200

250

300

350

400

450

500

550

600

100

150

200

250

300

350

400

450

500

550

600

97 99 01 03 05 07 09 11 13

Inventory of New Homes for SaleNew Homes for Sale at End of Month, In Thousands

New Homes for Sale: Dec @ 171,000

2

4

6

8

10

12

14

2

4

6

8

10

12

14

90 92 94 96 98 00 02 04 06 08 10 12 14

Months' Supply of New Homes Seasonally Adjusted

Months' Supply: Dec @ 5.0

100

300

500

700

900

1,100

1,300

1,500

100

300

500

700

900

1,100

1,300

1,500

89 91 93 95 97 99 01 03 05 07 09 11 13

New Home SalesSeasonally Adjusted Annual Rate, In Thousands

New Home Sales: Dec @ 414,000

3-Month Moving Average: Dec @ 440,667

0

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

New Home SalesNew Homes Sold During Month, 2002=100

South: Dec @ 62.7

Midwest: Dec @ 33.5

West: Dec @ 43.2

Northeast: Dec @ 43.3

$100

$150

$200

$250

$300

$100

$150

$200

$250

$300

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Median New & Existing Home Sale PricesIn Thousands, Single-Family

Median New Sales Price: Dec @ $270,200

Median Existing Sales Price: Dec @ $197,900


9

Existing Home Sales

§ Existing home sales rebounded in December to a 4.87 million-unit pace. Over the last year, all-cash transactions have played a large role in overall sales activity. Although this activity has helped fuel the housing recovery by clearing up foreclosures and short sales, the spike in prices for lower priced homes has pushed many potential first-time home buyers to the sidelines. Investor purchases have shown signs of pulling back more recently, however.

§ Listed inventories fell to 1.86 million units, but we are in the seasonally slow period of the year. We will get a better idea of the pace of activity this spring, when the bulk of for-sale inventory tends to come on the market.

Source: National Association of Realtors, U.S. Department of Commerce, CoreLogic and Wells Fargo Securities, LLC

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Existing Home Resales Seasonally Adjusted Annual Rate - In Millions

Existing Home Sales: Dec @ 4.87 Million

2.0

3.0

4.0

5.0

6.0

7.0

2.0

3.0

4.0

5.0

6.0

7.0

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

Existing Single-Family Home Resales Seasonally Adjusted Annual Rate - In Millions

Existing Home Sales: Dec @ 4.3 Million

3

4

5

6

7

8

9

10

11

12

3

4

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Existing Single-Family Home SupplyIn Months, Seasonally Adjusted

Home Supply: Dec @ 4.6

6-Month Moving Average: Dec @ 4.9

-15%

-10%

-5%

0%

5%

10%

15%

20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

$0-100K $100-250K $250-500K $500-750K $750-1M $1M+

Percent Change in Existing-Home Sales Year-over-Year Percent Change, By Price Range

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

92 94 96 98 00 02 04 06 08 10 12

Single-Family Home InventoryMillions of Units

New Homes: Dec @ 0.17M

Existing Homes: Dec @ 1.64M


10

Home Prices

§ Home price appreciation has begun to moderate due to stronger year-over-year comparison as well as some softening in investor demand. An influx of investors concentrated in the parts of the housing market where prices overshot the most, further exaggerated the turnaround in prices and give the impression that the housing recovery is stronger than it actually is. The underlying fundamentals, such as job growth, income growth and household formations, have improved much more modestly.

§ With investors pulling back and monetary policy set to become progressively less supportive of housing, we expect price appreciation to decelerate to the mid- to low-single digit range.

Source: CoreLogic, NAR, S&P, FHFA, U.S. Department of Commerce and Wells Fargo Securities, LLC

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-12.5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

FHFA Purchase-Only Index, NSABars = Q/Q % Change Line = Yr/Yr % Change

Purchase-Only Index: Q3 @ 2.1% (Right Axis)

Purchase-Only Index: Q3 @ 8.5% (Left Axis)

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-24%

-18%

-12%

-6%

0%

6%

12%

18%

24%

88 90 92 94 96 98 00 02 04 06 08 10 12

S&P Case-Shiller National Home Price Index, NSABars = Q/Q % Change Line = Yr/Yr % Change

National Home Price Index: Q3 @ 3.2% (Right Axis)

National Home Price Index: Q3 @ 11.2% (Left Axis)

-32%

-24%

-16%

-8%

0%

8%

16%

24%

-32%

-24%

-16%

-8%

0%

8%

16%

24%

96 98 00 02 04 06 08 10 12 14

Home PricesYear-over-Year Percentage Change

Median Sale Price: Dec @ $197,900

Median Sales Price 3-M Mov. Avg.: Dec @ 10.1%

FHFA (OFHEO) Purchase Only Index: Nov @ 7.6%

S&P Case-Shiller Composite 10: Nov @ 13.8%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

97 99 01 03 05 07 09 11 13

Median Single-Family Existing Home PriceYear-over-Year Percentage Change

Median Price Change: Dec @ 9.8%

6-Month Moving Average: Dec @ 11.2%

Median Sale Price: Dec @ $197,900

26%

28%

30%

32%

34%

36%

26%

28%

30%

32%

34%

36%

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13

First-Time Home BuyersShare of Existing-Home Sales

Share of Total Existing-Home Sales: Dec @ 27%


11

Renovation and Remodeling

§ The share of owner-occupied homes built more than four decades ago now represent more than 40 percent of total housing stock. Older housing units could bode well for remodeling activity and new construction in the years ahead. Spending on residential improvements accounted for nearly 40 percent of total residential outlays in 2012. Part of the increase reflects investors upgrading formerly distressed properties.

§ Rising home prices has also helped fuel spending on improvements, as homeowners benefitted from rising home equity. The NAHB Remodeling Market Index recently hit its highest level since early 2004.

Source: Joint Center for Housing Studies, U.S. Department of Commerce, NAHB and Wells Fargo Securities, LLC

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Residential InvestmentYear-over-Year Percent Change

Improvements: Q4 @ 7.7%

Res. Investment Ex. Improvements: Q4 @ 16.2%

15

20

25

30

35

40

45

50

55

60

65

15

20

25

30

35

40

45

50

55

60

65

01 02 03 04 05 06 07 08 09 10 11 12 13

NAHB Remoldeling Market IndexIndex, Seasonally Adjusted

Overall Index: Q4 @ 57.0

Future Expectations: Q4 @ 58.0

Backlog of Remodeling Jobs: Q4 @ 59.0

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Residential Investment Billions of Dollars

Other: Q4 @ $6.6 Billion

Brokers' Commissions: Q4 @ $127.1 Billion

Improvements: Q4 @ $177.0 Billion

New Building: Q4 @ $209.5 Billion

1969 or earlier

41%

1970 to 197917%

1980 to 198913%

1990 to 199914%

2000 to 200915%

Share of Owner-Occupied HousingYear Structure Built - 2011

$100

$110

$120

$130

$140

$150

$160

$100

$110

$120

$130

$140

$150

$160

2009 2010 2011 2012 2013 2014

Leading Indicator of Remodeling ActivityIn Billions, 4-Q Moving Total, Harvard Joint Center for Housing Studies

JCHSForecast

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research, Economics & Strategy

(704) 410-1801 (212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 410-3275 [email protected]

Mark Vitner Senior Economist (704) 410-3277 [email protected]

Jay H. Bryson, Ph.D. Global Economist (704) 410-3274 [email protected]

Sam Bullard Senior Economist (704) 410-3280 [email protected]

Nick Bennenbroek Currency Strategist (212) 214-5636 [email protected]

Eugenio J. Alemán, Ph.D. Senior Economist (704) 410-3273 [email protected]

Anika R. Khan Senior Economist (704) 410-3271 [email protected]

Azhar Iqbal Econometrician (704) 410-3270 [email protected]

Tim Quinlan Economist (704) 410-3283 [email protected]

Eric Viloria, CFA Currency Strategist (212) 214-5637 [email protected]

Michael A. Brown Economist (704) 410-3278 [email protected]

Sarah Watt House Economist (704) 410-3282 [email protected]

Michael T. Wolf Economist (704) 410-3286 [email protected]

Zachary Griffiths Economic Analyst (704) 410-3284 [email protected]

Mackenzie Miller Economic Analyst (704) 410-3358 [email protected]

Blaire Zachary Economic Analyst (704) 410-3359 [email protected]

Peg Gavin Executive Assistant (704) 410-3279 [email protected]

Cyndi Burris Senior Admin. Assistant (704) 410-3272 [email protected]

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2014 Wells Fargo Securities, LLC.

Important Information for Non-U.S. Recipients

For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. The content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, not will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes only.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Real Estate 2014 Housing Outlook Wells Fargo

Real Estate

Transcript of Real Estate 2014 Housing Outlook Wells Fargo