US Residential Construction Outlook_New England Mortgage Expo_Jan 13, 2017

May 7, 2014

U.S. Residential

Construction Outlook

Presented by:

Bernard M. Markstein, Ph.D.

Markstein Advisors

New England Mortgage Expo

Mohegan Sun

January 13, 2017

Markstein Advisors 2


The U.S.

Economy



Economy growing, but should be faster

Employment growing, but should be better

Inflation remains moderate

Federal Reserve raising interest rates: how high,

how fast?

Strong dollar: pluses & minuses

Energy (oil) prices

Overview of the Economy



Washington: A big question mark. How much

cooperation between the new administration and

Congress?

What exactly are the new administration’s economic

agenda? A big unknown

China: slow(er) economic growth impact on world

economy

Europe showing signs of improvement but total

impact of Brexit is an unknown

Overview of the Economy


New England Mortgage Expo Risks to the Economy

Disruptions from increased tariffs/trade war

China

EU – Brexit?

Energy (oil) prices

Interest rates (the Fed)

European government debt default (Greece)

The euro (Greece)

Russia?

Failure to pass needed legislation leads to reduced

federal government spending/shut down



Construction

Overview



47%

32%

20%

2002

Residential

Nonresidential Building

Heavy Construction

53%

29%

18%

2006

Residential


Heavy Construction

2002 Total - $848 Billion 2006 Total - $1,167 Billion

Construction Spending Components

Source: U.S. Census Bureau

Overview of Construction



53%

29%

18%

2006

Residential


Heavy Construction

31%

36%

33%

2010

Residential


Heavy Construction

2006 Total - $1,167 Billion 2010 Total - $809 Billion






53%

29%

18%

2006

Residential


Heavy Construction

40%

34%

26%

2015

Residential


Heavy Construction

2006 Total - $1,167 Billion 2015 Total - $1,112 Billion






47%

32%

20%

2002

Residential


Heavy Construction

40%

34%

26%

2015

Residential


Heavy Construction

2002 Total - $848 Billion 2015 Total - $1,112 Billion






0

200

400

600

800

1,000

1,200

1,400

1,600

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Residential Nonresidential Building Heavy Construction

$ Billions

History

Source: History – U.S. Census Bureau; Forecast – Markstein Advisors

Forecast

Forecast: The Recovery ContinuesConstruction Spending and its Components




Residential

Construction



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 2015 2016

Thousands of Units, SAAR

Nation’s long-run (trend)

need for the next decade

Low Estimate

(1.4 million starts per year)



High Estimate


1.16 million

Total Housing Starts(3-Month Moving Average)


Shaded areas represent recession

Overview of Housing



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 2015 2016




Low Estimate

(250,000 starts per year)



High Estimate

(350,000 starts per year)

337k

Multifamily Housing Starts(3-Month Moving Average)



Overview of Housing



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 2015 2016




Low Estimate




High Estimate


824k

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



Overview of Housing



Rent or Buy?



62

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 16

Percent

Previous

lowest rate:

Q4 1985

63.6%

Peak rate:

Q2 2004

69.4%

63.4%

Homeownership Rate (SA)



Rent vs. Buy



30

31

32

33

34

35

36

37

38

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

Percent

Previous

peak rate:

Q4 1985

36.4%

Lowest rate:

Q2 2004

30.6%

36.6%

Rental Rate (SA)



Rent vs. Buy



Rental Vacancy Rate (SA)



4.5

5.5

6.5

7.5

8.5

9.5

10.5

11.5

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

6.7%

Peak rate:

Q3 2009

10.9%

Lowest rate:

Q3 1981

4.9%

Rent vs. Buy



Issues Facing

Housing



Builders’ inventory of land for development and

construction is low prices for land rising

Shortages of skilled labor in many markets

Lending standards easing, but still rigorous by

historical standards

Debt burden by young adults—student debt

Fear of homeownership?

Headwinds for Housing



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?




481

545

619

706

800

898

996

1,093

1,183

1,272

1,356

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ Billions

Total Federal Student Loans Outstanding(Year End)


Source: Federal Reserve Board of Governors, G. 19



State of the

Housing Market



2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

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

Thousands

4,933k

Existing SF Home Sales (SA)(3-Month Moving Average)

Source: National Association of Realtors (NAR)


State of Housing Market



3

4

5

6

7

8

9

10

11

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

Thousands

4.1

Months Supply of Existing

SF Homes for Sale (SA)(3-Month Moving Average)

Source: National Association of Realtors (NAR)





0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

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

Thousands

575k

New Home Sales (SA)(3-Month Moving Average)






0

1

2

3

4

5

6

7

8

9

10

11

12

13

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

Thousands

5.1

Months Supply of New Homes for Sale (SA)(3-Month Moving Average)






The Forecast



402

451

538

618 620

500

367

256 252 253276

329

375

440462

497

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

$ Billions

History Forecast

Residential Construction Spending

Residential Construction Outlook

Source: History – U.S. Census Bureau

Forecast – Markstein Advisors



0

50

100

150

200

250

300

350

400

450

Single-Family Multifamily Improvements

$ Billions

2006 to 2015 ’16 ’17

Residential Construction Spending






3840

45

53

5956

52

37

2524

29

37

47

59

67

72

0

10

20

30

40

50

60

70

80

90

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

$ Billions

History Forecast

Multifamily Construction Spending






266

311

378

434416

305

186

105 113 108

132

171194

233243

267

0

50

100

150

200

250

300

350

400

450

500

550

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

$ Billions

History Forecast

Single-family Construction Spending





New England Mortgage Expo Contact Info and Links

Bernard M. Markstein

Office: 301-588-5190

[email protected]

LinkedIn

www.linkedin.com/in/markstein3

Twitter

@BMarkstein

US Residential Construction Outlook_New England Mortgage Expo_Jan 13, 2017

Economy & Finance

Transcript of US Residential Construction Outlook_New England Mortgage Expo_Jan 13, 2017