Housing, Construction, and Remodeling Update Toby Morrison Director of Insights Metrostudy October 12, 2013
New Home Sales (Units) "Pro-Worthy" R&R Projects New Homes Sales and Remodeling Are Firmly on the Road to Recovery New Home Sales and Remodeling & Replacement Activity 1,400,000 New Home Sales (Census) Forecast NHS (HW) R&R Projects (RRI) Forecast R&R Projects (HW) 14,000,000 1,200,000 12,000,000 1,000,000 10,000,000 800,000 8,000,000 600,000 6,000,000 400,000 4,000,000 200,000 2,000,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Commerce Department; Metrostudy - Housing Market Update October 12, 2013 2
Millions Remodeling Sustained the Industry, But Now New Construction Is Growing Substantially Maintenance Remodeling New Single Family New Multi-Family $800,000 7% $700,000 16% $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 44% 33% 50% Growth $0 Source: Commerce Department; Metrostudy 2005 2011 2012 2013 Housing Market Update October 12, 2013 3
What Is Driving Spending Growth? Forecasted 22% Growth in Residential Spending in 2013, made up of: Material usage growing due to mix of: 3% growth in average new home size 22% increase in starts 7% increase in remodeling and replacement projects Price increases of 4-6% overall Maintenance following inflation (<2%) Land development expenditures growing 12-15% Labor growing at above inflation levels (3-5%) Materials pricing increasing 3-5% on average but with some materials increasing more than 15% Increasing builder margins of 150-200bps Source: Commerce Department; Metrostudy Housing Market Update October 12, 2013 4
1968 - Jan 1969 - Apr 1970 - Jul 1971 - Oct 1973 - Jan 1974 - Apr 1975 - Jul 1976 - Oct 1978 - Jan 1979 - Apr 1980 - Jul 1981 - Oct 1983 - Jan 1984 - Apr 1985 - Jul 1986 - Oct 1988 - Jan 1989 - Apr 1990 - Jul 1991 - Oct 1993 - Jan 1994 - Apr 1995 - Jul 1996 - Oct 1998 - Jan 1999 - Apr 2000 - Jul 2001 - Oct 2003 - Jan 2004 - Apr 2005 - Jul 2006 - Oct 2008 - Jan 2009 - Apr 2010 - Jul 2011 - Oct 2013 - Jan Thousands Why Aren t Material Shipments Up 20% or More? Completions Chase Starts and Lag 9-12 Months Starts vs. Completions Starts Completions 3,000 2,500 2,000 1,500 1,000 500 0 Source: Commerce Department; Metrostudy Housing Market Update October 12, 2013 5
HOUSING, CONSTRUCTION, AND ECONOMIC TRENDS Housing Market Update October 12, 2013 6
Jan-68 Mar-69 May-70 Jul-71 Sep-72 Nov-73 Jan-75 Mar-76 May-77 Jul-78 Sep-79 Nov-80 Jan-82 Mar-83 May-84 Jul-85 Sep-86 Nov-87 Jan-89 Mar-90 May-91 Jul-92 Sep-93 Nov-94 Jan-96 Mar-97 May-98 Jul-99 Sep-00 Nov-01 Jan-03 Mar-04 May-05 Jul-06 Sep-07 Nov-08 Jan-10 Mar-11 May-12 Jul-13 Existing Home Sales Are Above Normal Levels SF Home Sales, 1968-July 2013 (SAAR Thousands) SF New Home Sales SF Existing Home Sales 9,000 8,000 7,000 6,000 5,000 4,000 45 year average 4.18 million 3,000 2,000 1,000 0 Source: Commerce Department, National Association of Realtors, Metrostudy Analysis Housing Market Update October 12, 2013 7
Jan-68 Mar-69 May-70 Jul-71 Sep-72 Nov-73 Jan-75 Mar-76 May-77 Jul-78 Sep-79 Nov-80 Jan-82 Mar-83 May-84 Jul-85 Sep-86 Nov-87 Jan-89 Mar-90 May-91 Jul-92 Sep-93 Nov-94 Jan-96 Mar-97 May-98 Jul-99 Sep-00 Nov-01 Jan-03 Mar-04 May-05 Jul-06 Sep-07 Nov-08 Jan-10 Mar-11 May-12 Jul-13 New Home Sales Have Lost Significant Share 30% New Home Share of Total SF Home Sales 25% 20% 15% 45 year average 17% (1/6) 10% 5% 0% Source: Commerce Department, National Association of Realtors, Metrostudy Analysis Housing Market Update October 12, 2013 8
Resales Are at Healthy Levels, While REO Sales Are Diminishing Housing Market Update October 12, 2013 9
Nationwide, Foreclosures & REO Closings are Past Peak and Diminishing Each Month Housing Market Update October 12, 2013 10
Distressed Supply Is Being Absorbed Housing Market Update October 12, 2013 11
Jan-63 May-64 Sep-65 Jan-67 May-68 Sep-69 Jan-71 May-72 Sep-73 Jan-75 May-76 Sep-77 Jan-79 May-80 Sep-81 Jan-83 May-84 Sep-85 Jan-87 May-88 Sep-89 Jan-91 May-92 Sep-93 Jan-95 May-96 Sep-97 Jan-99 May-00 Sep-01 Jan-03 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11 May-12 Supplies Are Way Below Normal New and Existing SF Months' Supply, 1963-July 2013 New Home Months' Supply Existing SF Months' Supply 16.0 14.0 12.0 10.0 8.0 6.0 30 Yr Ave 7.2 50 Yr Ave 6.1 4.0 2.0 0.0 Source: Commerce Department, National Association of Realtors, Metrostudy Analysis Housing Market Update October 12, 2013 12
Units of Inventory Finished Vacant Supplies Finally Stabilized 250,000 200,000 Finished Vacant Inventory and Months Supply, 2000-present 6.0 5.0 150,000 100,000 4.0 3.0 2.0 Months of Supply 50,000 1.0 0 0.0 Finished Vacant Inventory Finished Vacant Months Supply Housing Market Update October 12, 2013 13 Source: Metrostudy
Months of Supply Few Markets Have Inventory Issues 18.0 16.0 Housing Supply and Finished Vacant Supply by Market, 2Q13 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Housing Supply (U/C+Model+Finished Vacant) Finished Vacant Supply Housing Market Update October 12, 2013 14 Source: Metrostudy
Units of Inventory Lot Supply Has Diminished Significantly Over the Last Two Years 1,600,000 100.0 1,400,000 1,200,000 Vacant Developed Lot Inventory and Months Supply, 2000-present 90.0 80.0 70.0 1,000,000 800,000 600,000 400,000 200,000 60.0 50.0 40.0 30.0 20.0 10.0 Months of Supply 0 0.0 Vacant Developed Lot Inventory Vacant Developed Lots Months Supply Housing Market Update October 12, 2013 15 Source: Metrostudy
Nationwide Home Prices Are Rising Housing Market Update October 12, 2013 16
As Has the Price per Square Foot Housing Market Update October 12, 2013 17
Investors Have Been a Catalyst in the Resale Market Housing Market Update October 12, 2013 18
And Many Pay with Cash, But That Could Change Soon Housing Market Update October 12, 2013 19
Government Financing Still Dominates Housing Market Update October 12, 2013 20
Index, 100=2010 for All Series Builders Are Contending with Rising Prices, Especially with Land 140 Homebuilding Related Price Indices and the CPI Index=100 for 2010 130 120 110 100 90 80 70 CPI Land Prices Stucture Prices Home Prices Source: CPI - BLS Land, Structure, and Home Prices - Lincoln Institute FHFA Series Source: Metrostudy Calculations, CPI - BLS Land, Structure, and Home Prices - Lincoln Institute FHFA Series Housing Market Update October 12, 2013 21
Index, 2010=100 for All Series Some Components Are Rising Rapidly 140 135 130 Home Construction Prices and the CPI Index=100 for 2010 1/2010 to 6/2013 Construction Prices are up 125 120 115 110 105 100 95 Concrete Prices Gypsum Product Prices Lumber Prices Construction Prices Maintaince Spending Prices CPI Source: Metrostudy Calculations, Bureau of Labor Statistics Housing Market Update October 12, 2013 22
New Home Closings Big Builders Are Gaining Share 600,000 Closings for Top 10, 100, & 200 Home Builders Over Time & Market Share Nationwide 60% 500,000 50% 400,000 300,000 200,000 40% 30% 20% Market Share 100,000 10% 0 2005 2006 2007 2008 2009 2010 2011 2012 0% Top 10 11-100 101-200 Top 10 Share Top 100 Share Top 200 Share Housing Market Update October 12, 2013 23 23
Lower Priced Homes Are Diminishing in Share Housing Market Update October 12, 2013 24
Percent Change in Sales from a Year Ago by Price Range 40.0% 32.3% 30.0% 20.0% 21.2% 24.2% 25.0% 10.0% 6.2% 0.0% $0 100K $100 250K $250 500K $500 750K $750 1M $1M+ -10.0% -20.0% -19.6% -30.0% Source: National Association of Realtors
Home Buyers Have Higher Incomes Than In The Recent Past $100,000 National Household Income by Sale Type $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $ 2007 2008 2009 2010 2011 2012 2013 REO Sale Regular Resale New Sale Housing Market Update October 12, 2013 26
1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Billions Bigger Homes Resurging As We Recover 16000 Single Family Home Sizes and Personal Income Personal Income Median Sq Ft Average Sq Ft Recession 2900 14000 2700 12000 2500 10000 2300 8000 2100 6000 1900 4000 1700 2000 1500 Source: US Census Bureau, US Department of Commerce Housing Market Update October 12, 2013 27
OUTLOOK FOR COMMERCIAL CONSTRUCTION Housing Market Update October 12, 2013 28
2004 - Jan 2004 - Jul 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jan 2012 - Jul 2013 - Jan 2013 - Jul Nonresidential Starts Have Not Yet Clearly Turned the Corner But Will Follow Residential 30 3-Month Moving Average, Year-over-Year % Change 25 20 15 10 5 0-5 -10-15 -20-25 -30-35 -40 Source: Reed Construction Data Housing Market Update October 12, 2013 29
Nonresidential Construction Spending Has Correspondingly Not Yet Reached Bottom 450 Nonresidential Construction Spending (SAAR Billions) Recession History-Forecast Construction Spending 425 400 375 350 325 300 275 250 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: History - U.S Census Bureau; Forecast - Reed Construction Data Housing Market Update October 12, 2013 30
Billions Forecast But a Few Sectors Are Already Seeing Improvement: Manufacturing, Commercial, and Hotel Annual Nonresidential Construction Spending by Industry 120 Hotel/Lodging Office Commercial Religious Healthcare Education Public Safety Amusement and Recreation Manufacturing 100 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: History - U.S Census Bureau; Forecast - Reed Construction Data Housing Market Update October 12, 2013 31
BULLISH OUTLOOK Housing Market Update October 12, 2013 32
2000 - Jan 2000 - Jun 2000 - Nov 2001 - Apr 2001 - Sep 2002 - Feb 2002 - Jul 2002 - Dec 2003 - May 2003 - Oct 2004 - Mar 2004 - Aug 2005 - Jan 2005 - Jun 2005 - Nov 2006 - Apr 2006 - Sep 2007 - Feb 2007 - Jul 2007 - Dec 2008 - May 2008 - Oct 2009 - Mar 2009 - Aug 2010 - Jan 2010 - Jun 2010 - Nov 2011 - Apr 2011 - Sep 2012 - Feb 2012 - Jul 2012 - Dec 2013 - May Construction Gains Are Helping Overall Unemployment U.S. Unemployment Rate Total Construction 25.0 20.0 15.0 10.0 5.0 - Source: Bureau of Labor Statistics Housing Market Update October 12, 2013 33
National Employment Growth Forecast Is 1.5% But Many States Have Better Increases Ahead Source: Moody s Analytics, Metrostudy Analysis Housing Market Update October 12, 2013 34
Forecasted US GDP Growth is 2.4%, But Many States Are Poised to Do Much Better Source: Moody s Analytics, Metrostudy Analysis Housing Market Update October 12, 2013 35
Jan-80 Dec-80 Nov-81 Oct-82 Sep-83 Aug-84 Jul-85 Jun-86 May-87 Apr-88 Mar-89 Feb-90 Jan-91 Dec-91 Nov-92 Oct-93 Sep-94 Aug-95 Jul-96 Jun-97 May-98 Apr-99 Mar-00 Feb-01 Jan-02 Dec-02 Nov-03 Oct-04 Sep-05 Aug-06 Jul-07 Jun-08 May-09 Apr-10 Mar-11 Feb-12 Jan-13 Consumer Confidence Has Been Volatile But Has Shifted to More Positive Recently 160 Consumer Confidence 140 120 100 80 60 40 20 0 Source: The Conference Board Consumer Confidence Index Housing Market Update October 12, 2013 36
Jan-80 Apr-81 Jul-82 Oct-83 Jan-85 Apr-86 Jul-87 Oct-88 Jan-90 Apr-91 Jul-92 Oct-93 Jan-95 Apr-96 Jul-97 Oct-98 Jan-00 Apr-01 Jul-02 Oct-03 Jan-05 Apr-06 Jul-07 Oct-08 Jan-10 Apr-11 Jul-12 Consumer Plans to Buy Homes Up Significantly Consumer Confidence and Home Buying Plans, % of Households Consumer Confidence Index Plan to Buy Home Within 6 Mo. Plan to Buy New Home Within 6 Mo. 160 8% 140 7% 120 6% 100 5% 80 4% 60 3% 40 2% 20 1% 0 0% Source: The Conference Board Consumer Confidence Index Housing Market Update October 12, 2013 37
INSIGHT ON BUYERS Housing Market Update October 12, 2013 38
Buyer Consideration and Preference TYPES OF HOMES PEOPLE WILL CONSIDER IN THEIR NEXT PURCHASE Existing Home Brand new home offered by builder Custom built on its own lot 75% 49% 29% PREFERENCE Prefer Existing Prefer New Indifferent 46% 19% 35% Source: BDX June 2012 Homebuyer Insights Study, Hanley Wood, Chadwick Martin Bailey Housing Market Update October 12, 2013 Base: All, 984 Q17: When looking for your new home, how strongly will you consider each of the following home choices? Q17a: Which type of home do you prefer? Select only one. 39
Now Is Great Time to Buy a Home and Demand Is Returning Top 10 Consideration Triggers Favorable home prices Favorable interest rates Tired of current house Relocated to new city Change of family circumstance/composition Change of job/job location Desire to live closer to family/friends Planning to increase family size Increase in income Increasing rent 17 15 15 14 13 13 13 30 47 40 Source: Hanley Wood, BHI June 2012 Home Shopper Survey, Chadwick Martin Bailey 0% 25% 50% 75% 100% % of respondents Housing Market Update October 12, 2013 40
Aging Housing Stock Age breakdown of U.S. housing stock 1980s 13% 1990s 13% 2000s 8% 1970s 20% Before 1960 34% 1960s 12% Number of existing homes total 132M Average age of existing homes is 37 Even homes built 10 years ago cost 13% more to operate than homes built today Harvard estimates 2.4M homes were under invested in during the 2007-2011 downturn Source: Joint Center for Housing Studies Harvard University
Quality Matters Most to Home Buyers Quality of construction Safer neighborhood Better floor plans Lower maintenance costs Lower cost per square foot More living space Energy efficiency Architecture/Overall design Larger yard or lot Ability to customize Convenient to Convenient to work Convenient to friends/family Proximity to good schools Character/Uniqueness of home Storage space Sense of community within neighborhood Established neighborhood Mature trees & landscaping Community amenities Prestige/Exclusivity Less living space 1.0 0.8 Considerations for Home Purchase 1.9 1.9 2.7 2.6 4.6 4.2 4.1 3.9 3.7 3.6 3.4 6.7 6.3 6.1 5.9 5.6 5.2 0 2 4 6 8 10 Mean Importance Source: Hanley Wood, BHI June 2012 Home Shopper Survey, Chadwick Martin Bailey Housing Market Update October 12, 2013 42 7.5 8.5 9.7
Mean importance Quality Matters Most to Each Segment Quality of construction, floor plans, maintenance costs, energy efficiency, and customization are slightly more important to those with a preference for new 12 Top 10 Most Important Considerations for Home Purchase 10 8 6 Quality of construction Better floor Safer plans neighborhood Lower maintenance costs Energy efficiency Lower cost per sq. ft. Ability to customize Architecture/ Overall design More living space Larger yard or lot 4 Average 2 New Segment Indifferent Segment Existing Segment 0 Base: All (Prefer Existing, 457; Indifferent, 343; Prefer New, 184) Q20 Chart displays the mean importance score for each item. Maximum Difference utilities are converted into ratio-scaled probabilities that sum to 100 across the items. Thus an item with a score of 10 is twice as important as an item with a score of 5. The dotted line represents the average (4.5). INTERPRET WITH CARE MEAN VALUES HIDE HETEROGENEITY OF PREFERENCE AND MAY BE SKEWED BY OUTLIERS. Source: Hanley Wood, BHI June 2012 Home Shopper Survey, Chadwick Martin Bailey October 12, 2013 43
(Percentage Distribution) Home Improvement Projects % of home buyers that undertook a home improvement project within three months of home purchase 70% 60% 50% 40% 30% Undertook Home Improvement Project within 3 Months of Home Purchase 65% 59% 53% 54% 52% 47% 48% 43% 41% 35% 20% 10% 0% All buyers First-time buyers Repeat buyers New homes Previously owned Yes No homes Source: 2013 National Association of Realtors Profile of Buyers
Remodeling Demand Driven by Baby Boomers 55+ households now account for 44% of remodeling activity
Our Expectations for Growth Metric 2013 2014 Growth in Total Starts 22% 23% % of MSA s with Growth in Starts 73% 87% Growth in New Home Sales 20% 22% % of MSA s with Growth New Home Sales 85% 89% Growth in Remodeling & Replacement 7% 7% % of MSA s with Growth in Remodeling 99% 99% Housing Market Update October 12, 2013 46
But Growth Is Not Evenly Distributed There are 939 CBSAs in the US (Census Defined Market Areas ). Vilfredo Pareto would suggest that focusing on the most important markets would deliver optimal results 159 markets collectively comprise 80% of forecasted R&R projects in 2013, so 17% of markets drives 80% of the activity 153 markets collectively comprise 80% of forecasted starts in 2013, so 16% drives 80% 179 markets collectively comprise 80% of forecasted new home sales in 2013, so 19% drives 80% Housing Market Update October 12, 2013 47
TOP MARKETS Housing Market Update October 12, 2013 48
Growth Will Be Most Reliable in Healthier Markets October 12, 2013 49 Housing Market Update
Top 10 Healthiest Markets 1. The Villages, FL 2. Salt Lake City, UT 3. Fort Collins-Loveland, CO 4. Honolulu, HI 5. Charleston-North Charleston-Summerville, SC 6. Phoenix-Mesa-Glendale, AZ 7. Tucson, AZ 8. Washington-Arlington-Alexandria, DC-VA-MD-WV 9. Provo-Orem, UT 10.Raleigh-Cary, NC Source: Metrostudy Home Building Outlook Report Housing Market Update October 12, 2013 50
Best Markets for Home Building Housing Market Update October 12, 2013 51 Source: Metrostudy Home Building Outlook Report
Top 10 Best Home Building Markets 1. The Villages, FL 2. Salt Lake City, UT 3. Phoenix-Mesa-Glendale, AZ 4. Charleston-North Charleston-Summerville, SC 5. Daphne-Fairhope-Foley, AL 6. Washington-Arlington-Alexandria, DC-VA-MD-WV 7. Raleigh-Cary, NC 8. Denver-Aurora-Broomfield, CO 9. San Antonio-New Braunfels, TX 10.Tucson, AZ Source: Metrostudy Home Building Outlook Report Housing Market Update October 12, 2013 52
Biggest New Construction Markets (2013 Starts) 1. Houston-Sugar Land-Baytown, TX 2. New York-Northern New Jersey-Long Island, NY-NJ-PA 3. Dallas-Fort Worth-Arlington, TX 4. Washington-Arlington-Alexandria, DC-VA-MD-WV 5. Phoenix-Mesa-Glendale, AZ 6. Austin-Round Rock-San Marcos, TX 7. Los Angeles-Long Beach-Santa Ana, CA 8. Seattle-Tacoma-Bellevue, WA 9. Miami-Fort Lauderdale-Pompano Beach, FL 10.Orlando-Kissimmee-Sanford, FL Source: Metrostudy Home Building Outlook Report Housing Market Update October 12, 2013 53
Biggest Home Building Markets (2013 New Home Sales) 1. Houston-Sugar Land-Baytown, TX 2. Dallas-Fort Worth-Arlington, TX 3. Phoenix-Mesa-Glendale, AZ 4. New York-Northern New Jersey-Long Island, NY-NJ-PA 5. Washington-Arlington-Alexandria, DC-VA-MD-WV 6. San Antonio-New Braunfels, TX 7. Austin-Round Rock-San Marcos, TX 8. Atlanta-Sandy Springs-Marietta, GA 9. Miami-Fort Lauderdale-Pompano Beach, FL 10.Riverside-San Bernardino-Ontario, CA Source: Metrostudy Home Building Outlook Report Housing Market Update October 12, 2013 54
Best Markets for Remodeling Housing Market Update October 12, 2013 55 Source: Metrostudy Residential Remodeling Index
Top 10 Remodeling Markets 1. Charlotte-Gastonia-Rock Hill, NC-SC 2. Buffalo-Niagara Falls, NY 3. San Antonio-New Braunfels, TX 4. Houston-Sugar Land-Baytown, TX 5. Dallas-Fort Worth-Arlington, TX 6. Austin-Round Rock-San Marcos, TX 7. Raleigh-Cary, NC 8. Pittsburgh, PA 9. Rochester, NY 10.Oklahoma City, OK Source: Metrostudy Residential Remodeling Index Housing Market Update October 12, 2013 56
Biggest Remodeling Markets for 2013 1. New York-Northern New Jersey-Long Island, NY-NJ-PA 2. Los Angeles-Long Beach-Santa Ana, CA 3. Chicago-Joliet-Naperville, IL-IN-WI 4. Dallas-Fort Worth-Arlington, TX 5. Washington-Arlington-Alexandria, DC-VA-MD-WV 6. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 7. Houston-Sugar Land-Baytown, TX 8. Boston-Cambridge-Quincy, MA-NH 9. San Francisco-Oakland-Fremont, CA 10.Atlanta-Sandy Springs-Marietta, GA Source: Metrostudy Residential Remodeling Index Housing Market Update October 12, 2013 57
Fundamentals Are Bright for Housing and Construction The Baby Boom Generation is the richest generation the U.S. has ever seen, and they dominate Family Life and Elite households today and soon will dominate Active Adult Feature & Location and Active Adult Elite. These key consumer groups will drive much of the growth in home building and remodeling Home purchases and improvement projects were postponed by the recession, the housing downturn, and investor activity New home demand is shifting to higher price points and across the board is very focused on performance and quality New homes are getting bigger (again) The industry s focus on increasing preference for new construction will benefit homebuilders and remodelers Pricing power is returning Housing will drive Housing economic Market Update growth going forward October 12, 2013 58
1,152,000 STARTS 616,000 NEW HOME SALES 11,557,249 REMODELS Toby Morrison Director of Insights Metrostudy tmorrison@metrostudy.com Housing Market Update October 12, 2013 59