Analysis of Current and Forecasted Demand for Housing in North America

Analysis of Current and Forecasted Demand for Housing in North America TIMBER MEASUREMENT SOCIETY Central Meeting April 9, 2015 Coeur d Alene, Idaho Delton Alderman Forest Products Marketing Unit Forest Products Laboratory - Madison, WI Northern Research Station - Princeton, WV United States Forest Service 304.431.2734 dalderman@fs.fed.us

Housing Overview Factors Influencing Housing Demand Housing Permits, Starts, and Completions Existing and New House Sales Construction Spending Residential Remodeling Economic Demographics Projections Threats Conclusions

Wood Products Consumption New Construction Wood Products Usage 18% Non-structural panels: housing Other 26% All Sawnwood: housing 82% 74% Other 36% Structural panels: housing 64% Other Source: Howard and McKeever 2014. USFS FPL

Wood Products Consumption Repair and Remodeling s Wood Products Usage 16% Non-structural panels: housing Other 25% 84% 75% All Sawnwood: housing Other 26% 74% Structural panels: housing Other Source: Howard and McKeever 2014. USFS FPL

Canada: Housing

Source: www.gbm.scotiabank.com/english/bns_econ/retrends.pdf; 4/2/15 Canadian Housing

Source: www.gbm.scotiabank.com/english/bns_econ/retrends.pdf; 4/2/15 Canadian Housing

Canadian Housing we continue to expect a moderation in the Canadian real estate market over 2015 and 2016. Source: www.td.com/document/pdf/economics/special/regionalhousing_feb2015.pdf; 2/12/15

Canadian Housing Starts 250000 225000 Range: 154,000-201,000 units in 2015; 148,000-203,000 units in 2016 200000 175000 156,276 150000 125000 100000 75000 54,508 50000 25000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 15-Jan 15-Feb Single-Family Semi-Detached Row Multi-Family Total Source: Canada Mortgage and Housing Corporation

Canadian Housing Canadian home sales and price trends are relatively stable, though tight supply and strong demand continue to fuel bigger price increases in a few high-priced markets. Low borrowing costs are maintaining affordability in the face of high home valuations. Source: www.cmhc-schl.gc.ca/odpub/pdf/68020.pdf?fr=1392832102155

Canada: Housing Starts Source: www.td.com/document/pdf/economics/special/regionalhousing_feb2015.pdf

Canada: Housing Affordability Source: www.td.com/document/pdf/economics/special/regionalhousing_feb2015.pdf

Canada: Housing Starts Source: Emerging Trends in Real Estate ; Price Waterhouse Coopers and Urban Land Institute ; March 2015

North American Housing Projecting Housing Demand Housing units = Household formations plus housing units lost 2013: 425,000 household formations + 467,368 demolitions = 892,368 units Actual production: 764.4 892.4 = 128,000 under build 2014: 684,750 household formations + 450,500 demolitions = 1,135,250 units Actual production: 883.8 1,135 = 251,200 under build Source: US Census

Forecasts: 2015 (000s) Single-Family Starts Multi-Family Starts Total Starts APA - The Engineered Wood Association 755 455 1,210 Core Logic 743 381 1,124 Fannie Mae 783 388 1,171 Forest Economic Advisors 753 399 1,152 Goldman Sachs 1,166 Merrill Lynch 1,175 Metrostudy 730 370 1,100 MBA 728 380 1,108 NAHB 804 358 1,162 NAR 783 517 1,300 TD Economics 1,190 Wells Fargo 770 390 1,160 Zillow 1,113

Source: www.richmondfed.org/research/national_economy/national_economic_indicators/pdf/all_charts.pdf; 4/5/15

Source: http://research.stlouisfed.org/fred2/

Permits Source: http://research.stlouisfed.org/fred2

Source: http://research.stlouisfed.org/fred2/

Source: http://research.stlouisfed.org/fred2/

Source: http://research.stlouisfed.org/fred2 Starts

Source: http://research.stlouisfed.org/fred2 Starts

Source: http://research.stlouisfed.org/fred2/

SF starts: Six-month rolling average (unadjusted data) 100 90 80 70 60 50 40 30 20 10 0 Jun 2012 Aug 2012 Oct 2012 Dec 2012 Feb 2013 Apr 2013 Jun 2013 Aug 2013 Oct 2013 Dec 2013 Feb 2014 Apr 2014 Jun 2014 Aug 2014 Oct 2014 Dec 2014 Feb 2015 Total 1 unit 2-4 units 5+ units Source: US Census - Construction

Housing Starts and Median Income 1900 57000 1700 56000 1500 55000 1300 1100 54000 53000 52000 900 700 51000 50000 500 49000 300 48000 100 47000 Real Median Household Income SF Starts MF Starts Source: http://research.stlouisfed.org/fred2; BLS

Housing Starts and Median Income 700 55000 600 54000 500 53000 400 52000 300 200 51000 100 2009 2010 2011 2012 2013 2014 2015 Real Median Household Income SF Starts MF Starts 50000 Source: http://research.stlouisfed.org/fred2

2,000 SF starts: thousands 6-months forward LBR: $ nominal 500 1,750 450 1,500 400 350 1,250 300 1,000 250 750 200 500 150 250 100 SF Starts CME LBR Futures Source: US Census & CME Group random length lumber futures

2,000 SF starts: thousands 3-months forward LBR: $ nominal 500 1,750 450 1,500 400 350 1,250 300 1,000 250 750 200 500 150 250 100 SF Starts CME LBR Futures Source: US Census & CME Group random length lumber futures

Source: http://research.stlouisfed.org/fred2/

Completions Source: http://research.stlouisfed.org/fred2

Source: http://research.stlouisfed.org/fred2/

Source: http://research.stlouisfed.org/fred2/

460,000 410,000 Construction Spending 650,000 600,000 360,000 550,000 310,000 500,000 260,000 450,000 210,000 400,000 160,000 350,000 110,000 300,000 60,000 250,000 10,000 200,000 Private Residental New Single-family New Multi-family Improvements Source: US Census - Construction

215000 195000 175000 Construction Spending 370000 365000 155000 360000 135000 115000 Imp: -31.9% since 1/2014 355000 95000 350000 75000 55000 345000 35000 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Private Residental New Single-family New Multi-family Improvements 340000 Source: US Census - Construction

50 40 Percentage change; year 2000 = baseline 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Jan-15 Feb-15-10 -20-30 -40-50 Total Residential New single family New multi-family Improvements Source: US Census - Construction

6 Construction Spending: YOY percentage change 4 2 0 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15-2 -4-6 New Single-family New Multi-family Improvements Source: US Census - Construction

Source: www.richmondfed.org/research/national_economy/national_economic_indicators/pdf/all_charts.pdf; 4/5/15

Source: US Census - Construction

SAAR 458 thou SAAR 539 thou Source: US Census - Construction

Source: http://research.stlouisfed.org/fred2/

Source: http://research.stlouisfed.org/fred2

United States New House Sales Source: http://research.stlouisfed.org/fred2

550 54500 54000 500 53500 450 53000 400 52500 52000 350 51500 300 2009 2010 2011 2012 2013 2014 2015 51000 Real Median Household Income New Sales Source: US Census Construction & BLS

$310,000 New SF Sales vs. Median Price 1,500 $260,000 1,300 $210,000 Bubble 1,100 $160,000 900 $110,000 700 $60,000 500 $10,000 300 New SF sold (SAAR) Median Price Source: http://research.stlouisfed.org/fred2/

$360,000 $310,000 $260,000 New SF Sales vs. Mean Price Bubble 1,500 1,300 1,100 $210,000 900 $160,000 $110,000 700 $60,000 500 $10,000 300 New SF sold (SAAR) Average Price Source: http://research.stlouisfed.org/fred2/

Source: http://research.stlouisfed.org/fred2/

140 New SF sales (unadjusted): thousands 6-months forward LBR: $ nominal 500 450 120 400 100 350 80 300 250 60 200 40 150 20 100 New SF sales CME LBR Futures Source: US Census & CME Group random length lumber futures

140 New SF sales (unadjusted): thousands 3-months forward LBR: $ nominal 500 450 120 400 100 350 80 300 250 60 200 40 150 20 100 New SF sales CME LBR Futures Source: US Census & CME Group random length lumber futures

Source: http://research.stlouisfed.org/fred2/

Source: http://research.stlouisfed.org/fred2/

Source: http://research.stlouisfed.org/fred2

260000 54500 250000 54000 53500 240000 53000 230000 52500 220000 52000 210000 51500 200000 2009 2010 2011 2012 2013 2014 2015 51000 Real Median Household Income Existing Sales Price (mean) Source: US Census Construction & BLS

45 40 35 30 25 20 15 10 5 0 < $125-199 % $200-249 % $250-299 % $300-399 % 400-499 % 500-750 % > 750 % Source: http://research.stlouisfed.org/fred2/

66% of all sales > $250,000 11 7 34% of all sales < $250,000 < $125-199 % $200-249 % 10 $250-299 % $300-399 % $400-499 % $500-750 % > $750 % 22 16 Source: http://research.stlouisfed.org/fred2/

Source: www.housingwire.com/articles/33448-realtytrac-home-price-appreciation-revealed-in-3-charts and www.realtytrac.com/news/home-prices-and-sales/feb-2015-home-price-appreciation-analysis; 4/2/15

4,940,000 -- 2014 vacation-home sales catapulted to an estimated 1.13 million last year, the highest amount since NAR began the survey in 2003 (22.8%). Increased 57.4% from 2013. Source: http://research.stlouisfed.org/fred2; www.realtor.org/news-releases/2015/04/vacation-home-sales-soar-to-record-high-in-2014-investment-purchases-fall; 4/1/15

Source: www.valuewalk.com/2015/03/the-change-in-american-middle-class-from-2000-to-2013-interactive-infographic; 3/31/15

Price appreciation outpaces wage growth in 76% of U.S. markets during housing recovery Source: www.realtytrac.com/news/home-prices-and-sales/home-price-growth-versus-wage-growth-during-housing-recovery; 3/25/15

Household Formation & Renters Source: https://confoundedinterest.files.wordpress.com/2015/03/rentalrecd.png; 3/28/15

Source: http://research.stlouisfed.org/fred2

Demographics Source: US Census

Housing Starts & Demographics Structural change in the housing market include: - a dramatic correction in median wealth of U.S. households as home values declined - declining home ownership rates. Source: www.kansascityfed.org/publicat/econrev/pdf/13q4rappaport.pdf

Source: http://research.stlouisfed.org/fred2/series/m1

Source: http://research.stlouisfed.org/fred2/series/m2v

Potential Housing Threats Source: McKinsey & Company, McKinsey Global Institute, Debt and (not much) deleveraging; February 2015

Potential Housing Threats High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions. Growth in global debt has shifted since 2007, with developing economies accounting for half of new debt. Source: McKinsey & Company, McKinsey Global Institute, Debt and (not much) deleveraging; February 2015

Potential Housing Threats three particular areas of potential concern in China: the concentration of debt in real estate, the rapid growth and complexity of shadow banking, and the off-balance sheet borrowing by local governments. Nearly half of China s debt is related to real estate. Source: McKinsey & Company, McKinsey Global Institute, Debt and (not much) deleveraging; February 2015

World Debt or Leverage Threats to Housing Nothing really has changed interest rates are lower; yet debt keeps increasing What s going to happen in China? Does the U.S. economy stall or decrease? Minimal increase in real medium income Increased closing costs due to new lending regulations What if there is no Eurozone recovery? Geopolitical events?

Conclusions Canada how will the commodity demand/price decline affect housing Most forecasts call for slightly decreasing starts through 2016 For the Canadian and U.S. housing markets to improve both economies need to advance in conjunction with increases in real median incomes United States higher priced houses appear to be the strongest sector multifamily housing as well The opportunity: houses in the $100 to $200 thousand price range The BIG question? Will the U.S. housing market continue to improve?

Questions? Thank you Delton Alderman Forest Products Marketing Unit Forest Products Laboratory - Madison, WI Northern Research Station - Princeton, WV USDA Forest Service 304.431.2734 dalderman@fs.fed.us