FIXING THE HOUSING CRISIS: IT CAN BE DONE, BUT NOT QUICKLY Presented by: Elliot F. Eisenberg, Ph.D. President: GraphsandLaughs, LLC February 23, 2018 Colorado Springs, CO
The Economy is Solid! GDP = C+I+G+(X-M)
Households are Repairing their Balance Sheets Trillions in Net Worth Recovered, at a New Record Level HNONWRQ027S
Households Deleveraging is Done!!!!!! Mortgage debt remains 4.4% below the 2008 peak
University of MI Consumer Confidence is Good Reading is near multi-year highs.
Las Vegas Attendance Rocks The gamblers are back, the conventioneers are too!
US Light Vehicle Sales are Down but are Solid
Residential Remodeling Rising Nicely Owner-Occupied Improvements. Higher prices and less sales boost renovation
Annual Y-o-Y Percent Change in PCE A solid albeit mildly lackluster growth rate of 2.7%
Drilling Activity is Up Number of oil rigs is now rising as a result of the rising price of crude
OK. Now, Look at Capital Goods Orders! Minus defense and aircraft
Tax Cuts Are Going to Supercharge the Economy But, only in the short run
Deficit to GDP ratio will get Much Worse And then continue deteriorating
GDP Growth Goes Nowhere Slowly Trump tax cuts should boost GDP by 40 bps in 2018
Labor Markets: They re Tight, Very Tight
Historical Job Growth Y-o-Y Total employment growth is slowing. We are running out of workers
STEADY Labor Market Improvement: Involuntary Separation Long Term Trends: 1967-2017 Initial claims below 300K for 152 straight weeks!
Gap Between Blacks and Overall Rate is Low Was over 7%, and is now well 3% and near an all-time low
Wage Growth is Weak, But...
Y-o-Y Percent Change in Hourly Earnings Despite a very low unemployment rate, wages growth is weak
Changes in Median Wage Growth Looks OK! Looks only at those continuously full-time employed
Rise in Lower Paying Jobs is Obvious Between now and 2026 lots of low end healthcare jobs.
Rise in Lower & Higher Paying Jobs is Clear Between now and 2026 lots of low end jobs.
Inflation? What Inflation!
Core PCE Price Index: Inflation is Up a Bit Surprising this late in the business cycle.
Federal Reserve Behavior Rates Will Rise. But, How Fast?
Taller Fed Chair, Higher Rates?
Federal Reserve Behavior Most likely scenario Fed funds is currently 1.375% 12/31/18: 2.125% (50%/50%) 10-yr Treasury @ 3.10% 12/31/19: 2.625% 10-yr Treasury @ 3.40% 12/31/20: 3.125% 10-yr Treasury @ 3.55% Balance sheet keeps shrinking.
New Housing? Not much is being built!
Residential Fixed Investment Slowly Rises! Non-residential is up 5%, public is down 11% and residential is down 22% from peak
Bigger Houses Continue to Get Built 2,500 to 4,000+ square foot houses are 51% of all new houses!
New Home Prices Are Recovering Too Nicely
Single-Family and Multifamily Starts A Slow Recovery Lack of lots, gun shy lenders, high prices, SF looks decent
Single-Family Starts by Region The South is best and the Northeast & Midwest are least! Go where the starts are
New Home Sales by Price Houses under 200K are an insignificant percentage
Multifamily Housing Starts 2-4 units activity is dead
New Home Prices Are Too High Due to Regulation
No Productivity Gains in US Construction!
Labor Shortage is Quite Serious Average annual wage increase for construction workers is still just 3.5%
Input Costs are Way Up due to Policy and China Prices are up 31% to 39% Y-o-Y. End of NAFTA is making this worse
Huge Influx of Foreign Buyers Total spending was $153 billion in year ending 3/17. Equal to 500,000 units!
Builders Are Happy, But Is This As Good As It Gets? Builders have rarely been happier, but few new houses being built!
New Home Inventories Fell Fast, Now Back to Normal They have almost fully recovered
Existing Inventory is Shrinking Down 6.4% Y-o-Y and down for 31 straight months. Higher prices should help, but rental conversions especially at lower price points, aging in place & mortgage lock-in are hurting
Rents Rise More Slowly Rents rise faster than wages! Y-o-Y prices up 3.7%. Is it plateauing or declining?
Renters Face an Increasingly Tough Market To be able to earn nearly $150,000/year and still qualify for a subsidy? Wow!
Renter Face an Increasingly Tough Market To be able to earn nearly $150,000/year and still qualify for a subsidy? Wow!
House Price Appreciation is Rising Too Quickly Approaching the magnitude of the Housing Boom
Price Growth Appears to be Rising? Prices rise faster than wages! Y-o-Y prices up 6.1%, 6.4% or 6.2% depending on the measure
Housing is in General is Rising Much Too Quickly Approaching the magnitude of the Housing Boom
Housing is in General Rising Much Too Quickly Approaching the magnitude of the Housing Boom
Change in US Wealth by Income Class 2007-2016
Credit is Tight: Thus, No Housing Bubble All FICO Scores are up about 40 points
Demographics Will Keep This issue Front and Center Beginning to approach the Peak. Chase Millennials, move-up buyers and Boomers
The U.S. Home Ownership Rate Has Bottomed Demographic changes are pushing it up
Apartment Vacancy Rates The MF cycle has turned. Rental vacancy rates are starting to rise.
Impact of the Mortgage Interest Deduction by Geography Even with the House plan, a house costing $625,000 is protected.
What About Things Here?
The Future Looks a Bit Better Than the Present
State Unemployment Rates Only three states have rates that are meaningfully above 5%
Colorado Springs MSA Unemployment Rates Both counties are well below the national average
Housing Starts in the Colorado Springs MSA Overall, it s OK, and that s the problem! With decent start numbers things are still bad!
Colorado Springs Housing Prices Home prices are rising too quickly!
Colorado Springs Housing Prices Home prices are rising way too fast! Are you serious 10% per year?
Population Growth Rates in The Metro Area Growth rate in El Paso County is never less than 1%. Keep that in mind when making policy!
Per Capita Income Growth in the Metro Area King County is the driving force. Folks from King move outside King County
Per Capita Income Growth in the Metro Area Slows Both counties behave almost identically
Interstate Migration Patterns 2017
Microeconomics of Regulations
Microeconomics P r i c e Supply w/regulation Supply o f H o u s i n g P t P 0 Regulatory Impact Demand Q t Q 0 Quantity of Housing
Microeconomics Government regulation will: A) Increase new house prices B) Decrease housing supply C) Increase existing house prices D) Push building outside regulated zone E) Decrease land prices
Who Bears the Regulatory Burden? The only seven candidates are: Suppliers, Workers, Builders, Developers, Landowners, Buyers, (Renters) Politicians/activists like to think builders pay. But, do they really? It depends on who is more mobile. Think about the elasticity of supply and demand.
Who Bears the Regulatory Burden? Panel A Panel B Supply 1 Supply 1 P 1 Supply P 1 Supply P Demand Demand Q1 Q Q1 Q
Who Bears the Regulatory Burden? More regulation leads to less income convergence! More regulation leads to higher priced houses, fewer new houses and less employment growth!
Affordable Housing Solutions
Solutions That Require Limited $
Solutions That Require Limited $ Encourage social investing by the private sector Land banks End exclusionary zoning End inclusionary zoning & deed restrictions Promote transit oriented development (TOD) Expedite reviews for all projects Promote brownfield development Promote household mobility within CO Continually monitor housing providers
Solutions That Require Limited $ Encourage auctions to build new units Reduce the use of impact fees Don t discourage the building of expensive units Legalizing pot should be twinned with more construction Publicize the housing goal(s) to be achieved Work with home builders and Realtors Visitability and universal design are important as we age Work with Habitat for Humanity. Densify suburbia as it grows out
ANY QUESTIONS? Elliot F. Eisenberg, Ph.D. Cell: 202.306.2731 elliot@graphsandlaughs.net www.econ70.com Do you want to get my daily 70 word economics email? Please give me your business card or text bowtie to 22828 Thank YOU all very very much! @ECON70