The State of the Nation s Housing 2007: A Sneak Peek Eric Belsky Remodeling Futures Conference April 10, 2007 Do Not Distribute Embargoed Until June 11, 2007 www.jchs.harvard.edu
The Homebuilding Correction www.jchs.harvard.edu
Different day same story 2001-2003 low interest rates and tight inventories spark unprecedented price appreciation 2004-2005 markets overheat, demand inflates (speculation, pulled forward demand) and builders meet demand 2006 markets do about face affordability too eroded, creative finance runs out of steam, sales fall, prices soften, demand softens more as it deflates Builders try to pull out of nose dive but too late inventories balloon and month s supply increases
Affordability Eroded in Both Rapidly and Slowly Appreciating Markets After 2003 $2,000 Change in Monthly Mortgage Cost to Buy a Median-Priced Home $1,500 $1,000 $500 $0 -$500 National Chicago Phoenix New York Washington DC Miami Los Angeles 2000-3 2003-6 Note: Monthly mortgage costs based on 30-year fixed mortgage assuming a 10% down payment. Source: National Association of Realtors 2006 Median Existing Single-Family House Price, adjusted by the Freddie Mac Conventional Mortgage Home Price Index and the Bureau of Labor Statistics' CPI-UX for All Items.
Top Ten Decliners in Number of Investor and Second Home Loans 2005-2006 Est. Investor Loans Second Home Total Phoenix-Mesa, AZ -10,045-6,929-16,973 Las Vegas, NV-AZ Riverside-San Bernardino, CA Fort Lauderdale, FL Washington, DC-MD-VA-WV Tampa-St. Petersburg-Clearwater, FL Sarasota-Bradenton, FL West Palm Beach-Boca Raton, FL Fort Myers-Cape Coral, FL Miami, FL -4,278-4,017-8,295-3,944-2,549-6,494-3,753-2,083-5,837-5,048-716 -5,764-3,210-2,099-5,308-2,433-2,396-4,829-2,502-1,857-4,359-1,441-2,490-3,932-2,205-1,616-3,821 Source: Loan Performance 2005 and 2006 (2006 is Jan-Oct multiplied by 1.2 to estimate full year)
While Starts Fell Faster than Sales... 9 Seasonally Adjusted Annual Rate 2.0 1.9 8 1.8 Home Sales (Millions) 7 6 1.7 1.6 1.5 1.4 1.3 Housing Starts (Millions) 5 1.2 1.1 4 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 1.0 Total Home Sales Single Family Starts Source: US Census Bureau and the National Association of Realtors. www.jchs.harvard.edu
House Prices Have Only Begun to Correct $240,000 Nominal Median House Price $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Source: National Association of Realtors.
In Many States, Permits Declined More Than 20 Percent in 2006 Source: JCHS tabulations of the US Census Bureau Survey of Construction. Change in Permits Issued in 2006 Decrease of 20% or more Decrease of 10-19.9% Decrease of 5-9.9% Decrease of 0-4.9% Increase of 0-4.9% Increase of 5% or more
And Production is Being Taken Down Even Faster Now 2005 vs. 2006 Latest Qtr - (Dec-Jan-Feb) Arizona -27.7-30 California -22.0-30 Colorado -13.1-29 Florida -26.1-52 Illinois -12.9-30 Nevada -23.3-44 North Carolina +2.6-6 Texas +3.0-16 Virginia -22.1-35 US Total -14.2-25 Source: US Census C-404 Total Monthly Permits (NSA)
With Completions Slower to Respond Than Sales and Starts... 20% Percent Change From Same Quarter of Prior Year 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% Dec- Feb05 Mar- May05 Jun- Aug05 Sept- Nov05 Dec- Feb06 Mar- May06 Jun- Aug06 Sept- Nov06 Dec- Feb07 Total Housing Starts Existing SF Home Sales Total Housing Completions New SF Home Sales Note: Home sales include total existing home sales plus new single family home sales. Sources: US Census Bureau, New Residential Construction and Economy.com.
Unsold Inventory Rose Significantly Months Supply of Single-Family Homes For Sale 9 8 7 6 5 4 3 2 1 0 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Existing Homes New Homes Source: US Census Bureau and the National Association of Realtors.
After Contributing Significantly to the Economy, Housing Investment Became a Drag on Growth in 2006 20 Real Percent Change 15 10 5 0-5 -10-15 -20 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Residential Fixed Investment as a Share of GDP Gross Domestic Product Note: Periods are half years and changes are compared to same six-month period in prior year. Sources: Bureau of Economic Analysis, National Income and Product Accounts, Table 1.1.6, and US Census Bureau.
Despite the Housing Downturn, Home Equity Cashed Out Remained at Peak Levels 500 Billions of 2006 Dollars 450 400 350 300 250 200 150 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (E) Cash-Out Refinances Equity Cashed Out at Sale Net New Second Mortgage Debt Sources: National Association of Realtors, Freddie Mac and Federal Reserve Board. Note: Adjusted for inflation by the Bureau of Labor Statistics' CPI-UX for All Items.
And After Years of Climbing, the Single-Family Vacancy Rate Has Leveled Off and Multifamily Markets Have Tightened 12 Percent Vacant 11 10 9 8 7 6 5 4 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Number of Units in Structure 1 2 or more 5 or more Source: US Census Bureau, Housing Vacancy Survey.
Apartment Revenues Once Again Are Rising in Line with Values 15 Annual Percent Change 10 5 0-5 -10 2001 2002 2003 2004 2005 2006 Apartment Property Prices Net Operating Income Source: National Council of Real Estate Investment Fiduciaries.
The Home Building Outlook www.jchs.harvard.edu
The Recent Run-up in Vacancies is More Modest than at the Beginning of the 1987-91 Downturn, But May Continue 3.5 Percent of Total Occupied Stock 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1987 1989 1991 2006 For Rent For Sale Only Seasonal/Occasional Use/URE/Other Source: US Census Bureau, Housing Vacancy Survey.
As Affordability Mortgage Products Gained in Popularity, Their Delinquency Rate Rose Sharply 40 Percent 3 Share of Originations 35 30 25 20 15 10 5 2.5 2 1.5 1 0.5 60+ Day Deliquency Rate 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2000 2001 2002 2003 2004 2005 2006 0 Share of Originations 60+ Day Delinquency Rate Source: First American LoanPerformance. Note: Affordability products include interest-only and negative-amortization loans.
While Troubled Prime Loans are Holding Steady, Troubled Subprime Loans are Increasing 800 Loans in Foreclosure or 60+ Days Delinquent (Thousands) 600 400 200 2002Q3 2002Q4 2003Q1 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 Prime Subprime Source: Mortgage Bankers Association, National Delinquency Survey.
Subprime Loans Originated in 2006 Are Off to a Very Poor Start 12 Share of Subprime Loans 60+ Days Delinquent or in Foreclosure by Origination Year 10 8 6 4 2 0 2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 Performance After 6 Months Performance After 12 Months Fixed Adjustable Source: First American LoanPerformance.
Short-Term Outlook Even if stabilize at avg. Dec-Feb run rates, total starts will be 15 percent below 2006 (1.51 mil), single-family starts 19 percent (1.20 mil), new homes sales 12 percent (925K), and existing home sales -0.2 percent (6.5 mil) Risks weighted to further slowing from tightening credit standards and large overhang still not worked off Total production would need to fall to 1.65 million and starts to 1.55 million if overbuilding is about 500,000 Phoenix, Las Vegas, DC and Florida are bellweathers Dallas, Denver, and Atlanta subprime lending canaries California and Florida are affordability product canaries What carnage Detroit and Ohio? Beware a recession down the road
Demographic Drivers www.jchs.harvard.edu
Immigrants Are Moving Out Beyond Traditional Destinations Distribution of Immigrant Population (%) 1990 California New York Florida Texas New Jersey Illinois Massachusetts Rest of States 2005 California New York Florida Texas New Jersey Illinois Massachusetts Rest of States 0 10 20 30 40 50 60 70 80 90 100 Sources: JCHS tabulations of the 1990 Decennial Census and 2005 American Community Survey.
Foreign-Born Population Growth Has Shifted Towards the Suburbs and Away from Traditional Gateways Change in Foreign-Born Population (000s) 3,500 3,000 2,500 2,000 1,500 1,000 500 Central City Suburb Traditional Gateways Central City Suburb Emerging Gateways Rest of US 1980s 1990s Source: Audrey Singer, "The Rise of New Immigrant Gateways," The Brookings Institution, Center on Urban and Metropolitan Policy, February 2004, Appendix A and Appendix B. http://www.brookings.edu/urban/publications/20040301_gateways.htm. www.jchs.harvard.edu
Immigrants and Their Children Are Adding Dramatically to Housing Demand 1970 2005 75+ 75+ 70-74 70-74 65-69 60-64 Males Females 65-69 60-64 Males Females 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 15-19 15-19 10-14 10-14 5-9 5-9 0-4 0-4 15 10 5 0 5 10 15 Millions Foreign-Born Second Generation All Others 15 10 5 0 5 10 15 Millions Source: JCHS tabulations of the 1970 and 2005 Current Population Surveys. Note: Second generation refers to native-born children of immigrants. www.jchs.harvard.edu
100 90 80 70 60 50 40 30 20 10 0 Minorities Have Come to Dominate Household Growth Share of Household Growth (%) 1976-86 1986-96 1996-06 1976-86 1986-96 1996-06 1976-86 1986-96 1996-06 1976-86 1986-96 1996-06 Northeast Midwest South West White Black Hispanic Asian/Others Note: Whites, Blacks, and Asian/Others are non-hispanic. Hispanics my be of any race. Asian/Others includes Aleuts, Native Americans and Pacific Islanders. Source: JCHS tabulations of the 1976, 1986 and 1996 Current Population Surveys. www.jchs.harvard.edu
Minorities Will Contribute Importantly to Household Growth Across Age Groups 5 Household Growth 2005-2015 (Millions) 4 3 2 1 0-1 -2-3 -4 20-29 30-39 40-49 50-59 60-69 70+ Age of Household Head White All Minority Hispanic Note: Minority householders are all non-white householders, including Hispanics. Source: George S. Masnick and Eric S. Belsky, Addendum to Research Note N06-1: Hispanic Household Projections Including Additional Tenure Projection Detail by Age and Broad Family Type for Non-Hispanic White and Total Minority Households, JCHS Research Note N06-4, December 2006.
The Baby Bust Generation Is Leading Urban Revitalization in Large Metros Number of Metros with Generational Growth, 1990-2000 70 65 60 57 50 40 43 30 29 20 10 0 7 1 1 3 0-2 2-5 5-10 Distance from City Center (Miles) Baby Bust Baby Boom Older Generations 8 Notes: The Baby Bust generation was age 15-24 in 1990 and age 25-34 in 2000; The Baby Boom generation was age 25-44 in 1990 and age 35-54 in 2000; Older generations were age 45-64 in 1990 and 55-74 in 2000. Metros are the 100 largest metro areas by population in 2000, with aggregation of adjacent metros in the New York, Los Angeles and San Francisco areas, resulting in 91 large metro regions of at least 500,000 people. Distance calculated from central business district in the primary city of each metro region. Source: JCHS tabulations of 1990 and 2000 Decennial Census Microdata.
Recent Income Losses Have Not Been Enough to Wipe Out Gains from the Late 1990s 20 Percent Change in Real Median Household Income 15 10 5 0-5 -10-15 Bottom Tenth 2 3 4 5 6 7 8 9 Top Tenth Income Deciles One Year 2004-2005 Five Years 1999-2004 Ten Year 1994-2004 Fifteen Year 1989-2004 Note: Income deciles are equal tenths of households sorted by pre-tax income. Source: JCHS tabulations of 1980, 1985, 1990, 1995, 2000, 2005 and 2006 Current Population Surveys.
But Growth in Severely Cost-Burdened Households Has Accelerated Across Incomes 700 Growth (Thousands of Households) 14 Incidence (Millions of Households) 600 12 500 10 400 8 300 6 200 4 100 2 0 Bottom Lower Middle Upper Middle Top 0 Bottom Lower Middle Upper Middle Top Quartile Quartile Average Annual Growth 2001-4 Growth 2004-5 2001 2005 Note: Severe housing cost burden is defined as spending more than 50% of household income on housing costs. Income quartiles are equal fourths of all households sorted by pre-tax income. Source: JCHS tabulations of the 2001, 2004 and 2005 American Community Surveys. www.jchs.harvard.edu
And Even Fully Phased In, the New Federal Minimum Wage Would Not Cover Today's Rent on A Modest Apartment Housing Wage $7.25-14.49 $14.50-21.74 $21.75 or more Note: Housing wage is the hourly wage required to afford a modest two-bedroom apartment renting for the Fair Market Rent at 30% of pretax income. Income ranges are multiples of the Federal Minimum Wage at full roll out, expected in 2009. Source: US Department of Housing and Urban Development.
Long-Term Outlook Still see about 2 more million households formed in 05-15 than 95-05 (12.6 v. 14.6 million) Out past the turmoil, second home demand should strengthen aging of boomers all else equal alone should lift second demand by 1 million 05-15 Aging housing and more urban teardowns should lift replacement demand Total production should average about 1.95 of 2004 per year perhaps less inventory that must be worked off