ECONOMIC AND HOUSING OUTLOOK David Crowe Chief Economist Blue Ridge Home Builders Association February 27, 2014

Five Turn Around Points 1. Consumer is back 2. Pent up demand waiting 3. Growing need for new construction 4. Distressed sales diminishing 5. Builders see it

1. Consumer is back

Real GDP Growth Picking up speed 3.0% 3.7%

Payroll Employment: US and Charlottesville US and Charlottesville are nearly back US Trend (Left axis) US Millions

Unemployment Will Continue to Fall Charlottesville

Consumer Confidence Returns Back to pre-recession levels Conference Board University of Michigan

Motor Vehicle and Home Furnishing Sales Other Durable Sectors Rising Steadily

Household Balance Sheets Debt and savings closer to long term averages Savings Rate

Annual Housing Starts Pace - VA 13%

Annual Housing Starts Pace - Charlottesville 7%

2. Pent up demand waiting

Household Formations Are on the Rise Year-over-year change in households rising again Thousands Avg: 1.4 million (12% renters) Avg: 0.5 million (130% renters ) Avg: 0.6 million (129% renters)

Share and Excess Number of Young Adults with Parents

Local Population Growth Exceeds National Average % change

3. Growing need for new construction

Home Sales Volume New homes have more ground to make up (000s)

New Homes Share of Sales New homes half historic share of sales

Existing Home Turnover Rate Current turnover lower than normal

Cumulative Lost Existing Sales Substantial pent up sales

House Prices Return to Near-Normal House Price-to-Income Ratio US Charlottesville Virginia Long-term Peak Current Peak/Long-term US: 4.7/3.2 = 150% Charlottesville: 4.8/3.3 = 149% Virginia: 5.1/2.9 = 175%

Rates (inverted) & New Home Sales Still room for higher rates & more sales Forecast

4. Distressed sales diminishing

Seriously Delinquent Rates: Peak and Current - Largest correction in states with highest peak Std Dev 4Q Q

5. Builders see it

New Home Sales and NAHB/Wells Fargo Housing Market Index 1 month peak to peak (000s) 1 month peak to peak 3 months trough to trough 2 months peak to peak

Builders’ Concerns Increasing Share of builders citing issue

Forecasts

Remodeling Market Index (RMI) Above 50 for 5 of the past 6 quarters

Residential Remodeling Billions 2009 $, SAAR Actual Adjusted

Multifamily Production Index Above 50 for seven consecutive quarters (000s)

,000 ”Normal” , ,00056% ,00039% ,00025% ,0008% ,0009% Multifamily Housing Starts Healthy Response from Growth in Renters Trough to Current: 4 th Q 09 = 82,000 4 rh Q 13 = 351, % 2013Q4: 106% of “Normal”

NAHB/Wells Fargo Housing Market Index Builder sentiment dips, but improved overall from recession depth Single-family starts (R) HMI (L)

Existing and New Home Sales – On the Rise New (L) Existing (R)

,343,000 ”Normal” , ,000-8% ,00024% ,00016% ,00032% 20151,159,00041% Single-Family Starts – Beginning a Recovery Trough to Current: Mar 09 = 353,000 Jan 14 = 573, % 2013Q4: 49% of “Normal” 2015Q4: 93%

Percent of 'Normal' (annual average ) PeakTroughNow US129%32%47% VA115%36%48% Charlottesville120%41%

Single-family Permits Relative to ‘normal’ annual average

Recovery Will Vary By State Source: US Census Bureau

Rank Q Bottom 20% 20% to 40% 40% to 60% 60% to 80% Top 20% The Long Road Back to Normal < 84% 84% - 88% 89% - 94% 94% - 101% 102% < Relative to Normal This map shows how the states rank in the return to more normal levels of housing production. By the end of 2015, the top 20% will be back to normal production levels. The bottom 20% will be below 84% of normal production.

Questions? Answers: eyeonhousing.org