1. U.S. Economic & Housing Outlook David Crowe Chief Economist April 4, 2013 NALHFA Annual Educational Conference

2. Outline  Macro Economy  Demographics (i.e., demand)  Housing Stock and Flow (i.e., supply  Forecasts  Markets

3. Macro

4. Real GDP Growth – Hesitated in Q4, but expected to improve 1.8% 2.6%

5. GDP and Housing in Recovery Housing component now growing faster than economy Beginning of Recovery End of buyer credit

6. Payroll Employment – A little over half-way back to peak Trend in employment Total employment Millions

7. Unemployment Will Remain High

8. Improving Markets Index – at 273 markets in April

9. Demographics (i.e., Demand)

10. Population by Single-Year of Age Rising population in prime household formation years Millions Born 1979 or later Born 1965-78 Born 1946-64Born 1945 or earlier Headship rates increase from 16% to 48%

11. Household Formations Are on the Rise Year-over-year change in households rising again Thousands Avg: 1.38 million Avg: 0.5 million Avg: 0.86 million

12. Annual Average Household Changes – Switch to Renting

13. Homeownership Rates by Age Group Decline from peak 2 to 6.9 percentage points 50+ (down 2 pts) 35-49 (down 5.5 pts)

15. Housing Stock and Flow (i.e., supply)

16. Stock of Homes by Building Size Share of 2-4 unit buildings falling in stock, but flow significantly different

17. Share of Rental Units by Building Size Rising share of rentals coming from single-family stock

18. Share of Production For Rent Single-family and multifamily rising

19. Rental Production and Jobs Production generally follows job market changes 100 jobs = 74 apartments

20. But, Linkage Changes During high direct and tax incentives, strong relationship

21. Lower Linkage in 1990s During readjustment to different subsidies

22. Relationship disrupted Slow 2002 economic recovery and likely switch to condos

23. Back to Normal? As job growth slowly returns, rental starts moving up

24. Forecasts Remodeling Multifamily Single family

25. Remodeling Market Index (RMI) Above 50 for 1 quarter

26. Residential Remodeling – Strong Finish to 2012 Billions 2005 $, SAAR

27. Multifamily Production Index 38-point increase in four years; above 50 for 4 quarters (000s)

28. 1995-2003331,000 2010114,000 2011178,00056% 2012247,00039% 2013312,00026% 2014331,0006% Multifamily Housing Starts Healthy Response from Growth in Renters Trough to Current: 4 th Q 09 = 82,000 4 th Q 12 = 312,000 280% 2012Q4 = 92% of “Normal”

29. Distribution of Multifamily Starts by Type Thousands 112 114 178 284 247 312

30. NAHB/Wells Fargo Housing Market Index - 30 point rise since September 2011 (000s) 8 44

31. 2000-20031,300,000 ”Normal” 2010471,000 2011434,000-8% 2012534,00023% 2013664,00024% 2014855,00029% Single-Family Starts – Beginning a Recovery Trough to Current: Mar 09 = 353,000 Feb 13 = 618,000 +75% 2012Q4 = 44% of “Normal’ 2014Q4=71%

32. Markets

33. Top Multifamily Markets: Now and Then Total Housing Permits (yellow shaded on both lists) Top Ten Multifamily Markets 2012 Top Ten Multifamily Markets 2000- 2002 1 New York 1 2 Dallas-Fort Worth 2 Miami 3 Houston 3 Chicago 4 Los Angeles 4 5 Washington 5 Dallas-Fort Worth 6 Austin 6 Denver 7 Seattle 7 Washington 8 Denver 8 Phoenix 9 Miami 9 Houston 10 Raleigh 10 Seattle

34. State Markets Nearest ‘Normal’ Ratio of 2012 Multifamily permit levels to 2000-2002 annual average 2012 MF Permits/2000-2002 Avg MF Permits DISTRICT OF COLUMBIA 4.11 TENNESSEE 1.04 NORTH DAKOTA 3.49 MONTANA 1.02 DELAWARE 2.64 OKLAHOMA 1.00 CONNECTICUT 2.17 NEBRASKA 0.96 TEXAS 1.44 OREGON 0.96 WYOMING 1.42 WASHINGTON 0.95 HAWAII 1.39 ALABAMA 0.94 SOUTH DAKOTA 1.34 NEW MEXICO 0.90 NEW JERSEY 1.33 VERMONT 0.86 MASSACHUSETTS 1.29 UTAH 0.86 MARYLAND 1.05 PENNSYLVANIA 0.85 NORTH CAROLINA 1.05 MINNESOTA 0.82 KENTUCKY 1.05 UNITED STATES 0.75

35. Metro Markets Nearest ‘Normal’ Ratio of 2012 Multifamily permit levels to 2000-2002 annual average 2012 MF Permits/2000-2002 Avg MF Permits San Angelo TX 52.80Tulsa OK 1.51 Dover DE 6.46 Charleston-North Charleston SC 1.48 Harrisonburg VA 6.21Austin-Round Rock TX 1.42 Odessa TX 6.17 Dallas-Fort Worth- Arlington TX 1.42 Birmingham-Hoover AL 2.34 Boston-Cambridge-Quincy MA-NH 1.38 Honolulu HI 2.29 San Francisco-Oakland- Fremont CA 1.34 Columbia SC 2.21Des Moines IA 1.30 Raleigh-Cary NC 2.18Wilmington NC 1.26 Laredo TX 2.08Fort Wayne IN 1.25 Nashville-Davidson--Murfreesboro TN 1.81 Philadelphia-Camden- Wilmington PA-NJ-DE-MD 1.22 Trenton-Ewing NJ 1.80Richmond VA 1.21 Houston-Baytown-Sugar Land TX 1.63 San Jose-Sunnyvale-Santa Clara CA 1.18 Tulsa OK 1.51UNITED STATES 0.75

36. Questions? Answers: www.housingeconomics.com eyeonhousing.wordpress.com dcrowe@nahb.org