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NAHB Housing & Economic Outlook Report Distributed by:

North Central Home Builders Association www.nchba.cc “Promoting & Protecting the Building Industry of NCW�


Housing and Economic Outlook Board of Directors May 20, 2011 DAVID CROWE CHIEF ECONOMIST


Total Housing Starts 600

595 580

523 500

400

300 IBS Q1 2011 Forecast (Dec.)

Actual Q1 2011

.

Apr-11


2011 Total Housing Starts Forecast Change since the January Board Meeting 750 708

615

620

Current 2011 Forecast

Consensus 2011 Forecast (Blue Chip)

600

450

300 IBS 2011 Forecast


Outline

•Why be Optimistic •Why Be Pessimistic •Forecast


Why Be Optimistic


Mortgage Rates Are Low 20

Percent

18 16 14 12 10

Fixed-Rate

8 6

5.90

Adjustable-Rate

4

4.50

2 0 78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12


House Prices Returned to Normal (Mostly) House Price-to-Income Ratio 5.0

4.7 4.5

4.0

3.5

3.2 3.3

3.0

2.5

2.0 90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11


Most States Returning to Normal House Prices House Price-to-Income Ratio Relative to the Long-term Average*

Legend House Price-to-Income Ratio Relative to the LT Average Less than Up to 25% above More than 25% above

* LT average is the average house priceto-income ratio for each state between first quarter 1980 and fourth quarter 2000.


Affordability Very Good – United States NAHB/Wells Fargo Housing Opportunity Index 100

75

75

50

25 92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11


New Home Inventory Very Low New and Existing Homes For-Sale 600

Thousand Units

Million Units

4.0

3.5 500

New (L) 3.0

400 2.5

300

2.0

Existing (R) 1.5 200

183 1.0 100

73K completed

0

0.5

0.0 90

92

94

96

98

00

02

04

06

08

10


Pent Up Household Demand Awaiting Recovery Up to 2 Million Unformed Household 114,000

Number of Households

(000s)

3.0%

1 to 2 M Gap

112,000

2.5%

110,000

2.0%

108,000

1.5%

Percentage Change

106,000

1.0%

104,000

0.5%

102,000

0.0% 01

02

03

04

05

06

07

08

09

10

11


Employment Situation is Improving Monthly Job Growth 2010 and 2011 500 Thousand jobs 400 300 200 100 0 -100 -200 -300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2010

2011 Total Employment

Private Employment


Why Be Pessimistic


NAHB/Wells Fargo Housing Market Index Remains Low 100 90 80 70 60 50 40 30 20

16

10 0 90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11


Single-Family Starts Remain Near Bottom 2,000

Thousands

1995-2003 2009 2010

1,800 1,600

1,256,000 442,000 471,000

7%

1,400 1,200 1,000 800 600 400

Mar 09 = 353,000 Apr 11 = 394,000 +12%

200 0 90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11


Mortgage Foreclosures and Delinquency Million Loans (12MMA)

7

5.91

6

5 4.38 4

3.74

3

2

2.02

1

0 90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

Total Loans in Foreclosure at End of Quarter

Loans Past Due 90 Days

Loans Past Due 60 Days

Loans Past Due 30 Days

08

09

10


Reasons Customer is Holding Back 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Buyers!think!they!cannot!sell!their!existing!home!at! a!favorable!price Buyers!think!it!is!hard!to!get!financing Media!reports!are!making!buyers!more!cautious Buyers!think!new"home!prices!will!decline!further Buyers!think!employment/economic!situation!is! deteriotating Buyers!think!interest!rates!will!drop May"11

Apr"10

May"09


What’s Gotten Worse in Last 3 Months? 0%

10%

20%

Cost!of!construction!greater!than!price!customer! willing!to!pay Competition!from!foreclosure/short!sales Customer!reluctance Inaccurate!appraisals The!market!segment!I!build!in!is!weak Difficulty!with!AD&C!financing Competition!from!large!volume!builders 11"May

10"May

30%

40%

50%

60%

70%

80%


Sales By Price Range % describing change

$1,000,000"and"over

$500,000"to"$999,999

$250,000"to"$499,999

$150,000"to"$249,000

Less"than"$150,000

!0.7

!0.6

May!11!increase

!0.5

!0.4

Dec!10!increase

!0.3

!0.2

!0.1

May!11!decline

0

0.1

Dec!10!decline

0.2

0.3


Fixed Investment Residential and Commercial Structures 90

$ billion (Commercial)

(Residential) $ billion

Residential

80

900 800

70

700

60

600

Office

50

500

40

400

Shopping Centers

30

300

20

200

Warehouse

10

100

0

0 95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11


Forecast


Real GDP Growth Q/Q Percent Change, SAAR

10% 8% 6% 4% 2% 0% -2% -4% -6% -8% 90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12


Job Growth Improving in Recent Months Average Monthly Employment Change 600 400

Thousand jobs

198,000

96,000

200 0 -200 -400 -600 -800

1st half 2010 = 110,000 ( 71K private) 2nd half 2010 = 47,000 (125K private) 1st 4 months 2011 = 192,000 (214K private)

-1,000 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12


New and Existing Single-Family Home Sales 1.6

Million

Million

8

1.4

7

1.2

6

Existing (R)

1.0

5

New (L) 0.8

4

0.6

3

0.4

2

0.2

1

0.0

0 78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12


Single-Family Starts 2,000 1,800 1,600

Thousands

1995-2003 2009 2010 2011 2012

1,256,000 442,000 471,000 471,000 698,000 .

7% 0% 48%

1,400 1,200 1,000 800 600 400 200

Mar 09 = 353,000 Apr 11 = 394,000 12%

0 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12


NAHB and Census Production Index (NAHB)

(Census) Thousand Units

60

500

NAHB MF Rental Production Index

450

50 400 350 40

Census MF Starts

300

30

250 200

20 150 100 10 50 0

0 04

05

06

07

08

09

10

11

12


Multifamily Housing Starts 750

600

Thousands

1995-2003 2009 2010 2011 2012

331,000 112,000 114,000 140,000 175,000.

2% 23% 25%

450

300

150

0

4th Q 09 = 82,000 1st Q 11 = 166,000 103% 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12


Remodeling Market Index Index

70

70

60

60

50

50

40

40

30

30

20

20

10

10

0

0 00

01

02

03

04

05

06

07

08

09

10

11

12


Residential Remodeling Owner-Occupied Improvements Billions 2005 $, SAAR 160 150 140 130 120 110 100 90 80 70 60 93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12


Trough Level of Production Relative To “Normal” Housing Starts / Average 2000-03 Starts 0.8

0.7

National Average bottomed out at 27% in 2009Q1 0.6

0.5

0.4

0.3

0.2

0.1

0.0 U M N I A M C C F G O I M R W C N N O M U K I A M K V N P I N N H T S D W D N S W V A M T N A M O L MW S I V L Z NOA L AHNO I I T H J RD T SDKAYACAAYM I NDEACECV T RE XD L SKA T Y Source: US Census Bureau


Tax Credit Level of Production Above Low 1.0

Housing Starts / Average 2000-03 Starts

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 U M N I A M C C F G O I M R W C N N O M U K I A M K V N P I N N H T S D W D N S W V A M T N A M O L MW S I V L ZNOALAHNO I I T H J RDT SDKAYACAAYM I NDEACECV TREXDL SKAT Y Source: US Census Bureau


Current Level of Production Relative To “Normal” 1.0

Housing Starts / Average 2000-03 Starts

0.9 0.8

National Average at 31% in 2011Q1

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 U M N I A M C C F G O I M R W C N N O M U K I A M K V N P I N N H T S D W D N S W V A M T N A M O L MW S I V L ZNOALAHNO I I T H J RDT SDKAYACAAYM I NDEACECV TREXDL SKAT Y Source: US Census Bureau


Long Road Back to Normal* for Single-Family Housing Starts – Q4 2012

Legend Relative to Normal Single-Family Housing Starts Less than 50% of Normal 50% to 75% of Normal 75% to 100% of Normal Greater than 100% of Normal

* Normal Production is measured as SingleFamily housing starts between Q1 2000 and Q4 2003

* Normal is the average from Q1 2000 to Q4 2003


Questions? Answers: www.housingeconomics.com eyeonhousing.wordpress.com


Housing & Economic Outlook Report