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Overview of Housing Market Dynamics

Explore the current trends and dynamics in the housing market, including low housing supply, high building costs, increased demand from millennials, and the impact of tax cuts and fiscal policy.

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Overview of Housing Market Dynamics

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  1. Overview of Housing Market Dynamics Murat Arik, Ph.D., PDBP Director and Assistant Professor of Management Presented at American Society of Cost Segregation Professionals Conference Nashville, TN November 1, 2018

  2. Building Starts Interest Rates Low Housing Supply Increased Cost of Building Delinquency and Foreclosure Rental Properties Engineers need as much specificity as possible, particularly about new features and release dates Unemployment and Income Increased Demand from Millennials Tax Cuts and Fiscal Policy Housing Affordability Succinct Likely to have a shorter time-frame than the executives’ roadmap

  3. Key Highlights Due to low supply, housing prices are high Costs of building are high Unemployment is low, and incomes are steadily increasing But a long-term mortgage is becoming more expensive Foreclosures and delinquencies are back to pre-recession levels Demand is ready for a drop in price

  4. Housing Supply

  5. Low housing supply keeps prices high Sept 2018 7.1 Source: FRED Data Series MSACSR Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  6. And depresses pending home sales Source: TRADINGECONOMICS.COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  7. But prices are beginning to flatten April to May May to June June to July 0.210% 0.156% 0.094% Source: FRED Data Series SPCS20RSA Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  8. Median Home Prices 2018 Median Listing Price (US$) 159,000 – 235,667 235,667 – 312,333 312,333 – 389,000 389,000 – 619,000 Source: BUSINESSINSIDER.COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  9. Building Starts

  10. Investment is flattening for single-family and multi-family residential housing April 2018 Single: 288.5 Multi: 59.8 Source: FRED Data Series C292RC1Q027SBEA, A944RC1Q027SBEA Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  11. And house sizes are declining April 2018 2,555 sqft Source: FRED Series HOUSTSFLAA1FQ Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  12. Delinquency and Foreclosure

  13. Foreclosure rates are at the lowest level since 2006 Source: ATTOM Data Solutions | Statistia.com Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  14. Foreclosure Rates 2018 Foreclosure Rates 0.006% - 0.027% 0.028% - 0.047% 0.049% - 0.069% 0.120% - 0.070% Source: REALTYTRAC.COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  15. Similarly, delinquency rates are at the lowest level since 2008 April 1, 2018 3.25 Jan 1, 2008 3.66 Source: FRED Series DRSFRMACBS Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  16. Increased Cost of Building

  17. Builders cannot find enough labor Source: MORTGAGENEWSDAILY.COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  18. Tariffs have increased costs of construction supplies even as the price of framing decreases Source: FRED Series WPU573 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  19. And tariffs are seen as a tax on housing • The National Association of Home Builders sees the increase in tariffs as a “one billion dollar tax on housing” (nahbnow.com) • It “estimates that of the 6,000 goods under the umbrella of the latest round of tariffs, roughly 600 products, representing $10 billion in goods, are related to the construction of new apartments and homes” (housingwire.com) Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  20. Unemployment and Income

  21. Unemployment at lowest rate since 1970 Sept 2018 3.7% Source: FRED Series UNRATE Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  22. Unemployment Rates 2018 Unemployment Rates 2.2% - 3.0% 3.1% - 3.8% 3.9% - 4.6% 4.7% – 6.5% Source: Bureau of Labor Statistics Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  23. Incomes continue to trend upward Source: FRED Series CES0500000017 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  24. Over the past two years, payrolls have increased at a constant 0.40% and hourly rates began increasing at 0.20% and are now increasing at 0.26% Source: FRED Series CES0500000003, CES0500000017 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  25. Unemployment rates decrease as deficits become larger 2017 Unemployment: 4.4% Deficit: $665,826 million Source: FRED Series FYFSD, UNRATE Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  26. Interest Rates and Fiscal Policy

  27. Interest rates are on the rise and the highest since 2011 4.85% 4.26% 3.18% Source: FRED Series MORTGAGE15US, MORTGAGE30US, DGS10 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  28. Mortgage Rates Average 30-Year Mortgage Rates 4.26% - 4.33% 4.34% - 4.37% 4.38% - 4.43% 4.44% - 4.56% Source: VALUEPENGUIN.COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  29. With inflation growing slowly Source: FRED Series CPIAUCSL_PCH Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  30. Sentiment lessens as expected inflation rises Source: FRED Series UMCSENT, MICH Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  31. Stock prices dip Source: FRED Series NASDAQCOM, SP500, DJIA Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  32. Tax Cuts

  33. Tax cuts should disincentivize large homes but leave more money for renovations • The tax reform of November 2017 was predicted to lower home prices, but home prices have increased by 6% since 2017, which is the same amount house prices increased from 2016 to 2017 (nytimes.com). • Tax savings from other areas of the reform, which on some points disincentivized owning large homes, is predicted to be funneled back into housing, either through improvements or buying bigger homes (thinkadvisor.com). • However, existing home sales are on a downward trend and new housing starts are flattening. Does this mean that more tax savings has been put into renovations? Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  34. But renovations will increase at a decreasing rate Source: Joint Center for Housing Studies of Harvard University Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  35. Housing Affordability

  36. The Housing Affordability Index is trending up but is much lower than a year ago Source: FRED Series COMPHAI Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  37. Increased Demand from Millennials

  38. Increased millennial demand will be a factor to increase housing demand • The millennial generation includes over 88 million people, many of whom are beginning to start families and demand housing • Millennial housing preferences are different, but many are confident that the generation is large enough to cause housing demand to increase, if more modestly than previous generations (Green et. al. 2016) Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  39. Millennials: Population 19-34 Population, Percent of Millennials 34% - 25% 24% - 23% 22% - 21% 20% - 18% Source: The Henry J. Kaiser Family Foundation Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  40. Rental Properties

  41. Renting advised as home prices are high • The price of owning a home has gone up 14% while rent has gone up only 4% (cnbc.com). • If the price-to-rent ratio rises, more people will opt out of home ownership in favor of renting. Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  42. Cost of home owning has been increasing but mostly flat with respect to renting Source: FRED Series SPCS20RSA / CUSR0000SEHC_NBD2 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  43. What’s Next?

  44. Crystal Ball: What to Expect Next Year • Unemployment will modestly increase, along with wages and CPI • Interest rates will rise • Housing starts will increase in the first two quarters. • New and existing home sales will modestly increase • Mortgage rates will continue to increase • Housing prices will continue to increase, suppressing mortgage application changes Source: TRADINGECONOMICS.COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  45. Crystal Ball: What to Expect Next Year Source: TRADINGECONOMICS.COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

  46. Critical Issues to Watch for Housing Market • Impact of Tariffs on Housing / Long Term • Changing Population Dynamics • FED Policy • Lifestyle Issues Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

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