Overview of Housing Market Dynamics Murat Arik Ph

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Overview of Housing Market Dynamics Murat Arik, Ph. D. , PDBP Director and Assistant

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

Building Starts Interest Rates Low Housing Supply Increased Cost of Building Delinquency and Foreclosure

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

KEY HIGHLIGHTS q Due to low supply, housing prices are high q Costs of

KEY HIGHLIGHTS q Due to low supply, housing prices are high q Costs of building are high q Unemployment is low, and incomes are steadily increasing q But a long-term mortgage is becoming more expensive q Foreclosures and delinquencies are back to prerecession levels q Demand is ready for a drop in price

Producer Price Index for Construction Supplies FRED WPU 573, Monthly, March 2009 = 100

Producer Price Index for Construction Supplies FRED WPU 573, Monthly, March 2009 = 100 S&P/Case-Shiller 20 -City Composite Home Price Index (2003 -2018) 250. 0 200. 0 106. 0 12. 0 101. 0 10. 0 96. 0 150. 0 91. 0 100. 0 86. 0 50. 0 81. 0 0. 0 2003200420052006200720082009201020112012201320142015201620172018 -01 - -01 - -01 - -01 - -0101 01 01 01 Civilian Unemployment Rate 2003 - 2018 8. 0 6. 0 4. 0 76. 0 200 201 201 201 201 201 9 - 9 - 0 - 0 - 1 - 1 - 2 - 2 - 3 - 3 - 4 - 4 - 5 - 5 - 6 - 6 - 7 - 7 - 8 - 803 - 09 - 03 - 09 - 03 - 09 - 03 - 0901 01 01 01 01 30 -Year Mortgage Rate 2007 -2018, Percent, Weekly, Not Seasonally Adjusted 7. 00 6. 00 5. 00 4. 00 3. 00 2. 00 1. 00 0. 00 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 201809 -13 09 -13 09 -13 2. 0 0. 0 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 201801 -01 01 -01 01 -01 Delinquency Rate Single-Family Residential Mortgages 2003 – 2018, Percent, Quarterly, Seasonally Adjusted 14. 00 12. 00 10. 00 8. 00 6. 00 4. 00 2. 00 0. 00 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -01 - -01 - -01 - -01 - -0101 01 01 01

HOUSING SUPPLY

HOUSING SUPPLY

Low housing supply keeps prices high Month's Supply of Housing 2003 - 2018 Monthly,

Low housing supply keeps prices high Month's Supply of Housing 2003 - 2018 Monthly, Seasonally Adjusted 14. 0 12. 0 10. 0 Sept 2018 7. 1 8. 0 6. 0 4. 0 2. 0 0. 0 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018 - 201801 -01 07 -01 01 -01 07 -01 01 -01 07 -01 01 -01 07 -01 Source: FRED Data Series MSACSR Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

And depresses pending home sales U. S. Pending Home Sales Percent Change 2. 0

And depresses pending home sales U. S. Pending Home Sales Percent Change 2. 0 0. 9 1. 0 0. 4 -0. 5 -1. 0 -2. 1 -2. 2 Apr-18 May-18 -2. 4 Jun-18 Jul-18 -2. 4 -2. 8 -3. 0 -4. 4 -4. 0 -5. 0 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Aug-18 Source: TRADINGECONOMICS. COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center Sep-18

But prices are beginning to flatten S&P/Case-Shiller 20 -City Composite Home Price Index (2003

But prices are beginning to flatten S&P/Case-Shiller 20 -City Composite Home Price Index (2003 -2018) Monthly, January 2000 = 100 250. 0 200. 0 150. 0 100. 0 50. 0 April to May 0. 210% May to June 0. 156% June to July 0. 094% 0. 0 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018 - 201801 -01 07 -01 01 -01 07 -01 01 -01 07 -01 01 -01 07 -01 Source: FRED Data Series SPCS 20 RSA Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

Median Home Prices 2018 Median Listing Price (US$) 159, 000 235, 667 312, 333

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

BUILDING STARTS

BUILDING STARTS

Investment is flattening for single-family and multi-family residential housing Private Fixed Investment Billions of

Investment is flattening for single-family and multi-family residential housing Private Fixed Investment Billions of dollars, Quarterly, Seasonally Adjusted, 2003 Q 3 – 2018 Q 2 500. 000 450. 000 April 2018 400. 000 350. 000 Single: 288. 5 300. 000 250. 000 200. 000 150. 000 Multi: 59. 8 100. 000 50. 000 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 201807 -01 01 -01 07 -01 01 -01 07 -01 01 -01 07 -01 01 -01 MF SF Source: FRED Data Series C 292 RC 1 Q 027 SBEA, A 944 RC 1 Q 027 SBEA Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

And house sizes are declining Average Square Feet for New Single Family Units Quarterly,

And house sizes are declining Average Square Feet for New Single Family Units Quarterly, Seasonally Adjusted April 2018 2, 555 sqft 2800 2700 2600 2500 2400 2300 2200 2100 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 201801 -01 07 -01 01 -01 07 -01 01 -01 07 -01 01 -01 07 -01 01 -01 Source: FRED Series HOUSTSFLAA 1 FQ Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

DELINQUENCY AND FORECLOSURE

DELINQUENCY AND FORECLOSURE

Foreclosure rates are at the lowest level since 2006 Foreclosure Rate Percent, U. S.

Foreclosure rates are at the lowest level since 2006 Foreclosure Rate Percent, U. S. 2005 -2017 2. 5 2. 23 2. 21 2 1. 84 1. 45 1. 39 1. 04 1. 03 0. 85 1 0. 5 0. 46 0. 82 0. 58 0. 7 0. 51 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: ATTOM Data Solutions | Statistia. com Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center 2017

Foreclosure Rates 2018 Foreclosure Rates 0. 006% 0. 028% 0. 049% 0. 120% -

Foreclosure Rates 2018 Foreclosure Rates 0. 006% 0. 028% 0. 049% 0. 120% - 0. 027% 0. 047% 0. 069% 0. 070% Source: REALTYTRAC. COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

Similarly, delinquency rates are at the lowest level since 2008 Delinquency Rate Single-Family Residential

Similarly, delinquency rates are at the lowest level since 2008 Delinquency Rate Single-Family Residential Mortgages 2003 – 2018, Percent, Quarterly, Seasonally Adjusted 14. 00 12. 00 10. 00 April 1, 8. 00 Jan 1, 6. 00 2018 2008 4. 00 3. 25 3. 66 2. 00 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center 01 20 18 -0 1 - 01 -0 17 20 1 -0 16 20 Source: FRED Series DRSFRMACBS 1 - 01 01 -0 15 20 1 -0 14 20 1 - 01 01 20 13 -0 1 - 01 20 12 -0 120 11 -0 1 - 01 01 20 10 -0 1 - 01 20 09 -0 1 - 01 20 08 -0 1 - 01 20 07 -0 1 - 01 20 06 -0 1 - 01 20 05 -0 1 - 01 1 -0 04 20 20 03 -0 1 - 01 0. 00

INCREASED COST OF BUILDING

INCREASED COST OF BUILDING

Builders cannot find enough labor Percent of Builders Reporting Labor Shortages in 2018 Survey

Builders cannot find enough labor Percent of Builders Reporting Labor Shortages in 2018 Survey for NAHB/Wells Fargo Housing Market Index, July 2018 0 10 20 Carpenters-rough 30 40 50 60 37 Framing crews 48 24 Drywall Installation workers 46 17 Bricklayers/Masons 49 22 Plumbers 43 20 43 Electricians 17 43 Roofers 16 44 Painters 16 43 Landscaping workers 13 HVAC workers 45 15 Flooring installers 11 Excavators 11 Weatherization workers Building maintainance manager 90 39 30 Concrete workers 80 46 42 Carpenters-finished 70 43 46 42 9 39 10 37 Serious Shortage Some Shortage Source: MORTGAGENEWSDAILY. COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

Tariffs have increased costs of construction supplies even as the price of framing decreases

Tariffs have increased costs of construction supplies even as the price of framing decreases Producer Price Index for Construction Supplies FRED WPU 573, Monthly, March 2009 = 100 2009 -2018 106. 0 101. 0 96. 0 91. 0 86. 0 81. 0 76. 0 2009 -03 - 2009 -09 - 2010 -03 - 2010 -09 - 2011 -03 - 2011 -09 - 2012 -03 - 2012 -09 - 2013 -03 - 2013 -09 - 2014 -03 - 2014 -09 - 2015 -03 - 2015 -09 - 2016 -03 - 2016 -09 - 2017 -03 - 2017 -09 - 2018 -03 - 2018 -0901 01 01 01 01 Source: FRED Series WPU 573 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

And tariffs are seen as a tax on housing ■ The National Association of

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

UNEMPLOYMENT AND INCOME

UNEMPLOYMENT AND INCOME

Unemployment at lowest rate since 1970 Civilian Unemployment Rate 2003 - 2018, Percent, Monthly,

Unemployment at lowest rate since 1970 Civilian Unemployment Rate 2003 - 2018, Percent, Monthly, Seasonally Adjusted 12. 0 10. 0 8. 0 6. 0 Sept 2018 4. 0 3. 7% 2. 0 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center 01 -0 18 20 1 -0 17 20 Source: FRED Series UNRATE 1 - 01 01 20 16 -0 1 - 01 -0 15 20 1 -0 14 20 1 - 01 01 20 13 -0 1 - 01 -0 12 20 1 -0 11 20 1 - 01 01 20 10 -0 1 - 01 20 09 -0 1 - 01 20 08 -0 1 - 01 20 07 -0 1 - 01 20 06 -0 1 - 01 20 05 -0 1 - 01 1 -0 04 20 20 03 -0 1 - 01 0. 0

Unemployment Rates 2018 Unemployment Rates 2. 2% 3. 1% 3. 9% 4. 7% –

Unemployment Rates 2018 Unemployment Rates 2. 2% 3. 1% 3. 9% 4. 7% – 3. 0% 3. 8% 4. 6% 6. 5% Source: Bureau of Labor Statistics Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

Incomes continue to trend upward Index of Aggregate Weekly Payrolls: Total Private 2006 -2018,

Incomes continue to trend upward Index of Aggregate Weekly Payrolls: Total Private 2006 -2018, Monthly, Index 2007=100, Seasonally-Adjusted 160. 0 140. 0 120. 0 100. 0 80. 0 60. 0 40. 0 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018 - 201803 -01 09 -01 03 -01 09 -01 03 -01 09 -01 03 -01 09 -01 Source: FRED Series CES 0500000017 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

Over the past two years, payrolls have increased at a constant 0. 40% and

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% Percent Change in Index of Aggregate Weekly Payrolls: Total Private Percent Change in Average Hourly Earning: Total Private 2016 -2018, Monthly 2016 -2018, Dollars/Hour, Monthly, Seasonally Adjusted 0. 80% 0. 70% 0. 60% 0. 50% 0. 40% 0. 30% 0. 20% 0. 10% 0. 00% -0. 10% -0. 20% 0. 50% 0. 40% 0. 30% 0. 20% 0. 10% 0. 00% -0. 10% Source: FRED Series CES 0500000003, CES 0500000017 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center 01 01 9 -0 18 20 -0 7 - 01 18 20 -0 5 - 01 18 20 -0 3 - 01 18 20 18 -0 1 - 01 120 -1 17 9 - 20 -0 17 20 -0 7 - 01 01 01 17 20 -0 5 - 01 -0 17 20 17 1 - 20 -0 3 - 01 01 17 20 -1 1 - 01 16 20 20 16 -0 -0 9 - 9 - 01 01 18 20 -0 7 - 01 18 20 18 -0 320 -0 18 20 5 - 01 01 -0 18 1 - 20 -1 17 1 - 01 01 920 -0 17 7 - 20 -0 20 17 -0 5 - 01 01 01 17 20 -0 3 - 01 17 1 - 20 -0 17 120 -1 16 20 20 16 -0 9 - 01 01 -0. 20%

Housing Market Dynamics | FYFSD Dr. Murat Arik 6/ 6/ UNRATE | /1 05

Housing Market Dynamics | FYFSD Dr. Murat Arik 6/ 6/ UNRATE | /1 05 05 19 9/ 7/ 05 05 19 8/ 7/ 19 7/ 7/ 05 19 6/ 7/ 19 5/ 7/ 05 05 19 4/ 7/ 19 3/ 7/ 05 05 19 2/ 7/ 19 1/ 5 90 5 5 90 /1 30 7/ 6/ 29 /1 /1 27 28 6/ 90 5 5 90 90 /1 26 /1 25 /1 24 /1 /1 22 /1 21 23 6/ 6/ 6/ 90 5 5 90 90 /1 20 /1 /1 18 /1 17 /1 5 90 5 5 5 90 90 90 /1 16 19 6/ 6/ 6/ 15 /1 /1 /1 13 14 6/ 6/ 6/ 12 12 Source: FRED Series FYFSD, UNRATE Business and Economic Research Center 0: : 0 00 0: : 0 0: 00 00 0: : 0 12 12 12 00 00 0: : 0 12 12 0: : 0 00 00 0: : 0 12 12 12 00 0: : 0 12 00 00 00 0: 0: : 0 12 00 00 0: : 0 12 00 00 0: 00 0: 0: : 0 12 : 0 12 00 0: : 0 12 00 00 0: 0: : 0 12 12 AM AM AM AM AM AM AM Millions of Dollars $600, 000 10. 0 $300, 000 5. 0 $0 0. 0 -$300, 000 -5. 0 -$600, 000 -10. 0 -$900, 000 -15. 0 -$1, 200, 000 -20. 0 -$1, 500, 000 -25. 0 Percent 6/ Unemployment rates decrease as deficits become larger Unemployment Rate and Federal Surplus/Deficit Percent and Millions of Dollars 2017 Unemployment: 4. 4% Deficit: $665, 826 million

INTEREST RATES AND FISCAL POLICY

INTEREST RATES AND FISCAL POLICY

Interest rates are on the rise and the highest since 2011 Interest Rates 2007

Interest rates are on the rise and the highest since 2011 Interest Rates 2007 -2018, Percent, Weekly, Not Seasonally Adjusted 15 - and 30 -year Mortgage Rates, 10 -Year Treasury Yield 7. 00 6. 00 4. 85% 5. 00 4. 26% 3. 00 3. 18% 2. 00 1. 00 0. 00 200709 -13 200803 -13 200809 -13 200903 -13 200909 -13 201003 -13 201009 -13 201103 -13 201109 -13 201203 -13 201209 -13 MORTGAGE 15 US 201303 -13 201309 -13 201403 -13 MORTGAGE 30 US 201409 -13 201503 -13 201509 -13 201603 -13 201609 -13 201703 -13 DGS 10 Source: FRED Series MORTGAGE 15 US, MORTGAGE 30 US, DGS 10 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center 201709 -13 201803 -13 201809 -13

Mortgage Rates Average 30 -Year Mortgage Rates 4. 26% 4. 34% 4. 38% 4.

Mortgage Rates Average 30 -Year Mortgage Rates 4. 26% 4. 34% 4. 38% 4. 44% - 4. 33% 4. 37% 4. 43% 4. 56% Source: VALUEPENGUIN. COM Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

With inflation growing slowly CPI: All Items Percent Change in CPI 2007 -2018, Index

With inflation growing slowly CPI: All Items Percent Change in CPI 2007 -2018, Index 1982 -1984=100, Monthly, Seasonally Adjusted 2007 -2018, Monthly 300. 000 1. 5 250. 000 1. 0 0. 5 200. 000 0. 0 150. 000 -0. 5 100. 000 -1. 0 50. 000 -1. 5 0. 000 -2. 0 200 200 201 201 201 201 201 7 - 8 - 8 - 9 - 9 - 0 - 0 - 1 - 1 - 2 - 2 - 3 - 3 - 4 - 4 - 5 - 5 - 6 - 6 - 7 - 7 - 8 - 809 - 03 - 09 - 03 - 09 - 03 - 0901 01 01 01 01 01 200 200 200 201 201 201 201 201 7 - 8 - 8 - 9 - 9 - 0 - 0 - 1 - 1 - 2 - 2 - 3 - 3 - 4 - 4 - 5 - 5 - 6 - 6 - 7 - 7 - 8 - 807 - 01 - 07 - 01 - 07 - 01 - 0701 01 01 01 01 01 Source: FRED Series CPIAUCSL_PCH Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

Sentiment lessens as expected inflation rises University of MI Consumer Sentiment and Expected Inflation

Sentiment lessens as expected inflation rises University of MI Consumer Sentiment and Expected Inflation Indices 120. 0 6. 0 100. 0 5. 0 80. 0 4. 0 60. 0 3. 0 40. 0 20. 0 1. 0 0. 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -01 - -07 - -01 - -07 - -01 - -07 - -01 - -07 - -01 - -0701 01 01 01 01 01 01 01 UMCSENT MICH Dr. Murat Arik | Source: FRED Series UMCSENT, MICH Housing Market Dynamics | Business and Economic Research Center Expectation for Inflation Consumer Sentiment Monthly, 2000 -2018

Stock prices dip Daily Stock Indices 10/24/2008 - 10/24/2018 30000. 00 9000. 00 8000.

Stock prices dip Daily Stock Indices 10/24/2008 - 10/24/2018 30000. 00 9000. 00 8000. 00 25000. 00 7000. 00 6000. 00 20000. 00 5000. 00 15000. 00 4000. 00 3000. 00 10000. 00 2000. 00 5000. 00 1000. 00 Source: FRED Series NASDAQCOM, SP 500, DJIA Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center 24 17 -1 0 - 24 20 16 -1 0 - 24 SP 500 20 20 15 -1 014 -1 0 - 24 24 NASDAQCOM 20 13 -1 0 - 24 20 12 -1 0 - 24 20 0 -1 11 20 -1 10 20 0 -1 20 09 -1 08 20 0 - 24 24 0 - 24 -1 17 20 0 -1 16 15 0 - 24 24 20 -1 0 - 24 20 14 -1 020 13 -1 0 - 24 24 20 12 -1 0 - 24 0 -1 11 20 24 20 10 -1 0 - 24 0 -1 09 20 24 20 0 -1 08 20 DJIA 24 0. 00

TAX CUTS

TAX CUTS

Tax cuts should disincentivize large homes but leave more money for renovations ■ The

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

But renovations will increase at a decreasing rate Source: Joint Center for Housing Studies

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

HOUSING AFFORDABILITY

HOUSING AFFORDABILITY

The Housing Affordability Index is trending up but is much lower than a year

The Housing Affordability Index is trending up but is much lower than a year ago Percent Change in Composite Housing Affordability Index Monthly, Not Seasonally Adjusted 165. 0 160. 0 4. 0% 155. 0 2. 0% 150. 0% 145. 0 -2. 0% 140. 0 135. 0 -4. 0% 130. 0 -6. 0% 125. 0 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center 01 01 8 -0 18 20 -0 7 - 01 18 20 18 -0 6 - 01 20 18 -0 5 - 01 Source: FRED Series COMPHAI 20 -0 18 320 -0 4 - 01 01 18 20 -0 2 - 01 18 20 -0 1 - 01 18 20 -1 2 - 01 17 20 -1 17 020 -1 20 17 -0 1 - 01 01 9 - 01 8 - 01 18 20 -0 7 - 01 18 20 -0 6 - 01 18 20 -0 5 - 01 18 20 -0 4 - 01 18 20 -0 3 - 01 18 20 -0 2 - 18 20 -1 1 - 01 01 17 20 -1 1 - 01 17 020 -1 17 920 -0 17 820 -0 17 20 01 -8. 0% 01 120. 0

INCREASED DEMAND FROM MILLENNIALS

INCREASED DEMAND FROM MILLENNIALS

Increased millennial demand will be a factor to increase housing demand ■ The millennial

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

Millennials: Population 1934 Population, Percent of Millennials 34% 22% 20% - 25% 23% 21%

Millennials: Population 1934 Population, Percent of Millennials 34% 22% 20% - 25% 23% 21% 18% Source: The Henry J. Kaiser Family Foundation Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

RENTAL PROPERTIES

RENTAL PROPERTIES

Renting advised as home prices are high ■ The price of owning a home

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

Cost of home owning has been increasing but mostly flat with respect to renting

Cost of home owning has been increasing but mostly flat with respect to renting Price to Rent Ratio S&P Case-Shiller 20 -City Composite to CPI: Owner's Equivalent Rent Index for both: January 2000 = 100 2 1. 8 1. 6 1. 4 1. 2 1 0. 8 0. 6 0. 4 0. 2 0 2003 - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018 - 201801 -01 07 -01 01 -01 07 -01 01 -01 07 -01 01 -01 07 -01 Source: FRED Series SPCS 20 RSA / CUSR 0000 SEHC_NBD 2 Housing Market Dynamics | Dr. Murat Arik | Business and Economic Research Center

WHAT’S NEXT?

WHAT’S NEXT?

Crystal Ball: What to Expect Next Year ■ Unemployment will modestly increase, along with

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

Crystal Ball: What to Expect Next Year Source: TRADINGECONOMICS. COM Housing Market Dynamics |

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

Critical Issues to Watch for Housing Market ■ Impact of Tariffs on Housing /

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