Partnerships with Purpose: Housing for Texans

Partnerships with Purpose: Housing for Texans 25th Annual TALHFA Educational Conference October 25-27, 2017 Fort Worth, Texas Dr. James P. Gaines Chief Economist

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Outlook Since November 10, 2017: Rising Optimism... Awaiting Reality

Changes Potentially Substantial Fiscal tax reforms: MID, 1031 Exchanges Infrastructure & Defense more government spending: domestic orientation, less foreign Monetary Fed policies, interest rates Regulatory lessen regs & controls on business, housing, banking; Obamacare & Dodd-Frank targets Trade NAFTA, foreign trade agreements Foreign Relations dealings with Europe, Russia, China and rest of the world

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Thousands of Jobs, SA Monthly Change in Total Nonfarm Employment 600 400 200 0-200 -400-600 Six-month moving average -800-1,000 Average of ~197,000 jobs per month since October 2010 Sources: BLS; Haver Analytics; Real Estate Center at Texas A&M University

Personal Income Y/Y Percent Change, SAAR 1000% 800% 600% 400% 200% 0% -200% -400% -600% -800% 2005 - Jan 2006 - Jan 2007 - Jan 2008 - Jan 2009 - Jan 2010 - Jan 2011 - Jan 2012 - Jan 2013 - Jan 2014 - Jan 2015 - Jan 2016 - Jan 2017 - Jan Sources: BEA; Haver Analytics; Real Estate Center at Texas A&M University

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Inflation Remains Relatively Low 6.0% Consumer Price Index for All Urban Consumers: All Items; Y/Y % change in index 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% Source: BLS 7

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Consumer Confidence Index 160 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 Harvey hit Texas hard Texas U.S. Source: The Conference Board (1985=100); Haver Analytics 8

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 NFIB Small Business Optimism Index (Overall Index SA 1986 = 100) 110 108 106 104 102 100 98 96 94 92 90 88 86 84 Source: National Federation of Independent Businesses; based on ten survey indicators

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 10-Year Treasury; Federal Funds & 30- Year FMR 7.0 6.0 5.0 30 Year Mortgage 10 Year Treasury Federal Funds Effective Rate 7.0 6.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 Source: Haver Analytics; FHLMC; St. Louis FED; Real Estate Center at Texas A&M University 10

12/3/15 12/17/15 12/31/15 1/14/16 1/28/16 2/11/16 2/25/16 3/10/16 3/24/16 4/7/16 4/21/16 5/5/16 5/19/16 6/2/16 6/16/16 6/30/16 7/14/16 7/28/16 8/11/16 8/25/16 9/8/16 9/22/16 10/6/16 10/20/16 11/3/16 11/17/16 12/1/16 12/15/16 12/29/16 1/12/17 1/26/17 2/9/17 2/23/17 3/9/17 3/23/17 4/6/17 4/20/17 5/4/17 5/18/17 6/1/17 6/15/17 6/29/17 7/13/17 7/27/17 8/10/17 8/24/17 9/7/17 9/21/17 10/5/17 10/19/17 11/2/17 11/16/17 11/30/17 12/14/17 12/28/17 Weekly 30-Year Mortgage Rate 4.5% 4.4% 4.3% 4.2% 4.1% 4.0% 3.9% 3.8% 3.7% 3.6% 3.5% 3.4% 3.3% 3.2% 3.1% 3.0% 2015-12-31, 4.01% 2016-11-03, 3.54% 2016-12-29, 4.32% Source: FHLMC; Real Estate Center at Texas A&M University 11

Texas Economy 2017 Recovery Year Doing Very Well 2018: Potentially Great/Difficult Year 12

Texas Outlook 2017 much better than 2016: energy, healthcare, business & professional services up; Harvey relatively minor to state National economic expansion most positive factor for 2018 Energy sector downturn impacts mostly over; oil prices stabilizing at $40-$55 Texas job growth picking up, expect ~2.5% or more Population expansion continues Local Growth Issues becoming more pressing, causing greater strain on state and local resources and causing some cost impacts on local housing Rebound from Harvey will contribute to some misleading economic growth in 2018 13

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017p Texas and U.S. Economic Growth Annual Percent Change in Real GDP 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Texas US 6.2% 6.2% 5.7% 5.1% 4.8% 4.9% 4.5% 4.7% 4.5% 4.1% 3.9% 3.8% 3.6% 3.7% 3.6% 3.3% 3.3% 2.8% 2.6% 2.7% 2.6% 2.5% 2.6% 2.9% 2.3% 2.2% 2.2% 1.8% 1.8% 1.5% 1.6% 1.7% 1.5% 1.0% 0.8% 0.6% 0.4% -0.3% -0.6% -2.8% Sources: BEA; Real Estate Center at Texas A&M University 14

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017p Texas Annual Jobs 13,000,000 12,000,000 11,000,000 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 2010-2015 +1,499,600 jobs; average 299,920/year 8,642,700 8,291,400 8,058,700 7,786,100 7,515,100 7,125,700 7,204,600 7,301,200 9,461,200 9,543,900 9,189,400 8,973,700 9,446,400 9,400,700 9,771,800 9,527,700 11,241,200 10,914,400 10,642,400 10,604,200 10,428,200 10,341,100 10,374,500 10,098,300 2012 +2.9% +310,200 2013 +3.0% +326,800 2014 +3.1% +352,700 2015 +2.4% +275,800 2016 +1.3% +158,700 2017p +2.5% +300,710 12,329,110 12,028,400 11,869,700 11,593,900 Sources: Texas Workforce Commission, Real Estate Center at Texas A&M University 15

Dallas Fed Job Forecast 2.6 Percent Growth in 2017 Average 28,000 jobs/mo. 1H17 Total 336,000 jobs at average/mo. Source: Federal Reserve Bank of Dallas, September 15, 2017

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Texas Business-Cycle Index January 1987=100 330 320 310 300 290 280 270 260 250 240 230 220 Average Y/Y rate of increase 4.8% Source: Federal Reserve Bank of Dallas

1/7/2000 3/31/2000 6/23/2000 9/15/2000 12/8/2000 3/2/2001 5/25/2001 8/17/2001 11/9/2001 2/1/2002 4/26/2002 7/19/2002 10/11/2002 1/3/2003 3/28/2003 6/20/2003 9/12/2003 12/5/2003 2/27/2004 5/21/2004 8/13/2004 11/5/2004 1/28/2005 4/22/2005 7/15/2005 10/7/2005 12/30/2005 3/24/2006 6/16/2006 9/8/2006 12/1/2006 2/23/2007 5/18/2007 8/10/2007 11/2/2007 1/25/2008 4/18/2008 7/11/2008 10/3/2008 12/26/2008 3/20/2009 6/12/2009 9/4/2009 11/25/2009 2/19/2010 5/14/2010 8/6/2010 10/29/2010 1/21/2011 4/15/2011 7/8/2011 9/30/2011 12/22/2011 3/16/2012 6/8/2012 8/31/2012 11/21/2012 2/15/2013 5/10/2013 8/2/2013 10/25/2013 1/17/2014 4/11/2014 7/3/2014 9/26/2014 12/19/2014 3/13/2015 6/5/2015 8/28/2015 11/20/2015 2/12/2016 5/6/2016 7/29/2016 10/21/2016 1/13/2017 4/7/2017 6/30/2017 9/22/2017 12/15/2017 Weekly Active Texas Rig Count & Price of WTI 1,000 950 900 850 800 750 700 650 600 550 500 450 400 350 300 250 200 150 100 Rig Count (left) 11/21/2014, 906 6/27/2014, 106.69 WTI $/bl. (right) Rig Count up 271, +157% since May 2016 5/20/2016, 173 $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Source: Baker Hughes; EIA; RE Center at Texas A&M University 18

Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Average Monthly Price Current and Futures Price of WTI $120 $110 $100 Cushing Spot Price 12-Month Futures 6-Month Futures 2-Year Futures $90 $80 $70 $60 $50 $40 $30 Sources: EIA; Haver Analytics 19

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Annual Employment Growth Rates 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0-3.0-4.0 Texas Houston Austin Dallas San Antonio Source: BLS, Real Estate Center at Texas A&M University 20

Jan-81 Jul-81 Jan-82 Jul-82 Jan-83 Jul-83 Jan-84 Jul-84 Jan-85 Jul-85 Jan-86 Jul-86 Jan-87 Jul-87 Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Business Cycle Indexes: Major Texas Metros Months Seasonally Adjusted, October, 1980=100 900.0 850.0 800.0 750.0 700.0 650.0 600.0 550.0 500.0 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 Texas Austin Dallas Fort Worth Houston San Antonio Source: Federal Reserve Bank of Dallas

Texas Demographics

2015 to 2016 Population Change Texas added 432,957 people; now 27,862,596; 217,542 from in-migration: 125,703 Domestic Since 2010 +2,618,286 (average 436,381/year) DFW added 143,400, now 7.23 million #4 MSA D-P-I MD +97,839, more than any other MSA except Houston Since 2010 +780,646 (average +130,000/year) Houston added 125,000, now 6.77 million #5 MSA Only two MSAs to add > 100,000 Since 2010 +824,296 (average +137,382/year) Austin added 58,301; now 2,056,405; #31 MSA edging out Cleveland and Columbus, Ohio Since 2010 +328,749 (average 54,792/year) Source: U.S. Census Bureau; Real Estate Center at Texas A&M University 23

2015-2016 Top 10 MSAs Population MSA 2016 Pop. 2015-2016 Percent Chg. 2010-2016 Average Pop. / Year New York-Newark 20,153,634 35,571 0.2% 552,835 92,139 Los Angeles 13,310,447 41,619 0.3% 467,327 77,888 Chicago 9,512,999-19,570-0.2% 41,362 6,894 Dallas-FW 7,233,323 143,435 2.0% 780,646 130,108 Houston 6,772,470 125,005 1.9% 824,296 137,383 Washington 6,131,977 53,508 0.9% 465,322 77,554 Philadelphia 6,070,500 8,197 0.1% 98,451 16,409 Miami 6,066,387 64,670 1.1% 482,003 80,334 Atlanta 5,789,700 90,650 1.6% 485,771 80,962 Boston 4,794,447 27,692 0.6% 228,540 38,090 Sources: U.S. Census Bureau; Real Estate Center at Texas A&M University

Texas Population 1910-2050 60,000,000 50,000,000 40,000,000 From 1970 to 2010 (40 years), Texas added 13.9 million people an average rate of 349,000 per year 37,155,084 54,369,297 44,955,896 30,541,978 30,000,000 27,469,114 25,145,561 20,000,000 10,000,000 0 3,896,542 11,196,730 20,851,820 From 2010 to 2050 (40 years), Texas will add nearly 30 million people an average rate of about 750,000 per year 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Sources: U.S. Census Bureau, Texas State Demographer 2014 Projections (2000-2010 Scenario) 25

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2020 2030 2040 2050 Houston MSA Projected Population Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery & Waller Counties 15,500,000 13,500,000 11,500,000 170.1% increase since 1970 26.1% increase since 2000 11,519,566 14,221,267 9,500,000 9,278,789 7,500,000 5,500,000 3,500,000 2,195,147 3,136,206 3,750,846 4,693,161 5,920,416 7,413,214 1,500,000 26 Source: U.S. Census Bureau; Texas Demographer s Office 2014 Projections, 2000-2010 scenario

D-FW MSA Population Collin, Dallas, Denton, Ellis, Hood, Hunt, Johnson, Kaufman, Parker, Rockwall, Somervell, Tarrant & Wise Counties 18,000,000 16,000,000 14,000,000 2010-2050 +9,941,079 155% increase 12,728,992 16,367,293 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 3,034,259 2,000,000 6,426,213 7,920,671 9,970,678 ~250,000 people/year or ~685 people/day 0 1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: U.S. Census Bureau; Texas State Demographer s Office 2014 Projection; 2000-2010 Scenario 27

Austin MSA Population Bastrop, Caldwell, Hays, Travis & Williamson Counties 5,500,000 5,000,000 4,500,000 2010-2050 3,460,651; 202% increase; 86,500/year average 5,176,940 4,000,000 3,500,000 3,000,000 3,035,547 3,960,317 2,500,000 2,306,857 2,000,000 1,716,289 1,500,000 1,249,763 1,000,000 500,000 585,051 301,261 0 1960 1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: U.S. Census Bureau; Texas State Demographer s Office 2014 Projection; 2000-2010 Scenario 28

San Antonio MSA Population Atascosa, Bandera, Bexar, Comal, Guadalupe, Kendall, Medina, & Wilson Counties 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 796,775 500,000 2010-2050 100% increase 1,154,819 1,711,703 2,635,183 2,384,075 2,142,508 3,182,644 3,735,981 4,294,232 0 1960 1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: U.S. Census Bureau; Texas State Demographer s Office 2014 Projection; 2000-2010 Scenario 29

Projected Legend Population Change, Texas tl_2010_48_county10 Counties, 2010-2050 F6-6,200-0 1-2,000 2,001-10,000 10,001-100,000 100,001-1,000,000 1,000,001-3,480,000 Source: Texas State Data Center 2012 Population Projections. 2000-2010 Migration Scenario 30

Percent of Texas Population by Age Groups: 2010 to 2050 120% 100% 80% <18 18-44 45-64 65+ 10.3% 13.1% 16.0% 16.9% 17.4% 24.0% 23.6% 22.3% 22.6% 23.6% 60% 40% 38.4% 37.9% 37.6% 37.1% 36.4% 20% 0% 27.3% 25.4% 24.1% 23.4% 22.7% 2010 2020 2030 2040 2050 Sources: Texas State Demographer s Office 2014 Projections 1.0 Scenario; Real Estate Center at Texas A&M University 31

2015 Texas Population by Age 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 6,022,549 21.9% Total 27,429,639 21.8% 20-34 3,977,864 3,725,435 3,496,526 In 2015, Texas ranked as the 3 rd youngest state with a median age of 34.4 as well as the 48 th oldest state with 11.7% > 65 years old 11.7% 65+ 2,000,000 1,968,6572,005,047 14.5% 13.6% 1,631,946 1,419,583 1,928,709 1,000,000 0 0 to 15 years 7.2% 7.3% 15 to 19 years 20 to 24 years 25 to 34 years 35 to 44 years 12.7% 5.9% 5.2% 45 to 54 years 55 to 59 years 60 to 64 years 7.0% 65 to 74 years 935,127 3.4% 75 to 84 years 357,671 1.3% 85 years and over Source: ACS; U.S. Census Bureau 32

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Number of Texas Households Added Annually 250,000 Average number of households added annually = 126,500 200,000 150,000 100,000 209,633 196,204 139,779 131,160 117,262 112,024 137,000 162,000 116,063 105,718 108,000 98,000 145,886 142,000 139,000 140,000 134,468 93,985 79,278 156,086 68,150 187,242 178,227 210,726 171,438 144,215 139,894 131,293 134,634 120,589 111,706 105,689 50,000 52,105 44,952 32,833 0 Sources: U.S. Census Bureau; Real Estate Center at Texas A&M 33

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2030 2035 Texas Households 15,000,000 14,000,000 13,000,000 12,000,000 11,000,000 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 4,929,267 Annual HH Formations: 2010-2015 ~165,000 2016-2020 ~199,000 2021-2025 ~221,000 2026-2030 ~243,000 2031-2035 ~264,000 6,070,937 7,393,354 8,738,664 10,559,509 9,563,946 14,200,400 12,879,003 11,664,810 Source: US Census Bureau, Texas State Data Center and Demographer; Real Estate Center at Texas A&M University 34

Texas Housing Market & Affordability 35

Texas Housing Summary 2016 record year for sales (+5%) and prices (+7.6%) 14 of 25 Texas MSAs set records despite short inventories 2017YTD sales +3.3%; Md. Price +7.0%; avg. pr./sf +6.3% Texas leads nation in residential permits since 2008 Residential construction leveling off: 2017 SF +2%; MF -15% Houston and DFW1 & 2 nationally since 2008 for SF permits (despite Houston -21.4% in 2016 and DFW -2.4% ) Austin & San Antonio in top 25 ~315,000 units short since 1994 vs. average Median home price expanded 53% since 2011 RCLI down past 5 months indicating slowdown in construction toward mid-2018

Annual Change in Owner-Occupied and Renter Households Source: US Census Bureau Housing Vacancy Survey; Mortgage Bankers Association, Chart of the Week June 2, 2017

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H17 U.S. & Texas Homeownership Rates 70.0 69.0 68.0 67.0 66.0 65.0 64.0 63.0 62.0 61.0 60.0 59.0 58.0 57.0 56.0 55.0 54.0 53.0 52.0 51.0 50.0 U.S. Texas Austin Dallas Houston 70.0 69.0 68.0 67.0 66.0 65.0 64.0 63.0 62.0 61.0 60.0 59.0 58.0 57.0 56.0 55.0 54.0 53.0 52.0 51.0 50.0 Source: US Census Bureau; Real Estate Center at Texas A&M University

Future Homeownership Demographics Life style/life cycle generational differences: family formations vs. household formations Aging Boomers renting Affordability Income growth & distribution Price, Costs and Supply Constraints Mortgage credit availability, terms and cost SF Investor market

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 17YTD Annual Texas Home Sales 350,000 330,000 310,000 290,000 270,000 250,000 230,000 210,000 190,000 170,000 150,000 130,000 110,000 90,000 70,000 50,000 Sales(left) Avg Price(right) Median Price(right) Since Jan 2011 Average Price up 44% Median Price up 53% 126,525 120,749 126,279 110,830 103,344 102,789 151,861 142,940 177,179 209,438 204,084 195,568 191,189 224,215 250,380 277,649 304,762 286,778 241,666 221,768 211,640 213,412 247,227 297,073 287,405 309,932 325,278 257,487 $350,000 $330,000 $310,000 $290,000 $270,000 $250,000 $230,000 $210,000 $190,000 $170,000 $150,000 $130,000 $110,000 $90,000 $70,000 $50,000 Source: TAR Data Relevance Program; Real Estate Center at Texas A&M University 40

Price Range Texas Sales by Price Distribution Percent Distribution 2011 2012 2013 2014 2015 2016 $0 - $69,999 15.0 12.7 9.2 7.2 6.1 5.1 $70,000 - $99,999 12.5 11.3 9.5 8.2 6.8 5.7 69% 47% $100,000 - $149,999 23.6 22.8 21.9 20.2 17.7 15.3 $150,000 - $199,999 17.5 18.5 19.7 20.3 20.6 20.6 $200,000 - $249,999 9.8 10.8 11.7 12.8 14.1 15.6 $250,000 - $299,999 6.9 7.6 8.4 9.1 10.2 11.3 30% $300,000 - $399,999 7.1 7.9 9.3 10.5 11.8 12.9 51% $400,000 - $499,999 3.0 3.6 4.5 5.1 5.6 6.2 $500,000 - $749,999 2.7 3.0 3.6 4.2 4.6 4.9 $750,000 - $999,999 0.9 1.0 1.1 1.2 1.3 1.3 $1,000,000 + 0.9 0.9 1.1 1.2 1.2 1.2 Source: TAR Data Relevance Project; Real Estate Center at Texas A&M University

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Texas Months Inventory 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Source: TAR Data Relevance Project; Real Estate Center at Texas A&M University 42

Source: Texas Realtor Data Relevance Project; Real Estate Center at Texas A&M University Current Months Inventory of Homes For Sale by Price 16 14 14.1 12 10 10.1 8 7.0 6 4.7 5.6 4 3.6 3.7 2.8 2.7 3.0 3.9 2 0 $0 - $69,999 $70,000 - $99,999 $100,000 - $149,999 $150,000 - $199,999 $200,000 - $249,999 $250,000 - $299,999 $300,000 - $399,999 $400,000 - $499,999 $500,000 - $749,999 $750,000 - $999,999 $1,000,000 +

Texas Household Income Distribution Income Cohorts Number of Households Cumulative Households Percent of Total Cumulative Percent Less than $10,000 620,911 620,911 6.5% 6.5% $10,000 to $14,999 441,878 1,062,789 4.6% 11.1% $15,000 to $19,999 442,937 1,505,726 4.6% 15.8% $20,000 to $24,999 493,657 1,999,383 5.2% 21.0% $25,000 to $29,999 468,636 2,468,019 4.9% 25.9% $30,000 to $34,999 482,096 2,950,115 5.1% 30.9% $35,000 to $39,999 431,145 3,381,260 4.5% 35.5% $40,000 to $44,999 445,472 3,826,732 4.7% 40.1% $45,000 to $49,999 386,993 4,213,725 4.1% 44.2% $50,000 to $59,999 765,605 4,979,330 8.0% 52.2% $60,000 to $74,999 952,667 5,931,997 10.0% 62.2% $75,000 to $99,999 1,135,586 7,067,583 11.9% 74.1% $100,000 to $124,999 826,591 7,894,174 8.7% 82.8% $125,000 to $149,999 497,891 8,392,065 5.2% 88.0% $150,000 to $199,999 536,320 8,928,385 5.6% 93.6% $200,000 or more 607,227 9,535,612 6.4% 100.0% Median Household Income = $56,565 Source: US Census Bureau 2016 American Community Survey; Real Estate Center at Texas A&M University

Texas Households by Highest Affordable Price >$750,000 $500,000-$749,999 6.1% 5.6% 586 532 20% down; 4.15% interest; 35% qualifying ratio; and 6% taxes, insurance & utilities $400,000-$499,999 6.6% 626 $300,000-$399,999 11.7% 1,114 $250,000-$299,999 $200,000-$249,999 $175,000-$199,999 7.3% 6.0% 9.9% 571 692 946 Median Income of $56,565 can afford home priced at $185,605; effective 3.28x $150,000-$174,999 $125,000-$149,999 $100,000-$124,999 6.2% 7.4% 7.0% 587 665 703 ~41% of Texas HHs cannot afford home priced > $150,000; ~53% not >$200,000 $70,000-$99,999 9.2% 877 <$70,000 17.2% 1,637 0 500 1,000 1,500 2,000 Thousands of Households Source: US Census Bureau 2016 American Community Survey; Real Estate Center at Texas A&M University

Texas Households by Highest Affordable Price >$750,000 $500,000-$749,999 6.0% 4.7% 453 576 10% down; 4.15% interest; 35% qualifying ratio; and 6% taxes, insurance & utilities $400,000-$499,999 5.7% 542 $300,000-$399,999 11.1% 1,060 $250,000-$299,999 $200,000-$249,999 $175,000-$199,999 7.7% 5.9% 9.7% 559 730 924 Median Income of $56,565 can afford home priced at $175,981; effective 3.11x $150,000-$174,999 $125,000-$149,999 $100,000-$124,999 6.5% 7.1% 7.6% 617 678 722 ~43% of Texas HHs cannot afford home priced > $150,000; ~55% not > $200,000 $70,000-$99,999 9.7% 922 <$70,000 18.4% 1,753 0 500 1,000 1,500 2,000 Thousands of Households Source: US Census Bureau 2016 American Community Survey; Real Estate Center at Texas A&M University

Texas Households by Highest Affordable Price >$750,000 $500,000-$749,999 6.0% 4.3% 413 571 5% down; 4.15% interest; 35% qualifying ratio; and 6% taxes, insurance & utilities $400,000-$499,999 5.5% 520 $300,000-$399,999 10.6% 1,013 $250,000-$299,999 $200,000-$249,999 $175,000-$199,999 7.9% 5.8% 9.6% 553 749 913 Median Income of $56,565 can afford home priced at $171,534; effective 3.03x $150,000-$174,999 $125,000-$149,999 $100,000-$124,999 6.6% 7.2% 7.7% 632 682 735 ~44% of Texas HHs cannot afford home priced > $150,000; ~56% not > $200,000 $70,000-$99,999 9.9% 945 <$70,000 19.0% 1,810 0 500 1,000 1,500 2,000 Thousands of Households Source: US Census Bureau 2016 American Community Survey; Real Estate Center at Texas A&M University

Average Number of Texas Households That Cannot Afford a Home Price Increase of $1,000 Number of Households $75,000 $80,000 $85,000 $90,000 $95,000 $100,000 $105,000 $110,000 $115,000 $120,000 $125,000 $130,000 $135,000 $140,000 $145,000 $150,000 $155,000 $160,000 $165,000 $170,000 $175,000 $180,000 $185,000 $190,000 $195,000 $200,000 $205,000 $210,000 $215,000 $220,000 $225,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000 $650,000 $700,000 $750,000 Source: US Census Bureau 2016 American Community Survey; Real Estate Center at Texas A&M University 35,000 30,000 25,000 20,000 15,000 10,000 20% down; 4.15% interest; 35% qualifying ratio; and 6% taxes, insurance & utilities 5,000 0 Home Price Intervals

Average Number of Households Unable to Afford a $1,000 Price Increase 20% down; 4.15% interest; 35% qualifying ratio; and 6% taxes, insurance & utilities Average Number of HH Per $1,000 Price Increase Home Price Intervals $50,000-$100,000 28,449 $100,000-$150,000 27,362 $150,000-$200,000 23,156 $200,000-$250,000 19,213 $250,000-$300,000 16,169 $300,000-$500,000 9,726 $500,000-$750,000 2,130 Average thru $250,000 25,315 Overall Average 21,358 Source: US Census Bureau 2016 American Community Survey; Real Estate Center at Texas A&M University

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 17YTD Texas SF Building Permits 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 67,870 66,161 1990-2016 average 95,529/year 103,252 84,565 78,714 67,964 59,143 59,543 43,975 46,209 35,908 36,658 38,233 69,964 70,452 70,421 83,132 82,228 122,913 111,915 108,782 99,912 101,928 151,384 137,493 166,203 163,032 120,366 81,107 2014 +10% 2015 +2% 2016 +1% 17YTD +8% 81,926 68,170 68,23067,254 106,511 105,448 103,045 93,478 76,770 20,000 0 Source: US Census Bureau, Real Estate Center at Texas A&M 50

Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Texas Residential Permits (12-MMA) 16,000 14,000 12,000 10,000 Single Family 8,000 6,000 4,000 Multi-Family 2,000 0 Source: US Census Bureau, Real Estate Center at Texas A&M

Texas SF Building Permits per 1,000 New Households 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2,300 2,100 1,900 1,700 1,500 1,300 1,100 900 700 500 300 2008-2016, added 1.33 million HHs. Would have built 1.1 million SF homes at average/year; actually built 776k. About 315,000 units short. 401 316 739 645 580528 1,339 689 347 851 398 435 719 648 435 585592 714699 809 1,191 1,550 2,018 970 888 1995-2015 average 820/year 1,242 894 455 646 324 602 679 668 619 731 695 100 Source: US Census Bureau, Real Estate Center at Texas A&M 52

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD Texas MF Building Permits: Making Up the Difference? 80,000 70,000 60,000 50,000 1995-2015 average 40,766/year Nationally, ~12.5% are Class B/C 51,576 2014 +20% 2015 +4% 2016-16% 2017YTD -5% 47,271 53,196 46,918 54,145 53,615 66,792 64,135 55,633 40,000 30,000 30,165 31,281 32,521 40,245 40,715 28,381 33,958 35,791 37,537 38,671 33,036 30,729 26,352 20,000 13,879 15,837 19,741 10,000 8,273 9,304 8,291 0 Source: US Census Bureau, Real Estate Center at Texas A&M 53

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Texas Residential Construction Leading and Coincident Indexes Jan 2000=100 180 160 140 Coincident Index Total Housing Permits (12-MMA) 180 160 140 120 120 100 100 80 60 Leading Index 80 60 40 40 Source: Real Estate Center at Texas A&M University 54

Texas & US Housing Affordability Indexes 2.50 2.40 2.30 2.20 2.10 2.00 1.90 1.80 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 1.74 Texas is fast losing it s competitive housing advantage 1.58 1.38 1.38 1.69 1.68 1.81 1.77 1.45 1.43 1.41 1.34 1.68 1.23 1.54 1.45 1.10 1.11 1.59 1.33 1.88 1.96 1.77 1.80 TEXAS 2.04 1.91 2.15 1.99 1.93 US 1.77 1.74 1.76 1.66 1.66 1.66 1.65 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Real Estate Center at Texas A&M University

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Texas Median HH Income & Median Home Price Indexed to 1989 320 310 300 290 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 Median home prices 3.1x; HH Income 1.16x Median Home Price Nominal HH Income Source: U.S. Census Bureau; Real Estate Center at Texas A&M University

Texas Affordability Decline Since 1990 Texas Median HH Income Index/Median Home Price Index (1990=100.0) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 110 105 100 95 90 85 80 75 70 65 60 55 50 Rate of change in home prices 2x rate of change in income; affordability down one-third Source: U.S. Census Bureau; Real Estate Center at Texas A&M University

Affordability Demand Side Income growth relative to home prices*** Mortgage availability Underwriting and risk rating: ease of credit & terms Interest rates Effective buyer education and understanding Supply Side Land & land development costs Construction Costs: labor & materials Rent growth Federal, state and local planning and land use regulatory effects: constrained supply & costs

Affordability Solutions and Approaches Design & Construction: size, style, attacheddetached, assembly-line ultimately, cost per s.f. Local Planning & Development efforts and zoning codes: density; inclusionary; urban-suburban locations; planning & zoning to standards and conditions and results rather than exclusions Smarter growth and development regulations, not smart growth Financing plans targeted to low- and moderateincome, first-time buyers private vs. government-backed

Partnerships with Purpose: Housing for Texans 25th Annual TALHFA Educational Conference October 25-27, 2017 Fort Worth, Texas Dr. James P. Gaines Chief Economist