2016 CALIFORNIA ECONOMIC & MARKET FORECAST

Transcription

1 2016 CALIFORNIA ECONOMIC & MARKET FORECAST October 8, 2015 EXPO San Jose Convention Center Leslie Appleton Young, Vice President & Chief Economist HOW DID I DO? LAST OCTOBER I TOLD YOU 1

2 2015 FORECAST REPORT CARD 2014 Actual 2015 Forecast 2015 Projected SFH Resales (000s) % Change 7.6% 5.8% 6.3% Median Price ($000s) $447.0 $478.7 $476.3 % Change 9.8% 5.2% 6.5% 30 Yr FRM 4.2% 4.5% 3.9% Housing Affordability Index 30% 27% 31% U.S. Gross Domestic Product 2.4% 3.0% 2.4% Forecast Date: October 2015 vs. October 2014 SERIES: CA Housing Market Outlook ECONOMIC OUTLOOK 2

3 ECONOMY HAS BEEN GROWING FOR 68 MONTHS 2014: 2.4%; 2015: 2.4%; 2016: 2.6% ANNUAL PERCENT CHANGE, CHAIN TYPE (2005) $ 5% 4% 3% 2% 1% 0% 1% ANNUALLY QUARTERLY 3.9% 2% 3% 2009 Largest Annual Drop since 1938 ( 3.4%) 4% P 2016F SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 KEY SECTORS OF MACRO ECONOMY Consumer Sector Business Sector Government International Trade 3

4 EMPLOYMENT STALLED IN SEPT:142K ANNUAL PERCENT CHANGE K/mo 2014 avg 260K/mo 2015 avg California US 3.0% 2 2.0% 0 2 Change Growth 4 United States 2,752, % California 470, % 6 New York 130, % 8 Texas 217, % 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 SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division UNEMPLOYMENT RATE HOLDS STEADY September 2015: US 5.1% & August 2015:CA 6.1% 14% 12% US CA CA US 10% 8% 6% 4% 2% 0% 2% 4% 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 SERIES: Unemployment Rate The U-6 rate covers the unemployed, underemployed and those who are not looking but who want a job SOURCE: US Bureau of Labor Statistics, CA Employment Development Division 4

5 UNEMPLOYMENT RATES (U6 VS. U3) September 2015 = U3: 5.1%, U6: 10.0% 18% U3 U6 16% 14% 12% 10% 8% 6% 4% 2% 0% 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 SERIES: Unemployment Rates SOURCE: US Bureau of Labor Statistics, CA Employment Development Division PARTICIPATION DOWN: AGING POP & SLOW JOB GROWTH & HIGH LONG TERM UNEMPLOYMENT CA 62.5% (Dec. 2014) vs. USA 62.7% (Dec. 2014) Labor Force Rate 70% US CA 68% 66% 64% 62% 60% SERIES: Labor Force Participation Rate SOURCE: BLS, Data Buffet 5

6 JOB TRENDS BY CALIFORNIA METRO AREA August 2015: CA +3.0%, +470,000 ANNUAL PERCENT CHANGE San Jose San Francisco Orange County San Diego Inland Empire Sacramento Fresno MSA Stockton MSA Oakland Los Angeles Modesto Ventura Bakersfield 0.2% 1.0% 0.9% 2.0% 1.9% 1.8% 3.2% 3.1% 3.0% 2.8% 2.6% 4.6% 5.5% 1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division CALIFORNIA JOB CHANGES BY INDUSTRY August 2015: CA +3.0%, +470,000 ANNUAL PERCENT CHANGE Professional, Scientific & Technical Services Construction Leisure & Hospitality Transportation, Warehousing & Utilities Admistrative & Support & Waste Services Real Estate & Rental & Leasing Wholesale Trade Health Care & Social Assistance Information Educational Services Retail Trade Government Durable Goods Finance & Insurance Nondurable Goods 1.0% 4.3% 3.6% 3.5% 3.5% 3.0% 2.7% 2.6% 2.0% 2.0% 1.3% 0.5% 0.4% 6.8% 6.4% 2% 1% 0% 1% 2% 3% 4% 5% 6% 7% 8% SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division 6

7 NONFARM EMPLOYMENT BY REGION Nonfarm Employment (Thousands) Aug 2015 Aug 2014 Change % Change Southern California 8, , % Bay Area 4, , % Central Valley 1, , % Central Coast 1, , % North Central 1, , % CALIFORNIA % SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division JOB LOSSES IN PRIOR RECESSIONS RECENT CYCLE WORST BY FAR 7

8 CONSUMER CONFIDENCE INDEX September 2015: INDEX, 100= 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 SERIES: Consumer Confidence SOURCE: The Conference Board CONSUMER PRICE INDEX August 2015: All Items 0.2% YTY; Core +1.8% YTY ANNUAL PERCENT CHANGE 6% 5% 4% 3% 2% 1% 0% 1% 2% All Items Core 3% 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 SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics 8

9 IS IT TIME? AH LET S WAIT A LITTLE LONGER MORTGAGE RATES January 2009 October % 5% MONTHLY WEEKLY 4% 3% 2% FRM ARM 1% 0% SERIES: 30Yr FRM, 1Yr ARM SOURCE: Federal Home Loan Mortgage Corporation 9

10 RATE HIKE POSTPONED, BUT NOT CANCELLED Factors for the delay Global economic slowdown/strong dollar Emerging markets vulnerable to rising rate environment Heighten stock market volatility Negative wealth effect could lead to slowdown in economic growth Avoid a repeat of Taper Tantrum Fed had not articulated enough on all the moving parts and did not want to give any surprises WHERE ARE WE HEADED? Fed will likely begin normalization in December (maybe) and rates will gradually increase in 2016 and Action will be data determined Risk of rates increasing too fast: bringing economic growth to a halt Risk of rates increasing too slow: zero leverage when next downturn hits 10

11 MARKET DOWN SHARPLY FROM THE PEAK MONTHLY AVERAGE S & P 500 Composite , Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Causes of the financial market turmoil Highly valued asset markets Economic slowdown in China U.S. monetary policy normalization Collapse in energy and other commodity prices CROSS CURRENTS NET OUT $50 bbl Lower Oil Prices 50 bps Lower Mortgage Rates 15% $ Appreciation 5% Lower Stock Prices 11

12 U.S. HOME SALES UP IN 2015 U.S., Aug 2015 Sales: 4,690,000 Units, +8.1% YTD, +6.1% YTY 7,000,000 6,000,000 5,000,000 4,690,000 4,000,000 3,000,000 2,000,000 1,000,000 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 SERIES: Sales of Existing Single Family Homes SOURCE: NATIONAL ASSOCIATION OF REALTORS *Sales are seasonally adjusted and annualized U.S. HOME PRICE GAINS MODERATING U.S., Aug 2015: $230,200, 1.4% MTM, +5.1% YTY $250,000 $230,200 $200,000 $150,000 $100,000 $50,000 $ 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 SERIES: Median Price of Existing Single Family Homes SOURCE: NATIONAL ASSOCIATION OF REALTORS 12

13 U.S. COMMERCIAL VACANCY RATES Commercial R.E. Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q Office 15.1% 15.9% 15.8% 15.5% 15.3% 15.1% 14.9% 14.8% 16.0% 15.6% 15.0% Industrial 11.3% 10.8% 10.3% 9.8% 9.4% 9.0% 8.5% 8.4% 12.0% 11.7% 8.8% Retail 13.7% 13.2% 13.0% 12.7% 12.3% 12.1% 11.9% 11.6% 13.8% 13.2% 12.0% Multifamily 8.4% 6.6% 6.7% 6.6% 6.6% 6.6% 6.6% 6.7% 6.6% 7.1% 7.1% SOURCE: NATIONAL ASSOCIATION OF REALTORS CA METRO COMMERCIAL VACANCY RATES 2015 Q2 MSA Office Industrial Retail Multi Family Los Angeles 14.8% 3.6% 5.7% 3.5% Oakland East Bay 17.1% 8.2% 6.0% 2.8% Orange County 16.3% 3.4% 4.6% 3.3% Sacramento 20.3% 11.1% 10.0% 2.6% San Bernardino/Riverside 22.4% 7.2% 9.1% 2.5% San Diego 14.7% 6.4% 6.1% 2.8% San Francisco 10.6% 10.4% 3.0% 3.8% San Jose 16.3% 16.2% 4.6% 3.4% Ventura 16.4% 8.5% 2.9% SOURCE: National Association of REALTORS 13

14 HOUSEHOLD GROWTH AFFECTED BY DEMOGRAPHIC AND ECONOMIC FACTORS HOUSEHOLD FORMATION ACCELERATES IN

15 U.S. ECONOMIC OUTLOOK p 2016f US GDP 2.4% 1.8% 2.3% 2.2% 2.4% 2.4% 2.7% Nonfarm Job Growth 0.7% 1.2% 1.7% 1.7% 1.9% 2.1% 1.8% Unemployment 9.6% 8.9% 8.1% 7.4% 6.2% 5.3% 5.0% CPI 1.6% 3.1% 2.1% 1.5% 1.6% 0.2% 2.1% Real Disposable Income, % Change 1.0% 2.5% 3.0% 0.2% 2.5% 3.3% 2.7% 30 Yr FRM 4.7% 4.5% 3.7% 4.0% 4.2% 3.9% 4.5% SERIES: U.S. Economic Outlook U.S. HOUSING MARKET OUTLOOK p 2016f Existing Home Sales (000s) 4,190 4,260 4,660 5,090 4,940 5,292 5,471 % Change 3.5% 1.7% 9.4% 9.2% 2.9% 7.1% 3.4% Median Price ($000s) $172.9 $166.1 $176.8 $197.1 $208.3 $221.4 $231.0 % Change 0.2% 3.9% 6.4% 11.5% 5.7% 6.3% 4.3% SERIES: U.S. Existing home sales of single family homes and condo/coops SOURCE: NATIONAL ASSOCIATION OF REALTORS 15

16 CALIFORNIA ECONOMIC OUTLOOK p 2016f Nonfarm Job Growth 1.1% 1.1% 2.4% 3.0% 2.2% 2.8% 2.3% Unemployment Rate 12.3% 11.8% 10.4% 8.9% 7.5% 6.3% 5.5% Population Growth 0.7% 0.7% 0.7% 0.9% 0.9% 0.9% 0.9% Real Disposable Income, % Change 0.9% 3.4% 4.7% 0.2% 3.0% 4.3% 4.5% SERIES: CA Economic Outlook CALIFORNIA HOUSING MARKET OUTLOOK 16

17 MEMBERSHIP FOLLOWS SALES WITH 1 2 YEAR LAG Units of Home Sold 700,000 Home Sales Membership # of Members 250, , , , p: 181, f: 183, , , , , , ,000 50, p 2015 SALES DID NOT DISAPPOINT California, Aug 2015 Sales: 431,800 Units, +7.4% YTD, +9.3% YTY 700, , ,000 Aug 14: Aug 15: 395, , , , , ,000 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 SERIES: Sales of Existing Single Family Homes *Sales are seasonally adjusted and annualized 17

18 CA SALES RE GAINED MOMENTUM IN % 15% 10% 5% 0% 5% 10% 15% 20% Year over Year % Chg 6 per. Mov. Avg. (Year over Year % Chg) 25% 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 SERIES: Sales of Existing Single Family Homes, Seasonally Adjusted HOME PRICE GAINS HAVE SLOWED California, Aug 2015: $493,420, 1.0% MTM, +2.5% YTY $700,000 $600,000 $500,000 $400,000 $300,000 P: May 07 $594,530 T: Feb 09 $245,230 59% from peak Aug 14: $481,250 Aug 15: $493,420 $200,000 $100,000 $ 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 SERIES: Median Price of Existing Single Family Homes 18

19 HOME PRICE APPRECIATIONS HAVE MODERATED SINCE MID 2013 YTY% Chg. in Price 50% Condo Single Family Homes 40% 30% 20% 10% 0% 10% 20% Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 SERIES: Sales of SFH and Condo Units CALIFORNIA VS. U.S. MEDIAN PRICES $600,000 California US CA Price Trend $500,000 $400,000 $300,000 $200,000 $100,000 $ SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION ASSOCIATION OF OF REALTORS REALTORS 19

20 2015 WHERE ARE WE? Housing market has recovered Welcome to the new normal Low mortgage rates Job & Income growth are positive And yet Supply well below long run average Share of first time buyers LOW Affordability key concern for everyone It s not an easy market/transaction for anyone. UNDERWATER MORTGAGES RISING PRICES HAVE REVERSED EQUITY LOSSES 40% Negative Equity Share in CA Near Negative Equity Share in CA 35% 30% 25% 20% 15% 10% 5% 0% 7.3% 1.7% SERIES: Underwater Mortgages SOURCE: CoreLogic 20

21 INVENTORY CONTINUED TO DECLINE FROM LAST YEAR Aug 2014: 4.0 Months; Aug 2015: 3.6 Months Jan 05 Jul 05 Jan Jul 06 Jan 07 Jul 07 Jan Jul 08 Jan 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 Note: Unsold Inventory Index represents the number of months it would take to sell the remaining inventory for the month in question. The remaining inventory for the month is defined as the number of properties that were Active, Pending, and Contingent (when available) and divide the sum by the number of Sold properties for the month in question. SERIES: Unsold Inventory Index of Existing Single Family Homes WHERE IS THE INVENTORY? Affordability challenge for repeat buyers Low rate on current mortgage Low property taxes Why list when there is nowhere to go I can afford? Could not qualify for a mortgage today Foreclosure pipeline is dry Investors renting instead of flipping New construction recovering but LOW Measurement error? Off MLS (aka pocket ) listings not being counted in listing stats Demographics: Trade up buyer pool is smaller 21

22 FEWER MIDDLE AGE ADULTS IN RECENT YEARS Source: Harvard Joint Center of Housing Studies, Census Bureau DROP IN HOMEOWNERSHIP Source: Harvard Joint Center of Housing Studies, Census Bureau 22

23 DECLINE IN # OF TRADE UP BUYERS DUE TO POPULATION LOSS & DROP IN HOMEOWNERSHIP RATE Source: Harvard Joint Center of Housing Studies, Census Bureau REGIONAL HOUSING MARKETS 23

24 CA AUG MEDIAN PRICES YTY SERIES: Median Price of Existing Detached Homes CA 2015 YTD SALES SERIES: Year to Date Sales of Existing Detached Homes 24

25 NORTHERN CALIFORNIA AUG 2015 Sales 12% YTD 8% YTY Median Price $346,180 5% YTY UII NA 95.8% Months MTM Days Price Per Sq Ft Sales To List Ratio NORTHERN CALIFORNIA AUG MEDIAN PRICES SERIES: Median Price of Existing Detached Homes 25

26 NORTHERN CALIFORNIA 2015 YTD SALES SERIES: Year to Date Sales of Existing Detached Homes NORTHERN WINE AUG 2015 Sales 6% YTD 14% YTY Median Price $550,120 15% YTY UII NA NA Months MTM Days Price Per Sq Ft Sales To List Ratio 26

27 NORTHERN WINE AUG MEDIAN PRICES SERIES: Median Price of Existing Detached Homes NORTHERN WINE 2015 YTD SALES SERIES: Year to Date Sales of Existing Detached Homes 27

28 BAY AREA AUG 2015 Sales 5% YTD 0.2% YTY Median Price $804,190 10% YTY UII $ % Months MTM Days Price Per Sq Ft Sales To List Ratio BAY AREA AUG MEDIAN PRICES SERIES: Median Price of Existing Detached Homes 28

29 BAY AREA 2015 YTD SALES SERIES: Year to Date Sales of Existing Detached Homes CENTRAL VALLEY AUG 2015 Sales 10% YTD 12% YTY Median Price $276,900 7% YTY UII NA 97.3% Months MTM Days Price Per Sq Ft Sales To List Ratio 29

30 CENTRAL VALLEY AUG MEDIAN PRICES SERIES: Median Price of Existing Detached Homes CENTRAL VALLEY 2015 YTD SALES SERIES: Year to Date Sales of Existing Detached Homes 30

31 CENTRAL COAST AUG 2015 Sales 11% YTD 6% YTY Median Price $520,830 4% YTY UII NA 97.7% Months MTM Days Price Per Sq Ft Sales To List Ratio CENTRAL COAST AUG MEDIAN PRICES SERIES: Median Price of Existing Detached Homes 31

32 CENTRAL COAST 2015 YTD SALES SERIES: Year to Date Sales of Existing Detached Homes SOUTHERN CALIFORNIA AUG 2015 Sales 9% YTD 7% YTY Median Price $464,400 3% YTY UII NA 98.6% Months MTM Days Price Per Sq Ft Sales To List Ratio 32

33 SOUTHERN CALIFORNIA AUG MEDIAN PRICES SERIES: Median Price of Existing Detached Homes SOUTHERN CALIFORNIA 2015 YTD SALES SERIES: Year to Date Sales of Existing Detached Homes 33

34 ANNUAL HOUSING MARKET SURVEY: 2015 FINDINGS SHARE OF SECOND/ VACATION HOMES HIGHER AFTER TWO YEARS OF DECLINE % to Total Sales 8% 7% 6% 5% 5.3% 4% 3% 2% 1% 0% SERIES: 2015 Housing Market Survey 34

35 SHARE OF INVESTMENT PROPERTIES DROPS TO THE LOWEST LEVEL SINCE 2009 % to Total Sales 20% 18% 16% 14% 12% 13.1% 10% 8% 6% 4% 2% 0% SERIES: 2015 Housing Market Survey FIRST TIME BUYERS FINDING IT HARD TO BUY 50% % First Time Home Buyers Long Run Average 40% Long Run Average = 38% 30% 29.5% 20% 10% 0% SERIES: 2015 Housing Market Survey 35

36 SHARE OF CASH BUYERS LOWEST SINCE 2009 Almost one fourth of buyers paid with all cash The share of all cash buyers is the lowest in the last 6 years 35% % of All Cash Sales 30% 25% 20% 21% 15% 10% 5% 0% SERIES: 2015 Housing Market Survey 9% 8% 7% 6% 5% THE SHARE OF INTERNATIONAL BUYERS LOWEST IN 8 YEARS 4% 4% 3% 2% 1% 0% Q. Was the buyer an international buyer a person who was a citizen of another country who wished to purchase residential real estate in the U.S.? SERIES: 2015 Housing Market Survey 36

37 23% OF CA REALTORS WORKED WITH AN INTERNATIONAL BUYER IN THE PAST 12 MONTHS # of Properties Sold to International Buyers in the Last 12 Months % Who Sold to International Buyers 90% 80% 77% 71% 72% 70% 60% 50% % 30% 20% 10% 0% 14% 12% 9% 6% 6% 5% 4% 3% 3% 2% 2% 1% 4% 5% 4% or more Q. How many properties have you sold to an international buyer in the last 12 months? SERIES: 2015 Housing Market Survey COUNTRY OF INTERNATIONAL BUYER 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 43% 8% 8% China Mexico South Korea SERIES: 2015 Housing Market Survey 37

38 THE MEDIAN DOWN PAYMENT INCHED UP FROM 2014 $90,000 Median Down Payment % of Down Payment to Price 25% $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 20% $74,500 20% 15% 10% 5% $ Q. What was the amount of downpayment? SERIES: 2015 Housing Market Survey 0% MARKET COMPETITION COOLS DOWN AFTER PEAKING IN % 70% 60% 50% 40% 30% 20% 10% 0% % with Multiple Offers # of Multiple offers (Average) 53% 53% SERIES: 2015 Housing Market Survey 38

39 YEARS OWNED HOME BEFORE SELLING 12 All Sellers SERIES: 2015 Housing Market Survey NET CASH GAIN TO SELLERS HIGHEST SINCE 2007 $250,000 $200,000 $150,000 $120,000 $100,000 $50,000 $ Q. What was the net cash gain or net loss to the seller as a result of this sale? SERIES: 2015 Housing Market Survey 39

40 HOUSING AFFORDABILITY: CRISIS BREWING CALIFORNIA PRICES MORE VOLATILE AND MUCH HIGHER THAN THE NATION Dollar Value $700,000 California US $600,000 $500,000 $400,000 The difference between California s prices and national home prices increased from $10K in 1970 to $255K today $300,000 $200,000 $100,000 $ SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION ASSOCIATION OF OF REALTORS REALTORS 40

41 HOUSING AFFORDABILITY PEAKED Q PRICES V. LOW RATES AND INCOME GROWTH California vs. U.S % OF HOUSEHOLDS THAT CAN BUY A MEDIAN PRICED HOME 80% CA US 70% Annual 71% Quarterly 60% 50% 40% 30% 20% 10% 0% 56% 57% 30% SERIES: Housing Affordability Index of Traditional Buyers HOUSING AFFORDABILITY IN CA: BY COUNTY % able to purchase median priced home Q SERIES: Housing Affordability Index 41

42 AFFORDABLE INVENTORY AVAILABLE TO MEDIAN INCOME HOUSEHOLDS 2015 Q2 80% 70% 67.2% 60% 50% 40% 30% 28.5% 20% 10% 0% 2.1% $120,000 $100,000 $80,000 HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME California 2014 Annual Mean Wage $87,520 $89,250 $98,400 $119,970 $95,978 $60,000 $69,990 $71,630 $40,000 $45,340 $20,000 $27,010 $0 Retail Chefs and Salespersons Head Cooks Elementary School Teachers Firefighters Police and Sherriff's Patrol Officers Computer Registered Programmers Nurses Software Developers (Applications) Min. Inc Required to Buy a Med. Home SOURCE: Bureau of Labor Statistics, C.A.R. 42

43 $300,000 $250,000 $200,000 $150,000 HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME San Francisco 2014 Annual Mean Wage $267,783 $100,000 $50,000 $0 $30,340 Retail Salespersons $52,690 $49,230 Auto. Mechanics Chefs and Head Cooks $70,680 Elementary School Teachers $88,390 Firefighters $97,570 Computer Registered Programmers Nurses $124,980 $118,690 Software Developers (Applications) Min. Inc Required to Buy a Med. Home SOURCE: Bureau of Labor Statistics, C.A.R. $120,000 $100,000 HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME Sacramento 2014 Annual Mean Wage $105,390 $103,730 $80,000 $60,000 $40,000 $46,790 $50,730 $67,300 $58,520 $75,980 $57,581 $20,000 $26,610 $0 Retail Salespersons Auto. Mechanics Chefs and Head Cooks Elementary School Teachers Firefighters Computer Registered Programmers Nurses Software Developers (Applications) Min. Inc Required to Buy a Med. Home SOURCE: Bureau of Labor Statistics, C.A.R. 43

44 $120,000 $100,000 HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME $80,000 $60,000 Los Angeles 2014 Annual Mean Wage $72,720 $82,830 $86,840 $93,180 $103,790 $88,082 $40,000 $42,610 $44,330 $20,000 $26,870 $0 Retail Salespersons Auto. Mechanics Chefs and Head Cooks Elementary School Teachers Firefighters Computer Registered Programmers Nurses Software Developers (Applications) Min. Inc Required to Buy a Med. Home SOURCE: Bureau of Labor Statistics, C.A.R. CALIFORNIA S MAJOR METROS ARE LESS AFFORDABLE THAN THE AVERAGE U.S. METRO SOURCE: Legislative Analyst s Office 44

45 SHARE OF FIRST TIME BUYERS REMAINS BELOW LONG RUN AVERAGE 50% % First Time Home Buyers Long Run Average 40% Long Run Average = 38% 30% 29.5% 20% 10% 0% SERIES: 2015 Housing Market Survey California Vs. U.S. HOMEOWNERSHIP RATES 75% CA US 70% Peak: 69.0% 65% 64.5% 64.8% 60% 55% 50% 53.7% Peak: 60.2% 54.9% 45% 40% SERIES: Homeownership Rates SOURCE: U.S. Census Bureau 45

46 MISSING 100,000 UNITS ANNUALLY, AT LEAST 2015p: 98,500 (42,190 sf, 56,310 mf) 2016f: 124,600 total units Single Family Multi Family Household Growth: 165,000/yr SERIES: New Housing Permits SOURCE: Construction Industry Research Board THE BOOMERS AND THEIR NEXT MOVE 46

47 THE BOOMERS AND THEIR NEXT MOVE BOOMERS BORN BETWEEN % 7% 6% Average: 59 5% 4% 3% 2% 1% 0% Age (Years) What is your age? SERIES: 2014 Baby Boomer Survey 47

48 MAJORITY ARE MARRIED Other 18% Married 56% Single 26% What is your marital status? SERIES: 2014 Baby Boomer Survey BABY BOOMERS LESS DIVERSE THAN MILLENNIALS 80% 70% 60% 50% 40% 30% 20% 10% 0% 79% 38% Caucasian/ White What is your ethnic background? 18% 9% Asian SERIES: 2014 Baby Boomer Survey Boomers 4% African American/ Black Millennials 7% 4% 35% Hispanic/ Latino 4% 4% Other 48

49 3/4 BABY BOOMERS ARE HOME OWNERS Rent 22% Other 3% Own 75% What is your current living situation? SERIES: 2014 Baby Boomer Survey HOME OWNERSHIP RATE NEARLY 4 TIMES HIGHER AMONG BOOMERS Baby Boomers Millennials 22% 3% 39% 20% Own Rent Other Own Rent Other 75% 41% What is your current living situation? SERIES: 2014 Baby Boomer Survey 49

50 MOST HAVE EQUITY IN THEIR HOME No, 8% Yes, 92% Do you have equity in your home? SERIES: 2014 Baby Boomer Survey MOST DON T PLAN TO USE HOME EQUITY FOR INCOME DURING RETIREMENT Yes, 23% No, 77% Are you planning on using this equity for income during retirement? SERIES: 2014 Baby Boomer Survey 50

51 MAJORITY DO NOT PLAN TO SELL HOME WHEN THEY RETIRE Yes, 10% Don't know/ unsure, 32% No, 59% Do you plan to sell your current home when you retire? SERIES: 2014 Baby Boomer Survey MAJORITY WON T SELL BECAUSE THEY LIKE THEIR HOME 8% 5% 10% I like my home I cannot afford to buy another retirement home I plan to give the home to my child(ren) Another reason 78% Why do you not plan to sell your current home when you retire? SERIES: 2014 Baby Boomer Survey 51

52 ¼ POSTPONED RETIREMENT BECAUSE Did not save enough money yet for retirement 14% Loss of employment 9% Loss of assets/ income due to 2008 economic recession 7% Other Loss of retirement income Loss of home Medical bills Loss of pension Death of significant other 4% 3% 2% 2% 1% 1% Did you have to postpone your date of retirement due to any of the following? SERIES: 2014 Baby Boomer Survey 0% 2% 4% 6% 8% 10% 12% 14% > ½ DO NOT FEEL THEY HAVE SAVED ENOUGH MONEY TO RETIRE COMFORTABLY No, 54% Yes, 46% Do you feel you have saved enough money to retire comfortably? SERIES: 2014 Baby Boomer Survey 52

53 MAJORITY WORRY ABOUT CHILDRENS ABILITY TO BECOME HOME OWNERS No, 45% Yes, 55% Do you worry about your children s ability to become home owners in the future? SERIES: 2014 Baby Boomer Survey 2/5 PLAN TO HELP CHILDREN WITH DOWN PAYMENT No, 57% Yes, 43% Do you plan to help your children with their down payment to purchase a home? SERIES: 2014 Baby Boomer Survey 53

54 WHAT FINANCIAL DECISION WOULD BOOMERS CHANGE? Saving more/ spending less 22% Better investment decisions 19% Invest in real estate Seek better job 7% 8% Retiring prematurely Carry less debt/ poor credit 4% 5% Cash out/ open IRA Moving to the wrong location 2% 1% 0% 5% 10% 15% 20% 25% If you could change one financial decision that you made within the past 10 years, what would it be? SERIES: 2014 Baby Boomer Survey WHAT KEEPS BOOMERS UP AT NIGHT? Nothing Bills/ finances Stress/ anxiety Family issues Work Job security Ache/ pain Insomnia Health concerns TV/ internet World politics Economy 6% 4% 4% 4% 4% 3% 3% 2% 2% 1% 13% 39% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% What keeps you up at night? SERIES: 2014 Baby Boomer Survey 54

55 CRAFTSMAN BUNGALOW IS DREAM HOME FOR 1/3 HOME OWNERS craftsman bungalow neo colonial dream mansion Frank Lloyd Wright 32% 19% 14% 12% desert modernism art nouveau/art moderne modern townhome downtown loft 8.5% 5.7% 5.1% 2.6% brick urban rowhome 1.6% Q. Which of the following is your dream home? 2/3 HOME OWNERS PREFER A NIGHT IN WITH FAMILY/FRIENDS FOR FUN A quiet night in with friends/family 65% A trip to Paris 57% A trip to New York City 56% A fantastic movie 53% A concert with your favorite artist 52% A week camping/fishing 37% A "Hangover" weekend in Vegas 21% Woodstock in % Burning Man 10% 0% 10% 20% 30% 40% 50% 60% 70% Q. In which of the following activities would you like to participate? Select all that apply. 55

56 DIVERSITY IN HOMEOWNERSHIP SHARE OF MINORITY HOME BUYERS HAS GROWN OVER TIME 80% 70% 68.5% % 55.8% 56.3% 50% 40% 30% 20% 10% 0% 5.0% 4.2% 3.6% 19.9% 14.1% 14.0% Q. What was the race/ethnicity of the head of household buying the property SERIES: 2015 Housing Market Survey 7.5% White/Non Hispanic African American Hispanic Asian 16.5% 12.5% 56

57 HOUSING DEMAND WILL INCREASE, LARGELY DRIVEN BY MINORITIES 14 Net new households, millions Projected household growth, Projected household growth, % 100% 8 77% 88% % 46% 23% 19% 24% 18% 18% 12% White Hispanic Black, Non Hispanic Other, Non Hispanic Total Minority Total SOURCE: Urban Institute 100% 90% 80% 70% 60% IMMIGRANT SHARE OF GROWTH IN HOME OWNERS West Midwest South Northeast 50% 40% 30% 20% 10% 0% Source: Dowell Myers and John Pitkin, Immigrant Contributions to the Housing Market RIHA, Mortgage Bankers Association,

58 2016 FORECAST 58

59 CALIFORNIA HOUSING MARKET OUTLOOK p 2016f SFH Resales (000s) % Change 12.3% 1.4% 4.1% 5.9% 7.6% 6.3% 6.3% Median Price ($000s) $305.0 $286.0 $319.3 $407.2 $447.0 $476.3 $491.3 % Change 10.9% 6.2% 11.6% 27.5% 9.8% 6.5% 3.2% Housing Affordability Index 48% 53% 51% 36% 30% 31% 27% 30 Yr FRM 4.7% 4.5% 3.7% 4.0% 4.2% 3.9% 4.5% SERIES: CA Housing Market Outlook SALES UP FOR 2015 AND CONTINUE TO IMPROVE IN 2015; PRICE WILL GROW STEADILY THIS YEAR AND NEXT Units (Thousand) Sales of Existing Detached Homes Price (Thousand) $600 $500 $400 $300 $200 $100 Median Price $476 $ p SERIES: CA Housing Market Outlook $ p 59

60 CA: DOLLAR VOLUME UP 13.3% IN 2015, UP 9.6% IN 2016 $ in Billion $400 $350 $301 $300 $250 $200 $150 $100 $244 $164 $ Volume of Sales Percent Change 60% $169 $171 $133 $131 $140 $127 $121 $194 % Change 30% 20% 10% $213 0% 10% 20% $50 30% $ p 2016f 40% SERIES: CA Housing Market Outlook WILD CARDS Stock market volatility Slower growth: China Further collapse in energy/commodity prices Geo political tensions Terrorism El Nino/Water Shortage 2016 Presidential election 60

61 MARKET OPPORTUNITIES IN 2016 MARKET OPPORTUNITIES Millennials Turn renters into first time buyers First time buyers who bought with tax credit back in 2009 are ready to trade up Understand the differences in needs between Millennial first time buyers and Millennial trade up buyers Baby Boomers Ready to downsize Understand Boomers priorities: investment and retirement If we can t keep them in CA, help them find a place out of state. Network with REALTORS outside of CA 61

62 MARKET OPPORTUNITIES Minorities Minorities have grown in homebuyer share over time Surge in the number of minority households will play a big role in the increase in housing demand in the next 10 years Develop programs and marketing material tailored towards minority home buyers of different ethnicity Investor sellers Investor buyers who purchased bargain properties a few years ago are ready to sell as home prices start leveling off Everyone else Low interest rates will be here a little longer MOST MILLENNIALS UNCERTAIN/DOUBTFUL THAT THEY COULD OBTAIN A MORTGAGE NOW?AMILLENNIAL ETHNICITY Yes 22% Don't know 45% No 33% SOURCE: C.A.R Millennial Survey Q: Could you obtain a mortgage if you applied now? 62

63 #TBTC.A.R

64 #TBT. SACRAMENTO 110 YEARS AGO 730 N Street #TBT. SAN FRANCISCO 110 YEARS AGO 500 block of Liberty Street 64

65 #TBT. FRESNO 110 YEARS AGO Brix Mansion 2844 Fresno St #TBT. SUMMER OF LOVE 65

66 THANK YOU! Facebook: CARResearchgroup Twitter: CARResearchInfo This presentation can be found on Speeches & Presentations 66