2018 Housing Market Outlook. Central Coast Realty Group Business Symposium February 22, 2018 Oscar Wei Senior Economist

Transcription

1 2018 Housing Market Outlook Central Coast Realty Group Business Symposium February 22, 2018 Oscar Wei Senior Economist

2 Overview Economic Update California Housing Market Outlook Regional Housing Market Outlook 2018 Forecast

3 Economic Update

4 Rates Surge & Stock Market Chaos

5 Mortgage Rates Surged in Recent Weeks January 2010 February 15, 2018 MONTHLY WEEKLY FRM ARM 0 SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

6 Yield Rising Rapidly since the End of 2017 U.S. 10 Year Treasury Yield SERIES: U.S. 10-Yr Treasury SOURCE: CNBC

7 Annual Percent Change Inflation Expected to Rise in 2018 Jan 2018: All Items 2.1% YTY; Core +1.8% YTY All Items Core SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics

8 Market Up Big in 2017 Dow S&P Nasdaq Up 25.1% in Up 19.4% in Up 28.2% in SERIES: Dow, S&P, Nasdaq indices SOURCE: Yahoo Finance

9 Volatility Returned in 2018 Dow S&P Nasdaq Up 7.2% Down 10.4% Up 5.7% Up 6.6% Down 10.2% Up 5.9% Up 7.1% Up 6.8% Down 9.7% SERIES: Dow, S&P, Nasdaq indices SOURCE: Yahoo Finance

10 Wild Swings in Stocks Suggest Uncertainty 3% 2% 1% 0% -1% -2% -3% -4% -5% Dow 3% 2% 1% 0% -1% -2% -3% -4% -5% S&P 3% 2% 1% 0% -1% -2% -3% -4% -5% Nasdaq Timeline: Feb 2 January job report was released and showed more jobs were added than expected Feb 5 Dow down 1,175 points Feb 6 Dow opened down 560 points before closing 560 points up Feb 8 Dow lost 1000 points for 2 nd time in a week. Dow and the S&P officially in correction territory. SERIES: Dow, S&P, Nasdaq indices SOURCE: Yahoo Finance

11 Impact of Tax Reform on the Economy

12 Tax brackets and standard deductions Single Filers Married Filing Jointly Prior Law Tax Cuts and Jobs Act Prior Law Tax Cuts and Jobs Act 10% $0 -$9,525 10% $0 -$9,525 15% $9,525 - $38,700 12% $9,525 - $38,700 25% $38,700 - $93,700 22% $38,700 - $82,500 28% $93,700 - $195,450 24% $82,500 - $157,500 33% $195,450 - $424,950 32% $157,500 - $200,000 35% $424,950 - $426,700 35% $200,000 - $500, % $426, % $500,000+ SD $6,500 SD* $12,000 10% $0 -$19,050 10% $0 -$19,050 15% $19,050 - $77,400 12% $19,050 - $77,400 25% $77,400 - $156,150 22% $77,400 - $165,000 28% $156,150 - $237,950 24% $165,000 - $315,000 33% $237,950 - $424,950 32% $315,000 - $400,000 35% $424,950 - $426,700 35% $400,000 - $600, % $426, % $600,000+ SD $13,000 SD* $24,000 *Note: Indexed for inflation SERIES: Income tax brackets, and Standard deductions SOURCE: IRS; Forbes

13 Growth is good, but has its side effects too Higher Demand Full Employment Potential Inflation

14 There s also the bond market to consider Tax Cuts Bigger Deficits More Potential Inflation

15 So what? Here s the punchline. More Inflation Higher Rates Bigger Deficits

16 Economic Growth Stayed Solid in Q4 As Consumer Spending Bounced Back 2.6% 3.8% GDP 2017-Q4 4.1% Consumption 2017-Q4 1.5% Unemployment Jan 2018 Job Growth Jan 2018

17 Annual Percent Change, Chain-type (2009) $ Growth Momentum Maintained at the End of 2017 GDP : 2.3%; 2017 Q4: 2.6% 6% 5% ANNUALLY QUARTERLY 4% 3% 2.6% 2% 1% 0% -1% -2% -3% -4% 2009 Largest Annual Drop since 1946 (-2.8%) Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q2-16 Q1-17 Q4-17 SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

18 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 State Unemployment Rates at the Lowest in at least the last 27 Years US 4.1% (Jan 2018) & CA 4.3% (Dec 2017) 14% CA US Kern Fresno 8.1% 8.6% 12% 10% Stanislaus San Joaquin Santa Barbara 4.4% 6.8% 6.6% 8% Los Angeles Sacramento 4.2% 3.9% 6% 4% San Diego San Luis Obispo Contra Costa 3.3% 3.1% 3.1% 2% Alameda Orange 3.0% 2.8% 0% Santa Clara San Francisco 2.6% 2.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% SERIES: Civilian Unemployment Rate SOURCE: CA Employment Development Division

19 California Housing Market Outlook

20 Home Sales off to a Slow Start in 2018 California, Jan Sales: 388,800 Units, -2.9% YTD, -2.9% YTY 700, , , , , , ,000 - Jan-17: 400,580 Jan-18: 388,800 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS *Sales are seasonally adjusted and annualized

21 Annual Household Growth (Net Chg. In thousands) Household Growth Continues to Support Housing Demand f SERIES: Annual Household Growth SOURCE: CA Department of Finance

22 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 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 Supply Remains on a Downward Trend January 2017: 3.7 Months; January 2018: 3.6 Months Year-over-Year % Chg 15% 10% 5% 0% -5% -10% -6.6% -15% -20% 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 SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

23 Year-to-Year % Chg Housing Supply Declined by in All Regions January % Sales Active Listings 3% 0% -10% -5% -10% -3% -8% -5% -20% San Francisco Bay Area Southern California Central Valley SERIES: Sales and Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

24 Fewer Units Turning Over Since the Great Recession 10% 9% Housing Turnover Rate (Single-Family Homes only) CA US Linear (CA) Long-Time Homeowners are not moving as in the past because: 8% 7% 6% 5% 4% 3% 2% CA turnover rate trend 5.3% 4.6% Demographic shift Low rate on current mortgage Low property taxes Capital gains hit Where can I afford to go? 1% 0% SERIES: Percent of existing single-family homes being sold SOURCE: Census Bureau, American Community Survey, Moody s Analytics, C.A.R.

25 Sellers Are Not Moving as Often as Before 12 Years Owned Home Before Selling Older Generations Don t Move as Often as Young Generations Millennials 4 6 Gen X's 10 4 Baby Boomers Silent Generations 27 SERIES: 2017 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

26 Missing 72,000 New Units Annually 2016: 98,881 (47,889 sf, 50,992 mf) p: 107,756 (53,708 sf, 54,048 mf ) 2018f: 115,292 (58,542 sf, 56,750 mf) Single Family Multi-Family CA HCD Projected Housing Needs: ,000/yr SERIES: California New Housing Permits SOURCE: Construction Industry Research Board

27 Statewide Median Price Continued to Show Strong Growth California, January 2018: $527,800, -4.0% MTM, +7.3% YTY $700,000 $600,000 P: May-07 $594,530 Jan-17: $491,840 Jan-18: $527,800 $500,000 $400,000 $300,000 T: Feb-09 $245,230-59% from peak $200,000 $100,000 $- SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

28 % OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME Housing Affordability Peaked at Q % 70% California, Annual Quarterly 60% 50% 56% 40% 30% 29% 20% 10% 0% SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

29 Housing Affordability In CA: By County Q4: % able to purchase median-priced home SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

30 What Will Happen When Mortgage Rates Increase? Q Median Price $550,990 20% Downpayment $3,200 $2,800 $2,400 $2,000 $1,858 MONTHLY MORTGAGE $2,503 $2,366 $2,104 $2,233 $1,979 $2,643 $2,786 $160,000 $140,000 $120,000 $100,000 Minimum Qualifying Income $131,056 $136,790 $114,683 $119,996$125,456 $99,681 $104,520$109,522 $1,600 $80,000 $1,200 $60,000 $800 $40,000 $400 $20,000 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

31 Housing Affordability Index - CA 50% 40% 30% 20% What Will Happen When Mortgage Rates Increase? % OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT Q Median Price $550,990 20% Downpayment 33% 31% 30% 28% 26% 24% 22% 21% 10% 0% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

32 Impact of Tax Reform on the Market

33 Provisions Affecting the Housing Market Mortgage Interest Deduction Reduce the mortgage interest deduction (MID) cap from $1M to $750k Applies to new loans taken out after 12/14/17 Current loans grandfathered in Interest on second homes remains deductible, but subject to the $1M/$750k limits State and Local Taxes Deduction Cap state and local taxes deductions at $10,000 Includes property taxes and income or sales taxes Limit applies for both single and married filers Preclude the deduction of 2018 state and local income taxes prepaid in 2017 Affects all homeowners, not just new loans

34 Other Provisions Affecting the Housing Market Home Equity Loans Interest is deductible if the proceeds are used to substantially improve the residence; otherwise, no. Capital Gain Exclusion The final bill retains the same law as before. Like-Kind Exchanges Retains the current rules for real property

35 Overall, there are some adverse effects - Lowering MID cap and limiting property tax cap - Cost of owning a home increases for many homeowners in high cost states - Home values and price growth could be reduced - Doubling standard deduction - Nullified Incentives of using MID as a tax saving tool as a homeowner - Desire and demand of buying a home at the prevailing market price could go down - MID cap is grandfathered-in - Housing supply is furthered constraint as current homeowners not willing to incur more taxes with a new home purchase

36 Tax reform has a bigger impact on higherpriced segments Price $200k $300k $400k $500k $750k $1,000k $1,500k $2,000k $5,000k % change in home value due to the new MID cap or the new standard deduction -0.1% -0.1% -0.1% 0.0% 0.0% -0.1% -1.5% -1.6% -0.7% % change in home value due to the new state and local taxes cap 0.0% 0.0% 0.0% 0.0% -1.8% -2.6% -2.9% -3.8% -4.4% % change in home value due to tax reform -0.1% -0.1% -0.1% 0.0% -1.8% -2.7% -4.4% -5.4% -5.1% Sales % change in sales due to tax reform -0.1% -0.1% -0.1% 0.0% -1.2% -1.9% -3.1% -3.8% -3.6% Supply % change in supply due to tax reform 0.0% 0.0% 0.0% 0.0% -0.4% -0.7% -1.1% -1.3% -1.2%

37 The Impact varies between regions Sales Distribution by Price Range Price San Luis Obispo Santa Barbara North Santa Barbara Under $500k 38% 37% 72% $500k - $999k 53% 33% 23% $1M and up 9% 30% 6% SERIES: CA Existing Home Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

38 Regional Housing Market Update

39 San Luis Obispo

40 Sales of Existing Detached Homes San Luis Obispo County, Jan 2018: 201 Units, -5.2% YTD, -5.2% YTY SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

41 Median Price of Existing Detached Homes San Luis Obispo County, Jan 2018: $565,000, Up 5.4% YTY $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

42 San Luis Obispo County, January 2018: 3.7 Months Unsold Inventory Index Note: The Unsold Inventory Index represents the number of months it would take to deplete the remaining inventory at the end of a particular month with the sales rate of the month in consideration. Inventory includes listings with Active, Pending, and Contingent (when available) statuses. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

43 What Will Happen When Mortgage Rates Increase? San Luis Obispo Q Median Price $594,330 20% Downpayment $3,500 $3,000 $2,500 $2,000 $1,500 $2,005 MONTHLY MORTGAGE $2,700 $2,552 $2,270 $2,409 $2,135 $2,851 $3,005 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 Minimum Qualifying Income $118,137 $123,703$129,435 $107,522 $112,741 $141,365 $147,549 $135,324 $1,000 $40,000 $500 $20,000 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% $- 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

44 40% 30% 20% Housing Affordability Index San Luis Obispo County What Will Happen When Mortgage Rates Increase? % OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT 29% 27% 25% 22% 21% Q Median Price $594,330 20% Downpayment 19% 17% 16% 10% 0% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

45 Santa Barbara

46 Sales of Existing Detached Homes Santa Barbara County, Jan 2018: 159 Units, 6.0% YTD, 6.0% YTY SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

47 Median Price of Existing Detached Homes Santa Barbara County, Jan 2018: $567,000, Down 20.1% YTY $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

48 Unsold Inventory Index Santa Barbara County, January 2018: 3.3 Months Note: The Unsold Inventory Index represents the number of months it would take to deplete the remaining inventory at the end of a particular month with the sales rate of the month in consideration. Inventory includes listings with Active, Pending, and Contingent (when available) statuses. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

49 What Will Happen When Mortgage Rates Increase? Santa Barbara Q Median Price $710,000 20% Downpayment $4,000 $3,500 $3,000 $2,500 $2,395 MONTHLY MORTGAGE $3,225 $3,049 $2,712 $2,878 $2,551 $3,405 $3,590 $200,000 $180,000 $160,000 $140,000 $120,000 Minimum Qualifying Income $168,878 $176,266 $147,779 $154,626$161,662 $128,448 $134,683$141,129 $2,000 $100,000 $1,500 $80,000 $1,000 $60,000 $40,000 $500 $20,000 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% $- 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

50 Housing Affordability Index Santa Barbara 30% 20% What Will Happen When Mortgage Rates Increase? % OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT Q Median Price $710,000 20% Downpayment 21% 20% 18% 16% 15% 14% 13% 12% 10% 0% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

51 The Forecast

52 U.S. Economic Outlook f US GDP 2.2% 1.7% 2.4% 2.6% 1.6% 2.3% 2.3% Nonfarm Job Growth 1.7% 1.7% 1.9% 2.1% 1.8% 1.4% 1.2% Unemployment 8.1% 7.4% 6.2% 5.3% 4.9% 4.4% 4.2% CPI 2.1% 1.5% 1.6% 0.1% 1.4% 2.0% 2.2% Real Disposable Income, % Change 3.2% -1.4% 2.7% 3.4% 2.7% 2.1% 3.0% 30-Yr FRM 3.7% 4.0% 4.2% 3.9% 3.6% 4.0% 4.3% SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

53 California Economic Outlook f Nonfarm Job Growth 2.4% 3.0% 2.2% 2.7% 2.3% 1.6% 1.2% Unemployment 10.4% 8.9% 7.5% 6.2% 5.5% 4.8% 4.6% CA Population (Million) Population Growth 0.7% 0.9% 0.9% 0.9% 0.9% 0.8% 0.8% Real Disposable Income, % Change 4.7% -1.1% 3.2% 3.6% 3.0% 4.1% 4.3% SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

54 California Housing Market Outlook p 2018f (w/o tax reform) 2018f (with tax reform) SFH Resales (000s) % Change 4.1% -5.9% -7.8% 7.0% 1.8% 1.3% 1.0% 0.3% Median Price ($000s) $319.3 $407.2 $446.9 $476.3 $502.3 $538.5 $561.0 $555.6 % Change 11.6% 27.5% 9.8% 6.6% 5.4% 7.2% 4.2% 3.2% Housing Affordability Index 51% 36% 30% 31% 31% 29% 26% 26% 30-Yr FRM 3.7% 4.0% 4.2% 3.9% 3.6% 4.0% 4.3% 4.3% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

55 Key Takeaways California housing market is off to a slow start, but strong economic fundamentals will continue to provide support for housing demand in Tight supply continued to put upward pressure on home prices, but appreciation could slow as interest rates remain elevated. Housing affordability will get worse in especially for first-time buyers, as home prices and rates continue to rise throughout the year. The latest tax reform will have adverse effects on the housing market, and the degree of impact varies by price and by location.

56 Where is the Market Data?

57 Interactive market stats

58 Interactive market stats

59 Housing Matters Podcast

60

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