2018 Housing Market Forecast. Contra Costa Association of REALTORS October 18, 2017 Joel Singer Chief Executive Officer

Transcription

1 2018 Housing Market Forecast Contra Costa Association of REALTORS October 18, 2017 Joel Singer Chief Executive Officer

2 Economic Update

3 Stronger Economic Growth in Q2 As Consumer Spending Improved 3.1% 3.3% GDP 2017-Q2 4.2% Consumption 2017-Q2 1.2% Unemployment Sep 2017 Job Growth Sep 2017

4 Annual Percent Change, Chain-type (2009) $ Growth is expected to slow in Q3 due to the hurricanes effect but should bounce back GDP : 1.5%; 2017 Q2: 3.1% 6% 5% ANNUALLY QUARTERLY 4% 3% 2% 1% 0% -1% -2% -3% -4% 2009 Largest Annual Drop since 1946 (-2.8%) p Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q2-16 Q1-17 SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

5 Unemployment Rates Inched Up in August but Still Near Recent Lows US 4.2% (Sep 2017) & CA 5.4% (Aug 2017) 14% CA US 12% 10% 8% 6% 4% 2% 0% SERIES: Unemployment Rate SOURCE: U.S. Bureau of Labor Statistics, CA Employment Development Dept.

6 Annual Percent Change U.S. job growth declined (mtm) for the first time since 2010 due to Harvey and Irma 4 2 California US CA 1.6% (08/17) US 1.2% (09/17) SERIES: Total Nonfarm Employment SOURCE: U.S. Bureau of Labor Statistics, CA Employment Development Dept.

7 Unemployment rate by County Aug 2017: California 5.1% San Francisco Santa Clara Orange County Alameda Contra Costa San Diego Los Angeles Sacramento Santa Cruz Monterey San Bernardino Riverside San Joaquin Stanislaus Fresno Kern 3.5% 3.8% 4.2% 4.4% 4.4% 4.7% 5.4% 5.4% 5.4% 5.6% 5.8% 6.5% 7.5% 7.5% 8.6% 9.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% SERIES: Unemployment Rate SOURCE: CA Employment Development Division

8 Trumponomics: the good, bad, and ugly 1. Economy relatively healthy 2. Deregulation: industry & banks 1. General regulatory environment 2. CFPB & Dodd-Frank 3. Infrastructure investment? 4. Tax cuts on business & people 1. 3 brackets, lower rates 2. More than half corporate rate 5. Tax reform: repatriating profits 6. Better trade terms? 1. Mortgage interest deduction? 1. Double Standard Deduction 2. Limit MID to $500K? 2. GSEs and the FHA/HUD 3. Healthcare & Immigration 1. Demand, but also Fed $$ 2. CA exposed there too 4. Uncertainty & Market volatility 5. Pro-growth = higher rates 1. Especially if more hawks at Fed 6. Supply is already an issue here 7. CA very exposed to trade war 1. What does retaliation look like? 2. Capital flows to/from China?

9 Impact of Tax Reform on the Housing Market Two Provisions on the Individual Tax Reform Proposal: - Doubling the Standard Deduction - Repeal the state and local tax deduction Impact on the housing market: - By doubling the standard deduction, the incentive of using MID as a tax saving tool as a homeowner would be nullified or eliminated - The repeal of the state and local tax deduction would increase the cost of owning a home - Home values would decline as these tax saving advantages vanished for homeowners

10 Impact of Tax Reform on the Housing Market - The proposed tax reform would lead to fewer sales transactions as the tax incentives of being a homeowner vanish for many who want to purchase a property. Home sales would decline 3.4 percent if the proposed tax reform were to be implemented - The decline in home values would also lead to homeowners reluctance to put their property on the market and further tighten up the housing supply condition in California. An estimated 1.5 percent would be lost in the first year after the implementation of the tax reform.

11 Impact of Tax Reform on the Housing Market Decline in Home Value Decline in home value due to the dilution of MID -3.4% Decline in home value due to the elimination of deduction of property tax -3.0% Total decline in home value -6.4% Potential loss in Sales Loss in home sales due to the dilution of MID -1.3% Loss in home sales due to the elimination of deduction of property tax -2.1% Total loss in home sales -3.4% Potential loss in Housing Supply Loss in housing supply due to the dilution of MID -0.8% Loss in housing supply due to the elimination of deduction of property tax -0.7% Total loss in housing supply -1.5%

12 Incentives for Homeownership under the Proposed Tax Reform Under the proposed law, the tax savings associated with moving from renting to homeownership falls: First-time buyers ($100K income, $437K home) will see federal tax incentive to own vs. rent decline from $3,291 to zero in the first year. Typical buyers ($120K income, $533.5K home) will see federal tax incentive to own vs. rent decline from $5,782 to $362 in the first year. Mid-range buyers ($150K income, $615K home) will see federal tax incentive to own vs. rent decline from $8,099 to $1,334 in the first year. High-end buyers ($200K income, $1.2M home) will see federal tax incentive to own vs. rent decline from $16,615 to $5,725 in the first year.

13 Tax Expenditures Estimates: CA Deductions for Mortgage Interest and Property Taxes in California (FY ) Mortgage Interest Deduction 0.0 Property Tax Deduction Mortgage Interest & Property Tax Coimbined Current Law Comprehensive Tax Reform Option

14 U.S. Economic Outlook p 2018f US GDP 2.2% 1.7% 2.4% 2.6% 1.6% 2.1% 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, % 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

15 California Economic Outlook p 2018f Nonfarm Job Growth Unemployment Rate CA Population (Million) Population Growth Real Disposable Income, % Change 2.4% 3.0% 2.2% 2.7% 2.3% 1.6% 1.2% 10.4% 8.9% 7.5% 6.2% 5.5% 4.8% 4.6% % 0.9% 0.9% 0.9% 0.9% 0.8% 0.8% 4.7% -1.1% 3.2% 3.6% 3.0% 4.1% 4.3% SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

16 Housing Market Update

17 Sales Continue to Grow but at a Slower Pace California, Sept Sales: 436,920 Units, +2.6% YTD, +1.7% YTY 700, , , , , , ,000 - Sep-16: 429,760 Sep-17: 436,920 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS *Sales are seasonally adjusted and annualized

18 Sales Improve in Mid and High Priced Markets But Decline in Lower Priced Segments Sept 2017 (Year-to-Year) 40% 30% 29.0% 20% 10% 0% 5.2% 6.9% 16.2% -10% -20% -11.1% -4.5% -4.8% -30% -40% -29.3% SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

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

20 Low Mortgage Rates Also Help January 2010 October 12, 2017 MONTHLY WEEKLY FRM ARM 0 SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

21 Market Competitiveness Surged, as Supply Continued to Tighten up 80% % with Multiple Offers # of Multiple offers (Average) 7 70% 60% 50% 40% 30% 20% 10% 0% 52% 60% SERIES: 2017 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

22 Statewide Median Price Growing Faster in Recent Months California, September 2017: $553,490, -2.1% MTM, +7.2% YTY $700,000 $600,000 P: May-07 $594,530 Sep-16: $516,450 Sep-17: $553,490 $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

23 Contra Costa

24 Contra Costa County, Sep. 2017: 925 Units, +3.8% YTD, -5.5% YTY 1,400 1,200 1, County Sales Up Modestly So Far in 2017 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

25 Price Growth Remained Robust Contra Costa County, Sep. 2017: $605,000, Up 10.0% YTY $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

26 12 As Inventory Level Stayed Below Trend Contra Costa County, September 2017: 2.2 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 Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

27 Concord

28 Sales of Single Family Homes Concord, September 2017: 92 Units +3.1% 2017 YTD, -17.9% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

29 Median Price of Single Family Homes Concord, September 2017: $649,900 Down 0.1% MTM, Up 6.7% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

30 For Sale Properties Concord, September 2017: 99 Units -21.2% 2017 YTD, -31.3% YTY Note: For Sale Properties represents the overall supply that exist throughout the entire month, including any listings that appear as Active any point in time during the month. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

31 Walnut Creek

32 Sales of Single Family Homes Walnut Creek, September 2017: 47 Units +1.4% 2017 YTD, -16.1% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

33 Median Price of Single Family Homes Walnut Creek, September 2017: $1,175,000 Up 7.3% MTM, Up 16.6% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

34 For Sale Properties Walnut Creek, September 2017: 45 Units -3.2% 2017 YTD, -28.6% YTY Note: For Sale Properties represents the overall supply that exist throughout the entire month, including any listings that appear as Active any point in time during the month. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

35 Antioch

36 Sales of Single Family Homes Antioch, September 2017: 96 Units -5.3% 2017 YTD, -25.0% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

37 Median Price of Single Family Homes Antioch, September 2017: $430,500 Down 0.1% MTM, Up 16.3% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

38 For Sale Properties Antioch, September 2017: 107 Units -14.0% 2017 YTD, -13.0% YTY Note: For Sale Properties represents the overall supply that exist throughout the entire month, including any listings that appear as Active any point in time during the month. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

39 The Supply Issue

40 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 Supply Remains an Issue Sept 2016: 3.5 Months; Sept 2017: 3.2 Months Year-over-Year % Chg % % % % 8.0-5% % % -11.2% % 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

41 Supply Constraint across Most Prices, but Most Obvious in the Lower End Sept % Active Listing 0% 1.7% -10% -10.6% -6.6% -10.1% -7.2% -11.2% -20% -16.2% -30% -28.3% SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

42 Year-to-Year % Chg Supply Saw Declines, Especially in Bay Area September % Sales Active Listings 0% 0% -4% -3% -10% -8% -13% -20% -20% -30% San Francisco Bay Area Southern California Central Valley SERIES: Sales and Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

43 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.

44 Boomers Not Moving as Often 35% 30% 25% 20% 71% of Californian s aged 55+ haven t moved since 1999 California Homeowners by Length of Tenure, 2013 Under % 24.0% 21.3% 31.8% 15% 10% 5% 0% 9.0% 14.2% 12.4% 11.0% 12.0% 10.7% 8.9% 7.3% 5.7% 0.9% 0.8% 1.9% 1978 & Earlier 1979 to to to to to to to 2013 SERIES: Distribution of Home Ownership by Year Moved In SOURCE: U.S. Census Bureau, 2013 American Housing Survey

45 The New Construction Issue

46 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

47 But California Used to Produce More Avg : 200k Avg : <70k SERIES: California New Housing Permits SOURCE: Construction Industry Research Board

48 CA has produced less housing per capita than other US states SOURCE: U.S. Census Bureau, McKinsey Global Institute

49 Housing Supply Gap Will Be Over 2 Million at Current Construction Pace since 2005 California Housing Supply Gap (in millions) Additional Demand Total Demand 1.34 New supply Gap to fill With housing needs increasing at a rate of 180,000 every year, California will need more than 3.3 million units by 2030 to fill the housing demand and bring it back to 2005 level. At the current construction pace, however, California will have a backlog of over 2 million by 2030 SERIES: Housing Supply Gap SOURCE: Calculation by CALIFORNIA ASSOCIATION OF REALTORS

50 Most Underbuilt Counties in California 500, , , , , , , , ,000 50,000 16,144 0 Jobs Created vs. Units Permitted ,612 49, , ,602 Jobs Created ( ) Units Permitted ( ) SERIES: Nonfarm Job Growth & Housing Affordability Index (HAI) SOURCE: CA EDD, Construction Industry Research Board

51 SOURCE: CA Legislative Analyst Office California Not Building Enough Because

52 SOURCE: CA HCD Barriers and Constraints to Housing Development

53 SOURCE: CA HCD Barriers and Constraints to Housing Development (cont.)

54 Why the Production Shortfall? Shortage of Land: Production shortfall greatest in cities where need is most critical High Costs of Development Fees in most California communities are higher than elsewhere in US Infill development costs higher than suburban development costs Environmental policies, etc increase costs Lengthy permitting process increases cost per unit produced and favors deep pockets

55 Building in California is Expensive Land Costs 2 to 4 times higher on California (CA) Coasts High land costs usually mean more units being built on each plot of land, but not the case in CA s coastal metros During the 2000 s housing density of a typical neighborhood in CA s coastal metro rose only 4%, considerably less than the 11% average increase in the comparison group The new housing unit in the comparison group was also 40% more dense than that built in CA. Building Costs $50k to $75 higher in California (CA) Include labor, building material and government fees, all higher in CA than other states Development fees are higher in California than the rest of the country. A 2012 national survey found that the average development fee levied by California local governments (excluding water-related fees) was $22,000 per single family home, as compared to the $6,000 per single-family home in the rest of the country. SERIES: Homeownership Rate SOURCE: CA Legislative Analyst Office

56 Case Study: Restrictive Zoning in L.A. Los Angeles Zoned Residential Capacity Los Angeles was zoned to accommodate 10 million people in 1960 Today, the city is zoned for only 4.3 million people after decades of population growth and increase in housing demand. SERIES: Los Angeles Zoned Residential Capacity SOURCE: Morrow (2016), the White House: Housing Development Toolkit

57 Underbuilding (New Jobs/New Permits) The More Underbuilding, the Higher the Price Growth CA Underbuilding and Price Growth ( ) % -20% 0% 20% 40% 60% 80% 100% 120% -2 Price Growth (%) SERIES: Nonfarm Job Growth, New Housing Permits, Existing Median Prices SOURCE: CA EDD, C.A.R., Construction Industry Research Board

58 The Housing Affordability Issue

59 % OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME Housing Affordability Peaked Q % 70% California, Annual Quarterly 60% 57% 50% 40% 30% 29% 20% 10% 0% SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

60 Housing affordability taking it on the chin 70% 60% 55% 2017-Q2: % able to purchase median-priced home 50% 40% 30% 29% 20% 10% 0% SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

61 Lackluster Income Growth Also Contributed to the Affordability Issue 40% Household Income vs. Home Price 30% 20% 10% 0% -10% -20% -30% -40% -50% Income growth could not keep up with price growth until recently Income Growth Price Growth SERIES: Household income growth vs. Home price growth SOURCE: U.S. Census Bureau, Current Population Survey/Annual Social and Economic Supplement, CALIFORNIA ASSOCIATION OF REALTORS

62 Most Cannot Afford to Purchase a Home with a Single Income California $120,000 $100, Annual Mean Wage $96,660 $92,380 $101,750 $120,710 $101,220 $80,000 $71,790 $74,270 $60,000 $49,810 $40,000 $29,810 $20,000 $0 Retail Salespersons Chefs and Head Cooks Firefighters Elementary School Teachers Computer Programmers Police and Sherriff's Patrol Officers Registered Nurses Software Developers (Applications) Min. Inc Required to Buy a Med. Home SOURCE: Bureau of Labor Statistics, C.A.R.

63 What Will Happen When Mortgage Rates Increase? Q Median Price $553,260 20% Downpayment $3,200 $2,800 $2,400 $2,000 $1,866 MONTHLY MORTGAGE $2,513 $2,376 $2,113 $2,243 $1,988 $2,654 $2,798 $160,000 $140,000 $120,000 $100,000 Minimum Qualifying Income $131,596 $137,353 $115,155 $120,491$125,973 $100,092 $104,950$109,973 $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

64 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 $553,260 20% Downpayment 33% 31% 29% 27% 25% 23% 22% 20% 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

65 Affordability Is also an Issue for Renters $2,200 $2,000 $1,800 California Average Asking Rent $1, Rent vs. Household Income Indexed: 2000=100 Asking Rent Household Income $1, $1,400 $1, $1,200 $1,032 $1, $ SERIES: California asking rent and household income SOURCE: California Department of Housing and Community Development, Census Bureau Decennial Census, American Community Survey

66 A Mismatch between Supply and Demand in the Rental Market Growth in Rent Population Exceeded Growth in Rental Stock Vacancy Rates Down; LA and SF Had the Lowest SOURCE: NYU Furman Center/Capital One National Affordable Rental Housing Landscape

67 California Ranked the 2 nd Highest in Wages Needed to Afford a Modest Rental Unit In 2016, the hourly wage required to afford a two-bedroom apartment at the national level was $20.30 California minimum wage for employers with 25 employees or less: $10/hr. California minimum wage for employers with 26 employees or more: $10.50/hr. SOURCE: National Low Income Housing Coalition Out of Reach 2016

68 Housing-Cost Burden Affects Lower-Income Households the Most % of California s Renters Experiencing Rent Burden Rent Burdened: paying more than 30% of income toward rent Severely rent burdened: paying more than 50% of income toward rent SERIES: Renters experiencing rent burden SOURCE: CA HCD, US Census Bureau, 2016 National Low-Income Housing Coalition

69 Rent Burdens Delay Renters from Buying Homes 69 Many Renting Because of Affordability Issue Nearly Half of Renters Plan to Buy in the Future Though No plans to buy 28% 5.5% 6.4% Can't afford to buy Not sure 24% 6.3% 7.0% 7.8% 46% Poor credit / Can't qualify Flexibility/Freedom of renting Cost/Upkeep/Responsibility Renting is easier Never considered it/no interest Young/Starting out/not ready In 5+ Years 3-5 Years 11% 14% 8.4% Other In 2 Years 13% 13% Within a year 9.6% 0% 10% 20% 30% SERIES: 2016 C.A.R. Renter Survey SOURCE: California Association of REALTORS Q. Why do you rent instead of buying?

70 The Homeownership Issue

71 Q1-05 Q4-05 Q3-06 Q2-07 Q1-08 Q4-08 Q3-09 Q2-10 Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q2-16 Percent Percentage Points Homeownership Dropped, Big Gap in CA Homeownership Rate, Homeownership Gap (Smoothed) 8.0 U.S. California SERIES: Homeownership Rate (%) SOURCE: U.S. Census Bureau, Housing Vacancy Survey (HVS)

72 New York California Nevada Rhode Island Hawaii Massachusetts Texas North Dakota Washington Arizona New Jersey Georgia Colorado Oregon Connecticut Louisiana Florida Alaska Illinois North Carolina Ohio Virginia Tennessee Maryland Missouri Oklahoma Kansas Montana New Mexico Arkansas Wisconsin Kentucky Nebraska Pennsylvania South Carolina South Dakota Alabama Mississippi Iowa Wyoming Idaho Indiana Utah Vermont New Hampshire Minnesota Maine Michigan Delaware West Virginia California Ranked the 2 nd Lowest Amongst All States 80% Homeownership Rate 70% 60% 50% 53.8% 40% 30% 20% 10% 0% SERIES: Homeownership Rates SOURCE: U.S. Census Bureau

73 California Homeownership Rates Declined the most for Younger Generations 80% 70% 65 &Above % 50% Overall 40% % Under 35 20% SERIES: Homeownership Rates SOURCE: U.S. Census Bureau, American Community Survey

74 Rise with Income 90% Homeownership Rate by Income 80% 70% 60% 50% 40% 30% 20% 10% 0% Less than $10,000 $10,000 to $19,999 $20,000 to $29,999 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 to $119,999 $120,000 or more U.S. LA/Long Beach Metro San Francisco Metro Inland Empire SERIES: Homeownership Rates by Income SOURCE: U.S. Census Bureau 2015 American Housing Survey

75 And Differ by Ethnicity California Homeownership Rates by Race and Ethnicity ( Average) SERIES: Homeownership rate by ethnicity SOURCE: CA HCD, PolicyLink, USC Program for Environmental and Regional Equity

76 ,000,000 45,000,000 40,000,000 35,000,000 Population and Households Will Continue to Grow Jan. 1, 2017 = 39, est. by DOF California ,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 - SOURCE: Moody s Analytics

77 With California Becoming More Diverse Racial/Ethnic Composition in CA, SERIES: Ethnic Composition in California SOURCE: CA HCD, PolicyLink, USC Program for Environmental and Regional Equity

78 and Housing-Cost Burden not Distributed Evenly across Ethnicity Percent of California Households Paying over 30 Percent of Income toward Housing ( ) SERIES: Homeownership rate by ethnicity SOURCE: CA HCD, HUD CHAS data set, US Census Bureau

79 Homeownership Will Deteriorate if the Trend Continues 70% California Homeownership Rate 60% 50% 40% 57.1% 59.7% 56.1% 52.8% 52.1% 51.3% 50.0% 47.9% 45.9% 47.3% 44.2% 41.0% 30% Fast Slow Avearge SERIES: Homeownership Rate SOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection

80 Consequence: People Leaving Inflow Outflow (CA, ) Net Migration ( ) Texas Nevada Arizona Oregon -124,064-92,367-74,038-70,354 Washington Colorado Idaho Utah North Carolina Georgia -32,598-31,432-28,056-25,147-21,230-16, Thousands SERIES: California Migration SOURCE: U.S. Census, Calculations by the California Association of REALTORS

81 States with More Affordable Housing and the Trend is Accelerating! 700 All-Transactions House Price Index Index 1980:Q1=100, Annual, Not Seasonally Adjusted Texas Nevada Arizona Oregon Washington Colorado Idaho Utah North Carolina Georgia California SERIES: All-Transaction House Price Index SOURCE: Federal Housing Finance Agency

82 Californians with Lower Incomes Were More Likely to Move out of the State, but Net Migration by Personal Income ( ) Under 10,000 $10,000 to $19,999 $20,000 to $29,000 $30,000 to $39,999 $40,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $149,999 $150,000 to $199,999 $200,000 to $250,000 Over $250, Thousand SERIES: California Migration SOURCE: U.S. Census, Calculations by the California Association of REALTORS

83 Young Adults and Baby Boomers also Moved Out of California at a Faster Rate than Other Age Groups Net Migration by Age ( ) -1.9 Over Under Thousand SERIES: California Migration SOURCE: U.S. Census, Calculations by the California Association of REALTORS

84 CA Population Net Gain/Loss ( ) ,842-2,424 +3, ,955-53,829-6, ,161-46,339-58,281-3,808-6,427-8,016-7,422-15,610 +1, ,641-4, , ,429-5, , , , , , ,151 +7, Left CA: 5 million Came to CA: 3.9 million Net Loss: 1million -177,967-23, ,600-25,656-21,453-25,837-34,561-9,349-8,461-1,892-30,854-4,544-16,381 SERIES: People Leaving/Coming to California SOURCE: IRS, Sacramento Bee

85 Consequence: Companies and Jobs Leave or Expand Elsewhere Negative impact of excessive barriers to housing development: Lower housing affordability for working families Increase income inequality by reducing less-skilled workers access to high-wage labor markets Slow down economic growth by driving labor migration away from the most productive regions SOURCE: CA Legislative Analyst Office

86 Not Merely a Housing Problem Nestle (Rosslyn, VA) Northrop Grumman (DC) Toyota (Plano, TX) Jamba Juice (Plano, TX) Parsons Engineering (Plano, TX) Occidental Petroleum (Woodlands, TX)

87 Number of Transactions Consequence: Tight Supply Led to Lower Member Productivity Peak Trough f 4.2

88 What Can Be Done?

89 Inadequate Housing Supply Build More: Regulatory Changes Are Essential Free the Existing Inventory Add Secondary Units Recycle Retail and Commercial Projects Utilize Surplus Land (where ever available)

90 Solutions Solutions must include: Increase in Production Infill and brownfield opportunities in urban areas where shortage is critical Revitalization of Neighborhoods Change Incentive Structure Facing Cities Fiscal Housing & Zoning Requirements Enforce housing elements of general plans, create incentives to comply Improve Business & Legal Climate for Developers CEQA Reform

91 Solutions Attitude Shift is Essential to Moving Toward Solutions By Households as Residents By Households as Taxpayers By Local Elected Officials By State Officials and an Attitude Shift Requires Education and Heightened Awareness of Problems, Implications, and Solutions! Solutions will take time

92 The Forecast

93 Summary of Market Conditions Home sales continued to grow in the third quarter, but started showing some signs of slowing Sales improved in mid and high priced markets, but declined in lowerpriced segments Fundamentals remained solid with interest rates at low levels, household growth on an upward trend, and the economy improving at a slow pace Imbalance between supply and demand pushed up home prices, with price growth accelerating again in recent months

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

95 Units (Thousand) Price (Thousand) Sales and Price up in 2017 and in Sales of Existing Detached Homes $600 Median Price $539 $ $ $400 $300 $ $ p $ p SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

96 CA: Dollar Volume Up 8.6% in 2017, Up 5.2% in 2018 $ in Billion % Change $400 $ Volume of Sales Percent Change 30% $350 $300 $250 $200 $150 $301 $244 $164 $133 $131 $127 $121 $140 $169 $171 $195 $209 $227 $239 20% 10% 0% -10% $100-20% $50-30% $ p 2018f -40% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

97 C.A.R. Membership & SF Sales Home Sales 600, ,000 Membership Sales Peaks: 1978, 1988, Membership Peaks: 1980, 1990, , , , , , , , , ,000 50,

98 Thank You This presentation can be found on Speeches & Presentations