City of San José. Produced by City of San José Department of Housing. Housing Market Update

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1 City of San José Produced by City of San José Department of Housing Housing Market Update Sparq, is a 105 unit, mixed use, transit-oriented, market-rate project in downtown San Jose. It will be developed by CORE and broke ground in July Sparq offers residents creative social amenities and the latest in apartment technology, including electronic package lockers and automated car parking systems. Second Quarter 2018

2 2018 San José Housing Market 622 residential permits issued none for affordable housing Accessory Dwelling Unit permits issued on track to surpass 2017 levels Average effective rent grew 4% Quarter-over-Quarter (QoQ); Overall vacancy is at 4.8% 1 Renters must earn $53/hour ($110,120/year) to afford the average effective monthly rent for a 2-bedroom apartment of $2,753 2 Median single-family home price was $1,225,000, down 2% QoQ Residents must earn $121/hour ($251,300/year) to afford a median priced single-family home 3 1. Costar July 16, Based July 16, 2018 Costar average rents; income calculation assumes rents are 30% of income, 40-hour work week and a single income household. 3. Based on Santa Clara County Association of Realtors, June 2018 median prices; income calculation assumes monthly payments are 30% of income, 20% down, 4.4% interest rate, 1.25% property tax, 40-hour work week and a single income household. 2 San José Housing Market Update : 2018

3 Units Permitted 2018 San José Residential Permit Activity Quarterly RHNA Goal is 997 total units permitted , Total Permits Multi-family Affordable Multi-family Market Single-family/Second Units/Other RHNA - Quarterly Goal SOURCE: City of San José Housing Department, June San José Housing Market Update : 2018

4 2018 Second Unit Permits On Track to Surpass 2017 Levels * * To-Date * Zoning code updated in December 2016 and in 2018 to conform with new State Legislation and to encourage ADU development. SOURCE: City of San José Monthly Permit Reports as of June San José Housing Market Update : 2018

5 2nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr-2018 Average Effective Market Rents for SJ Average Rent Up 4% Quarter-over-Quarter (QoQ) & 5%YoY $3,800 $3,500 $3,200 $2,900 $2,600 $2,300 $2,000 $1,700 $1,400 $1,100 $800 $3,379 $2,753 $2,479 $2,213 $1,927 Studio 1Bdrm 2 Bdrm 3 Bdrm Average SOURCE: Costar July 16, San José Housing Market Update : 2018

6 Average Vacancy at 4.8%, lower for larger unit sizes Quarterly Vacancy Rate % for SJ 2nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr nd Qtr Vacancy Rates Studio 5.8% 1 Bdrm 5.1% 2 Bdrm 4.8% 3 Bdrm 3.5% Average 4.8% Studio 1 Bdrm 2 Bdrm 3 Bdrm Average 5% Healthy Vacancy Rate National Rate 4% 3% SOURCE: Costar, July 16, 2018, National Rate US Census Bureau Current Population Survey/ Housing Vacancy Survey 7/26/18. 6 San José Housing Market Update : 2018

7 Average Vacancy lower for older buildings (81% of total rental stock) Quarterly Vacancy % for SJ Rental Stock % Vacancy % Class A 18.8% 7.1% Class B 35.2% 3.4% Class C 45.9% 3.2% Class F 0.1% 3.5% Class A Class B Class C Class F SOURCE: Costar, August 21, 2018 Class A refers to highest quality construction, Class B refers to more utilitarian space, Class C refers to a no-frills older building and Class F refers to a functionally or economically obsolete building, per Costar Building Ratings. 6 San José Housing Market Update : 2018

8 Annual Income Housing is Out of Reach for Many San José Workers $260,000 $250,000 $240,000 $230,000 $220,000 $210,000 $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Retail Salesperson Annual Income to Own a Median Priced Single-Family Home ($251,296) Annual Income to Own a Median Priced Townhome/Condo ($184,240) Annual Income to Afford Average Rent for a Three-bedroom Apartment ($135,160) Annual Income to Afford Average Rent for a Two-bedroom Apartment ($110,120) Annual Income to Afford Average Rent for a One-bedroom Apartment ($88,520) Janitor Healthcare Support Occupation Construction Laborer Elementary School Teacher Fire Fighter Police Officer SOURCE: Employment Development Department (EDD) First Quarter 2018 Wages; Costar July 16, Average Rents; Income to rent calculation assumes rent at 30% of income and a single income household; Santa Clara County Association of Realtors 2018 median prices; Income to mortgage calculations assume payments at 30% of income, 20% down, 4.57% interest, 1.25% Property Tax, $375 HOA dues for condos and a single-income household. 8 San José Housing Market Update : 2018

9 Median Rent as a % of Median Income San José Renters Spend Higher % of Income on Rent 50% 40% 36% 30% 29% 20% 10% 0% San Jose Metro United States SOURCE: Zillow Rental Affordability Index 2018 One Quarter Lag. 9 San José Housing Market Update : 2018

10 Median Single Family Home Price ($) San José Single-Family Median Home Price Down 2% QoQ, but Up 23%YoY $1,500,000 $1,390,000 $1,400,000 $1,280,000 $1,170,000 $1,225,000 $1,060,000 $950,000 $840,000 $730,000 $620,000 $510,000 $400,000 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 San José Santa Clara County SOURCE: Santa Clara County Association of Realtors, June San José Housing Market Update : 2018

11 Median Townnhome Price ($) San José Condo/Townhome Median Prices Up 8% QoQ and 25% YoY $1,000,000 $900,000 $800,000 $930,000 $825,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 San José Santa Clara County SOURCE: Santa Clara County Association of Realtors June San José Housing Market Update : 2018

12 Ratio of Median Home Price to Median Income San José Metro Area Median Home Prices 10x Median Income - Triple the National Average San Jose Metro United States SOURCE: Zillow Price to Income Index 2018 One Quarter Lag. 12 San José Housing Market Update : 2018

13 Mortgage Payments as a % of Median Income San José Owners Spend More than Half their Income on Mortgages, 3x National Average 60% 50% 51% 40% 30% 20% 17% 10% 0% San Jose Metro United States SOURCE: Zillow Mortgage Affordability Index 2018 One Quarter Lag. 13 San José Housing Market Update : 2018

14 % of Homes Affordable to Families Earning Median Income San Jose Housing Affordability Remains Low Relative to the Nation (6 th least affordable) Less than 1 in 8 families in San José can afford to own a median priced home San Jose, Sunnyvale, Santa Clara Metropolitan Area HOI National HOI SOURCE: National Association of Home Builders, Housing Opportunity Index San José Housing Market Update : 2018

15 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 San José Single-Family Data Single-Family Inventory (Total Listings) Doubles QoQ, Up 16% YoY; Sales Up 18% QoQ & Down 11% YoY New Listings Total Listings Sales SOURCE: Santa Clara County Association of Realtors, June San José Housing Market Update : 2018

16 Days on Market in San Jose Two Week Turnaround Time for Home Sales in San José Days 0 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun Days Single Family Condo/Townhomes SOURCE: Santa Clara County Association of Realtors June San José Housing Market Update : 2018

17 Interest Rate Interest Rates Inch Upwards 8.00% 7.00% 6.00% 5.00% 4.00% 4.57% 3.82% 3.00% 2.00% 1.70% 1.00% 0.00% Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun Year Fixed Rate 5/1 Hybrid Adjustable Rate Federal Funds Rate SOURCE: Federal Reserve, Freddie Mac Primary Mortgage Market Survey, San José Housing Market Update : 2018

18 Data Sources and Definitions The City of San José selected Costar to supply rental housing statistics as of July 1, The City s previous vendor, RealAnswers, went out of business in 2016 The City has restated rents and vacancy data beginning January 2000, using Costar. The revised data will be posted in the Housing Market Updates beginning in 2017 The source of the quarterly rents and vacancy data will be average, effective, marketrate apartment rents for the geography encompassing the City of San José, as reported in Costar s proprietary database Effective rent is the average rent paid over the term by a tenant adjusted downward for concessions paid for by the landlord (such as free rent, moving expenses, or other allowances), and upward for costs that are the responsibility of the tenant (such as operating expense pass throughs) The rents reported are average market rate rents charged by existing market-rate apartments; Costar updates rents data once a month for apartments with more than 30 units and once a quarter for apartments with less than 30 units For questions, please call the Housing Department at