2019 Economic & Market Forecast. Santa Clara County Association of Realtors November 16, 2018 Leslie Appleton-Young SVP & Chief Economist

Transcription

1 2019 Economic & Market Forecast Santa Clara County Association of Realtors November 16, 2018 Leslie Appleton-Young SVP & Chief Economist

2 Value of Strategic Thinking: You will be surprised by the future, but you won t be surprised that you are surprised

3 2008

4 The CA Housing Market Recovery 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Equity Sales Short Sale REO Equity Sales (Aug 2018) = 98.4% Equity Sales Vs. Distressed Sales REO Sales (Aug 2018) = 0.9% Short Sales (Aug 2018) = 0.3% Note: Not including transactions in foreclosure. SERIES: Distressed Sales, Not Seasonally Adjusted SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

5 2018

6 Macro Economic Update

7 U.S. Economy: Our Biggest Strength 3.5% 4.0% 2.2% GDP 2018-Q3 3.7% Consumption 2018-Q3 1.7% Core CPI September 2018 Unemployment October 2018 Job Growth October 2018

8 Growth Reflects Strong Fiscal Stimulus GDP : 2.3%; 2018 Q3: 3.5% 6% 5% ANNUALLY QUARTERLY Annual Percent Change, Chain-type (2009) $ 4% 3% 2% 1% 0% -1% -2% -3% 2009 Largest Annual Drop since 1946 (-2.8%) 3.5% -4% Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q2-16 Q1-17 Q4-17 Q3-18 SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

9 CA Employment: All-Time High 18,000 17,000 California Nonfarm Employment 4.0% 3.5% Nonfarm Employment Growth 16,000 15,000 14,000 13,000 12,000 11,000 10,000 Jan-00 Feb-01 Mar-02 Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08 Oct-09 Nov-10 Dec-11 Jan-13 Feb-14 Mar-15 Apr-16 May-17 Jun % 2.5% 2.0% 2.0% 1.5% 1.0% 0.5% 0.0% Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 California U.S.

10 Unemployment Lowest in 40+ Years Kern Fresno Los Angeles Monterey Sacramento Santa Cruz Solano San Diego Contra Costa Alameda Orange Napa Sonoma Santa Clara San Francisco Marin San Mateo September 2018 Unemployment Rates 3.9% 3.6% 3.5% 3.5% 3.2% 2.9% 2.8% 2.8% 2.5% 2.4% 2.4% 2.2% 2.2% 2.1% 4.8% 9.6% 9.1% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% SERIES: Civilian Unemployment Rate SOURCE: CA Employment Development Division

11 Consumer Confidence Highest in 18 Years October 2018: INDEX, 100= SERIES: Consumer Confidence SOURCE: The Conference Board

12 Inflation Remains Low September 2018: All Items 2.3% YTY; Core +2.2% YTY Annual Percent Change All Items Core SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics

13 Rates in 2018: 30 Yr. Now Above 5% 1 st Time since 2011 Nov 5: 5.05% SERIES: Average 30 Yr. Fixed Mortgage Rates SOURCE: Mortgage News Daily

14 Fed Has Raised rates 8 Times Since Dec January 2012 November 2018 MONTHLY 5.10% Bankrate WEEKLY FRM ARM Fed Raise Rate the 1 st time since mid Fed Funds Rate 0 SERIES: 30Yr FRM, 5Yr ARM, Fed Funds Rate (Target Rate) SOURCE: Freddie Mac, St. Louis Fed

15 RISING Rates Hit Pocketbooks Hard Median Price $595K $3,200 $2,800 $2,400 $2,000 MONTHLY MORTGAGE $2,013 $2,144 20% Downpayment $2,279 $2,419 $2,563 $2,711 $2,862 $3,017 $1,600 $1,200 $800 $400 $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

16 RISING Rates Hit Pocketbooks Hard Median Price $595K $160,000 $140,000 $120,000 $107,956 20% Downpayment $124,203 $118,614 $113,196 Minimum Qualifying Income $135,871 $129,958 $141,936 $148,145 $100,000 $80,000 $60,000 $40,000 $20,000 $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

17 Tax Reform: Homeownership Took a Hit 7 tax brackets 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37% MID Caps at $750K Existing loans grandfathered SALT capped at $10K Double standard deduction Expand child tax credit $2K 401K still deductible 2 nd Homes survived Eliminate HELOC deduction Cap gains exclusion survives 1031 exchange survives Pass-through income deduction of 20% Maintains expense deductions Corporate rate of 21%

18 Consequences? Lock in effect on MID cap Less supply, eroded affordability Raises costs for $937K + Less price pressure at top end Rents rise at bottom end More money in pockets Might not translate to prices at bottom -> no incentive to own SALT cap will affect roughly half of the market not totally offset by lower tax rates This Photo by Unknown Author is licensed under CC BY-SA

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

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

21 And then there s this (Jan 2018 Nov 2018) (9/1/18 11/5/18) 26, ,443 25,462 SERIES: Dow 30 SOURCE: Yahoo Finance

22

23 Market Shift: Home Sales Softening Region Aug-18 Jul-18 Aug-17 MTM YTY U.S. 4,750,000 4,750,000 4,800, % -1.0% Northeast 600, , , % -1.6% Midwest 1,210,000 1,180,000 1,210, % 0.0% South 1,950,000 1,970,000 1,920, % 1.6% West 990,000 1,040,000 1,060, % -6.6% SERIES: Existing Single-Family Home Sales SOURCE: NATIONAL ASSOCIATION OF REALTORS

24 Regional Price Gains Slowing Region Aug-18 Jul-18 Aug-17 MTM YTY U.S. $267,300 $271,900 $254, % 4.9% Northeast $291,300 $310,800 $286, % 1.8% Midwest $210,200 $210,900 $203, % 3.5% South $234,200 $239,600 $225, % 3.8% West $397,400 $397,700 $378, % 5.1% SERIES: Existing Single-Family Home Sales SOURCE: NATIONAL ASSOCIATION OF REALTORS

25 Q: How long can the eoncomy be strong if housing isn t?

26 Concerns Going Forward Fiscal stimulus wears off Global growth outlook weakening US growth outpacing global growth strong dollar hurts emerging market economies Trade wars/immigration restrictions (H-1B visas) Stock market sell-off could impact financial conditions that slow growth Markets hate uncertainty

27 Bay Area Economic Profile 19 th largest economy - $748B GDP Per capital GDP = $80,000 Highest of any similar MSA 4.3% growth over last 3 years -- 2X as fast as U.S. +26% employment growth since last recession 750,000 tech workers as of July 2017 July 2016-July 2017 Net outflow o 45,670 to other parts of U.S. Net inflow of 58,156 form outside of the U.S.

28 California Realtors & Their Industry

29 C.A.R. Membership Up & Sales Flat Home Sales Membership Sales Peaks: 1978, 1988, , 2009 Membership Peaks: 1980, 1990, 2006, , , , , , , , , , ,000 50,

30

31 Member Productivity is Low ½ What It Was in Peak: Number of Transactions Long Run Average: Trough: : : 4.2 0

32 CA Housing Market: A Shift is Afoot

33 CA Buyers On the Sidelines Do you think it's a good time to buy a home in California? Do you think it's a good time to sell a home in California? 78% 57% 43% 22% Yes No Yes No Do you think it's a good time to buy a home in California? (n=300) Do you think it's a good time to sell a home in California? (n=300) SERIES: 2018 Google Consumer Poll SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

34 October Market Snapshot Sales: 397,060 down for 6 consecutive months YTD down 3.7% Below 400,000 for the last three Price: $572,000 gains in mid-single digits Unsold inventory 3.6 months

35 October Sales Off 7.9% YTY 6 months of declines CA October 2018 Sales: 397,060 Units, -3.7% YTD, -7.9% YTY 700, , , , , , ,000 - Oct-17: 431,070 Oct-18: 397,060 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS *Sales are seasonally adjusted and annualized

36 CA: Declining Trend in Home Sales 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Year-over-Year % Chg 6 per. Mov. Avg. (Year-over-Year % Chg) -25% Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS *Sales are seasonally adjusted and annualized

37 Bay Area Sales Down 3% from Last Year 30% Bay Area 6 per. Mov. Avg. (Bay Area) 20% YoY % chg. 10% 0% -10% -3.0% -20% -30% SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS *Sales are not seasonally adjusted and annualized

38 Sales Declined in Sub-Million Dollar Markets October 2018 (Year-to-Year) 25% 20% 19.1% 15% 10% 5% 0% 1.6% -5% -10% -15% -11.1% -6.6% -8.5% -2.1% -2.2% -20% -25% -20.6% SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

39 Bay Area: 4 Counties are up YTD but not by much Region Oct-17 Oct-18 YTD % Chg. YTY% Chg. Alameda % -8.6% Contra Costa % -10.0% Marin % 18.8% Napa % 30.0% San Francisco % 5.2% San Mateo % 13.5% Santa Clara % -5.8% Solano % -21.5% Sonoma % 19.2% Bay Area 4,436 4, % -3.0% SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

40 Home Prices Still Rising Gains Moderating California, October 2018: $572,000, -1.2% MTM, +4.7% YTY $700,000 $600,000 P:May-07 $594,530 Oct-17: $546,430 Oct-18: $572,000 $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

41 Price Per Square Increased from Last Year, but Virtually Unchanged from September October 2018: $282, Down 0.0% MTM, Up 4.4% YTY PRICE PER SQ. FT. $400 $350 $300 $250 $200 $150 $100 $50 $0 Oct-17: $270 Oct-18: $282 SERIES: Median Price Per Square Feet of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

42 Sales Price -to-list Price Hit the Lowest Level in 21 Months October 2018: 98.1%, -0.4% MTM, -0.8% YTY 100% Oct-17: 98.9% Oct-18: 98.1% Sales-to-List Price Ratio 98% 96% 94% 92% 90% SERIES: Sales to List Ratio of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

43 Bay Area: Peak v. Current Price Region Peak Month Peak Price Oct-18 %Chg Fr Peak Alameda May-07 $709,420 $900, % Contra Costa May-07 $698,420 $657, % Marin Jun-07 $1,149,390 $1,450, % Napa Jun-07 $729,170 $709, % San Francisco May-07 $972,010 $1,600, % San Mateo Oct-07 $1,020,000 $1,588, % Santa Clara Oct-07 $865,000 $1,290, % Solano Jun-07 $492,800 $430, % Sonoma Jan-06 $650,330 $650, % Bay Area May-07 $789,250 $958, % SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

44 So Cal: Orange & SD Above Prior Peak Region Peak Month Peak Price Aug-18 %Chg Fr Peak Orange Jun-07 $775,420 $838, % San Diego May-06 $622,380 $660, % Los Angeles Sep-07 $625,812 $607, % So CA Jun-07 $589,710 $555, % Ventura Aug-06 $710,910 $660, % Riverside Jun-06 $431,710 $400, % San Bernardino Aug-06 $350,290 $290, % SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

45 Central Coast: SC & SLO Region Peak Month Peak Price Aug-18 %Chg Fr Peak Santa Cruz Oct-07 $865,000 $917, % San Luis Obispo Oct-05 $619,950 $630, % Monterey Aug-07 $777,000 $599, % Santa Barbara Jul-07 $878,120 $572, % SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

46 Central Valley: All Below Prior Peak Region Peak Month Peak Price Aug-18 %Chg Fr Peak Sacramento County Aug-05 $394,450 $369, % Madera County Feb-08 $275,000 $254, % Placer County Aug-05 $527,990 $475, % Fresno County Jun-06 $313,500 $280, % San Joaquin County Jun-06 $426,830 $380, % Tulare County Dec-05 $269,710 $239, % Stanislaus County Sep-05 $370,100 $319, % San Benito County May-05 $671,190 $575, % Kings County Mar-06 $268,050 $227, % Merced County Oct-05 $344,610 $288, % Kern County Jun-06 $299,920 $247, % Glenn County Feb-07 $312,500 $225, % SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

47 Inventory Index Dipped in October October 2017: 3.0 Months; October 2018: 3.6 Months 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

48 Unsold Inventory by Bay Area County Oct-17 Oct-18 6 Unsold Inventory Index Alameda Contra Costa Marin Napa San Francisco San Mateo Santa Clara Solano Sonoma SERIES: UII of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

49 Active Listings: Up 7 th Consecutive Month Year-over-Year % Chg 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 28.0% SERIES: Active Listing of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

50 Statewide Inventory Up Across the Board Oct 2018 Active Listing 50% 40% 30% 31.7% 43.9% 40.1% 30.7% 28.0% 20% 10% 0% 14.5% 9.1% -10% -6.2% SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

51 Inventory Highest at High End 10 Unsold Inventory Index Oct-17 Oct-18 SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

52 Reduced-Price Listings Rise With Actives Share of Listings with a Reduced Price: 43.6%; Median Reduction Amount: -4.4% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1/1/2010 4/1/2010 7/1/ /1/2010 1/1/2011 4/1/2011 7/1/ /1/2011 1/1/2012 4/1/2012 7/1/ /1/2012 1/1/2013 4/1/2013 Reduced-Price Listings 7/1/ /1/2013 1/1/2014 4/1/2014 7/1/ /1/2014 1/1/2015 4/1/2015 7/1/2015 Median Reduction 10/1/2015 1/1/2016 4/1/2016 7/1/ /1/2016 1/1/2017 4/1/2017 7/1/ /1/2017 1/1/ % 10% 9% 8% 7% 6% 4.4% 5% 4% 3% 2% 1% 0% 4/1/2018 7/1/ /1/2018 SERIES: Listing Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

53 Days on Market Rising as Market Slows California, October 2018: 26.0 Days DAYS ON MARKET SERIES: Median Time of Market of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

54 Days on Market by County Oct-17 Oct-18 Days on Market Alameda Contra Costa Marin Napa San Francisco San Mateo Santa Clara Solano Sonoma SERIES: Days on Market of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

55 At some point a supply problem becomes a demand problem. Joel Singer, CEO C.A.R.

56 San Francisco Bay Area

57 Sales Lagging -2.4% YTD SF Bay Area, Oct Sales: 4,301 Units, -2.4% YTD, -3.0% YTY 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

58 Bay Area: Sales off 2.4% YTD Region Oct-17 Oct-18 YTD % Chg. YTY% Chg. Alameda % -8.6% Contra Costa % -10.0% Marin % 18.8% Napa % 30.0% San Francisco % 5.2% San Mateo % 13.5% Santa Clara % -5.8% Solano % -21.5% Sonoma % 19.2% Bay Area 4,436 4, % -3.0% SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

59 Median Price of Existing Detached Homes SF Bay Area, October 2018: $958,800, Up 7.9% YTY $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

60 Bay Area: Peak v. October 2018 Region Peak Month Peak Price Oct-18 %Chg Fr Peak Alameda May-07 $709,420 $900, % Contra Costa May-07 $698,420 $657, % Marin Jun-07 $1,149,390 $1,450, % Napa Jun-07 $729,170 $709, % San Francisco May-07 $972,010 $1,600, % San Mateo Oct-07 $1,020,000 $1,588, % Santa Clara Oct-07 $865,000 $1,290, % Solano Jun-07 $492,800 $430, % Sonoma Jan-06 $650,330 $650, % Bay Area May-07 $789,250 $958, % SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

61 Unsold Inventory Index SF Bay Area, October 2018: 2.5 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

62 Median Time on the Market SF Bay Area, October 2018: 26 Days SERIES: Median Time of Market of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

63 Santa Clara County

64 What s Up? From Great to Good Sales tapering Price gains moderating Active listings increasing Price reductions increasing Time on market increasing

65 Unsold Inventory by County Oct-17 Oct-18 6 Unsold Inventory Index Alameda Contra Costa Marin Napa San Francisco San Mateo Santa Clara Solano Sonoma SERIES: UII of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

66 Days on Market by County Oct-17 Oct-18 Days on Market Alameda Contra Costa Marin Napa San Francisco San Mateo Santa Clara Solano Sonoma SERIES: Days on Market of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

67 Santa Clara County

68 Sales of Existing Detached Homes Santa Clara County, Oct 2018 Sales: 827 Units, -6.6% YTD, -5.8% YTY 1,800 1,600 1,400 1,200 1, SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

69 Median Price of Existing Detached Homes Santa Clara County, Oct 2018: $1,290,000, Up 3.8% YTY $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

70 Unsold Inventory Index Santa Clara County, October 2018: 2.4 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

71 Median Time on the Market Santa Clara County, October 2018: 14.0 Days SERIES: Median Time of Market of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

72 Sales Dropping Across the Board 2017 YTD 2018 YTD $5,000 $4,500 4,432 $4,000 Median Price $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Campbell Cupertino Gilroy Los Altos Los Altos Hills Los Gatos Milpitas Monte Sereno Morgan Hill Mountain View Palo Alto San Jose San Martin Santa Clara Saratoga Sunnyvale SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

73 Declined Big in Some Markets 10% 8.1% 6.7% YTY % Chg. in Price 5% 0% -5% -10% -15% -20% -2.9% -15.3% -15.1% -18.4% -10.5% 0.4% -15.0% -7.7% -7.4% -0.7% -5.1% -9.0% -8.9% -25% -23.5% -30% Campbell Cupertino Gilroy Los Altos Los Altos Hills Los Gatos Milpitas Monte Sereno Morgan Hill Mountain View Palo Alto San Jose San Martin Santa Clara Saratoga Sunnyvale SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

74 Home Prices Increased in Most Cities Median Price $6,400,000 $5,400,000 $4,400,000 $3,400,000 $2,400,000 $1,400,000 $400,000 1,495,000 Campbell 2,574,888 Cupertino 760,000 Gilroy 3,400,000 Los Altos 5,525,000 Los Altos Hills Oct-17 2,125,000 Los Gatos 1,075,000 Milpitas 4,500,000 Monte Sereno Oct ,203 Morgan Hill 2,240,000 Mountain View 3,023,000 Palo Alto 1,147,000 1,267,0751,305,000 San Jose San Martin Santa Clara 2,700,000 Saratoga 1,800,000 Sunnyvale SERIES: Median Prices of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

75 Price Growth Is Slowing in Many Markets 80% 60% 51.4% 61.4% YTY % Chg. in Price 40% 20% 0% -20% 2.9% 26.2% 7.5% 13.3% 16.1% 3.4% 0.9% 4.9% -1.9% 6.9% -7.3% 7.9% 2.6% -40% -31.9% Campbell Cupertino Gilroy Los Altos Los Altos Hills Los Gatos Milpitas Monte Sereno Morgan Hill Mountain View Palo Alto San Jose San Martin Santa Clara Saratoga Sunnyvale SERIES: Median Prices of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

76 Active Listings Up for All Markets Oct-17 Oct Active Listings Campbell Cupertino Gilroy Los Altos Los Altos Hills Los Gatos Milpitas Monte Sereno Morgan Hill Mountain View Palo Alto San Jose San Martin Santa Clara Saratoga Sunnyvale SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

77 Listings on the Market Longer Oct-17 Oct Days on Market Campbell Cupertino Gilroy Los Altos Los Altos Hills Los Gatos Milpitas Monte Sereno Morgan Hill Mountain View Palo Alto San Jose San Martin Santa Clara Saratoga Sunnyvale SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

78 Housing affordability is the Achilles heel of the California Economy Joel Singer, CEO C.A.R. 1982

79 CA v US: Lower Housing Turnover New Normal? 10% Housing Turnover Rate (Single-Family Homes only) 9% 8% 7% CA US Linear (CA) CA turnover rate trend 6% 5% 4% 5.3% 4.6% 3% 2% 1% 0% SERIES: Percent of existing single-family homes being sold SOURCE: Census Bureau, American Community Survey, Moody s Analytics, C.A.R.

80 Sellers Moving Less Frequently Years Owned Home Before Selling 11.5 Older Generations Don t Move As Often As Younger Generations Millennials 5 6 Gen X's 8 4 Baby Boomers Silent Generations 30 SERIES: 2018 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

81 And California Is Not Building Enough 2017: 112,886 (55,779 sf, 57,107 mf ) f: 127,780 (64,900 sf, 62,880 mf) Single Family Multi-Family CA HCD Projected Housing Needs: ,000/yr SERIES: California New Housing Permits SOURCE: Construction Industry Research Board

82 CA Example: More Single Family Units Now Rentals 8,000,000 Potentially between 400,000 and 700,000 SF Rentals that Used to be Owner-Occupied 7,000,000 6,000,000 6,919,164 6,527,730 5,000,000 4,000,000 3,000,000 2,674,808 2,000,000 1,940,607 1,000,000 0 SF Owners SF Renters SOURCE: U.S. Census Bureau, Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS). Downloaded from the National Bureau of Economic Research (NBER)

83 Top 10 Markets in Need of More Housing Top 10 Markets in Need of More Single-Family Housing Starts Metro Area # of permits required 1. New York 218, Dallas 132, San Francisco 127, Miami 118, Chicago 94, Atlanta 93, Seattle 73, San Jose, CA 69, Denver 67, San Diego 55,825 SOURCE: National Association of Realtors, Census Bureau

84 CA building less housing per capita than: AZ, NV, WA, OR, NY( ) Population Added 1,000 People Housing Units Added Number Ratio of Housing Units Added to Population Added Units per 1,000 People Arizona 1,101 Arizona 416,330 Arizona 378 Nevada 559 Nevada 202,332 Nevada 362 New York 1,090 New York 379,019 New York 348 Washington 1,142 Washington 374,157 Washington 328 Oregon 533 Oregon 174,466 Oregon 327 Texas 5,592 Texas 1,728,257 Texas 309 California 3,971 California 1,072,121 California % SOURCE: U.S. Census Bureau, C.A.R.

85 Housing Affordability Peaked at Q % OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME 80% 70% 60% 50% 40% 30% 20% 10% 0% California, Annual Quarterly 53% 26% SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

86 Housing Affordability In CA: By County Q2: % able to purchase median-priced home SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

87 Minimum Annual Income Required During Affordability Peak vs. Current Region 2012 Q Q2 % CHG CA SFH $56,320 $126, % CA Condo/Townhomes $44,440 $101, % Los Angeles Metropolitan Area $53,780 $112, % Inland Empire $35,170 $76, % S.F. Bay Area $90,370 $219, % US $32,000 $57, % SERIES: Housing Affordability Index of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

88 Housing Affordability Still the Main Reason for Outmigration All Buyers % 5% 10% 15% 20% 25% 30% Housing affordability Quality of life Closer to family/relative Second home Job change Shorter commute to work/school Quality of school Retired Quality of community services Other 1% 1% 8% 5% 7% 9% 5% 9% 5% 8% 5% 6% 16% 14% 12% 11% 15% 18% 21% 28% Q. What was the primary reason for changing county? SERIES: 2018 Annual Housing Market Survey SOURCE: California Association of REALTORS

89 It s a Much Bigger Problem for First-Time Buyers First-Time Buyers Repeat Buyers 0% 10% 20% 30% 40% 50% 60% Housing affordability Quality of life Closer to family/relative Second home Job change Shorter commute to work/school Quality of school Retired Quality of community services Other 18% 19% 14% 11% 12% 1% 12% 5% 7% 2% 5% 5% 5% 0% 7% 1% 1% 8% 18% 49% SERIES: 2018 Annual Housing Market Survey SOURCE: California Association of REALTORS

90 Homeownership update CA inched up from 2016 but remained at low level California Vs. U.S. 9.5% gap in % CA US 70% Peak: 69.0% 65% 64.5% 63.9% 60% 55% 50% 53.7% Peak: 60.2% 54.4% 45% SERIES: Homeownership Rates SOURCE: U.S. Census Bureau

91 California still ranked the 2 nd lowest amongst all states 80% Homeownership Rate 70% 60% 54.4% 50% 40% 30% 20% 10% 0% New York California Nevada Hawaii Rhode Island Massachusetts Texas Oregon North Dakota Georgia Washington Colorado Florida New Jersey Arizona Arkansas Illinois Alaska Kansas Ohio Connecticut Louisiana Nebraska North Carolina New Mexico Maryland Tennessee Virginia Missouri Montana South Dakota Wisconsin Pennsylvania Oklahoma Idaho Alabama Delaware Indiana Iowa Kentucky Wyoming Maine Mississippi Utah Vermont New Hampshire Minnesota South Carolina Michigan West Virginia SERIES: Homeownership Rates SOURCE: U.S. Census Bureau (Current Population Survey)

92 Homeownership will deteriorate further if the trend continues Despite the slight bounce back, homeownership will remain low in the next couple years due to: 70% California Homeownership Rate Interest rate hike Price growth Low turn-over rates Lack of new constructions Short-term Costa-Hawkins Repeal Impact SERIES: Homeownership Rate SOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection 60% 50% 40% 30% 59.7% 57.1% 56.1% 47.3% 44.2% 41.0% Fast Slow Avearge

93 More Sellers Continue to Move out of California; Highest since 2007 Location of Seller s New Home Within the same county 38% 41% 37% 45% 47% 42% 49% 49% 46% 44% 44% 40% 38% 36% In another county in California 23% 18% 24% 17% 21% 21% 19% 18% 20% 21% 20% 21% 20% 21% In another state 31% 28% 29% 27% 19% 20% 20% 22% 19% 22% 22% 25% 28% 29% Out of US 1% 2% 1% 1% 2% 1% 1% 1% 0% 1% 1% 1% 1% 1% Don't Know/Not sure 7% 11% 9% 10% 12% 16% 10% 10% 15% 13% 13% 13% 14% 13% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% SERIES: 2018 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

94 Case Study: Seller Leaving California Seller s Profile Age: 56 Marital Status: Married Couple with Dependents Income: $200,000 Yrs. Owned: 25 Net cash gain: $1,050,000 Reason for selling: Desired larger home State moving to: Utah We doubled the size of our house and lowered our mortgage payment. * Characteristics of Home Size: 1,948 sq. ft Property Type: Single-Family Home Location: Los Angeles County Price: $1,175,000 L.A would have been my first choice, and I didn t want to have to leave California. I couldn t afford to stay there * *Lopez, S. (2017) They re leaving California for Las Vegas for find middle-class life that eluded them. Los Angles Times, 3 December SERIES: 2018 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

95 Global Housing Demand Has Softened

96 9% 8% 8% International Buyers for CA Housing: Flat for 3 Years; Peaked in 2013 The share of international buyers dropped to the lowest level in at least ten years 8% 7% 6% 5% 6% 5% 6% 6% 6% 4% 3% 4% 3% 3% 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: 2018 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

97 Top 20 Markets for International Traffic Rank Market 1 Miami-Fort Lauderdale- West Palm Beach, FL 2 LA-Long Beach - Anaheim, CA 3 Bellingham, WA 4 Santa Cruz Watsonville, CA 5 Orlando-Kissimmee- Sanford, FL 6 New York-Newark-Jersey City, NY/NJ/PA 7 Kahului-Wailuku-Lahaina, HI 8 Urban Honolulu, HI 9 Houston- The Woodlands- Sugar Land, TX 10 El Centro, CA September 2018 realtor.com Search Data Rank Market 11 Tampa-St. Petersburg- Clearwater, FL 12 Phoenix-Mesa-Scottsdale, AZ 13 Cape Coral-Fort Myers, FL 14 San Francisco Oakland - Hayward, CA 15 Washington-Arlington- Alexandria, DC-VA-MD-WV 16 Dallas-Fort Worth-Arlington, TX 17 Seattle-Tacoma-Bellevue, WA 18 Lakeland-Winter Haven, FL 19 Naples-Immokalee Macro Island, FL 20 Chicago-Naperville-Elgin, IL- IN-WI SOURCE: Realtor.com

98 Five States Accounted for 52% of Foreign Purchases 20% 18% 16% 14% 12% 10% 8% 19% 14% 9% Share of All Foreign Buyers 6% 4% 5% 5% 4% 4% 3% 3% 3% 3% 3% 2% 0% Florida California Texas Arizona New York Georgia New Jersey Ohio Virginia North Carolina Illinois Michigan SERIES: 2018 Profile of International Home Buying Activity SOURCE: NATIONAL ASSOCIATION OF REALTORS

99 Dollar Volume of Sales to Foreign Buyers Declined in 2018 (Billions) China includes buyers from the People s Republic of China, Hong Kong, and Taiwan. Estimates from 2010 through 2015 include some commercial transactions. From 2016, the estimates include only residential transactions SERIES: 2018 Profile of International Home Buying Activity SOURCE: NATIONAL ASSOCIATION OF REALTORS

100 Number of Sales to Foreign Buyers Down China includes buyers from the People s Republic of China, Hong Kong, and Taiwan. Estimates from 2010 through 2015 include some commercial transactions. From 2016, the estimates include only residential transactions SERIES: 2018 Profile of International Home Buying Activity SOURCE: NATIONAL ASSOCIATION OF REALTORS

101 Average Purchase Price for Foreign Buyers SERIES: 2017 Profile of International Home Buying Activity SOURCE: NATIONAL ASSOCIATION OF REALTORS China includes buyers from the People s Republic of China, Hong Kong, and Taiwan. Estimates from 2010 through 2015 include some commercial transactions. From 2016, the estimates include only residential transactions

102 Where Are We?

103 1. CA is NOT Affordable

104 Only Lassen County Beats US Affordability 2018-Q2: % able to purchase median-priced home SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

105 2. CA is Home to Record Number of Homeless

106 Largest Number of Homeless People Estimates of Homeless People By State, 2017 Top 5 State with Largest Increases ( ) California 16,136/13.7% New York 3,151/3.6% Oregon 715/5.4% Nevada 435/5.9% Texas 426/1.8% SERIES: Estimates of Homeless People in January 2017 SOURCE: The U.S. Department of Housing & Urban Development

107 3. CA is Losing Workers to More Affordable States: Two Step

108 ~750K People Have Left Since California Net Domestic Migration -20,000-40,000-60,000-80,000-57,563-24,972-60,839-41, , , , , , , , , ,

109 Step 1: Coastal to Cheaper Markets Core San Francisco Bay Area Out Migration ( ) -8,559-9,005-11,659 Elsewhere in CA Another State -12,408-13,053-15,244-17,697-25,843-30,268-42,777 Merced Solano Washington Stanislaus Santa Cruz Texas Nevada (ST) Oregon San Joaquin Sacramento MSA

110 Step 2: Pricing Prior Residents Out of State Sacramento MSA Out Migration ( ) -2,260-2,715-2,917-3,596-4,002-4,029-4,179-5,020-5,127 Elsewhere in CA Another State -8,166 Kentucky Santa Cruz Oklahoma Colorado Sutter & Yuba San Luis Obispo San Bernardino Oregon Idaho Nevada (ST)

111 Step 1: Coastal to Cheaper Markets Coastal Southern California Out Migration ( ) -19,854-21,935-34,217-40,361-42,503-48,609-65,534-79,132 Elsewhere in CA Another State -101, ,148 Santa Barbara Colorado Oregon Washington Kern Nevada (ST) Arizona Texas San Bernardino Riverside

112 Step 2: Pricing Prior Residents Out of State Inland Empire Out Migration ( ) -3,575-5,117-7,732-7,970-8,344 Elsewhere in CA Another State -10,604-10,680-10,699-16,374-17,859 Hawaii Colorado Nevada (ST) Idaho North Carolina Utah Georgia Kern County Arizona Texas

113 4. CA will soon be a majority renter state

114 California: 2 nd lowest in nation 80% Homeownership Rate 70% 60% 54.4% 50% 40% 30% 20% 10% 0% New York California Nevada Hawaii Rhode Island Massachusetts Texas Oregon North Dakota Georgia Washington Colorado Florida New Jersey Arizona Arkansas Illinois Alaska Kansas Ohio Connecticut Louisiana Nebraska North Carolina New Mexico Maryland Tennessee Virginia Missouri Montana South Dakota Wisconsin Pennsylvania Oklahoma Idaho Alabama Delaware Indiana Iowa Kentucky Wyoming Maine Mississippi Utah Vermont New Hampshire Minnesota South Carolina Michigan West Virginia SERIES: Homeownership Rates SOURCE: U.S. Census Bureau (Current Population Survey)

115 Homeownership Rates California Vs. U.S. 9.5% gap in % CA US 70% Peak: 69.0% 65% 64.5% 63.9% 60% 55% 50% 53.7% Peak: 60.2% 54.4% 45% SERIES: Homeownership Rates SOURCE: U.S. Census Bureau

116 CA: Ownership Rebound? 75 Homeownership Rate CA U.S.

117 Homeownership Varies Sharply 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

118 CA: Majority Renter State by 2025 California Homeownership Rate 70% 60% 57.1% 59.7% 56.1% 50% 47.3% 44.2% 40% 41.0% 30% Fast Slow Avearge SERIES: Homeownership Rate SOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection

119 42 of 142 Big Cities ALREADY Majority Renter 80% 70% 60% 50% 40% 30% 20% 10% 0% 2017 California Renter Rate by City Hawthorne Glendale Los Angeles El Cajon Costa Mesa Burbank Santa Barbara Santa Clara Lynwood Alameda Santa Cruz Sunnyvale San Diego Sacramento Stockton Redwood City Westminster Compton San Mateo Palo Alto Redding Baldwin Park Lancaster Pittsburg Citrus Heights Carmichael San Leandro Chula Vista Daly City Newport Beach Whittier Visalia Hemet Concord Clovis Temecula San Marcos Lake Elsinore San Clemente Walnut Creek Fontana Hesperia Simi Valley Lakewood Livermore Castro Valley Menifee Yorba Linda 50%

120 Majority Renter Cities 80% 76.0% 70% 60% 50% 40% 30% 20% 10% 0% 2017 California Renter Rate by City Hawthorne Santa Monica East Los Angeles Glendale Inglewood San Francisco Los Angeles Bellflower Alhambra El Cajon Florence-Graham Oakland Costa Mesa Merced Long Beach Burbank Arden-Arcade Mountain View Santa Barbara El Monte Pasadena Santa Clara South Gate Chico Lynwood Berkeley Anaheim Alameda Salinas Santa Ana Santa Cruz Davis Madera Sunnyvale Irvine Tustin San Diego Fresno Lodi Sacramento San Bernardino Escondido 50.7%

121 Q: What needs to be done? A: Build More Housing

122 Lakewood CA 1950

123 Global Capitals Do Density #10 Shanghai #43 London #69 Paris #35 Rio de Janerio #27 Mexico City Source: citymayors.com

124 U.S. Cities Ranked by Density #90 Los Angeles #104 San Francisco/Oakland #107 San Jose #119 Honolulu #120 Las Vegas #121 Miami Global Ranking

125 Case Study: Restrictive Zoning in L.A. Los Angeles Zoned Residential Capacity 1960: Los Angeles zoned to accommodate 10 million people Today: LA 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

126 CA vs US Median Price $600,000 $500,000 U.S CA CA Price Trend $400,000 $300,000 $200,000 $100,000 $0 SERIES: Median Price of Existing Single-Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

127 USC Dornsife/LA Times Poll (10/18) Only 13% of CA voters think too little home building is a primary contributor to the state s affordability issues.

128 The Forecast

129 U.S. Economic Outlook p 2019f US GDP 1.7% 2.4% 2.6% 1.6% 2.3% 3.0% 2.4% Nonfarm Job Growth 1.7% 1.9% 2.1% 1.8% 1.4% 1.6% 1.3% Unemployment 7.4% 6.2% 5.3% 4.9% 4.4% 3.9% 3.7% CPI 1.5% 1.6% 0.1% 1.4% 2.0% 2.5% 2.4% Real Disposable Income, % Change -1.4% 2.7% 3.4% 2.7% 2.1% 2.8% 2.6% 30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2% SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

130 California Economic Outlook p 2019f Nonfarm Job Growth 3.0% 2.2% 2.7% 2.3% 1.6% 2.0% 1.4% Unemployment 8.9% 7.5% 6.2% 5.5% 4.8% 4.3% 4.3% CA Population (Million) Population Growth 0.9% 1.0% 0.8% 0.6% 0.8% 0.7% 0.7% Real Disposable Income, % Change -2.1% 5.6% 3.9% 1.6% 1.6% 2.4% 3.0% SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

131 CA Housing Market Outlook Most Likely Case p 2019f SFH Resales (000s) % Change -5.9% -7.8% 7.0% 2.0% 1.5% -6.2% -6.9% Median Price ($000s) $407.2 $446.9 $476.3 $502.3 $538.0 $575.7 $574.5 % Change 27.5% 9.8% 6.6% 5.4% 7.2% 7.0% -0.2% Housing Affordability Index 36% 30% 31% 31% 29% 28% 26% 30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

132 Opportunities Listings are up & prices are favorable for sellers Call frustrated potential buyers and tell them the good news Rates are rising don t wait Provide sellers a teachable moment Know where people are moving and why and work your referral network Get involved in the political process this is your future

133 Read This: California s Housing Future

134

135 Jeff Bezos: Amazon "I very frequently get the question: 'What's going to change in the next 10 years?' I almost never get the question: 'What's not going to change in the next 10 years?' And I submit to you that that second question is actually the more important of the two because you can build a business strategy around the things that are stable in time.. Customers want: Large selection Low Prices Fast Delivery

136 How Client Found Their Agent Represented Them in Previous Home Client was Friend/Relative/Neighbor Referral from a client Recommendations of Friends Refferal from Business Associates Open House Web page/internet Door-to-Door Farming Direct Mail Marketing Relocation Referral Walk in /Floor Call Yard Signs Listing Agent for Home Purchased Social Media Mobile App Telephone Marketing Print Ads/Newspaper & Magazine Other SERIES: 2018 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS All Buyers 0% 5% 10% 15% 20% 25% Q. How did your client find and select you to represent them?

137 Identify. Develop. C onnect

138

139 Focus is key When Creating a Consistent Customer Experience

140