The State of Residential Real Estate A Macro to Micro Perspective Ralph B McLaughlin, PhD Chief Economist @TruliaRalph Zillow 1 Group, Inc. All rights reserved
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3 Rental Demand Is High, and Inventory is Low
Rents vs. Prices 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Prices Rents -6.0% 4
5 New Household Formation
Homeownership Rates, 1965-2016 70 69 Homeownership Rate (%) 68 67 66 65 64 63 62 61 60 59 6
Why Are More Renters Forming New Households? Many households still reeling from foreclosure history Millennials delaying homeownership Low inventory of entry level for-sale homes 7
Unemployment Rate by Tenure Unemployment Rate 8
9 Share of Renters in SFH Growing
18 34 Year Olds Living with Parents or Relatives 45% 40% 35% 30% % 25% 20% 15% 10% 5% 0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 10
Millennials Homeownership, Marriage, and Child Rates 11
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Low-tier Priced Homes Constrained by Negative Equity 13
14 Buying Is Cheaper than Renting
Why Is There No Rush of New Buyers? Buying is cheaper than renting, but: Inventory is tight Saving for a down payment is difficult Southern California is no exception 15
16 Nationally, Buying is ~35% Cheaper Than Renting
17 In LA/OC, Buying is ~27% Cheaper Than Renting
In Riverside/SB, Buying is ~36% Cheaper than Renting 18
In Riverside/SB, Buying is ~36% Cheaper than Renting 19
20 Why No Rush Of New Buyers?
Difficult to Save For Down Payment in SoCal 12 Years to save for a down payment, 25-30 year olds 10 8 6 4 2 0 Los Angeles County Orange County Las Vegas Metro Riverside/SB Metro 21
22 SoCal, Las Vegas, Rental Markets to Remain Strong
Other Fundamentals of Rental Market Remain Strong Los Angeles/Riverside economies strong and growing Base industries consist of high share of rental households Rents up, but recently so are vacancies 23
24 Los Angeles Economy Healthy
25 Los Angeles Economy Strong but Moderating
Los Angeles Economy Strong Non-farm payrolls up 1.7% yoy, but down from 2.3% early in 16 Unemployment rate down 11.75% in 2010 4.5% in 2016 Led by employment growth in education and health services, leisure and hospitality 26
LA/OC Industry Growth Consist of High Share of Renter Households Leisure and hospitality 3.1% (28,100 jobs) yoy Education and Health Services 3.1% (30,300 jobs) yoy 27
28 Riverside Unemployment Drops
29 Riverside Job Growth Moderating
Riverside Economy Healthy Non-farm payrolls up 2.5% yoy Unemployment rate down 13.5% in 2010 5.5% in 2015 Led by employment growth in construction and government 30
Riverside Industry Growth Consist of High Share of Renter Households Government 4.5% (10,700 jobs) yoy Construction growth 5.3% (4,700 jobs) yoy 31
32 Las Vegas Unemployment Rate Dives
33 Las Vegas Job Growth Moderating
Las Vegas Economy Healthy Non-farm payrolls up 2% yoy Unemployment rate down 14.8% in 2010 5.1% in 2016 Led by employment growth in construction and education and health services 34
Las Vegas Industry Growth Consist of High Share of Renter Households Education and Health Services 4.5% (4,600 jobs) yoy Construction growth 14.7% (7,900 jobs) yoy 35
Rents Catching up With Price Growth in LA/OC 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Rents Prices -10.0% 2011-11 2012-01 2012-03 2012-05 2012-07 2012-09 2012-11 2013-01 2013-03 2013-05 2013-07 2013-09 2013-11 2014-01 2014-03 2014-05 2014-07 2014-09 2014-11 2015-01 2015-03 2015-05 2015-07 2015-09 2015-11 2016-01 2016-03 2016-05 2016-07 2016-09 2016-11 36
Rents Growing in RV/SB, But Prices Growing Faster 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Rents Prices -10.0% 37
Rents Grow Slow in LV, Prices Growing Much Faster 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Rents Prices 38
Cities with Most YOY Rent Growth, LA/OC # City YOY Change 1 Bell Gardens 12.7% 2 Pearblossom 12.6% 3 Coto de Caza 11.9% 4 Palos Verdes Peninsula 10.6% 5 Littlerock 10.3% 39
Cities with Most YOY Rent Growth, RIV/SB # City YOY Change 1 Indian Wells 24.4% 2 La Quinta 17.6% 3 Rancho Mirage 16.1% 4 Thousand Palms 11.9% 5 Palm Desert 11.9% 40
N Hoods with Most YOY Rent Growth, Las Vegas # Neighborhood YOY Change 1 Huntridge 6.2% 2 Pioneer Park 5.7% 3 Michael Way 5.2% 4 Downtown East 5.1% 5 Twin Lakes 4.7% 41
Vacancy Rate Stable in LA, Falling in LV/SB/RIV 4 3 2 % Point Change 1 0-1 -2-3 -4 Las Vegas LA/OC RIV/SB 42
Homeownership Rate Dropping 10 8 6 4 % Rate 2 0-2 -4-6 LA/OC Riverside/SB LV -8 43
Cap Rates Converging Across SoCal, LV 14% 12% 10% Cap Rate 8% 6% 4% 2% 0% LA/OC RIV/SB LV 44
45 Flipping Trends
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Key Takeaways Rental demand is high, supply low Buying is cheaper than renting, but not a threat to rental market because of low inventory. Southern California, Las Vegas rental markets will remain strong, but cap rates may decrease as market stabilizes and job growth moderates Flipping activity is up in most markets, but moderating. 49
50 Thank You!
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