Outlook for Median Home Selling Prices Outline United States Data Unobserved Prices The Future of California s Median Home Price Bill Watkins August 28, 28 2.% Existing Single-family Housing Sales percent change United States data are useless for us. 15.% 1.% 5.%.% -5.% -1.% -15.% Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 California United States 1.% 5.%.% -5.% -1.% -15.% -2.% -25.% -3.% -35.% -4.% Existing Single-family Median Home Prices Y-o-Y percent change Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Sometimes the median home price is not a good measure of central tendency. California United States Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 1
California Median Home Price Behavior January 2 to December 25 January 26 through July 27 August 27 to today California Real Median SFR Price July 28 currency Hmm.. $ 6, $ 5, Boom!! $ 4, Bust!! $ 3, $2, Jan-97 Jan-99 Jan-1 Jan-3 Jan-5 Jan-7 California Real Median SFR Price California Real Median SFR Price July 28 currency $65, Boom!! July 28 currency $64, Hmm.. $63, $55, $62, $45, $61, $6, $35, $59, $58, $25, Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 $57, Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 The Median Home Price Was Lower Than Reported Sales fell No motivation for owners Economy good Had jobs Owners refused to recognize loss We didn t observe the price change California Real Median SFR Price July 28 currency Bust!! $65, $6, $55, $5, $45, $4, $35, $3, Aug-7 Nov-7 Feb-8 May-8 Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 2
The Median Home Price Is Higher Than Reported Sales are distressed sales Developers Foreclosures Job losses The Median Home Price Is Higher Than Reported No motivation for sellers Long-run trends Jobs Rents Taxes Owners refuse to recognize loss We don t observe prices Geographic differences contribute to the problem. When will this situation change? 3. California Can jobs data help us? 25. 2. 15. 1. 5.. 1984-5. 1988 1992 1996 2 24 28-1. Year-over-year Job Growth Year-over-year Existing Single-family Median Home Price Growth Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 3
The Future of California s Median Home Price The Future of California s Median Home Price The short run The long run Bill Says: The Short Run Foreclosures The short run will be dominated by foreclosures and credit conditions. 3, 25, 2, 15, 1, 5, California 1994 1996 1998 2 22 24 26 Jan- June 8 Foreclosures Notices of Default Number of notices 45, 4, 35, 3, 25, 2, 15, 1, 5, California Notices of Default Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 28 27 26 Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 4
Number of foreclosures 25, California Foreclosures 8 7 California Foreclosure percent of NODs 2, 6 5 15, 4 1, 5, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 28 27 26 3 2 1 1994 1996 1998 2 22 24 26 28 Foreclosure percent of NODs California Notices of Default and Foreclosures 45, 4, 35, 3, 25, 2, 15, 1, 5, 1994 1996 1998 2 22 24 26 28 Foreclosures Credit Conditions The Short Run Foreclosures Defaults 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 United States real per-capita total mortgage origination dollar value 28 Q1 dollars per person 199 Q1 1992 Q3 1995 Q1 1997 Q3 2 Q1 22 Q3 25 Q1 27 Q3 1,8 1,6 1,4 1,2 1, 8 6 4 2 United States real per-capita purchase mortgage origination dollar value 28 Q1 dollars per person 199 Q1 1992 Q3 1995 Q1 1997 Q3 2 Q1 22 Q3 25 Q1 27 Q3 Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 5
3,5 3, United States real per-capita refinance mortgage origination dollar value 28 Q1 dollars per person 2,5 2, 1,5 1, 5 199 Q1 1992 Q3 1995 Q1 1997 Q3 2 Q1 22 Q3 25 Q1 27 Q3 dollars 7, California Existing Single-Family Median Home Price 6, Are there signs that the worst is over? 5, 4, 3, 2, 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 28 27 26 thousands of homes sold 6 5 4 3 2 California Existing Single Family Home Sales Number of days on market 1 9 8 7 6 5 4 California Existing Single-Family Homes \ 1 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 28 27 26 3 2 1 Jan-82 Jan-86 Jan-9 Jan-94 Jan-98 Jan-2 Jan-6 Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 6
Supply of listings (in number of months) 3. 25. 2. 15. 1. 5. California Existing Single-Family Homes. Jan-82 Jan-86 Jan-9 Jan-94 Jan-98 Jan-2 Jan-6 Other Short-Term Risks United States Recession Financial Markets Credit Availability California Recession Costs State Budget Regulatory Burden Bill Says: The Long Run Demographics drive demand The long run will be dominated by demographics and home building. millions of people 4. California January Population 8, California January Population Growth 35. 7, 3. 6, 25. 5, 2. 4, 15. 3, 1. 2, 5.. 193 1938 1946 1954 1962 197 1978 1986 1994 22 1, 193 1938 1946 1954 1962 197 1978 1986 1994 22 Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 7
The Long Run Is this trend likely to change? Demographics Home building drives supply 8. California New Housing Units Permitted per Increase in Thousand Persons 6. California Home sales per thousand housing units 7. 5. 6. 5. 4. 4. 3. 3. 2. 2. 1. 1.. 1961 1969 1977 1985 1993 21. 1985 1991 1997 23 Conclusions Will it get any easier to build in California? The median home price is not as low as reported. There are signs of improvement if you look hard enough. The long-term is bullish. Cal Poly University, Pomona, August 28, 28. www.csupomona.edu/~rerc 8
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