California Association of REALTORS
California's Housing market Outlook 2015
Presented by Sara Sutachan
California Community College Real Estate Educators' Conference
Hilton, Mission Valley, San Diego, CA
Friday, February 27, 2015
4. ECONOMIC FUNDAMENTALSARE BETTER
• Economic growth strong
• Unemployment rate 5.9% - lowest since ?
• Best employment growth since 1999, 3 million new jobs
• Construction jobs +230,000 in last 12 months
• Uncertainty from abroad, yet again
8. UNEMPLOYMENT RATE FALLING
December 2014: US 5.6% & CA 7.2%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14% US-CA CA US
SERIES: Unemployment Rate
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
9. 2007-2010 LOST JOBS REPLACED: JAN 2014
-8
-6
-4
-2
0
2
4 California US
ANNUAL PERCENTCHANGE
SERIES:Total Nonfarm Employment
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
10. JOB LOSSES IN PRIOR RECESSIONS -
RECENT CYCLEWORST BY FAR
11. NONFARM EMPLOYMENT BY REGION
Dec 2014 Dec 2013 Change % Change
Southern California 8,741.4 8,562.3 179.1 2.1%
Bay Area 4,263.0 4,192.4 70.6 1.7%
Central Valley 1,515.3 1,481.8 33.5 2.3%
Central Coast 1,289.7 1,265.0 24.7 2.0%
North Central 1,376.1 1,331.6 44.5 3.3%
CALIFORNIA 297.3 291.5 5.8 2.0%
Nonfarm Employment (Thousands)
SERIES:Total Nonfarm Employment
SOURCE: CA Employment Development Division
12. CA JOBTRENDS – BAY AREA LEADS
1.5%
1.5%
1.7%
2.0%
2.0%
2.2%
2.3%
2.4%
2.7%
3.3%
3.7%
4.0%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
Modesto
Bakersfield
Los Angeles
Ventura
Sacramento
Stockton MSA
Orange County
Oakland
Fresno MSA
San Diego
San Francisco
San Jose
SERIES:Total Nonfarm Employment
SOURCE: CA Employment Development Division
ANNUAL PERCENTCHANGE
December 2014: CA +2.1%, +320,300
13. CONSTRUCTIONWORKERS IN DEMAND
-1.0%
-0.5%
-0.1%
0.7%
0.9%
1.4%
1.9%
2.7%
2.9%
2.9%
3.4%
3.6%
4.3%
6.2%
6.4%
-2% -1% 0% 1% 2% 3% 4% 5% 6% 7%
Nondurable Goods
Finance & Insurance
Government
Durable Goods
Retail Trade
Transportation, Warehousing & Utilities
Real Estate & Rental & Leasing
Wholesale Trade
Educational Services
Information
Leisure & Hospitality
Health Care & Social Assistance
Professional, Scientific & Technical Services
Admistrative & Support & Waste Services
Construction
SERIES:Total Nonfarm Employment By Industry
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
November 2014: CA +2.2%, +344,100;
250K new construction jobs in next 5 years
ANNUAL PERCENTCHANGE
22. LENDER SATISFACTION HAS IMPROVED
SIGNIFICANTLY OVERTHE PAST FOURYEARS
1 2 3 4 5
The timeliness of responses to your inquiries
Knowledge/professionalism of the
representative you worked with
Length of time to obtain approval/disapproval
of the short sale transaction
Expectations of financial contributions from
the seller at or after closing
Timeliness of buyer's financing approval
Your overall satisfaction with this lender
3.74
3.92
3.5
3.7
3.64
3.71
3.30
3.57
2.92
3.39
3.42
3.23
2.80
3.10
2.38
3.09
2.73
2011
2012
2013
2014
Very Dissatisfied Very Satisfied
SOURCE: California Association of REALTORS®
23. EASE OF CLOSING
0% 10% 20% 30% 40% 50%
1
2
3
4
5
27%
23%
11%
19%
20%
16%
18%
10%
28%
27%
12%
13%
15%
28%
31%
8%
11%
13%
19%
49%
2011
2012
2013
2014
Extremel
y Easy
Extremely
Difficult
SOURCE: California Association of REALTORS®
25. UNDERWRITING STANDARDS SLIGHTLY
BETTER
49%
41%
35%
45%
16% 14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014
Easier
(access to
credit
easier for
clients)
No change
from 12
months
ago
Tighter
(access to
credit
harder for
clients)
SOURCE: California Association of REALTORS®
26. U.S. ECONOMIC OUTLOOK 2014 - 2015
2009 2010 2011 2012 2013 2014p 2015f
US GDP -3.4% 2.4% 1.8% 2.8% 1.9% 2.5% 3.0%
Nonfarm Job Growth -4.4% -0.7% 1.2% 1.7% 1.7% 2.0% 2.3%
Unemployment 9.3% 9.6% 8.9% 8.1% 7.4% 6.2% 5.6%
CPI -0.4% 1.6% 3.1% 2.1% 1.5% 1.5% 1.6%
Real Disposable
Income, % Change 0.9% 1.8% 1.3% 1.5% 0.7% 2.4% 2.4%
SERIES: U.S. Economic Outlook
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
27. CALIFORNIA ECONOMIC FORECAST
SERIES:CA Economic Outlook
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Nonfarm Job Growth
Unemployment Rate
Population Growth
Real Disposable Income,
% Change
2011
1.1%
11.8%
0.7%
1.9%
2012
2.4%
10.4%
0.7%
1.1%
2013
3.0%
8.9%
0.9%
0.9%
2014 P
2.2%
7.5%
0.9%
3.0%
2015 F
2.4%
6.7%
0.9%
3.8%
37. MEDIAN PRICE OF EXISTING DETACHED HOMES
California, Jan. 2015: $426,790, -5.9% MTM, +3.4%YTY
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
P: May-07
$594,530
T: Feb-09
$245,230
-59% from
peak
SERIES: Median Price of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Jan-15:
$426,790
Jan-14:
$412,820
38. PRICE PER SQUARE FOOT
January 2015: $203, Down 3.5% MTM, Up 1.8%YTY
$0
$50
$100
$150
$200
$250
$300
$350
$400
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
PRICE PER SQ. FT.
SERIES: Median Price Per Square Feet
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
39. INVENTORY IMPROVING FROM LASTYEAR
Jan 2014: 4.3 Months; Jan 2015: 5.0 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.
0
2
4
6
8
10
12
14
16
18
Jan-05
Jul-05
Jan-…
Jul-06
Jan-07
Jul-07
Jan-…
Jul-08
Jan-…
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
SERIES: Unsold Inventory Index of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
40. UNSOLD INVENTORY INDEX (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.
Price Range (Thousand) Jan-15 Dec-14 Jan-14
$1,000K+ 7.6 4.3 6.9
$750-999K 5.5 3.1 5.0
$500-749K 4.9 3.0 4.1
$400-499K 4.7 3.0 4.0
$300-399K 4.9 3.2 4.0
$200-299K 4.5 3.3 4.0
$0-199K 4.5 3.4 4.0
SERIES: Unsold Inventory Index of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
41. WHAT HAPPENEDTO ALLTHE INVENTORY?
–Investors renting instead of flipping
–Mortgage Lock-In Effect
–Where will I go?
–Foreclosure pipeline is dry
–New construction up but still LOW
– Off- MLS (aka “pocket’) listings not
being counted in listing stats
43. WHERE AREWE HEADED?
“…By 2025, California will have a middle class of
renters.”
John Husing, Ph.D Economics
44. • Housing market is under-preforming given
fundamentals
– Low mortgage rates
– Job & Income growth are back
• And yet…
– Sales off 7.6% in 2014 compared to 2013
– Share of first-time buyers LOW
– Affordability key concern for renters
2015 -WHERE AREWETODAY?
45. • Housing supply constrained in long-run
– New construction recovery is very slow
– Missing 165,000+ new units per year
– Production has fallen short of housing needs
• Inhibited by
– Fiscal interests of local government
– Residents who disdain further development, especially
multi-family
– Unfavorable legal/business environment for
development in general & multi-family in particular
INADEQUATE HOUSING SUPPLY ISSUE
46. CALIFORNIA’S 3 HOUSING GAPS
• Housing Gaps:
– Housing affordability gap
– Homeownership gap
– Housing production gap
• Chronic problems spanning decades
47. SHARE OF FIRST-TIME BUYERS UP IN ’14 BUT
STILL BELOW LONG-RUN AVERAGE
28.1%
30.5%
0%
10%
20%
30%
40%
50%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% First-Time Home Buyers Long Run Average
Long Run Average = 38%
QUESTION: Was the buyer a first-time buyer?
SERIES: 2014 Housing Market Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
48. HOUSING AFFORDABILITY DOWN
SHARPLY SINCE Q1 2012
California vs. U.S. – 1984-2014
% OF HOUSEHOLDSTHAT CAN BUY
A MEDIAN-PRICED HOME
SERIES: Housing Affordability Index ofTraditional Buyers
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
0%
10%
20%
30%
40%
50%
60%
70%
80% CA US
Annual Quarterly
49. HOUSING AFFORDABILITY IN CA: BY COUNTY
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
HAI
64
59 57 56 56
53 53
50 49
45
41
31 29 29 28 27 27 26 24 23 22 21 21 20
17 15 15 14
0
10
20
30
40
50
60
70
% able to purchase median priced home
2014 Q4
50. INCOME REQUIREDTO BUY A MEDIAN-PRICED
HOME IN CA: (PEAKVS. CURRENT)
$56,324
$93,593
$0
$20,000
$40,000
$60,000
$80,000
$100,000
2012 Q1 2014 Q2
• Change in minimum required income:
$37,269
• Increase in income attributed to
interest rate increase:
$836 (2.2% of total change)
• Increase in income attributed to price
increase :
$36,433 (97.8% of total change)
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
51. VERY SLOW REAL INCOME GROWTH
$0.00
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
$60,000.00
$70,000.00
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
U.S. CAIn 2013 Dollars
SERIES: Median Household Income
SOURCE: US Census Bureau, Current Population Survey
2013 gap = $5600
52. HOMEOWNERSHIP RATE FALLING
CaliforniaVs. U.S.
53.7%
Peak: 60.2%
54.9%
64.5%
Peak: 69.0%
64.8%
40%
45%
50%
55%
60%
65%
70%
75% CA US
SERIES: Homeownership Rates
SOURCE: U.S. Census Bureau
55. CAV. US PRICE GAP: $10KTO $246K
1970-2014
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000 California US
$10K to $246
SERIES: Median Price of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
2014 DollarValue
56. STUDENT LOAN DEBT:25% OF RENTERS
Yes, 23%
No, 75%
Refused, 2%
Student Loan Debt
SERIES: 2013 Renter Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
78%
8%
6%
3%
2%
2%
<$10,000
$10-$20K
$20-$50K
$50-$100K
> $100K
Refused
Amount of Debt
58. CA PERMITS UP BUT MORE UNITS NEEDED
2013: 57,496 Units, Up 43.0% from 2012
SERIES: New Housing Permits
SOURCE: Construction Industry Research Board
0
50000
100000
150000
200000
250000
300000
350000 Single Family Multi-Family
Household Growth: 165,000/yr
59. REASONS FOR RENTING INSTEAD OF BUYING
44%
9%
6%
6%
6%
5%
5%
3%
2%
Can't afford to buy
Poor credit / Can't qualify
Renting is easier
Young/Starting out/Not ready
Flexibility/Freedom if renting
Cost/Upkeep/Responsibility
Plan to / Saving for down
Never considered it/No interest
Disabled/On disability
SERIES: 2013 Renter Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
60. DOWN PAYMENT RESOURCE DIRECTORY
Down Payment Resource™
Homeownership Program Index’s
Key Findings:
Over 300 programs in California
59% provide direct down payment &
closing cost assistance
10% provide mortgage credit up to
$2,000 for the life of the loan
26% are available to repeat buyers
There are hundreds of homeownership programs
available to help motivate buyers. Visit
downpayment.car.org to find them.
61. PEOPLE WOULD PREFERTHE FOLLOWING OVER GOING
THROUGHTHE HOME MORTGAGE PROCESS AGAIN:
SOURCE: Guaranteed Rate Mortgage Survey of 1,000 adults 25 and older USA Today April 2014
67. 1/3 FROM CHINA
Please tell us about your last closed transaction with an international client. What is your client’s country of permanent residence?
3.8%
4.7%
8.3%
14%
35%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
India
Japan
Mexico
Canada
China/Hong Kong
68. WHY INTERNATIONALCLIENTS BUY
5%
5%
5%
7%
12%
14%
18%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Investment to acquire legal permenant U.S.
resident status
Tired of renting
Affordable price
Desired a better/other location
Changed jobs/relocated
To rent out property
Investment/tax advantages in U.S.
What was your clients’ main reason for buying/selling now in your last closed transaction with an international client?
69. INTENDED USE FOR PROPERTY? HOME
4%
27%
38%
30%
0%
2%
7%
91%
0% 20% 40% 60% 80% 100%
Other
Vacation/Second Home
Investment/Rental Property
Primary Residence
US Buyer
International Buyer
What was the intended use of the property in your last closed transaction with an international client?
70. ALL CASH INTERNATIONAL BUYERS
0%
20%
40%
60%
80%
100%
International buyers Traditional buyers
69%
27%
31%
73%
All cash Obtained financing
SOURCE: 2013 International Client Survey, 2013 Annual Housing Market Survey
How did your last international buyer pay for the property?