Strategic Planning Webinar Series

Today’s topic: Is Texas becoming less affordable?

Speaker Jim Gaines, Ph.D., Real Estate Center at Texas A&M

Dr. James P. Gaines Research Economist recenter.tamu.edu

The Current Housing Market Oil prices, the economy and home prices Recent price increases and Affordability Tight/Difficult mortgage credit Interest rates Shifting demographics: families, age, ethnic Gen Y demand Difficulty of first-time buyers to enter the market Attitude toward Homeownership Percentage of sales by institutional investors Volume of all-cash sales

Texas Monthly Home Sales & WTI Price/bl May 1987 to Present Source: WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University Correlation coefficient of 0.68

Texas SF Permits & WTI Price/bl Monthly January 1995 to Current Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University Correlation coefficient of -0.12

Texas Median Price & WTI Price/bl Monthly January 1990 to Current Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University Correlation coefficient of 0.86

US and Texas Median Price of SF Home Source: NAR, Real Estate Center at Texas A&M University U.S. Texas Texas “Price Gap” rapidly closing

U.S. Median Price of Existing SF Homes Source: NAR % +49.5% +57.3% +49.7% -25.1% Peak-to-Trough = -25% Trough-to-Peak = +25%

Annual Percent Change in the Median Price of Existing SF Homes Source: NAR Average Change +6.4% Average Change +4.6% Average Change +5.25%

Source: Real Estate Center at Texas A&M University Annual Texas Home Sales $93.26 $66.05 $56.64 $41.51 $72.34

Record Texas Median Home Price Five Years in a Row Source: Real Estate Center at Texas A&M University %; %

Annual Percent Change in the Median Home Price in Texas Source: NAR Average Change +4% Average Change Average Change +4.1% “peak-to-trough”-1.0% “trough-to-peak”+26.5

Texas Home Sales by Price Source: Real Estate Center at Texas A&M % sales <$160, % sales <$160,000 ‘13-’14 <$100, % ‘13-‘14 <$160,000 -8%

Who’s Buying? Who’s Not Buying?

First-Time Home Buyer Percent of All Buyers Source: NAR Home Buyers and Sellers Survey; 2014 Texas Home Buyers and Sellers Survey Long-term average 40%

First-Time Home Buyers by Age Group (Percent of All Buyers) Source: 2014 NAR Home Buyers and Sellers Survey 2014 Texas first-time buyer was 32

Age of All Home Buyers (Percent Distribution and Median Age in Group) Source: 2014 NAR Home Buyers and Sellers Survey Texas buyer was 45

Biggest Obstacles to Homeownership All adults18-34 year-olds only Saving enough for a down payment55%58% Not having a stable job36%43% Having a poor credit history35%33% Qualifying for a mortgage32%29% Unable to pay off existing debt26%30% Rising home prices22%23% Rising mortgage rates15%18% Limited inventory5% Among renters who wish to buy a home right now. Respondents could choose multiple options. Survey conducted November Trulia Trends, December 2013.

Many renters say they tend to live payday to payday. Source: FHLMC, “Perceptions of Renting and Homeownership,” Multifamily Research Perspectives, December 8, 2014

In the next three years, do you expect to continue renting or purchase home? Total Continue Renting61%69%53%42%72%74%79% Purchase a Home39%31%47%58%28%26%21% Source: FHLMC, “Perceptions of Renting and Homeownership,” Multifamily Research Perspectives, December 8, 2014

What are the main reasons you expect to still be renting in the next three years? (More than one answer could be selected). Asked among renters who plan to continue renting in the next three years. Source: FHLMC, “Perceptions of Renting and Homeownership,” Multifamily Research Perspectives, December 8, 2014

2013 Texas Population by Age % 10.2% 14.3% 13.6% 13.1% 6.0% 4.9% 6.5% 1.2% Total 26,664, % Source: Texas State Demographer’s Office 2012 Projections Scenario 11.0% 65+

Percent Change from 2010 to 2050 by Age Groups in the Texas Population 25 Sources: Texas State Demographer’s Office 2012 Projections 1.0 Scenario

Gen Y Housing Outlook Gen Y Emerging Adults Plugged in Social Educated Outspoken More liberal Multicultural High performance High expectations Marry later – buy later Fewer children, later 26 Gen Y Housing Seen the housing collapse Currently 51% rent 80+% eventually want to buy First-time buyers mostly with financial constraints to buying Jobs and student debt = less savings for down payment First-time buyers <30% vs. historic 40% “Gen Rent” Sources: M. Leanne Lachman and Deborah L. Brett, “Generation Y: America's New Housing Wave,” Urban Land, February 2011, FNMA National Housing Survey; Pew Research Group; Real Estate Center at Texas A&M University

AFFORDABILITY How much down? How much per month?

U.S. Housing Affordability Index Source: NAR Composite Index Average = Drop of 31.5% from April 2003 to July 2006 Increase of 84% from July 2006 to April 2013 Decline of 20% since Jan 2013

National Housing Affordability Index and Median Home Price Source: NAR Median Home Price (Left Scale) NAR Affordability Index (right scale)

Texas Housing Affordability Index Source: Real Estate Center at Texas A&M University HAI Texas Since 4Q2011: Texas down 32%

Texas & U.S. Housing Affordability Index Source: Real Estate Center at Texas A&M University HAI Texas U.S. Since 4Q2011: Texas down 32% U.S. down 39%

Texas Housing Affordability Index & 30-Year FMR Source: Real Estate Center at Texas A&M University Texas HAI (left) 30-Year Fixed Mortgage Rate (right)

Median Home Price as a Multiple of Median Household Income US New Homes (‘75-’00 avg. = 3.82) US Existing Homes (‘75-’00 avg. = 3.36) Source: US Census Bureau, NAR, Real Estate Center at Texas A&M University Texas MLS Homes (‘89-’10 avg. = 2.88)

Texas Median HH Income Indexed to 1989 Source: U.S. Census Bureau; Real Estate Center at Texas A&M University Real HH Income Nominal HH Income

Texas Median HH Income & Median Home Price Indexed to 1989 Source: U.S. Census Bureau; Real Estate Center at Texas A&M University Real HH Income Nominal HH Income Median Texas Home Price

Home-Price Multiplier: 4.15% FMR; 5.5% TIUs; 35% QR Down Payment Maximum Home Price Multiplier 3%3.14 5% % % % % %3.65 The more down payment, the lower the monthly payment, the higher price one can pay

Texas Households by Highest Affordable Price Source: US Census Bureau 2013 American Community Survey; Real Estate Center at Texas A&M University 18.5% 9.4% 7.6% 7.1% 6.3% 5.8% 9.8% 7.1% 11.1% 6.6% 20% down; 4.15% interest; 35% qualifying ratio; and 5.5% taxes, insurance & utilities 5.9% 4.9% ~43% of Texas HHs cannot afford home priced > $150,000

Texas Households by Highest Affordable Price Source: US Census Bureau 2013 American Community Survey; Real Estate Center at Texas A&M University 19.8% 5.4% 12.3% 7.4% 6.3% 5.9% 9.7% 7.0% 10.9% 5.7% 10% down; 4.15% interest; 35% qualifying ratio; and 5.5% taxes, insurance & utilities 4.7% 4.9% ~45% of Texas HHs cannot afford home priced > $150,000

Texas Households by Highest Affordable Price Source: US Census Bureau 2013 American Community Survey; Real Estate Center at Texas A&M University 19.8% 5.4% 12.3% 7.4% 6.3% 5.9% 9.7% 7.0% 10.9% 5.7% 3% down; 4.15% interest; 35% qualifying ratio; and 5.5% taxes, insurance & utilities 4.7% 4.9% ~46% of Texas HHs cannot afford home priced > $150,000

10 U.S. Counties with Most Homes Qualifying for Down Payment Help StateCounty Total Single Family Homes & Condos in County Total that Qualify for Down Payment Assistance Percent that Qualify CALos Angeles1,762,2561,377, % ILCook1,372,4631,163, % AZMaricopa1,227,1211,052, % TXHarris1,038,027961, % MIWayne692,174653, % CASan Diego717,165618, % FLMiami-Dade716,924589, % NVClark605,679558, % TXDallas574,849533, % FLBroward623,634523, % Source: Joint Study by RealtyTrac and Down Payment Resources, February 4, 2015

Dr. James P. Gaines Research Economist recenter.tamu.edu

Q&A

Important dates May/June Webinar: Look for an announcing topic, speaker, and date September 1 Meeting: During the Texas REALTORS ® Conference, Fort Worth