California Housing Market Update September 20, 2017 Jordan Levine, Senior Economist JordanL@car.org

Economy still lumbering along 2016: 1.5%; 2017 Q2: 3.0% ANNUALLY QUARTERLY Notes: E – expected, F – forecast, P- preliminary 1929 though first quarter 2009 annual GDP figures were revised in July 2009 using 2005 benchmark. 2009 Largest Annual Drop since 1946 (-2.8%) SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis 2

More jobs but first chinks in armor are showing

Sales are up from July, but pace is slowing August 2017 Sales: 427,630 Units, +2.7% YTD, +1.3% YTY SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized

Sales decelerate, prices accelerate #Supply

Prices at highest level in a decade California, August 2017: $565,330, +2.9% MTM, +7.2% YTY Jul-17: $565,330 Jul-16: $527,490 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

It all comes back to supply August 2016: 3.4 Months; August 2017: 2.9 Months Range since 1988: Low: 1.3 months in April 2004 High: 18.8 months in Apr 1991 Long-run average: 6.9 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®

It’s really a tale of two markets right now

Sales not really being constrained at top

But with tight inventory, prices rise faster

They sell much quicker…

…and for top dollar #GoodTime2BeASeller

Sellers still in the driver’s seat

No relief in sight over near term #StructuralIssues SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® 14

Dearth of listings pretty unusual

Jobs matter for housing demand, and there, we’re ok

Mortgage Rates: Lowest Level since the Election January 2010 – September 14, 2017 MONTHLY WEEKLY Monthly from 2009 to present, weekly for the past 8 weeks SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

Demand is there SERIES: Annual Household Growth SOURCE: CA Department of Finance

What are the consequences Good new for existing owners Building good equity Accumulating wealth Good news for sellers Commanding top dollar Home will sell quickly No pressure to cut deals Headwinds for buyers Homes are selling for more Homes are selling much quicker Virtually no discounting This Photo by Unknown Author is licensed under CC BY-NC-SA

Housing affordability taking it on the chin 2017-Q2: % able to purchase median-priced home SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

What Will Happen When Mortgage Rates Increase? Q2-2017 Median Price $553,260 20% Downpayment MONTHLY MORTGAGE Minimum Qualifying Income INTEREST RATE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Most Cannot Afford to Purchase a Home with a Single Income California 2016 Annual Mean Wage https://www.bls.gov/oes/current/oes_ca.htm#41-0000 - Wage data is from May 2016; Min. income to buy a med. Home from Q216 SOURCE: Bureau of Labor Statistics, C.A.R.

Putting it all together Economy still lumbers along Few red flags in labor market In terms of trends… Sales continue to defy gravity Prices are accelerating Lack of supply driving market Tight at bottom, moving at top Rates are still really low Household formation rising Market more competitive Homes moving quickly Virtually no discounting Keeping it really real There’s some challenges Lack of new listings Market will remain tight Rates are expected to rise… gradually, but going to hurt Plus, we still have structural stuff Still… Demand is there from economy High end has room to run Market IS defying gravity Forecast remains for 2017: ~1%

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