2017 Housing Market Outlook

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Presentation transcript:

2017 Housing Market Outlook Real Estate Education Center April 14, 2017 Oscar Wei Senior Economist

Overview Economic Update California Housing Market Outlook Regional Housing Market Outlook 2017 Forecast

Economic Update

Post-Election Uncertainty Economic stimulus package/tax reform $550 billion over 10 years Tax reductions on individuals and corporations Higher budget deficits will lead to rising interest rates Dismantling Dodd-Frank Banks will loosen up lending standards Buyers could have more mortgage options Heighten risks of having another financial bubble Reform of GSE’s Privatization or not? An increase in interest rates is expected if GSE’s were privatized The tax cut would also result in the decline in Federal revenue by $6.2 trillion over the first decade. Including interest costs, it would amount to $7.2 trillion over the first decade and $20.9 trillion by 2036. The loss in federal revenue would lead to significantly higher budget deficits, which could exert more upward pressure on inflation. Rising interest rates likely

Post-Election Uncertainty Trade Policy Boarder adjustment tax/Tariff Consumer pay higher prices on imported goods Higher inflation will lead to higher interest rates Other wildcards Healthcare reform Immigration Policy/H1B Visa program

Slow Economic Growth but Solid Job Market 2.1% GDP 2016-Q4 3.5% Consumption 2016-Q4 4.7% Unemployment February 2016 1.6% Job Growth February 2016

Slowest GDP growth in 5 years 2016: 1.6%; 2016 Q4: 2.1% ANNUALLY QUARTERLY Real final sales to domestic purchasers (top graph) continue to move ahead based upon the strength of consumer spending and government. In the fourth quarter, consumer spending was up 2.5 percent with better goods purchases but a bit of weakness in services. Consumer spending is expected to rise 2.6 percent this year following a 2.7 percent rise in 2016. Spending is being supported by solid job growth, increased household wealth, higher confidence and improving compensation. The outlook for capital spending outside of the energy sector has improved now that the nearly two-year slide in industrial activity appears to have ended. Small business owners are more upbeat, and a rising number of business owners plan to increase capital spending. The shift in business attitudes is a potential potent tailwind and raises some upside bias to the forecast. The Congressional Budget Office recently released its estimates for potential real GDP growth of just below 2 percent. Meanwhile, most private estimates project real growth above 2 percent in the near-term. So, is inflation on the upward slope over the next two years— and where inflation goes, will the fed funds rate follow? This will be a touchy issue for the next two years as a stronger dollar and higher interest rates may act as a partial offset to the fiscal stimulus plans of the current administration. 2009 Largest Annual Drop since 1946 (-2.8%) SERIES: GDP SOURCE: U.S. Bureau of Economic Analysis 7

Unemployment Rates Near 8-year low US 4.7% (February 2017) & CA 5.0% (February 2017) SERIES: Unemployment Rate SOURCE: U.S. Bureau of Labor Statistics, CA Employment Development Dept.

CA Jobs Growing Faster Than Nation US 1.6% (02/17) SERIES: Total Nonfarm Employment SOURCE: U.S. Bureau of Labor Statistics, CA Employment Development Dept.

Unemployment rate by California Metro Area February 2017: California 5.0% Source: http://www.labormarketinfo.edd.ca.gov/LMID/Employment_by_Industry_Data.html SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

Consumers More Confident March 2017: 125.6 SERIES: Consumer Confidence SOURCE: The Conference Board

California Housing Market Outlook

Home Sales Up in 2017 as the Economy Remains Solid California, Feb. 2017 Sales: 400,500 Units, +4.7% YTD, +4.9% YTY Feb-16: 381,770 Feb-17: 400,500 Peak:624,957 units in 2005 Valley:189,345 units in 1982 2012 annual sales up 4.3% from 2011 2011 annual sales up 1.4% from 2010 2010 annual sales down 12.3% from 2009 2009 annual sales up 24.5% from 2008 2008 annual sales up 30.4% from 2007 2007 annual sales down 33.4% from 2006 2006 annual sales down 23.8% from 2005 2005 annual sales up 0.8% from 2004 2004 annual sales up 3.8% from 2003 2003 annual sales up 7.6% from 2002 2002 annual sales up 14.1% from 2001 2001 annual sales down 4.7% from 2000 YTD 2000 annual sales up 1.4 from 1999 1999 sales up 7.3% over 1998 10/93: 41.0 Consumer Confidence 01/00: 148.6 03/03: 63.0 5/07: 128.4 2/09: 23.9 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized

Mortgage Rates: Declined after Fed Raised Rates at March Meeting January 2010 – March 30, 2017 MONTHLY WEEKLY Monthly from 2009 to present, weekly for the past 8 weeks SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

Household Growth Decelerates But Continues to Support Housing Demand SERIES: Annual Household Growth SOURCE: CA Department of Finance

Home Purchase Index Climbed from Same Period of Last Year At the national level, consumer sentiment remains positive. SERIES: Home Purchase Sentiment Index SOURCE: Fannie Mae

Supply Remains an Issue Feb. 2016: 4.7 Months; Feb. 2017: 4.0 Months Range since 1988: Low: 1.3 months in April 2004 High: 18.8 months in Feb 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®

Fewer Units Turning Over Since the Great Recession Housing Turnover Rate (Single-Family Homes only) CA turnover rate trend SERIES: Percent of existing single-family homes being sold SOURCE: Census Bureau, American Community Survey, Moody’s Analytics, C.A.R.

Years Owned Home Before Selling Long-Time Homeowners are not moving as in the past because: Demographic shift Low rate on current mortgage Low property taxes Capital gains hit Where can I afford to go? SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Boomers Not Moving as Often 71% of Californian’s aged 55+ haven’t moved since 1999 SERIES: Distribution of Home Ownership by Year Moved In SOURCE: U.S. Census Bureau, 2013 American Housing Survey

“Missing” 77,000 New Units Annually 2016: 98,881 (47,889 sf, 50,992 mf) 2017f: 102,712 (51,720 sf, 50,992 mf ) CA HCD Projected Housing Needs: 180,000/yr. SERIES: California New Housing Permits SOURCE: Construction Industry Research Board

Three of the Top 10 Markets in Need of More Housing Constructions Are in California Top 10 Markets in Need of More Single-Family Housing Starts Metro Area # of permits required 1. New York 218,541 2. Dallas 132,482 3. San Francisco 127,412 4. Miami 118,937 5. Chicago 94,457 6. Atlanta 93,627 7. Seattle 73,135 8. San Jose, CA 69,042 9. Denver 67,403 10. San Diego 55,825 NAR analyzed employment growth in relation to SFH starts in the period between 2012-2015 Historically, the average ratio for the annual change in jobs to permits is 1.6 for SFH Using the jobs-to-permits ratio, NAR calculated the number of permits needed in each metro area to balance the ratio back to the historical average of 1.6 The higher the number of permits required, the more severe the shortage was in each market. SOURCE: National Association of Realtors®, Census Bureau

The More “Underbuilding”, the Higher the Price Growth SERIES: Nonfarm Job Growth, New Housing Permits, Existing Median Prices SOURCE: CA EDD, C.A.R., Construction Industry Research Board

Imbalance between Supply and Demand Led to Upward Pressure on Prices California, February 2017: $478,790, -2.2% MTM, +7.6% YTY Feb-16: $444,780 Feb-17: $478,790 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Housing Affordability Peaked Q1 2012 Prices v Housing Affordability Peaked Q1 2012 Prices v. Low Rates and Income Growth California vs. U.S. – 1984-2016 Annual Quarterly C.A.R.’s traditional Housing Affordability Index (HAI) was replaced with the First-Time Buyer Housing Affordability Index (FTB-HAI) in 2006. Note this slide takes the average of the 3 months in each of the quarters. C.A.R. began producing its Housing Affordability Index (HAI) in 1984. At that time, fixed-rate mortgages were the prevailing form of financing a home purchase, while the calculations used to produce the HAI reflected a 20 percent down payment. The methodology also assumed a monthly payment for principal, interest, taxes and insurance that was no more than 30 percent of a household’s income. In the more than two decades since the CALIFORNIA ASSOCIATION OF REALTORS® first conceived the HAI, the mortgage finance landscape has changed dramatically. The range of mortgage products available to buyers as well as underwriting criteria has changed. C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market. SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

How Wages Measured against Income Required to Buy a Home 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.

Homeownership Dropped, Big Gap in CA SERIES: Homeownership Rate (%) SOURCE: U.S. Census Bureau, Housing Vacancy Survey (HVS)

CA Population Net Gain/Loss (2004 - 2013) -90286 -112,955 -157,161 -177,967 -23,363 -244,600 -53,829 -46,339 -58,281 -25,656 -4,544 -13,842 -6,082 -2,424 -3,808 -6,427 -8,016 +3,536 -7,422 -15,610 -21,453 -1,892 -8,461 -25,837 -16,381 -30,854 -9,349 -34,561 -16,965 -5,913 -809 +10,429 -4,825 +27,641 +1,372 +20,045 +12,098 +36,248 -434 -1,407 +543 +23,083 +25,151 +7,794 +574 +28 http://www.sacbee.com/news/state/california/article136478098.html Left CA: 5 million Came to CA: 3.9 million Net Loss: 1million SERIES: People Leaving/Coming to California SOURCE: IRS, Sacramento Bee

Regional Housing Market Outlook

Bay Area Housing Market Outlook

Sales of Existing Detached Homes Bay Area, Feb. 2017: 2,491 Units, -1.8% YTD, -2.7% YTY Peak: 61,652 units in 2004 Valley: 28,968 units in 1990 2011 annual sales up 1.4% from 2010 2010 annual sales down 3.9% from 2009 2009 annual sales up 18.6% from 2008 2008 annual sales up 4.5% from 2007 2007 annual sales down 23.6% from 2006 2006 annual sales down 19.1% from 2005 2005 annual sales down 9.4% from 2004 2004 annual sales up 6.2% from 2003 2003 annual sales up 6.6% from 2002 2002 annual sales up 25.4% from 2001 2001 annual sales down 20.4% from 2000 2000 annual sales down 7.9% from 1999 Consumer outlook: 10/93: 41.0 01/00: 148.6 03/03: 63.0 5/07: 128.4 2/09: 24.3 S.F. Bay Area has been redefined to include the following counties: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Sales of Existing Detached Homes Bay Area Counties SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Median Price of Existing Detached Homes Bay Area, February 2017: $784,470, Up 12.2% YTY SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Median Price of Existing Detached Homes Bay Area Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Supply Indicators Bay Area February 2017 January 2017 February 2016 Median Time on the Market 24.3 Days 28.8 Days 25.5 Days Unsold Inventory Index 3.2 Mos. 2.5 Mos. Incomplete data Note: The Unsold Inventory Index represents the number of months it would take to deplete the remaining inventory at the end of a particular month with the sales rate of the month in consideration. Inventory includes listings with “Active”, “Pending”, and “Contingent” (when available) statuses. SERIES: Median Time of Market, Unsold Inventory Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Unsold Inventory Index (Months) Bay Area S.F. Bay area not updated Press Release Tables UII SERIES: Unsold Inventory Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Most Underbuilt Counties in California SERIES: Nonfarm Job Growth & Housing Affordability Index (HAI) SOURCE: CA EDD, Construction Industry Research Board

Housing Affordability In CA: by county 2016-Q4: % able to purchase median-priced home SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

San Francisco: Affordability Led to More Moving Out? Or Supply? Or Both? County Moved To/From Total Number Moved to San Francisco County Total Number Moved from San Francisco County Total Net Migration Alameda 3983 10345 -6362 San Mateo 6161 7984 -1823 Contra Costa 1856 2998 -1142 Sonoma 557 1602 -1045 Marin 1428 1918 -490 Napa 243 -243 Solano 796 815 -19 Santa Clara 4041 2691 1350

Sacramento

Sales of Single Family Homes Sacramento, March 2017: 720 Units +2.3% 2016, +4.7% 2017 YTD, +4.0% YTY SOURCE: Clarus Market Metrics 41

Median Price of Single Family Homes Sacramento, March 2017: $290,000 Down 1.7% MTM, Up 4.7% YTY SOURCE: Clarus Market Metrics 42

For Sale Properties Sacramento, March 2017: 1,807 Units -1.8% 2016, -9.3% 2017 YTD, -5.9% YTY Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active” any point in time during the month. SOURCE: Clarus Market Metrics 43

San Francisco

Sales of Single Family Homes San Francisco, March 2017: 171 Units -3.7% 2016, +6.3% 2017 YTD, +8.9% YTY SOURCE: Clarus Market Metrics 45

Median Price of Single Family Homes San Francisco, March 2017: $1,350,000 Up 4.9% MTM, Up 15.6% YTY SOURCE: Clarus Market Metrics 46

For Sale Properties San Francisco, March 2017: 482 Units +0.2% 2016, -13.0% 2017 YTD, -19.5% YTY Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active” any point in time during the month. SOURCE: Clarus Market Metrics 47

Cupertino

Sales of Single Family Homes Cupertino, March 2017: 24 Units -10.1% 2016, +36.1% 2017 YTD, +26.3% YTY SOURCE: Clarus Market Metrics 49

Median Price of Single Family Homes Cupertino, March 2017: $1,995,000 Up 8.2% MTM, Up 5.0% YTY SOURCE: Clarus Market Metrics 50

For Sale Properties Cupertino, March 2017: 45 Units -9.1% 2016, -19.5% 2017 YTD, -36.6% YTY Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active” any point in time during the month. SOURCE: Clarus Market Metrics 51

The Forecast

U.S. Economic Outlook 2011 2012 2013 2014 2015 2016p 2017f US GDP 1.6% 2.2% 1.7% 2.4% 2.6% 2.1% Nonfarm Job Growth 1.2% 1.9% 1.8% 1.3% Unemployment 8.9% 8.1% 7.4% 6.2% 5.3% 4.9% 4.7% CPI 3.1% 1.5% 0.1% 1.4% Real Disposable Income, % Change 2.5% 3.2% -1.4% 2.7% 3.4% 3.0% 30-Yr FRM 4.5% 3.7% 4.0% 4.2% 3.9% 3.6% 4.4% SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California Economic Outlook 2011 2012 2013 2014 2015 2016p 2017f Nonfarm Job Growth 1.1% 2.4% 3.0% 2.2% 2.7% 2.3% 1.9% Unemployment Rate 11.8% 10.4% 8.9% 7.5% 6.2% 5.5% 5.4% Population Growth 0.7% 0.9% 1.0% Real Disposable Income, % Change 3.5% 4.7% -1.1% 3.2% 3.6% 4.5% SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California Housing Market Outlook 2011 2012 2013 2014 2015 2016 2017f SFH Resales (000s) 422.6 439.8 414.9 382.7 409.4 416.3 419.6 % Change 1.4% 4.1% -5.9% -7.8% 7.0% 1.7% 0.8% Median Price ($000s) $286.0 $319.3 $407.2 $446.9 $476.3 $502.3 $525.4 -6.2% 11.6% 27.5% 9.8% 6.6% 5.4% 4.6% Housing Affordability Index 53% 51% 36% 30% 31% 28% 30-Yr FRM 4.5% 3.7% 4.0% 4.2% 3.9% 3.6% 4.4% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

S.F. Bay Area Housing Market Outlook SERIES: San Francisco Bay Area Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Key Takeaways Lots of political uncertainty Economy and housing market doing ok for now Rising interest rate environment is expected Supply and affordability will remain issues in the near term Outmigration to more affordable areas will continue

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