1. 2017 Housing Market Outlook
Real Estate Education Center
April 14, 2017
Oscar Wei
Senior Economist

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

3. Economic Update

4. 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

5. 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

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

7. 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 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

8. 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.

9. 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.

10. Unemployment rate by California Metro Area
February 2017: California 5.0%
Source:
SERIES: Total Nonfarm Employment
SOURCE: CA Employment Development Division

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

12. California Housing Market Outlook

13. Home Sales Up in 2017 as the Economy Remains Solid
California, Feb 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:
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

14. 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

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

16. 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

17. 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®

18. 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.

19. 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®

20. 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

21. “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

22. 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
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

23. 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

24. 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®

25. Housing Affordability Peaked Q1 2012 Prices v
Housing Affordability Peaked Q Prices v. Low Rates and Income Growth
California vs. U.S. –
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 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®

26. How Wages Measured against Income Required to Buy a Home
California
2016 Annual Mean Wage
- Wage data is from May 2016; Min. income to buy a med. Home from Q216
SOURCE: Bureau of Labor Statistics, C.A.R.

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

28. 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
Left CA: 5 million
Came to CA: 3.9 million
Net Loss: 1million
SERIES: People Leaving/Coming to California
SOURCE: IRS, Sacramento Bee

29. Regional Housing Market Outlook

30. Bay Area Housing Market Outlook

31. 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:
03/03: 63.0
5/07:
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®

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

33. 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®

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

35. 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®

36. 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®

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

38. 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®

39. 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

40. Sacramento

41. 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

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

43. 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

44. San Francisco

45. 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

46. 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

47. 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

48. Cupertino

49. 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

50. 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

51. 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

52. The Forecast

53. 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®

54. 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®

55. 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®

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

57. 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

58. The all-new Housing Matters Podcast is your housing hub for market analysis, economic trends, and housing news from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) and its institute the Center for California Real Estate. Be sure to subscribe on iTunes to hear the latest episode every other Friday to learn what you need to know about the market from C.A.R. experts who will give you their take on the week’s top real estate stories.

59. Stay Connected with C.A.R. Research
CARResearchGroup CARResearchInfo On.car.org/CARResearch Housingmatters.car.org

60. Thank You This presentation can be found on www.car.org/marketdata
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