1. 2018 Mid-Year Market Update
June 1, 2018
Leslie Appleton-Young
Chief Economist & SVP

2. Overview Economic Update California Housing Market Outlook
U.S. and California economy
Jobs? Inflation? Interest Rates?
California Housing Market Outlook
Summary of recent home sales
Regional focus: who is leading the pack?
Identifying new trends or shifts in the market
Understanding the drivers of that shift
The Forecast
Steady as she goes…

3. Economic Update

4. Economic “Sweet Spot” 2.2% 1.0% 2.1% 3.8% 1.6% Consumption 2018-Q1
GDP 2018-Q1
Consumption Q1
Core CPI
Apr 2018
1.0%
2.1%
3.8%
Unemployment May 2018
1.6%
Job Growth May 2018
Gross Private Domestic Investment: Q317 – 7.3%, Q217 – 3.9%

5. Growth Momentum Eased Slightly
GDP : 2.3%; 2018 Q1: 2.2%
ANNUALLY
QUARTERLY
- First quarter 2018 GDP came in at 2.2 percent, an expected slowdown but less than feared given persistent seasonality issues. Consumer spending and business investment were slower and inflation continues to rise
- Real consumer spending increased at a 1.0percent annual pace in Q1, below the recent trend. The slowdown reflected a decline in durables spending, including motor vehicles which, in turn, may reflect the impact of hurricane recovery spending in the fourth quarter. Continued gains in consumer spending are expected given improvement in the labor market, compensation, consumer confidence and household wealth.
Residential investment is facing some headwinds as interest rates and land prices increase. Despite the not-so-stellar growth in housing starts, demand for apartments remains strong. Trade reflected an improvement in export growth compared to a year ago and was a net addition to GDP in the quarter.
Services inflation has outpaced goods inflation throughout the period. Rising inflation and continued moderate economic growth provide the basis for a FOMC decision to raise the funds rate in June. Our outlook is also for rising 2-and 5-year Treasury rates in response. Our model is for a flatter yield curve for this year.
2009 Largest Annual Drop since 1946 (-2.8%)
SERIES: GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis 5

6. May ‘18 Unemployment Lowest in 19 Years
US 3.8% (May 2018) & CA 4.2% (Apr 2018)
Source:
SERIES: Civilian Unemployment Rate
SOURCE: CA Employment Development Division

7. Yield Surged Passed 3.0% for the 1st Time since 2014 but Dipped Recently due to European politics
U.S. 10 Year Treasury Yield
The European Union is massive in terms of the size of its economy and its impacts on the global financial system.  Threats to the stability of the EU cause shockwaves in financial markets.  Those shockwaves have an impact on everything from stock prices to mortgage rates.
The latest threat is Italy's would-be government: a coalition between 2 parties that are both less than enthusiastic about Italy remaining in the EU.  They drafted a lawmaking game plan 2 weeks ago, and while it didn't include any specific goals regarding the country's EU membership, one of their nominees is a vocal proponent of a Brexit-style departure for Italy.
SERIES: U.S. 10-Yr Treasury
SOURCE: CNBC

8. Mortgage Rates Eased This Week Moving Up in 2nd Half of 2018
January 2010 – May 31, 2018
MONTHLY
WEEKLY
SERIES: 30Yr FRM, 5Yr ARM
SOURCE: Freddie Mac

9. Perspective is everything!!

10. How About the Market?

11. CA Sales up slightly over last year Narrow band since 2010
April 2018 Sales: 416,790 Units, +1.5% YTD, +2.2% YTY
Apr-17: 407,960
Apr-18: 416,790
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

12. Lower end sales declined – tightest inventroy
April 2018 (Year-to-Year)
SERIES: Sales of Existing Detached Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

13. Market has shifted towards higher end
SERIES: Sales of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

14. Bay Area Sales Up Last # Months
SERIES: Sales of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
*Sales are not seasonally adjusted and annualized 14

15. SoCal Sales Up After 5 Months of Declines
YoY % chg.
SERIES: Sales of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
*Sales are not seasonally adjusted and annualized 15

16. Central Valley Sales Climbed Further
YoY % chg.
SERIES: Sales of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
*Sales are not seasonally adjusted and annualized 16

17. What’s new on prices?

18. Fast clip for price gains
California, April 2018: $584,460, +3.5% MTM, +8.6% YTY
Apr-18: $584,460
Apr-17: $537,950
SERIES: Median Price of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

19. Year-over-Year Price Growth by Percentile
SERIES: Median Price of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

20. Price Gains Strong for Homes and Condos
SERIES: Median Price of Existing Condo/Townhomes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

21. Bay Area: Peak v. Current Price
SERIES: Median Price of Existing Detached Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

22. Southern California: Peak vs. Current Price
SERIES: Median Price of Existing Detached Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

23. Central Coast: Peak vs. Current Price
SERIES: Median Price of Existing Detached Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

24. Central Valley: Peak v. Current Price
SERIES: Median Price of Existing Detached Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

25. Other Counties in California: Peak v. Current Price
SERIES: Median Price of Existing Detached Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

26. Condo/Townhome Prices Trending Up
Apr-18: $476,010
Apr-17: $436,390
SERIES: Median Prices of Existing Condos/Townhomes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

27. Price Per Square Foot – Same
April 2018: $281, Up 1.8% MTM, Up 7.7% YTY
Apr-18: $281
Apr-17:
$261
SERIES: Median Price Per Square Feet of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

28. Inventory easing a bit Tipping point? Wait and see.

29. Active Listings by Month

30. Active listings increased for 1st time in 34 mon.
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: Active Listing of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

31. Inventory Index Down Slightly
April 2017: 3.3 Months; April 2018: 3.2 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®

32. Inventory Index Highest at High – end
SERIES: Unsold Inventory Index of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

33. Supply improved in many price segments
SERIES: Active Listings of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

34. Listings higher Central & South
April 2018
SERIES: Sales and Listings of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

35. Overall inventory remains tight
3.5
2.9
2.1
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®

36. Sellers Are Not Moving as Often as Before
SERIES: 2017 Housing Market Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

37. Sellers were in their home a median of 7 years before selling
Median: 7 years
Q: How many years did you own the home before selling? (n=272)
Source: 2018 C.A.R. Housing Consumer Survey

38. And California Is Not Building Enough
2017: 112,886 (55,779 sf, 57,107 mf ) 2018f: 127,780 (64,900 sf, 62,880 mf)
CA HCD Projected Housing Needs:
180,000/yr.
SERIES: California New Housing Permits
SOURCE: Construction Industry Research Board

39. Tight Means Competitive

40. Median Time on the Market
California, April 2018: 16.0 Days
Range since 1988:
Low days in May 2004
High – 93 days in Feb 1993
SERIES: Median Time of Market of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

41. 30 % of Listings Have Price Reductions
SERIES: Listing Price of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

42. 2018 (revised) Forecast

43. California Housing Market Outlook
2012
2013
2014
2015
2016
2017
2018f
(revised)
SFH Resales (000s)
439.8
414.9
382.7
409.4
417.7
421.9
423.2
428.3
% Change
4.1%
-5.9%
-7.8%
7.0%
2.0%
1.5%
0.3%
1.0%
Median Price ($000s)
$319.3
$407.2
$446.9
$476.3
$502.3
$538.0
$555.6
$582.0
11.6%
27.5%
9.8%
6.6%
5.4%
7.2%
3.2%
8.2%
Housing Affordability Index
51%
36%
30%
31%
29%
26%
27%
30-Yr FRM
3.7%
4.0%
4.2%
3.9%
3.6%
4.6%
4.7%
SERIES: CA Housing Market Outlook
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

44. C.A.R. Economic/Data Resources

45. Where is the Market Data?

46. Interactive market stats

47. Interactive market stats

49. Thank You