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THE HOUSING DILEMMA: SUSTAINING THE CALIFORNIA HOUSING MARKETMid-Year LuncheonMay 1, 2014Joel Singer, Chief Executive Officer
Overview
• Where Are We
• The Long View
• Components of Housing Demand
• What Has to Happen
Sales Retreating Since Mid-2013 California, Mar 2014 Sales: 367,000 Units, -13.2% YTD, -12.3% YTY
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
*Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Median Price Gains ModeratingCalifornia, March 2014: $435,470, Up 14.9% YTY
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000 P: May-07$594,530
T: Feb-09$245,230-59% frompeak
SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Inventory Has Improved but Remains Tight California, March 2014: 4.0 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.
02468
1012141618
SERIES: Unsold Inventory Index of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
2009 2010 2011 201212300000
1240000012500000
1260000012700000
1280000012900000
1300000013100000
1320000013300000
12,997,41712,898,639 12,912,894
12,633,403
12,991,93213,063,744
13,135,95213,208,559
Actual # of HH that would have formed
Household Formation Gap is Significant
SOURCE: California Dept. of Finance; compiled by C.A.R.
2009 2010 2011 2012 2009 - 2012-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
-5,485 165,105 223,058
575,156
957,834
Households not formed
# of Households Lost Since the Great Recession
SOURCE: California Dept. of Finance; compiled by C.A.R.
Today’s Market• Clearly well on the road to recovering
• Volume – A bit down, still reliant on investment sales
• Prices up sharply, but increases slowing in most markets
• Inventory remains tight
• Pent-up/unrealized demand not yet translating into sales
• Affordability challenges emerging once again…
The Long View
• It wasn’t always like this…
• Oh, maybe it was…
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000 Sales of Existing Detached Homes Median Price
California Sales & Median Price: 1970-2013
-61% -34%
-49%
UNITS/MEDIAN PRICE $
SERIES: Sales of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
California Sales of Existing Homes and Median Price: 1970-2013
California Median Prices 1980 - 2013
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
2012$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000 Median Price
Avg. Annual
Price Gain: -19.4%(2007 – 2009)
SERIES: Median Price of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Avg. Annual Price Gain:
+4.9%(1980 – 2001)
Avg. Annual
Price Gain: +16.4%(2002 – 2006)
Mortgage Rates Heading Higher
19721974
19761978
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
20120%
2%
4%
6%
8%
10%
12%
14%
16%
18% FRM ARM
SERIES: 30Yr FRM, 1Yr ARMSOURCE: Federal Home Loan Mortgage Corporation
Housing Affordability Hit by Mortgage Rate Hikes and Price Gains
California vs. U.S. – 1984-2013% OF HOUSEHOLDS THAT CAN BUY, ANNUAL RATE
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
19841986
19881990
19921994
19961998
20002002
20042006
20082010
2012Q2 2012
Q4 2012Q2 2013
Q4 20140%
10%
20%
30%
40%
50%
60%
70%
80% CA US Annual Quarterly
Median CA House PaymentWell Below Peak
Jan-80Feb-80Mar-80Apr-80May-80Jun-80Jul-80Aug-80Sep-80Oct-80Nov-80Dec-80Jan-81Feb-81Mar-81Apr-81May-81Jun-81Jul-81Aug-81Sep-81Oct-81Nov-81Dec-81Jan-82Feb-82Mar-82Apr-82May-82Jun-82Jul-82Aug-82Sep-82Oct-82Nov-82Dec-82Jan-83Feb-83Mar-83Apr-83May-83Jun-83Jul-83Aug-83Sep-83Oct-83Nov-83Dec-83Jan-84Feb-84Mar-84Apr-84May-84Jun-84Jul-84Aug-84Sep-84Oct-84Nov-84Dec-84Jan-85Feb-85Mar-85Apr-85May-85Jun-85Jul-85Aug-85Sep-85Oct-85Nov-85Dec-85Jan-86Feb-86Mar-86Apr-86May-86Jun-86Jul-86Aug-86Sep-86Oct-86Nov-86Dec-86Jan-87Feb-87Mar-87Apr-87May-87Jun-87Jul-87Aug-87Sep-87Oct-87Nov-87Dec-87Jan-88Feb-88Mar-88Apr-88May-88Jun-88Jul-88Aug-88Sep-88Oct-88Nov-88Dec-88Jan-89Feb-89Mar-89Apr-89May-89Jun-89Jul-89Aug-89Sep-89Oct-89Nov-89Dec-89Jan-90Feb-90Mar-90Apr-90May-90Jun-90Jul-90Aug-90Sep-90Oct-90Nov-90Dec-90Jan-91Feb-91Mar-91Apr-91May-91Jun-91Jul-91Aug-91Sep-91Oct-91Nov-91Dec-91Jan-92Feb-92Mar-92Apr-92May-92Jun-92Jul-92Aug-92Sep-92Oct-92Nov-92Dec-92Jan-93Feb-93Mar-93Apr-93May-93Jun-93Jul-93Aug-93Sep-93Oct-93Nov-93Dec-93Jan-94Feb-94Mar-94Apr-94May-94Jun-94Jul-94Aug-94Sep-94Oct-94Nov-94Dec-94Jan-95Feb-95Mar-95Apr-95May-95Jun-95Jul-95Aug-95Sep-95Oct-95Nov-95Dec-95Jan-96Feb-96Mar-96Apr-96May-96Jun-96Jul-96Aug-96Sep-96Oct-96Nov-96Dec-96Jan-97Feb-97Mar-97Apr-97May-97Jun-97Jul-97Aug-97Sep-97Oct-97Nov-97Dec-97Jan-98Feb-98Mar-98Apr-98May-98Jun-98Jul-98Aug-98Sep-98Oct-98Nov-98Dec-98Jan-99Feb-99Mar-99Apr-99May-99Jun-99Jul-99Aug-99Sep-99Oct-99Nov-99Dec-99Jan-00Feb-00Mar-00Apr-00May-00Jun-00Jul-00Aug-00Sep-00Oct-00Nov-00Dec-00Jan-01Feb-01Mar-01Apr-01May-01Jun-01Jul-01Aug-01Sep-01Oct-01Nov-01Dec-01Jan-02Feb-02Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03Apr-03May-03Jun-03Jul-03Aug-03Sep-03Oct-03Nov-03Dec-03Jan-04Feb-04Mar-04Apr-04May-04Jun-04Jul-04Aug-04Sep-04Oct-04Nov-04Dec-04Jan-05Feb-05Mar-05Apr-05May-05Jun-05Jul-05Aug-05Sep-05Oct-05Nov-05Dec-052006 Q12006 Q22006 Q32006 Q42007 Q12007 Q22007 Q32007 Q42008 Q12008 Q22008 Q32008 Q42009 Q12009 Q22009 Q32009 Q42010 Q12010 Q22010 Q32010 Q42011 Q12011 Q22011 Q32011 Q42012 Q12012 Q22012 Q32012 Q42013 Q12013 Q22013 Q32013 Q4 $-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
PITI/Month
Peak: $3,668/mo (2007 Q2)
Latest: $2,233/mo (2013 Q4)
… Minimum Qualifying Income Below Peak
Jan-80Feb-80Mar-80Apr-80May-80Jun-80Jul-80Aug-80Sep-80Oct-80Nov-80Dec-80Jan-81Feb-81Mar-81Apr-81May-81Jun-81Jul-81Aug-81Sep-81Oct-81Nov-81Dec-81Jan-82Feb-82Mar-82Apr-82May-82Jun-82Jul-82Aug-82Sep-82Oct-82Nov-82Dec-82Jan-83Feb-83Mar-83Apr-83May-83Jun-83Jul-83Aug-83Sep-83Oct-83Nov-83Dec-83Jan-84Feb-84Mar-84Apr-84May-84Jun-84Jul-84Aug-84Sep-84Oct-84Nov-84Dec-84Jan-85Feb-85Mar-85Apr-85May-85Jun-85Jul-85Aug-85Sep-85Oct-85Nov-85Dec-85Jan-86Feb-86Mar-86Apr-86May-86Jun-86Jul-86Aug-86Sep-86Oct-86Nov-86Dec-86Jan-87Feb-87Mar-87Apr-87May-87Jun-87Jul-87Aug-87Sep-87Oct-87Nov-87Dec-87Jan-88Feb-88Mar-88Apr-88May-88Jun-88Jul-88Aug-88Sep-88Oct-88Nov-88Dec-88Jan-89Feb-89Mar-89Apr-89May-89Jun-89Jul-89Aug-89Sep-89Oct-89Nov-89Dec-89Jan-90Feb-90Mar-90Apr-90May-90Jun-90Jul-90Aug-90Sep-90Oct-90Nov-90Dec-90Jan-91Feb-91Mar-91Apr-91May-91Jun-91Jul-91Aug-91Sep-91Oct-91Nov-91Dec-91Jan-92Feb-92Mar-92Apr-92May-92Jun-92Jul-92Aug-92Sep-92Oct-92Nov-92Dec-92Jan-93Feb-93Mar-93Apr-93May-93Jun-93Jul-93Aug-93Sep-93Oct-93Nov-93Dec-93Jan-94Feb-94Mar-94Apr-94May-94Jun-94Jul-94Aug-94Sep-94Oct-94Nov-94Dec-94Jan-95Feb-95Mar-95Apr-95May-95Jun-95Jul-95Aug-95Sep-95Oct-95Nov-95Dec-95Jan-96Feb-96Mar-96Apr-96May-96Jun-96Jul-96Aug-96Sep-96Oct-96Nov-96Dec-96Jan-97Feb-97Mar-97Apr-97May-97Jun-97Jul-97Aug-97Sep-97Oct-97Nov-97Dec-97Jan-98Feb-98Mar-98Apr-98May-98Jun-98Jul-98Aug-98Sep-98Oct-98Nov-98Dec-98Jan-99Feb-99Mar-99Apr-99May-99Jun-99Jul-99Aug-99Sep-99Oct-99Nov-99Dec-99Jan-00Feb-00Mar-00Apr-00May-00Jun-00Jul-00Aug-00Sep-00Oct-00Nov-00Dec-00Jan-01Feb-01Mar-01Apr-01May-01Jun-01Jul-01Aug-01Sep-01Oct-01Nov-01Dec-01Jan-02Feb-02Mar-02Apr-02May-02Jun-02Jul-02Aug-02Sep-02Oct-02Nov-02Dec-02Jan-03Feb-03Mar-03Apr-03May-03Jun-03Jul-03Aug-03Sep-03Oct-03Nov-03Dec-03Jan-04Feb-04Mar-04Apr-04May-04Jun-04Jul-04Aug-04Sep-04Oct-04Nov-04Dec-04Jan-05Feb-05Mar-05Apr-05May-05Jun-05Jul-05Aug-05Sep-05Oct-05Nov-05Dec-052006 Q12006 Q22006 Q32006 Q42007 Q12007 Q22007 Q32007 Q42008 Q12008 Q22008 Q32008 Q42009 Q12009 Q22009 Q32009 Q42010 Q12010 Q22010 Q32010 Q42011 Q12011 Q22011 Q32011 Q42012 Q12012 Q22012 Q32012 Q42013 Q12013 Q22013 Q32013 Q4 $-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Min. IncomePeak: $146,701/yr (2007 Q2)
Latest: $89,320/yr (2013 Q4)
House Payment (Inflation Adjusted) Is at Late 1970’s Level
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$- $100 $200 $300 $400 $500 $600 $700 $800 $900
$1,000
PITI/Month (Adjusted for Inflation) Peak: $928/mo
(2006)
Latest: $458/mo (2013)
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
… And Minimum Qualifying Income (Inflation Adjusted) Is the Same as 35 Years ago
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$- $5,000
$10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
Min. Income(Adjusted for Inflation) Peak: $37,122
(2006)
Latest: $18,337 (2013)
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Share of First-Time Buyers is the Lowest Since 2006
81 83 85 87 89 91 93 95 97 990%
10%
20%
30%
40%
50%
60%
28.1%
% First-Time Home Buyers Long Run Average
Long Run Average = 38%
SERIES: 2013 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Student Debt: Drags On Home Sales
Q. Please indicate the type of mortgage.
Share of FHA was the lowest in 6 Years; 24% of first-time buyers used FHA loans
2005 2006 2007 2008 2009 2010 2011 2012 20130%
10%
20%
30%
40%
17%
6%
FHA VA
SERIES: 2013 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Homeownership Rates DroppingCalifornia Vs. U.S.
0%
10%
20%
30%
40%
50%
60%
70%
80%
54.5%
65.4%
CA US
SERIES: Homeownership RatesSOURCE: U.S. Census Bureau
Median Monthly Mortgage Payment - CAWhat Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$1,455$1,550
$1,648 $1,749$1,853
$1,960$2,070 $2,182Q4-2013 Median Price
$431,51020% Downpayment
INTEREST RATE
MONTHLY MORTGAGE
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Minimum Qualifying Income - CAWhat Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$78,066 $81,855 $85,772 $89,814$93,976 $98,252$102,637$107,127
Q4-2013 Median Price $431,51020% Downpayment
INTEREST RATE
MONTHLY MORTGAGE
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
California’s Housing Dilemma
• Even with everything (or at least most things) going right, our homeownership market is in trouble…
• The rental market, even with the conversion of 500,000 SFH’s, is still exhibiting inadequate supply
WHAT ABOUT FUTURE HOUSING DEMAND?
Population and Households Will Continue to Grow
California 1970-2020
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
SOURCE: Moody’s Analytics
Immigrant Share of Growth in Home Owners2010-2020
Dowell Myers, USC Price
Californ
ia
Nevada
Washington
Oregon
Arizona
Colorado
Rest of W
est
Illinois
Ohio
Rest of M
idwest
Minnesota
Michiga
n
DC Region
Florid
aTe
xas
Georgia
North Caro
lina
Rest of S
outh
New Jerse
y
New York
Massach
usetts
Connecticu
t
Pennsyl
vania
Rest of N
orthea
st
TOTAL U
.S.0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%West Midwest South Northeast
Source: Dowell Myers and John Pitkin, “Immigrant Contributions to the Housing Market…” RIHA, Mortgage Bankers Association, 2013
1980-90 1990-00 2000-10 2010-200
2
4
6
8
10
12
Immigrants
Native-Born
forecast
Source: Dowell Myers and John Pitkin, “Immigrant Contributions to the Housing Market…” RIHA, Mortgage Bankers Association, 2013
Growth in Number of Immigrant or Native Born Owner (Millions)
Future Demand• The demographic demand for housing is not going to lessen…
• “Where Will Our Children Live ?” remains a relevant question
• Enduring negative impacts on the state’s economy
• Housing is the “Achilles heel” of the California Economy
ATTITUDES ON HOMEOWNERSHIP REMAIN HIGHLY POSITIVE
“Good Time to Buy” Took Small Dip in the Recent Market Downturn
SOURCE: Thomson Reuters & University of Michigan, Survey of Consumers
Share of Consumers Planning to Buy a Home Up Sharply in Recent Years
• % Answering Yes, Jan 2000-Jan 2014, 3 Month Average, SA
SERIES: Share of Consumers who Plan to Buy in 6 mos.SOURCE: The Conference Board
Majority of All Age Groups Think Owning Makes More Financial Sense than Renting
SOURCE: Fannie Mae, National Housing Survey Q1 2012, Joint Center for Housing Studies of Harvard University
Homeownership Has Mattered Profoundly to Wealth Accumulation Even after Controlling for Income
Note: All values are in 2010 dollars, for the middle income quintileSource: Joint Center tabulations of Board of Governors of the Federal Reserve System, Survey of Consumer Finances
“Make no mistake about it, the way that working-class people build wealth is
through homeownership, not the stock market, not their 401(k) and not a
pension.”
John Taylor, President of the National Community Reinvestment Coalition,
Real Estate is Considered the Best Long Term Investment
SOURCE: Gallup
Financial Constraints Weigh Heavily on Perceptions, Keeping Some Out of Market
SOURCE: Hanley Wood Housing 360 Survey (2011), Joint Center for Housing Studies of Harvard University
Reasons for Leaving California
International Buyers are Getting a Bigger Slice of the Market than Before
Q. Was the buyer an international buyer – a person who was a citizen of another country who wished to purchase residential real estate in the U.S.?
2008 2009 2010 2011 2012 20130%
1%
2%
3%
4%
5%
6%
7%
8%
9%
8%
SERIES: 2013 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Investment Homes : 19% Market Share
19%
SERIES: 2013 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
0%2%4%6%8%
10%12%14%16%18%20%
Investment/Rental Property
Investment/Rental Property
Long Run Average: 11 %
HOW TO MAKE IT MORE AFFORDABLE FOR HOME BUYERS?
One Word: Supply• CA Housing Needs = Minimally 165,000 Units Annually
• Regulatory Problem• Impact Fees• Public Attitudes
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
20120
50000
100000
150000
200000
250000
300000
350000 Single Family Multi-Family
A Healthy Price Appreciation Requires the Right Balance between Supply and Demand• 2013: 80,319 Units, Up 37.2% from 2012
Household Growth: 220,000-250,000/yr
SERIES: Residential PermitsSOURCE: Moody’s Analytics
Mortgage Finance• Permanent Source of Sufficient Affordable Funding
• GSE’s• FHA• Rental Housing
People would prefer the following over going through the home mortgage process again:
SOURCE: Guaranteed Rate Mortgage Survey of 1,000 adults 25 and older; USA Today
Maybe a new mortgage process is part of creating the sustainable housing market …
“We shape our dwellings, and afterwards our dwellings shape us.”
~Winston Churchill 1944
“Almost any man worthy of his salt would fight to defend his home, but no one ever heard of man going to war for his boarding house.”
~ Mark Twain
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