Dave’s Top 10 Economic & Other Factors Realtors Should Follow

10/30/2018 “Softening Demand, Relative Values, the VHPI”

www.girlingreig.com

Note: It is understood that the material in this presentation is intended for general information only and should not be used in relation to any specific application without independent examination and verification of its applicability and suitability by professionally qualified personnel. Those making use thereof or relying thereon assume all risk and liability arising from such use or reliance.

Communications from Girling REIG are intended solely for informational purposes. The opinions expressed in this presentation are solely those of the presenter and not necessarily those of OCAR and OCAR does not guarantee the accuracy or reliability of the information provided herein.

The NBHPI, BIPI & LIPI Indices are compilations of sales activity based in whole or in part by data compiled from the CRMLS MLS, & include properties sold by other brokerages. The accuracy of the information is deemed reliable, but is not guaranteed by Girling REIG or the CRMLS. Any individual or entity intending to rely on this information should seek verification through personal investigation or investigation by appropriate professionals. All information & materials are provided "as is" without any warranty of any kind, either expressed or implied.

http://www.girlingreig.com

LINK TO SUBSCRIBE: WWW.GIRLINGREIG.COM/SUBSCRIBE/ USE CODE: FREE3MOS

Note: It is understood that the material in this presentation is intended for general information only and should not be used in relation to any specific application without independent examination and verification of its applicability and suitability by professionally qualified personnel. Those making use thereof or relying thereon assume all risk and liability arising from such use or reliance.

Communications from Girling REIG are intended solely for informational purposes. The opinions expressed in this presentation are solely those of the presenter and not necessarily those of OCAR and OCAR does not guarantee the accuracy or reliability of the information provided herein.

The NBHPI, BIPI & LIPI Indices are compilations of sales activity based in whole or in part by data compiled from the CRMLS MLS, & include properties sold by other brokerages. The accuracy of the information is deemed reliable, but is not guaranteed by Girling REIG or the CRMLS. Any individual or entity intending to rely on this information should seek verification through personal investigation or investigation by appropriate professionals. All information & materials are provided "as is" without any warranty of any kind, either expressed or implied.

http://www.girlingreig.com

“Dave’s Top 10” Economic Factors REALTORS®

Should Be Following

#10 Headline of the Day

“There is a clear shift in the market with another month of rising inventory on a year over year basis, though seasonal factors are leading to a third straight month of declining inventory. Homes will take a bit longer to sell compared to the super-heated fast pace seen earlier this year.”

Lawrence Yun 
Chief Economist, NAR 10/19/2018

NAR Data

#9 Housing DemandFacts: • Existing home sales in CA for September fell 12.4% (6.6% the previous month) for the

5th month in a row, Orange County down 21.8% (Source: CAR) • US pending home sales in September were down 1% year-over-year (up 0.5% from

previous month) for the ninth straight month. (Source: NAR) • US existing home sales in September were down 4.1% (Source: NAR) •Villa stats: NB/CDN/NC/ECM down 10.5%

Note: Pending and existing home sales are measures of real estate market strength and indicators of the Demand for housing. Demand for housing has been affected by:

• Higher interest rates • Home prices • Recent tax law changes

Takeaway: The decline in sales suggests that Demand may be decreasing for housing which will bring the Supply/Demand equation more into equilibrium, especially with a measurable increase in supply.

As a result, prices may not continue to appreciate at the levels we have seen the past few years and may correct.

California Home Sales Continued on a Declining Trend

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

Year-over-Year % Chg 6 per. Mov. Avg. (Year-over-Year % Chg)

SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized

September 2017: 3.2 Months; September 2018: 4.2 Months

Inventory Index Reached the Highest Level in 31 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.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jan-

05

Sep-

05

May

-06

Jan-

07

Sep-

07

May

-08

Jan-

09

Sep-

09

May

-10

Jan-

11

Sep-

11

May

-12

Jan-

13

Sep-

13

May

-14

Jan-

15

Sep-

15

May

-16

Jan-

17

Sep-

17

May

-18

SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

#8 Housing Supply

June 2017: 2.7 Months; June 2018: 3.0 Months

Active Listings Continued to Increase for the 6th Consecutive Month

SERIES: Active Listing of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

20.4%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov-

15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov-

16

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov-

17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Year-over-Year % Chg

Inventories - Local MarketsLocal Markets Summary (NB, Irvine & Costa Mesa):

Note: 6 months supply is considered normal

“It’s important to note that despite the modest year-over-year rise in inventory, the current level is far from what’s needed to satisfy demand levels. Furthermore, it remains to be seen if this modest increase will stick, given the fact that the robust economy is bringing more interested buyers into the market, and new-home construction is failing to keep up”. Lawrence Yun, NAR Chief Economist, 7/23/2018




http://rismedia.com/2018/07/18/housing-starts-ground-breaking-june-plumments/

#7 Interest Rates / Mortgage Rates

Fact: The 10-year Treasury closed at 3.09% (10/29). 30-year mortgage rates which are pegged to the 10-year TSY are up approximately 1.0% to 4.9% since the beginning of 2018 (see charts).

Takeaway: This means that a $500,000 loan with a 20% downpayment is approximately $300 more expensive than it was at the beginning of 2018.

Higher rates will further erode affordability and interest rates are no longer at historical lows!

Rates are up a 100 BP’s since BOY, Rule of Thumb: 1% increase in interest rates = 10% loss in purchasing power

FNMA yield (10/26/18): 4.47%, low point: 2.75% (10/1/2012)

10-year TSY is 3.09% (10/26//2018)

$500,000 loan: 30-yr. fully amortizing @ 4.86%.: $2631/mo. (up $100 since last Top 10)$1,500,000 loan: 30-yr. fully amortizing @ 4.86%.: $7893/mo. (up $295 since last Top 10) Assumptions: 0.5% points, 20% downpayment

Mortgage Rates

Income Required

1/25/2018

AssumptionsPropertyTaxRate:1.10%,Debt/IncomeRatio:43%(CAR:30%),LTV:80%

10/29/2018

Fact: Case-Shiller results for August were slightly lower for all three indices. - 9 US Census Divisions: up 5.8% (6.0% the previous month) - 10-City Composite: up 5.1% (5.5% the previous month) - 20-City Composite: up 5.5% (5.9% the previous month - September median prices for CA and Orange County (see charts) - up 4.2% and 3.3% year over year respectively. - NB/CDM/NC/ECM up 9%

Takeaway: Home values have been appreciating at unsustainable levels and appear to be leveling off. Some economists are predicting year-over-year growth rates of 2-3% in 2019.

#6 Home Values

Illustrates steady increase in home price for past 4+ years (3-8% range)


Growth rates year over year reported each month.

CA Median Home Price (September): $578,850, Up 4.2% Yr. to Yr.

2.64 below peak in May 2007

OC Median Home Price (September): $825,000, Up 3.3% Yr. to Yr.,

6.4% above June 2007 peak

LA County Median Home Price (September): $634,680

#5 Relative Value Analysis Newport Harbor vs. Huntington Harbour

Relative Value: The market value of one property when compared to the market value of a similar property.

3176 Portofino Listed for $2,350,000 (in escrow) 2800+ Square Feet 45+’ boat slip (in front of house)

Lido Isle / Peninsula / Balboa Island - comparable properties Selling for $5,000,000 +


Fact: 78% of people nationally say that renting is more affordable than owning (FHLMC survey) which is up from 67% only six months ago.

Takeaway: High mortgage rates and home prices are pushing people into renting especially in the current environment where multifamily supply is approaching 30-year highs (FHLMC). In addition, more and more "rent vs, buy" analyses are yielding results that point to renting, especially in areas where housing prices have far out-paced rents. And, potential first-time homebuyers care more about renting near their job and having mobility (proximity to transportation) than owning further away from work and transportation.

#4 Renting vs. Buying

#3 Mortgage Originations

Purchase: 71%, Refi’s: 29% (down from 38% in 2017)

Mortgage Originations

Facts: 1. Refinance share of originations in September fell to 29% which was down from 38% in

September 2017 (Source: Ellie Mae)

2. $1.15 trillion in purchase originations expected in 2018 which is lower than expected

given the strength of the economy (Source: MBA)

Takeaway: Lending is very challenging today. Expect further cost-cutting by lenders, creative programs and additional layoffs.




Prop 5 - Yes

Property Tax Fairness Initiative: (CAR-led initiative) 1.) For seniors (55 and older), the disabled and victims of natural disasters. 2.) Those eligible would be able to carry their current Prop 13-protected property tax assessment level to another home of any price anywhere in the state, any number of times.  3.) Available for all counties. Current laws limit the county of transfer to the current county, or the 11 other counties that currently allow it. 4.) Current laws limit the number of times it can be done to 1, and the level must be carried to a property of equal or lower price.

Prop 10 - No

Other Issues on the Radar: Dual Agency and Pocket Listings

#2 Legislative Initiatives Intended to Address Housing Crisis (Low inventory & affordability)

#1 Villa Home Price Index Q3 Results




VILLA HOME PRICE INDEX - Q3 2018 RESULTS Q3 2018 Value Yr. to Yr. Qtr. To Qtr.

Newport Beach, CDM & Newport Coast $3,252,779 -9.04% -15.14%

5 Markets Newport Beach (4 zip codes) $2,939,886 -3.28% -13.64% 92660 $2,449,199 5.97% 4.85% 92661 $3,073,472 -26.26% -32.15% 92662 $3,592,917 20.25% 0.98% 92663 $2,643,956 -1.76% -17.19% CDM (92625) $3,288,201 -9.11% -24.03% Newport Coast (92657) $4,469,111 -21.31% -11.59% Laguna Beach (92651) $3,194,689 39.43% 0.17% Eastside Costa Mesa (92627) $964,169 2.43% 0.47%

Average Sales Price (Q3): $3,252,779, down 9.04% Yr. to Yr.

Villa Home Price Index ("VHPI") ® NEWPORT BEACH, NEWPORT COAST & CORONA DEL MAR

Average Sales Price (Q3): $3,939,886 down -3.28% Yr. to Yr.

Villa Home Price Index ("VHPI") ® NEWPORT BEACH

Average Sales Price (Q3): $964,169 up 2.43% Yr. to Yr.

Villa Home Price Index ("VHPI") ® EASTSIDE COSTA MESA

Average Sales Price (Q3): $3,194,689, up 39.4% Yr. to Yr.

Median Sales Price (Q3): $2,139,167 (67% of average sales price)

Villa Home Price Index ("VHPI") ® LAGUNA BEACH

VHPI - MethodologyMethodology/FactSheet

VillaHomePriceIndex(VHPI)

TheVillaHomePriceIndex(“VHPI”)trackssinglefamilydetachedhousingpricessince1998inthemainneighborhoodswhereVillaRealEstateGroupisactivelysellingandbuyingresidentialrealestateproperties.ListedbelowarethesalientpointsfortheVillaHomePriceIndex:

•TheVHPIincludes5primaryneighborhoods:NewportBeach,CoronaDelMar,NewportCoast,LagunaBeachandEastsideCostaMesa.

•NewportBeach(92660,92661,92662&92663),LagunaBeach(92651)andEastsideCostaMesa(92627)areshownasseparateIndicesalongwithanIndexshowingNewportBeach,CoronaDelMarandNewportCoast(othercombinationsarepossible).

•TheVHPIisanelementarypriceindexandiscalculatedonaquarterlybasis.•TheVHPIshowsaveragequarterlypricesandcomparesthosepricesfromquartertoquarterandonayearoveryearbasis.

•Source:CoreLogic(DQNews),monthlyaveragesinglefamilydetachedhomesalespricesbyzipcodes(92660,92661,92662,92663,92625,92627,92651,92657)




ConclusionsHeadline of the Day: It’s official - the market has changed!

Housing Demand: The sustained decrease in sales has affected the demand for housing.

Housing Supply: There are continuing signs that the inventory crunch is easing.

Note: The Supply/Demand relationship is coming into equilibrium

Interest Rates: Up 1% since BOY, there are many borrowers that have never been in a 5% rate environment, FED rate increase expected in December.

Home Values: Still improving but the appreciation rate is decelerating.

Relative Value Analysis: A good exercise in a market like this.

Rent vs. Buy: Higher IR’s & home prices are driving more potential homebuyers to rent.

Mortgage Originations: With higher IR’s, ratio of purchases to refis is 71/29, continued downsizing and cost-cutting by many originators.

Legislative Initiatives: Yes on Proposition 5 VHPI (Q3): Tracking prices in Newport Beach, Newport Coast, Corona Del Mar, Eastside Costa Mesa and Laguna Beach.

Bubble: No “bursting bubble” but a price correction is on the horizon.


Q & A BLOG SUBSCRIPTION: WWW.GIRLINGREIG.COM/SUBSCRIBE/

USE CODE: FREE3MOS

TWITTER: @BALBOAISLANDGUY

EMAIL: DAVE@GIRLINGREIG.COM

Note: It is understood that the material in this presentation is intended for general information only and should not be used in relation to any specific application without independent examination and verification of its applicability and suitability by professionally qualified personnel. Those making use thereof or relying thereon assume all risk and liability arising from such use or reliance.

Communications from Girling REIG are intended solely for informational purposes. The opinions expressed in this presentation are solely those of the presenter and not necessarily those of OCAR and OCAR does not guarantee the accuracy or reliability of the information provided herein.

The NBHPI, BIPI & LIPI Indices are compilations of sales activity based in whole or in part by data compiled from the CRMLS MLS, & include properties sold by other brokerages. The accuracy of the information is deemed reliable, but is not guaranteed by Girling REIG or the CRMLS. Any individual or entity intending to rely on this information should seek verification through personal investigation or investigation by appropriate professionals. All information & materials are provided "as is" without any warranty of any kind, either expressed or implied.

http://www.girlingreig.commailto:dave@girlingreig.com