THE RESIDENTIAL ECONOMIC REPORTState of California 4TH Quarter 2015
I N T R O D U C T I O N
www.RealEstateEconomics.com
Real Estate Economics is dedicated to providing reports that help you make accurate and effective judgments regarding theopportunities and risks associated with residential real estate. A clear understanding of market trends and forecasts arepresented,as well as the economic, socio-economic and demographic underpinnings that create those trends and forecasts.
This report will enable you to quickly understand the direction of a given housing market and will give you insight to future priceappreciation, competitive levels, housing over/under supply patterns and special opportunities relative to lending, investingand/or developing residential real estate.
Sincerely,REAL ESTATE ECONOMICS
Mark [email protected]/Owner
EXECUTIVE SUMMARY
STATEWIDE HOUSING MARKET SUMMARYSTATEWIDE TRANSACTIONS MAPSSTATEWIDE HOUSING MARKET TRENDSTRUE MEASURES OF PRICE APPRECIATION
STATEWIDE ECONOMIC AND HOUSING CONSTRUCTION TRENDS AND FORECASTSSTATEWIDE EMPLOYMENT TRENDS AND FORECASTSSTATEWIDE EMPLOYMENT BY INDUSTRYHOUSING CONSTRUCTION TRENDS & FORECASTSMORTGAGE RATE TRENDS & FORECASTSHOUSING PRICE TRENDS & FORECASTSHOUSEHOLD INCOME TRENDS & FORECASTSPOPULATION TRENDS & FORECASTSFOREIGN DEMAND
STATEWIDE HOUSING SUPPLY / DEMAND AND OVER / UNDER VALUATION PATTERNS AND FORECASTS
HOUSING SUPPLY AND DEMAND TRENDS AND FORECASTSHOUSING VALUE AND AFFORDABILITY TRENDS AND FORECASTSRESIDENTIAL MARKET OPPORTUNITY/RISK INDEX
ORDER INFORMATION FOR THE RESIDENTIAL ECONOMIC REPORT
T A B L E O F C O N T E N T S
THE RESIDENTIAL ECONOMIC REPORTState of California 4TH Quarter 2015
www.RealEstateEconomics.com
E X E C U T I V E S U M M A R Y
OPPORTUNITIES• A measured 5.6% YOY price appreciation rate has been
accompanied by increases in YOY sales volume – healthy signs for expanding market strength which will be enhanced during Year 2016 by continued low gas prices.
• With over 418,000 jobs being created during the past 12 months, the economic expansion will continue to fuel strong demand for new housing. Job growth is forecast to remain strong through Year 2016, weakening thereafter, but remaining positive through Year 2020.
• A total of 5.7 jobs are being created for every house built in California. The current jobs-to-housing ratio is far higher than the long-term equilibrium level of 1.11 jobs-to-1.0 house. Housing demand is growing much faster than housing supply, resulting in continued rapid depletion of distressed housing and increasing ‘spillover’ demand to interior markets.
• All super sectors of the California economy grew during the past 12 months, with especially strong growth in Professional and Business services, Leisure & Hospitality, Trade, Educational and Health services, and Givernment. Construction jobs are beginning to grow rapidly, and Government jobs are now being added to what has been private sector-driven economic growth.
• By Year-end 2015, California’s housing market will be 2.3% underbuilt, with an under supply of 315,999 homes. By Year 2018, under supply will peak. Chronic under supply will keep prices at a high plateau.
• Despite strong price appreciation in most California markets during the past 24 months (mainly during Year 2013), under valuation of housing is still evident – being caused by a continuation of record low mortgage costs and increasing household incomes. Indeed, under valuation may remain evident through Year 2017 – mostly in inland markets.
CHALLENGES• California’s population is getting older and less mobile. An
older demographic translates to reduced mobility, which reduces existing home listings (supply), but also reduces demand via lower housing turnover.
• Select California coastal markets are increasingly gentrifying, resulting in a displacement or ‘pushing out’ of the younger demographic needed to fuel job growth in coastal markets. The result is greater congestion from commuters and higher wage pressures to draw in needed workers.
• With increasing CEQA legal actions, water (drought) issues, and infrastructure/congestion issues, land development opportunities will remain challenging in all areas of California.
• Under/Over valuation of housing is determined via an examination of current mortgage cost-to-household income ratios with the long-term norm. Based on these relationships, housing in California will become over valued by Year 2018, and may become dangerously over valued by or before Year 2019. Affordability relative to the economy will need to be monitored carefully – at least on a quarterly basis – to understand the best land buy/sell and development decisions.
CONCLUSIONBased upon most recent economic, socio-economic and demographic conditions and forecasts for the State of California, strong land purchase and housing development opportunities are widespread throughout the State. Caution begins to emerge by Year 2018. Careful quarterly monitoring of affordability issues will be crucial in planning and development of housing sites throughout the State.
STATEWIDE HOUSING MARKET SUMMARY
STATEWIDE TRANSACTIONS MAPS
September 2015
This map presents a comparison of all
transactions that have occurred in California by
type and magnitude.
STATEWIDE HOUSING MARKET TRENDS
Current One Yr. Two Yrs. Current One Yr. Two Yrs. Current One Yr. Two Yrs. Current One Yr. Two Yrs.Number % Number % Number % Period Ago Ago Period Ago Ago Period Ago Ago Period Ago Ago
ALL SALES TRANSACTIONS 39,292 100% 35,880 100% 37,084 100% $536,268 $519,931 $481,171 1,731sf 1,772sf 1,780sf $315.15 $297.30 $272.34 $407,733 $394,457 $370,8409.5% -3.2% - 3.1% 8.1% - -2.3% -0.5% - 6.0% 9.2% - 3.4% 6.4% -
Resale (Owner-to-Owner) 33,397 80.0% 29,966 77.8% 29,977 73.7% $544,777 $533,790 $498,047 1,733sf 1,755sf 1,762sf $320.64 $308.02 $283.83 $410,414 $401,297 $379,001New (Builder-to-Owner) 3,054 7.3% 2,560 6.6% 2,898 7.1% $569,133 $557,047 $499,595 2,035sf 2,307sf 2,239sf $336.64 $250.57 $234.05 $423,253 $408,154 $382,719Foreclosure (Owner-to-Bank) 2,468 5.9% 2,630 6.8% 3,579 8.8% $353,901 $344,843 $320,650 1,660sf 1,633sf 1,618sf $214.61 $214.68 $199.88 - - - Foreclosure Sale (Bank-to-Owner) 2,841 6.8% 3,354 8.7% 4,209 10.4% $395,408 $358,091 $339,313 1,647sf 1,623sf 1,664sf $243.73 $222.62 $207.55 $351,140 $312,181 $296,262
31,789 80.9% 29,069 81.0% 29,966 80.8% $547,691 $533,225 $492,870 1,834sf 1,874sf 1,887sf $301.41 $285.02 $259.84 $414,961 $402,414 $378,4277,503 19.1% 6,811 19.0% 7,118 19.2% $488,245 $464,132 $432,602 1,329sf 1,349sf 1,345sf $368.63 $347.26 $322.78 $373,127 $355,621 $333,645
750sf 1,000sf 1,250sf 1,500sf 1,750sf 2,000sf 2,250sf 2,500sf 2,750sf 3,000sf 3,250sf 3,500sf 3,750sf 4,000sf 4,250sf 4,500sf 4,750sf 5,000sfSfd Price Line $175,000 $262,000 $348,000 $434,000 $520,000 $606,000 $692,000 $778,000 $864,000 $950,000 $1,036,000 $1,122,000 $1,209,000 $1,295,000 $1,381,000 $1,467,000 $1,553,000 $1,639,000Sfd $/Sq.Ft. $233.33 $262.00 $278.40 $289.33 $297.14 $303.00 $307.56 $311.20 $314.18 $316.67 $318.77 $320.57 $322.40 $323.75 $324.94 $326.00 $326.95 $327.80Condominium Price Line $292,000 $374,000 $455,000 $537,000 $619,000 $701,000 $783,000Condominium $/Sq.Ft. $389.33 $374.00 $364.00 $358.00 $353.71 $350.50 $348.00
Source: Real Estate Economics; RealtyTrac; County Recorders Office; Various Private Entities www.realestateeconomics.com© 2003-2015 Real Estate Economics
SUMMARY OF AREA TRANSACTIONS
Total Number Of Home Sales Average Unit Size Average $/Sq. Ft.One Year AgoCATEGORY
Foreclosure transactions are for information only, numbers are not included in any calculations.
Average Mortgage Amount
Sep '2015 STATE OF CALIFORNIA
Two Years Ago
MKT PRICE LINES
CondominiumSingle Family
BY TRANSACTION TYPE
% Change from Prev. Period
Current Period
BY TYPE OF PRODUCT
Average Sold Price
$481
,171
$519
,931
$536
,268
$272.34
$297.30
$315.15
$250
$260
$270
$280
$290
$300
$310
$320
$450,000
$460,000
$470,000
$480,000
$490,000
$500,000
$510,000
$520,000
$530,000
$540,000
$550,000
Sep '2013 Sep '2014 Sep '2015
Average Price and Price/Sq.Ft.
29,966 29,069 31,789
7,118 6,811 7,503
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Sep '2013 Sep '2014 Sep '2015
Housing Transaction Volume
SFD Condo
$370
,840
$394
,457
$407
,733
76% 77% 78%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
$350,000
$360,000
$370,000
$380,000
$390,000
$400,000
$410,000
$420,000
Sep '2013 Sep '2014 Sep '2015
Mortgage Amount and Loan-to-Value
0
1000
2000
3000
4000
5000
6000
7000
8000
< $100k �$100k-$200k
�$200k-$300k
�$300k-$400k
�$400k-$500k
�$500k-$600k
�$600k-$800k
�$800k-$1.0m
$1.0m+
Housing Transactions By Price Range
Two Years Ago One Year Ago Current Period
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
500 2500 4500 6500 8500 10500
Market Price Line
Resale New Sale Foreclosure Foreclosure Sale General Price Line
29977 2996633397
2898 2560 30543579 2630 24684209 3354 2841
0
5000
10000
15000
20000
25000
30000
35000
40000
Sep '2013 Sep '2014 Sep '2015
Housing Transaction Volume By Type
Resale New Foreclosure Fore. Sale
STATE OF CALIFORNIATRUE PRICE APPRECIATION MEASURES BY
1,000sf
1,500sf
2,000sf
2,500sf
3,000sf
3,500sf
4,000sf
HomeSalesSeptember2014 $299,70 $435,70 $571,70 $707,60 $843,60 $979,60 $1,115,HomeSalesSeptember2015 $316,70 $460,20 $603,70 $747,20 $890,60 $1,034, $1,177,%Appreciation 5.7% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6%
4%
6%
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
YOY%PRICEAPPRECIATIO
N
Source:RealEstateEconomics;RealtyTrac;CountyRecorder
SOLD
PRICEOFH
OME
TRUE MEASURES OF PRICE APPRECIATION
Year-over-year price appreciation or depreciation is never one number. Price change should be examined alongthe entire spectrum of unit size. Price change may be far different for entry level homes than for luxury homes.The above table and chart help in the examination and understanding of these shifts in price throughout the unitsize spectrum.
YEAR-OVER-YEAR PRICE LINE COMPARISONSSTATE OF CALIFORNIA
Home Home Sales % AppreciationSize September 2014September 2015 $$$ %
Based on Median Home Size1,547 sf $448,500 $473,700 $25,200 5.6%
Based on Range of Home Size1,000 sf $299,700 $316,700 $17,000 5.7%1,500 sf $435,700 $460,200 $24,500 5.6%2,000 sf $571,700 $603,700 $32,000 5.6%2,500 sf $707,600 $747,200 $39,600 5.6%3,000 sf $843,600 $890,600 $47,000 5.6%3,500 sf $979,600 $1,034,100 $54,500 5.6%4,000 sf $1,115,600 $1,177,600 $62,000 5.6%
Source: Real Estate Economics; RealtyTrac; County Recorder
TRUE PRICE APPRECIATION MEASURES BY
ECONOMIC ANDHOUSING CONSTRUCTION
TRENDS AND FORECASTS
STATEWIDE EMPLOYMENT TRENDS AND FORECASTS
These charts and tables present trends in jobs and unemployment since Year 1990, and a 5-year forecast in annual
job change.
CALIFORNIANOVEMBER 2015
Civilian Labor Force Civilian Employment Civilian Total Non-FarmYear Total Total Jobs 12 Month Change Jobless Rate Total Jobs
1990 14,824,351 - - 13,976,309 - - 5.7% 12,302,467 - - 1991 14,806,091 -18,260 -0.1% 13,671,931 -304,378 -2.2% 7.7% 12,183,275 -119,192 -1.0%1992 14,972,034 165,943 1.1% 13,587,866 -84,065 -0.6% 9.2% 11,925,575 -257,700 -2.1%1993 14,925,263 -46,771 -0.3% 13,521,116 -66,750 -0.5% 9.4% 11,815,450 -110,125 -0.9%1994 14,917,959 -7,304 0.0% 13,642,325 121,208 0.9% 8.6% 11,872,458 57,008 0.5%1995 14,909,345 -8,614 -0.1% 13,747,024 104,699 0.8% 7.8% 12,114,700 242,242 2.0%1996 15,084,434 175,088 1.2% 13,995,611 248,588 1.8% 7.2% 12,399,125 284,425 2.3%1997 15,450,944 366,510 2.4% 14,476,301 480,690 3.4% 6.3% 12,811,383 412,258 3.3%1998 15,805,041 354,098 2.3% 14,874,345 398,044 2.7% 5.9% 13,246,133 434,750 3.4%1999 16,078,439 273,397 1.7% 15,241,224 366,879 2.5% 5.2% 13,626,750 380,617 2.9%2000 16,508,839 430,400 2.7% 15,696,342 455,119 3.0% 4.9% 14,049,375 422,625 3.1%2001 16,760,311 251,472 1.5% 15,852,781 156,439 1.0% 5.4% 14,178,408 129,033 0.9%2002 16,880,438 120,127 0.7% 15,758,642 -94,139 -0.6% 6.6% 14,032,692 -145,717 -1.0%2003 16,900,388 19,950 0.1% 15,753,776 -4,866 0.0% 6.8% 14,012,433 -20,258 -0.1%2004 17,006,560 106,172 0.6% 15,954,040 200,264 1.3% 6.2% 14,179,292 166,858 1.2%2005 17,151,705 145,145 0.9% 16,229,460 275,420 1.7% 5.4% 14,443,850 264,558 1.9%2006 17,278,308 126,602 0.7% 16,436,770 207,310 1.3% 4.9% 14,742,317 298,467 2.1%2007 17,515,968 237,660 1.4% 16,579,470 142,700 0.9% 5.3% 14,858,975 116,658 0.8%2008 17,797,059 281,091 1.6% 16,505,246 -74,224 -0.4% 7.3% 14,685,717 -173,258 -1.2%2009 17,828,459 31,400 0.2% 15,842,503 -662,743 -4.0% 11.1% 13,850,708 -835,008 -5.7%2010 17,950,456 121,997 0.7% 15,758,143 -84,359 -0.5% 12.2% 13,652,675 -198,033 -1.4%2011 18,037,504 87,048 0.5% 15,928,564 170,420 1.1% 11.7% 13,763,642 110,967 0.8%2012 18,177,930 140,426 0.8% 16,298,474 369,910 2.3% 10.3% 14,149,492 385,850 2.8%2013 18,299,877 121,947 0.7% 16,668,770 370,296 2.3% 8.9% 14,624,408 474,917 3.4%2014 18,441,186 141,309 0.8% 17,058,304 389,534 2.3% 7.5% 15,055,717 431,308 2.9%
2015est 18,667,684 226,498 1.2% 17,533,455 475,151 2.8% 6.1% 15,503,125 447,408 3.0%2016prj 18,896,167 228,483 1.2% 18,044,858 511,403 2.9% 5.6% 15,964,058 460,933 3.0%2017prj 19,028,577 132,410 0.7% 18,408,367 363,508 2.0% 5.2% 16,285,642 321,583 2.0%2018prj 19,248,548 219,971 1.2% 18,651,942 243,575 1.3% 4.9% 16,501,142 215,500 1.3%2019prj 19,439,553 191,005 1.0% 18,809,050 157,108 0.8% 4.8% 16,640,133 138,992 0.8%2020prj 19,551,749 112,196 0.6% 18,888,567 79,517 0.4% 4.9% 16,710,483 70,350 0.4%
Source: Bureau of Labor Statistics; Real Estate Economics
12 Month Change12 Month Change
TOTAL NONFARM JOBS
CALIFORNIATotal Non-Farm
12,302
,467
12,183
,275
11,925
,575
11,815
,450
11,872
,458
12,114
,700
12,399
,125
12,811
,383
13,246
,133
13,626
,750
14,049
,375
14,178
,408
14,032
,692
14,012
,433
14,179
,292
14,443
,850
14,742
,317
14,858
,975
14,685
,717
13,850
,708
13,652
,675
13,763
,642
14,149
,492
14,624
,408
15,055
,717
15,503
,125
15,964
,058
16,285
,642
16,501
,142
16,640
,133
16,710
,483
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015est
2016prj
2017prj
2018prj
2019prj
2020prj
5-Year Forecast
CALIFORNIATotal Non-Farm 12-Month Change
-119
,192
-257
,700
-110
,125
57,008
242,24
228
4,42
541
2,25
843
4,75
038
0,61
742
2,62
512
9,03
3-145
,717
-20,25
816
6,85
826
4,55
829
8,46
711
6,65
8-173
,258
-835
,008
-198
,033
110,96
738
5,85
047
4,91
743
1,30
844
7,40
846
0,93
332
1,58
321
5,50
013
8,99
270
,350
-1,000,000
-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
600,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015est
2016prj
2017prj
2018prj
2019prj
2020prj
5-Year Forecast
STATEWIDE EMPLOYMENT BY INDUSTRY
The total job base by industry, and the 12-month job change in these industries are shown on these charts.
CALIFORNIATotal Employment by Super Sector
September 2015 Total NonFarm Jobs by Industry
© Copyright 2003-2014 Real Estate EconomicsSource: Bureau of Labor Statistics; Real Estate Economics
22,400665,100
1,282,1002,810,100
459,500754,200
2,396,6002,425,500
1,804,700537,900
2,335,700
0 1,000,000 2,000,000 3,000,000
NaturalResourcesandMiningConstruction
ManufacturingTrade,Transportation,andUtilities
InformationFinancialActivities
ProfessionalandBusinessServicesEducationalandHealthServices
LeisureandHospitalityOtherServicesGovernment
CALIFORNIAMSA 12-Month Employment Change by Super Sector
September 2015 Twelve Month Change
© Copyright 2003-2014 Real Estate EconomicsSource: Bureau of Labor Statistics; Real Estate Economics
-3,50031,800
16,90064,000
11,2003,600
102,20062,300
77,80010,000
39,600
-20,000 0 20,000 40,000 60,000 80,000 100,000 120,000
NaturalResourcesandMiningConstruction
ManufacturingTrade,Transportation,andUtilities
InformationFinancialActivities
ProfessionalandBusinessServicesEducationalandHealthServices
LeisureandHospitalityOtherServicesGovernment
Change in Jobs by IndustryCALIFORNIA
% ofIndustry # of Jobs Nonfarm Number %
Total Nonfarm 15,537,100 100.0% +418,400 2.8%Natural Resources and Mining 22,400 0.1% (3,500) -13.5%Construction 665,100 4.3% +31,800 5.0%Manufacturing 1,282,100 8.3% +16,900 1.3%Trade, Transportation, and Utilities 2,810,100 18.1% +64,000 2.3%Information 459,500 3.0% +11,200 2.5%Financial Activities 754,200 4.9% +3,600 0.5%Professional and Business Services 2,396,600 15.4% +102,200 4.5%Educational and Health Services 2,425,500 15.6% +62,300 2.6%Leisure and Hospitality 1,804,700 11.6% +77,800 4.5%Other Services 537,900 3.5% +10,000 1.9%Government 2,335,700 15.0% +39,600 1.7%
© 2015 Real Estate EconomicsSource: Bureau of Labor Statistics; Real Estate Economics
September 2015 September 2014 to September 2015
HOUSING CONSTRUCTION TRENDS & FORECASTS
Residential building permit levels reached all-time lows during recession years.
During recovery years, increasing permit activity has increased residential construction and supply levels, but the changes have been gradual.
Though housing supply will continue to gradually increase, legal actions, no-growth policies, drought conditions, higher costs and other factors have kept housing supply from increasing more rapidly.
ANNUAL RESIDENTIAL PERMIT ACTIVITYCALIFORNIA
NOVEMBER 2015
0
50,000
100,000
150,000
200,000
250,000
19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015est2016prj2017prj2018prj2019prj2020prj
SingleFamily Multi-Family Total
5-Year Forecast
12-MONTH CHANGE IN TOTAL HOUSING SUPPLYCALIFORNIA
NOVEMBER 2015
180,52
412
3,76
710
8,57
497
,051
98
,761
94
,142
99
,187
11
2,20
913
2,00
813
9,79
413
9,44
814
0,45
615
2,13
117
9,20
919
3,45
619
0,04
014
6,90
210
2,32
362
,525
38
,639
35
,707
41
,025
53
,907
69
,916
78
,449
93
,869
10
9,20
811
9,38
412
6,86
713
1,00
3
0
50,000
100,000
150,000
200,000
250,000
1991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015est2016prj2017prj2018prj2019prj2020prj
5-Year Forecast
MORTGAGE RATE TRENDS & FORECASTS
Recent years have proven to be some of the lowest years in mortgage rates in history. Mortgage rates is likely to begin to rise slowly but erratically during Year 2015. Mortgage rates are expected to rise slowly as the Federal Reserve continues to effectively manage monetary policy, and as market forces are gradually allowed to more fully impact rates as the national economy continues to improve.
Lending practices remain overly restricted – especially for 3rd time buyers, but regulations are loosening. Regulations will likely remain in place that prevent the overly lax lending standards that contributed to the past housing bubble and subsequent recession.
30-YEAR FIXED RATE MORTGAGESFL NATIONAL AVERAGES
NOVEMBER 201510
.1%
9.2%
8.4%
7.3%
8.4%
8.0%
7.8%
7.6%
6.9%
7.4%
8.1%
7.0%
6.6%
5.8%
5.8%
5.9%
6.4%
6.3%
6.0%
5.0%
4.7%
4.4%
3.7%
4.0%
4.2%
3.9%
4.4%
4.9%
5.5%
6.0%
6.1%
0%
2%
4%
6%
8%
10%
12%
19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015est2016prj2017prj2018prj2019prj2020prj
5-Year Forecast
TRENDS IN FIXED RATE AND ADJUSTIBLE RATE MORTGAGESFL NATIONAL AVERAGES
Source: Freddie MacSource: Freddie Mac; Real Estate Economics
3.98
3.203.032.65
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
Jan-10
Apr-1
0
Jul-1
0
Oct-10
Jan-11
Apr-1
1
Jul-1
1
Oct-11
Jan-12
Apr-1
2
Jul-1
2
Oct-12
Jan-13
Apr-1
3
Jul-1
3
Oct-13
Jan-14
Apr-1
4
Jul-1
4
Oct-14
Jan-15
Apr-1
5
Jul-1
5
Oct-15
Jan-16
30-YearFixed 15-YearFixed 5-YearARM 1-YearARM
(Percent)
HOUSING PRICE TRENDS & FORECASTS
These charts show trends, changesand forecasts in the median price ofhousing. Though not an exactmeasure of price appreciation, thechange in the median price is a strongproxy for price appreciation.
Though price appreciation will remainhealthy during Year 2015, strong priceappreciation that was evident duringthe first two years of market recoverywill not be repeated. This is not dueto worsening market conditions orreduced housing demand, but rather itis caused by reduced affordability. Asthe market reaches equilibrium interms housing costs relative toincomes, price appreciation must slow– at least in a normal economic cycle.The current economic cycle is likely toexhibit more normalcy than pastrecent cycles.
MEDIAN ANNUAL HOME PRICECALIFORNIA
NOVEMBER 2015
Source: National Association of Realtors; RealtyTrac; various county recorders off ices; Real Estate Economics
$189
,539
$1
92,617
$1
89,657
$1
83,648
$1
80,927
$1
77,842
$1
78,927
$1
88,987
$2
06,415
$2
29,777
$2
68,746
$2
89,516
$3
32,904
$3
81,280
$4
71,519
$5
33,022
$5
53,532
$5
47,072
$3
98,995
$3
39,807
$3
56,499
$3
39,683
$3
75,253
$4
34,804
$4
61,360
$4
85,450
$5
04,417
$5
16,900
$5
25,433
$5
32,433
$5
35,608
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015est2016prj2017prj2018prj2019prj2020prj
5-Year Forecast
ANNUAL CHANGES IN MEDIAN HOME PRICESCALIFORNIA
NOVEMBER 2015
FORECAST PRICE APPRECIATIONCALIFORNIA
Source: National Association of Realtors; RealtyTrac; various county recorders off ices; Real Estate Economics
1.6%
-1.5% -3.2%
-1.5%
-1.7%
0.6%5.6% 9.
2% 11.3% 17
.0%
7.7%
15.0%
14.5%23
.7%
13.0%
3.8%
-1.2%
-27.1%
-14.8%
4.9%
-4.7%
10.5% 15.9%
6.1%
5.2%
3.9%
2.5%
1.7%
1.3%
0.6%
-30%
-20%
-10%
0%
10%
20%
30%
1991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015est2016prj2017prj2018prj2019prj2020prj
5-Year Forecast
HOUSEHOLD INCOME TRENDS & FORECASTSUpward pressures on household incomes will remain apparent as the unemployment rate continues to fall. CALIFORNIA
NOVEMBER 2015
Median Time Household 12-Month Change
Period Income # %
1990 $36,225 - -1991 $37,015 $789 2.2%1992 $37,948 $933 2.5%1993 $38,951 $1,003 2.6%1994 $39,989 $1,038 2.7%1995 $40,731 $742 1.9%1996 $42,086 $1,355 3.3%1997 $43,849 $1,763 4.2%1998 $45,377 $1,528 3.5%1999 $46,772 $1,395 3.1%2000 $48,285 $1,513 3.2%2001 $49,555 $1,271 2.6%2002 $50,854 $1,298 2.6%2003 $51,842 $988 1.9%2004 $53,025 $1,183 2.3%2005 $55,011 $1,986 3.7%2006 $58,159 $3,148 5.7%2007 $60,440 $2,281 3.9%2008 $60,063 ($377) -0.6%2009 $58,370 ($1,693) -2.8%2010 $57,515 ($855) -1.5%2011 $57,764 $249 0.4%2012 $59,181 $1,417 2.5%2013 $62,609 $3,427 5.8%2014 $64,200 $1,591 2.5%
2015est $66,900 $2,700 4.1%2016prj $69,300 $2,400 3.5%2017prj $72,200 $2,900 4.1%2018prj $75,200 $3,000 4.2%2019prj $78,400 $3,200 4.2%2020prj $81,600 $3,200 4.1%
Source: Census Bureau; American Facts; Bureau of Labor Statistics; Real Estate Economics
MEDIAN HOUSEHOLD INCOME
MEDIAN HOUSEHOLD INCOMECALIFORNIA
NOVEMBER 2015
$36,22
5$3
7,01
5$3
7,94
8$3
8,95
1$3
9,98
9$4
0,73
1$4
2,08
6$4
3,84
9$4
5,37
7$4
6,77
2$4
8,28
5$4
9,55
5$5
0,85
4$5
1,84
2$5
3,02
5$5
5,01
1$5
8,15
9$6
0,44
0$6
0,06
3$5
8,37
0$5
7,51
5$5
7,76
4$5
9,18
1$6
2,60
9$6
4,20
0$6
6,90
0$6
9,30
0$7
2,20
0$7
5,20
0$7
8,40
0$8
1,60
0
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015est2016prj2017prj2018prj2019prj2020prj
5-Year Forecast
CALIFORNIA CALIFORNIA
Source: Real Estate Economics; EASI; Census Bureau; Bureau of Labor.
CHANGE IN HOUSEHOLDS BY INCOME RANGE
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
<$50k $50k-$100k $100k-$150k $150k-$200k $200k+
Changein
Hou
seho
lds
2010-2015 2015-2020
POPULATION TRENDS & FORECASTS
Though most housing demand will continue to originate from the 25 to 54 year age ranges, the ‘baby boomer’ bulge in population will continue to greatly enhance opportunities for age qualified and age-targeted housing communities and/or age-targeted home designs.
Though mature market housing demand will continue at strong levels, it will not increase to the same degree as the population surge between the ages of 55 and 74 years due to lower household mobility rates associated with these older age groups.
CALIFORNIA
Source: Real Estate Economics; EASI; Census Bureau; Bureau of Labor.
POPULATION SHARES
0%
2%
4%
6%
8%
10%
12%
14%
16%
0to5Years
6to11Years
12to17Years
18to24Years
25to34Years
35to44Years
45to54Years
55to64Years
65to74Years
75to84Years
85+Years
Popu
latio
nShares
Census2000 Census2010 Estimate2015e Forecast2020f
CALIFORNIA CALIFORNIA
Source: Real Estate Economics; EASI; Census Bureau; Bureau of Labor.
AVERAGE ANNUAL POPULATION CHANGES 2015 TO 2020
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
0to5Years
6to11Years
12to17Years
18to24Years
25to34Years
35to44Years
45to54Years
55to64Years
65to74Years
75to84Years
85+Years
Avg.Ann
ualPo
pulatio
nCh
ange
Foreign born households have significantlyincreased their representation for totalhouseholds as owners and renters ofresidential real estate. These householdsaccount for approximately 7% of all residentialpurchases for the 12 months ending March2014.
States attracting the majority of international buyers:
Florida CaliforniaTexasArizonaNew York
Median price of international sales - $396,180
Percentage of all cash sales – 60%
Intended use of property:Primary residence – 42%Rental / Investment – 19%Vacation home – 14%
International buyers strongly prefer single-family homes over townhomes or otherattached product.
STATEWIDE HOUSING SUPPLY/DEMAND AND
OVER/UNDER VALUATION PATTERNS AND FORECASTS
The patterns of housing oversupply and under supply arebased upon a comparisonbetween a given year’s ratio ofjobs and housing relative to thelong-term trend. Duringrecessionary years, employmentlosses produced a conditionwhereby the existing housingstock was too large in comparisonto the employment base,contributing to price degradation.
Employment gains since therecession have caused housingdemand to grow at a faster ratethan housing supply, recentlyovertaking supply and leading toshortages that will becomeincreasingly apparent as the cyclematures.
HOUSING SUPPLY AND DEMAND TRENDS AND FORECASTSCALIFORNIA
* Over/Under supply measures based on current jobs-to-housing relationship relative to long-term relationship betw een jobs and housing. Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics
HOUSING DEMAND AND SUPPLY PATTERNS
10,500,000
11,500,000
12,500,000
13,500,000
14,500,000
15,500,000
16,500,000
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16prj
Jan-17prj
Jan-18prj
Jan-19prj
Jan-20prj
Jan-21prj
UnitsDem
and/Su
pplied
TotalHousingSupply TotalHousingDemand
5-Year Forecast
CALIFORNIA
* Over/Under supply measures based on current jobs-to-housing relationship relative to long-term relationship betw een jobs and housing. Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics
OVE
R B
UIL
T
HOUSING (OVER)/UNDER SUPPLY PATTERNS
UN
DER
BU
ILT
(1,500,000)
(1,000,000)
(500,000)
-
500,000
1,000,000
1,500,000
Jan-
90Ja
n-91
Jan-
92Ja
n-93
Jan-
94Ja
n-95
Jan-
96Ja
n-97
Jan-
98Ja
n-99
Jan-
00Ja
n-01
Jan-
02Ja
n-03
Jan-
04Ja
n-05
Jan-
06Ja
n-07
Jan-
08Ja
n-09
Jan-
10Ja
n-11
Jan-
12Ja
n-13
Jan-
14Ja
n-15
Jan-
16Ja
n-17
Jan-
18Ja
n-19
Jan-
20Ja
n-21
5-Year Forecast
‘Supportable Median Home Price’ (shownby the green curve) is derived fromequilibrium housing costs based upon the40-year trend line between housing valuesand household incomes. ‘Historical/Forecast Median Home Price’ (shown bythe blue curve) is compared with supportablemedian prices to measure the degree ofover/under valuation.
Though some under valuation was evident inthe mid- to late 1990s, over valuationbecame increasingly apparent during the2003-2006 unsubstantiated run-up in pricescaused by extremely loose regulations andvery lax lending standards. The resultanteconomic and housing crisis causedartificially high housing prices to plummet,creating under valuation during recessionaryyears that was almost as significant as overvaluation during the peak of the previouscycle.
Currently, housing prices are not yet inflatedto a significantly ‘over valued’ status, buthousing over valuation is likely to appearsoon, albeit at much reduced levels relativeto the previous ‘bubble.’
HOUSING VALUE AND AFFORDABILITY TRENDS AND FORECASTSCALIFORNIA
Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics
HOUSING VALUATION PATTERNS
$150,000$175,000$200,000$225,000$250,000$275,000$300,000$325,000$350,000$375,000$400,000$425,000$450,000$475,000$500,000$525,000$550,000$575,000$600,000
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16prj
Jan-17prj
Jan-18prj
Jan-19prj
Jan-20prj
Jan-21prj
Med
ianHo
usingValue
Historical/ForecastHomePrice IncomeSupportedHomePrice
5-Year Forecast
HOUSING (OVER)/UNDER VALUATION PATTERNSCALIFORNIA
* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship betw een housing value & household incomes. Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics
OVE
R V
ALU
EDU
ND
ER V
ALU
ED
($250,000)
($200,000)
($150,000)
($100,000)
($50,000)
$0
$50,000
$100,000
$150,000
$200,000
Jan-90
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
5-Year Forecast
The above table arrays historical trends and a 5-year forecast of housing over/under supply patterns and housing over/undervaluation patterns. From these patterns, a composite ‘Opportunity/Risk’ index is created which effectively predicts marketconditions about 24 months from the index date. Thus, a very weak index of 92.0 at the peak of the 2005 ‘bubble’ was gave astrong and clear signal to sell land assets. The stable to strong indexes which have been apparent since Year 2008 implied thatYear 2010 (24+ months after the 2008 index) would be the ideal land purchasing window, despite the fact that full recovery wasnot yet evident in Year 2010. The most recent index offers a clear indication that land purchasing and development opportunitiescontinue, though some caution becomes evident in the latter years of the forecast.
RESIDENTIAL MARKET OPPORTUNITY/RISK INDEXRESIDENTIAL MARKET OPPORTUNITY/RISK INDEX
CALIFORNIANOVEMBER 2015
Housing Housing Market is Over/ Average Ann. Price Equilibrium 30-Yr. Median Market is Under/ O/R Index Mkt. Health Buy/SellYear Demand Supply (Under) Built Home Price Change Home Price Mtg. Rate HH Income (Over) Valued (100=Equil.) in ~ 24 Mos. Land
1990 11,548,354 11,155,596 392,757 3.5% Underbuilt $189,539 - $160,917 10.13% $36,225 ($28,622) (15.1%) Overvalued 97.9 Weak Sell1991 11,426,973 11,336,121 90,852 0.8% Underbuilt $192,617 1.6% $177,157 9.25% $37,015 ($15,460) (8.0%) Overvalued 98.2 Weak Sell1992 11,175,952 11,459,887 (283,936) (2.5%) Overbuilt $189,657 (1.5%) $195,711 8.40% $37,948 $6,054 3.2% Undervalued 99.2 Stable Buy/Sell1993 11,063,548 11,568,461 (504,913) (4.4%) Overbuilt $183,648 (3.2%) $222,194 7.33% $38,951 $38,545 21.0% Undervalued 103.2 Stable Buy/Sell1994 11,107,690 11,665,512 (557,821) (4.8%) Overbuilt $180,927 (1.5%) $206,774 8.36% $39,989 $25,847 14.3% Undervalued 100.9 Stable Buy/Sell1995 11,324,929 11,764,273 (439,344) (3.7%) Overbuilt $177,842 (1.7%) $218,251 7.96% $40,731 $40,409 22.7% Undervalued 104.2 Strong Buy1996 11,581,190 11,858,416 (277,225) (2.3%) Overbuilt $178,927 0.6% $227,969 7.81% $42,086 $49,042 27.4% Undervalued 106.6 Strong Buy1997 11,956,342 11,957,603 (1,261) (0.0%) Overbuilt $188,987 5.6% $241,932 7.60% $43,849 $52,945 28.0% Undervalued 108.4 Strong Buy1998 12,351,856 12,069,812 282,044 2.3% Underbuilt $206,415 9.2% $266,429 6.94% $45,377 $60,014 29.1% Undervalued 110.4 Very Strong Buy1999 12,696,281 12,201,819 494,462 4.1% Underbuilt $229,777 11.3% $261,371 7.43% $46,772 $31,594 13.7% Undervalued 107.0 Strong Buy2000 13,079,222 12,341,614 737,608 6.0% Underbuilt $268,746 17.0% $253,283 8.06% $48,285 ($15,463) (5.8%) Overvalued 102.5 Stable Buy/Sell2001 13,188,501 12,481,062 707,439 5.7% Underbuilt $289,516 7.7% $288,535 6.97% $49,555 ($982) (0.3%) Overvalued 103.9 Strong Buy2002 13,042,181 12,621,517 420,664 3.3% Underbuilt $332,904 15.0% $308,435 6.57% $50,854 ($24,469) (7.4%) Overvalued 100.1 Stable Buy/Sell2003 13,012,630 12,773,648 238,981 1.9% Underbuilt $381,280 14.5% $338,420 5.85% $51,842 ($42,860) (11.2%) Overvalued 97.9 Weak Sell2004 13,156,713 12,952,857 203,856 1.6% Underbuilt $471,519 23.7% $345,650 5.84% $53,025 ($125,869) (26.7%) Overvalued 93.1 Weak Sell2005 13,391,164 13,146,313 244,851 1.9% Underbuilt $533,022 13.0% $356,927 5.87% $55,011 ($176,095) (33.0%) Overvalued 91.4 Weak Sell2006 13,656,662 13,336,352 320,310 2.4% Underbuilt $553,532 3.8% $355,483 6.41% $58,159 ($198,050) (35.8%) Overvalued 90.9 Weak Sell2007 13,753,442 13,483,255 270,187 2.0% Underbuilt $547,072 (1.2%) $371,380 6.34% $60,440 ($175,692) (32.1%) Overvalued 91.8 Weak Sell2008 13,581,933 13,585,577 (3,644) (0.0%) Overbuilt $398,995 (27.1%) $380,507 6.04% $60,063 ($18,488) (4.6%) Overvalued 98.6 Stable Buy/Sell2009 12,799,203 13,648,102 (848,899) (6.2%) Overbuilt $339,807 (14.8%) $411,801 5.04% $58,370 $71,994 21.2% Undervalued 100.6 Stable Buy/Sell2010 12,605,819 13,686,741 (1,080,922) (7.9%) Overbuilt $356,499 4.9% $421,929 4.69% $57,515 $65,430 18.4% Undervalued 98.7 Stable Buy/Sell2011 12,697,867 13,722,448 (1,024,581) (7.5%) Overbuilt $339,683 (4.7%) $435,458 4.45% $57,764 $95,775 28.2% Undervalued 101.4 Stable Buy/Sell2012 13,043,022 13,763,473 (720,452) (5.2%) Overbuilt $375,253 10.5% $489,515 3.66% $59,181 $114,263 30.4% Undervalued 103.7 Strong Buy2013 13,472,699 13,817,380 (344,681) (2.5%) Overbuilt $434,804 15.9% $497,188 3.98% $62,609 $62,385 14.3% Undervalued 102.6 Stable Buy/Sell2014 13,869,584 13,887,297 (17,712) (0.1%) Overbuilt $461,360 6.1% $517,609 4.17% $66,707 $56,248 12.2% Undervalued 103.6 Strong Buy
2015est 14,281,745 13,965,746 315,999 2.3% Underbuilt $485,450 5.2% $557,654 3.87% $69,277 $72,204 14.9% Undervalued 106.0 Strong Buy2016prj 14,706,364 14,059,614 646,750 4.6% Underbuilt $504,417 3.9% $543,712 4.39% $71,925 $39,295 7.8% Undervalued 105.6 Strong Buy2017prj 15,002,612 14,168,822 833,790 5.9% Underbuilt $516,900 2.5% $533,647 4.90% $74,932 $16,747 3.2% Undervalued 105.1 Strong Buy2018prj 15,201,135 14,288,206 912,929 6.4% Underbuilt $525,433 1.7% $518,791 5.52% $78,096 ($6,642) (1.3%) Overvalued 104.1 Strong Buy2019prj 15,329,176 14,415,073 914,103 6.3% Underbuilt $532,433 1.3% $513,294 5.99% $81,348 ($19,140) (3.6%) Overvalued 103.4 Stable Buy/Sell2020prj 15,393,984 14,546,075 847,908 5.8% Underbuilt $535,608 0.6% $528,385 6.10% $84,679 ($7,223) (1.3%) Overvalued 103.7 Strong Buy
TheCompositeOpportunity/Risk(O/R) Index isdefinedasacompositeindexoftheJobs-to-HousingIndexandtheMortgageCost-to-IncomeIndex.ACompositeIndexof100.0=Equilibrium.Indexesabove100.0representstrongoverallmarketopportunity12to18monthsafter the100.0+indexoccurs.Indexesbelow100.0denotetheoppositecase.TheCompositeIndexleadsactualmarketchangesby12to18months.Forexample,theCompositeIndexforJuly'06describesconditionsinmidtolate'07,not July'06.
TheJobs-to-HousingIndex isdefinedasanindexofaratiobetweenthetotalmeasureofNonfarmjobsandthetotalmeasureofhousingofalltypesinagivenregionforagivenmonth,asitcomparestoREE'smeasureoflong-termequilibrium.Forexample,atotaljobs-to-totalhousingratioof1.2-to-1.0(1.2jobsforeveryhouseintheregion)wouldgenerateaJobs-to-HousingIndexof109.1ifthelong-termjobs-to-housingequilibriumpointwasdefinedas1.1-to-1.0(1.2dividedby1.1x100equalsanIndexof109.1).Indexesabove100.0defineperiodswherethereareexcess jobsrelativetohomes(strongdemand).Indexesbelow100.0denotetheopposite.
TheMortgageCost-to-HouseholdIncomeIndex isdefinedasanindexofaratiobetweenestimatedannualmortgagecostsandmedianhouseholdincomeforagivenregioninagivenmonth,asitcomparestoREE'smeasureoflong-termequilibrium.Forexample,atotalcost-to-incomeratioof$0.25-to-$1.0($0.25ofmortgagecostforeverydollarofincome)wouldgenerateaCost-to-IncomeIndexof112.0ifthelong-termcost-to-incomeequilibriumpointwasdefinedas$0.28-to-$1.0($0.28dividedby$0.25x100equalsanIndexof112.0).Indexesabove100.0defineperiodswheretherearehousingisunder valuedrelativetoincomes.Indexesbelow100.0denotetheopposite(overvaluation).
JobChange isdefinedasthechangeinNonfarmjobsmeasuredbytheUSDepartmentofLabor,with12-monthforecastsdefinedbyRealEstateEconomics.
HousingConstructionisdefinedasthechangeintotalhousingasmeasuredbytheUSBureauoftheCensus,withestimatesandforecastsdefinedbyRealEstateEconomics.
30-YearFixedMortgageInterestRateisdefinedasthecontractrateon30-year,fixedrateconventionalhomemortgagecommitmentsfromFHLMC,withforecastsdefinedbyRealEstateEconomics.
MedianPriceisdefinedasthemedianpriceofhousing,measuredbytheNationalAssociationofRealtors,withestimatesandforecastsdefinedbyRealEstateEconomics.
MedianHouseholdIncome isdefinedasthemedianhouseholdincomeforagivenregion,measuredbytheUSBureauoftheCensus,withestimatesandforecastsdefinedbyRealEstateEconomics.
RESIDENTIAL MARKET OPPORTUNITY/RISK INDEX REPORT
NOTES:
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