housing affordability analysis, 2014-q4

HOUSINGAFFORDABILITY

C.A.R. Research & Economicswww.car.org/marketdata

HOUSING AFFORDABILITY ANDHOMEOWNERSHIP

2015 - WHERE ARE WE TODAY?

Housing market is under-preforming givenfundamentals

Low mortgage rates Job & Income growth are back

And yet Sales off 7.6% in 2014 compared to 2013 Share of first-time buyers LOW Affordability key concern for renters

INADEQUATE HOUSING SUPPLY ISSUE

Housing supply constrained in long-run New construction recovery is very slow Missing 165,000+ new units per year Production has fallen short of housing needs

Inhibited by Fiscal interests of local government Residents who disdain further development, especially

multi-family Unfavorable legal/business environment for

development in general & multi-family in particular

CALIFORNIAS 3 HOUSING GAPS

Housing Gaps: Housing affordability gap Homeownership gap Housing production gap

Chronic problems spanning decades

AFFORDABILITY GAP

HOUSING AFFORDABILITY DOWNSHARPLY SINCE Q1 2012

California vs. U.S. 1984-2014% OF HOUSEHOLDS THAT CAN BUYA MEDIAN-PRICED HOME

SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS

0%

10%

20%

30%

40%

50%

60%

70%

80% CA USAnnual Quarterly

HOUSING AFFORDABILITY IN CA: BY COUNTY

SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS

HAI

6459 57 56 56 53 53

50 4945

41

31 29 29 28 27 27 26 24 23 22 21 21 2017 15 15 14

0

10

20

30

40

50

60

70

% able to purchase median priced home2014 Q4

INCOME REQUIRED TO BUY A MEDIAN-PRICEDHOME IN CA: (PEAK VS. CURRENT)

$56,324

$91,552

$0

$20,000

$40,000

$60,000

$80,000

$100,000

2012 Q1 2014 Q4

Change in minimum required income:$35,228

Increase in income attributed tointerest rate increase:$338 (1.0% of total change)

Increase in income attributed to priceincrease :$34,890 (99.0% of total change)


VERY SLOW REAL INCOME GROWTH

$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.0019

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

13

U.S. CAIn 2013 Dollars

SERIES: Median Household IncomeSOURCE: US Census Bureau, Current Population Survey

2013 gap = $5,600

$47,540$55,660

$71,630

$86,040 $89,450$96,980

$112,180

$91,552

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Chefs andHead Cooks

Teachers Firefighters Police andSherriff's

Patrol Officers

ComputerProgrammers

RegisteredNurses

SoftwareDevelopers

(Applications)

Min. IncRequired toBuy a Med.

Home

HOW WAGES MEASURED AGAINST INCOMEREQUIRED TO BUY A HOME

SOURCE: Bureau of Labor Statistics, C.A.R.

Annual Mean Wage

California

HOUSING AFFORDABILITY GAP

Affordability crisis goes beyond lowincome households Lack of affordable housing for low income service

workers is apparent Less obvious problem: moderate income

households who cannot afford homes in/nearcommunities where they work

In general, there are programs to assist the firstgroup, but not the second group

HOUSING AFFORDABILITY INDEX - CA

What Will Happen When Mortgage Rates Increase?

0%

10%

20%

30%

40%

50%

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

36%34%

32%30% 28% 26%

24%23%

Q4-2014 Median Price $452,140

20% Downpayment

INTEREST RATE

% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT


MEDIAN MONTHLY MORTGAGE PAYMENT - CA


$0

$400

$800

$1,200

$1,600

$2,000

$2,400

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

$1,525$1,624

$1,727 $1,833$1,942

$2,054$2,169

$2,286Q4-2014 Median Price $452,140

20% Downpayment

INTEREST RATE

MONTHLY MORTGAGE


MINIMUM QUALIFYING INCOME - CA


$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

$81,798$85,768

$89,873 $94,108$98,468

$102,949$107,544 $112,249

Q4-2014 Median Price $452,140

20% Downpayment

INTEREST RATE

Minimum Qualifying Income


HOMEOWNERSHIP GAP

HOMEOWNERSHIP RATES

California Vs. U.S. 9.9% gap in 2014

53.7%

Peak: 60.2%

54.9%

64.5%

Peak: 69.0%

64.8%

40%

45%

50%

55%

60%

65%

70%

75% CA US

SERIES: Homeownership RatesSOURCE: U.S. Census Bureau

HOMEOWNERSHIP RATE BY AGE OFHOUSEHOLDER

SOURCE: Census Bureau

OVER 1/3 LIVE WITH THEIR PARENTS

What is your current living situation?

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

I rent I live with myparents

I own I live in a dorm Other:

41%

36%

20%

1%1%

SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS

MILLENNIALS BIGGEST CONCERNS

What are your biggest concerns about home ownership?

Price/Affordability (45%)

Problems with Credit, Mortgages, or Taxes (19%)

Maintenance/Upkeep (14%)

Satisfaction with Home/Location (7%)

Responsibility (4%)

SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS

SHARE OF FIRST-TIME BUYERS UP IN 14 BUTSTILL BELOW LONG-RUN AVERAGE

28.1%30.5%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% First-Time Home Buyers Long Run Average

Long Run Average = 38%

QUESTION: Was the buyer a first-time buyer?SERIES: 2014 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS

WHY DO WE CARE ABOUT LOW LEVELOF FIRST-TIME BUYERS?

It signals a constrained flow of new households inthe housing market

Trade-up market cannot be replenished in the longrun

First-time buyers represent the main impulse thatdrives the states homeownership rate

REASONS FOR RENTING INSTEAD OF BUYING

44%

9%

6%

6%

6%

5%

5%

3%

2%

Can't afford to buy

Poor credit / Can't qualify

Renting is easier

Young/Starting out/Not ready

Flexibility/Freedom if renting

Cost/Upkeep/Responsibility

Plan to / Saving for down

Never considered it/No interest

Disabled/On disability

SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS

STUDENT LOAN DEBT:25% OF RENTERS

Yes, 23%

No, 75%

Refused, 2%

Student Loan Debt

SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS

78%

8%

6%

3%

2%

2%

$100K

Refused

Amount of Debt

STUDENT DEBT: DRAGS ON HOME SALES

CALIFORNIAS HOUSING DELIMMA

Even with everything (or at least most things) going right, ourhomeownership market is in trouble

The rental market, even with the conversion of 500,000 SFHs,is still exhibiting inadequate supply

CA Housing Needs = Minimally 165,000 Units Annually Regulatory Problem Impact Fees Public Attitudes

HOUSING PRODUCTION GAP

CA PERMITS UP BUT MORE UNITS NEEDED

2014: 85,065 Units, Up 3.4% from 2013

SERIES: New Housing PermitsSOURCE: Construction Industry Research Board

0

50000

100000

150000

200000

250000

300000

350000 Single Family Multi-Family

Household Growth: 220,000-250,000/yr

-5,485 165,105223,058

575,156

957,834

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2009 2010 2011 2012 2009 - 2012

Households not formed

# OF HOUSEHOLDS LOST IN THE GREATRECESSION

SOURCE: California Dept. of Finance; compiled by C.A.R.

POPULATION AND HOUSEHOLDS WILLCONTINUE TO GROW

California 1970-2020

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,00019

70

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

SOURCE: Moodys Analytics

HOW DID WE GET HERE?

Why the Production Shortfall? Shortage of Land:

Production shortfall greatest in cities where need is most critical

High Costs of Development Fees in most California communities are higher than elsewhere in

US Infill development costs higher than suburban development costs Environmental policies, etc increase costs Lengthy permitting process increases cost per unit produced and

favors deep pockets

HOW DID WE GET HERE?

General Desire for Low Density Land Use Preference for detached single family homes Disdain for multifamily developments

Cost of service to cities higher than other land uses

NIMBYism: Desire to preserve existing character of community Dislike for multifamily, higher density development by residents

and officials Quality of life concerns Fear of crime and other negative aspects associated with density

WHAT IS OUR FUTURE?

If current trends continue, California will build less than 60percent of the new housing needed over the next 20 years.

Little Hoover Commission Report on Housing in California

SOLVING CALIFORNIASHOUSING PROBLEM

SOLUTIONS

Production Gap is Primary Source of CAs Housing Problems

Solutions must include: Increase in Production

Infill and brownfield opportunities in urban areas where shortage is critical Revitalization of Neighborhoods Change Incentive Structure Facing Cities

Fiscal Housing & Zoning Requirements Enforce housing elements of general plans, create incentives to comply

Improve Business & Legal Climate for Developers

SOLUTIONS

Attitude Shift is Essential to Moving TowardSolutions

By Households as Residents By Households as Taxpayers By Local Elected Officials By State Officials

and an Attitude Shift Requires Education andHeightened Awareness of Problems, Implications, andSolutions!

Solutions will take time

SOLUTIONS - LOCAL

Permanent city affordable housing subsidy source Dedication of a share of county tax increment

financing to affordable housing Revise zoning code and/or density bonus ordinance to

increase Ease parking and set-aside requirements to enable

more backyard homes; granny flats Convert unlawful but affordable units Collaborate with business community

SOLUTIONS - STATE

CEQA Reform Inclusionary Zoning Experiment with social impact bonds & health

funds as a source

2015 FORECAST

CALIFORNIA HOUSING MARKET OUTLOOK

2009 2010 2011 2012 2013 2014 2015f

SFH Resales (000s) 474.9 416.5 422.6 439.8 414.9 383.3 402.5

% Change 24.5% -12.3% 1.4% 4.1% -5.9% -7.6% 5.0%

Median Price ($000s) $275.0 $305.0 $286.0 $319.3 $407.2 $447.0 $478.7

% Change -21.1% 10.9% -6.2% 11.6% 27.5% 9.8% 7.1%Housing AffordabilityIndex 51% 48% 53% 51% 36% 30% 27%

30-Yr FRM 5.0% 4.7% 4.5% 3.7% 4.0% 4.3% 4.5%

SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS

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housing affordability analysis, 2014-q4

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