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2018 Housing Market Forecast

Contra Costa Association of REALTORS®

October 18, 2017

Joel Singer

Chief Executive Officer

Economic Update

Stronger Economic Growth in Q2 As Consumer Spending Improved

3.1%

GDP 2017-Q2

1.2%

Job Growth

Sep 2017

4.2%

Unemployment

Sep 2017

3.3%

Consumption

2017-Q2

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2005 2008 2011 2014 2017p Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q2-16 Q1-17

An

nu

al P

erc

en

t C

ha

ng

e,

Ch

ain

-typ

e (

20

09

) $

GDP - 2016: 1.5%; 2017 Q2: 3.1%

Growth is expected to slow in Q3 due to the hurricanes’ effect but should bounce back

ANNUALLY QUARTERLY

2009 Largest Annual Drop since 1946 (-2.8%)

SERIES: GDP

SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

US 4.2% (Sep 2017) & CA 5.4% (Aug 2017)

Unemployment Rates Inched Up in August but Still Near Recent Lows

0%

2%

4%

6%

8%

10%

12%

14% CA US

SERIES: Unemployment RateSOURCE: U.S. Bureau of Labor Statistics, CA Employment Development Dept.

-8

-6

-4

-2

0

2

4

An

nu

al P

erc

en

t C

ha

ng

e

California US

U.S. job growth declined (mtm) for the first time since 2010 due to Harvey and Irma

SERIES: Total Nonfarm Employment

SOURCE: U.S. Bureau of Labor Statistics, CA Employment Development Dept.

CA 1.6% (08/17)

US 1.2% (09/17)

9.4%

8.6%

7.5%

7.5%

6.5%

5.8%

5.6%

5.4%

5.4%

5.4%

4.7%

4.4%

4.4%

4.2%

3.8%

3.5%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

Kern

Fresno

Stanislaus

San Joaquin

Riverside

San Bernardino

Monterey

Santa Cruz

Sacramento

Los Angeles

San Diego

Contra Costa

Alameda

Orange County

Santa Clara

San Francisco

Unemployment rate by County

SERIES: Unemployment Rate

SOURCE: CA Employment Development Division

Aug 2017: California 5.1%

1. Economy relatively healthy

2. Deregulation: industry & banks1. General regulatory environment

2. CFPB & Dodd-Frank

3. Infrastructure investment?

4. Tax cuts on business & people1. 3 brackets, lower rates

2. More than half corporate rate

5. Tax reform: repatriating profits

6. Better trade terms?

1. Mortgage interest deduction?1. Double Standard Deduction

2. Limit MID to $500K?

2. GSEs and the FHA/HUD

3. Healthcare & Immigration1. Demand, but also Fed $$

2. CA exposed there too

4. Uncertainty & Market volatility

5. Pro-growth = higher rates1. Especially if more hawks at Fed

6. Supply is already an issue here

7. CA very exposed to trade war1. What does retaliation look like?

2. Capital flows to/from China?

Trumponomics: the good, bad, and ugly

Impact of Tax Reform on the Housing Market

Two Provisions on the Individual Tax Reform Proposal:

- Doubling the Standard Deduction

- Repeal the state and local tax deduction

Impact on the housing market:

- By doubling the standard deduction, the incentive of using MID as a tax

saving tool as a homeowner would be nullified or eliminated

- The repeal of the state and local tax deduction would increase the cost

of owning a home

- Home values would decline as these tax saving advantages vanished

for homeowners


- The proposed tax reform would lead to fewer sales transactions as

the tax incentives of being a homeowner vanish for many who

want to purchase a property. Home sales would decline 3.4

percent if the proposed tax reform were to be implemented

- The decline in home values would also lead to homeowners’

reluctance to put their property on the market and further tighten

up the housing supply condition in California. An estimated 1.5

percent would be lost in the first year after the implementation of

the tax reform.


Decline in Home Value

Decline in home value due to the dilution of MID -3.4%

Decline in home value due to the elimination of deduction of

property tax -3.0%

Total decline in home value -6.4%

Potential loss in Sales

Loss in home sales due to the dilution of MID -1.3%

Loss in home sales due to the elimination of deduction of

property tax -2.1%

Total loss in home sales -3.4%

Potential loss in Housing Supply

Loss in housing supply due to the dilution of MID -0.8%

Loss in housing supply due to the elimination of deduction of

property tax -0.7%

Total loss in housing supply -1.5%

Incentives for Homeownership under the Proposed Tax Reform

Under the proposed law, the tax savings associated with moving from

renting to homeownership falls:

• First-time buyers ($100K income, $437K home) will see federal tax

incentive to own vs. rent decline from $3,291 to zero in the first year.

• Typical buyers ($120K income, $533.5K home) will see federal tax

incentive to own vs. rent decline from $5,782 to $362 in the first year.

• Mid-range buyers ($150K income, $615K home) will see federal tax

incentive to own vs. rent decline from $8,099 to $1,334 in the first year.

• High-end buyers ($200K income, $1.2M home) will see federal tax

incentive to own vs. rent decline from $16,615 to $5,725 in the first year.

Tax Expenditures Estimates: CA

173.8

74.5

226.7

34.8

0.0

34.8

0

50

100

150

200

250

Mortgage Interest

Deduction

Property Tax Deduction Mortgage Interest &

Property Tax Coimbined

Deductions for Mortgage Interest and

Property Taxes in California

(FY2018-2027)

Current Law Comprehensive Tax Reform Option

U.S. Economic Outlook

2012 2013 2014 2015 2016 2017p 2018f

US GDP 2.2% 1.7% 2.4% 2.6% 1.6% 2.1% 2.3%

Nonfarm Job

Growth1.7% 1.7% 1.9% 2.1% 1.8% 1.4% 1.2%

Unemployment 8.1% 7.4% 6.2% 5.3% 4.9% 4.4% 4.2%

CPI 2.1% 1.5% 1.6% 0.1% 1.4% 2.0% 2.2%

Real Disposable

Income, % 3.2% -1.4% 2.7% 3.4% 2.7% 2.1% 3.0%

30-Yr FRM 3.7% 4.0% 4.2% 3.9% 3.6% 4.0% 4.3%

SERIES: U.S. Economic Outlook

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California Economic Outlook

2012 2013 2014 2015 2016 2017p 2018f

Nonfarm Job

Growth2.4% 3.0% 2.2% 2.7% 2.3% 1.6% 1.2%

Unemployment

Rate10.4% 8.9% 7.5% 6.2% 5.5% 4.8% 4.6%

CA Population

(Million)38.0 38.4 38.7 39.1 39.4 39.7 40.0

Population

Growth0.7% 0.9% 0.9% 0.9% 0.9% 0.8% 0.8%

Real Disposable

Income, % Change4.7% -1.1% 3.2% 3.6% 3.0% 4.1% 4.3%

SERIES: CA Economic Outlook


Housing Market Update

California, Sept. 2017 Sales: 436,920 Units, +2.6% YTD, +1.7% YTY

Sales Continue to Grow but at a Slower Pace

-

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 Homes


Sep-17:

436,920Sep-16:

429,760

Sept 2017 (Year-to-Year)

Sales Improve in Mid and High Priced Markets But Decline in Lower Priced Segments

-29.3%

-11.1%-4.5% -4.8%

5.2% 6.9%

16.2%

29.0%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

SERIES: Sales of Existing Detached Homes


Household Growth Continues to Support Housing Demand

80.286.2 89.7

0

20

40

60

80

100

120

140

160

180

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f

An

nu

al H

ou

seh

old

Gro

wth

(Ne

t C

hg

. In

th

ou

san

ds)

SERIES: Annual Household Growth

SOURCE: CA Department of Finance

January 2010 – October 12, 2017

Low Mortgage Rates Also Help

0

1

2

3

4

5

6

FRM

ARM

3.91

3.16

3.81

3.16

MONTHLY WEEKLY

SERIES: 30Yr FRM, 5Yr ARM

SOURCE: Freddie Mac

52%

60%

4.0 4.1

0

1

2

3

4

5

6

7

0%

10%

20%

30%

40%

50%

60%

70%

80%

% with Multiple Offers

# of Multiple offers (Average)

Market Competitiveness Surged, as Supply Continued to Tighten up

SERIES: 2017 Housing Market Survey


California, September 2017: $553,490, -2.1% MTM, +7.2% YTY

Statewide Median Price Growing Faster in Recent Months

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000P: May-07

$594,530

T: Feb-09

$245,230

-59% from

peak

Sep-17: $553,490Sep-16:

$516,450

SERIES: Median Price of Existing Single Family Homes


Contra Costa

0

200

400

600

800

1,000

1,200

1,400

Contra Costa County, Sep. 2017: 925 Units, +3.8% YTD, -5.5% YTY

County Sales Up Modestly So Far in 2017

SERIES: Sales of Existing Single Family Homes


Contra Costa County, Sep. 2017: $605,000, Up 10.0% YTY

Price Growth Remained Robust…

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

SERIES: Median Price of Existing Single Family Homes


0

2

4

6

8

10

12

Contra Costa County, September 2017: 2.2 Months

… As Inventory Level Stayed Below Trend

Note: The Unsold Inventory Index represents the number of months it would take to deplete the remaining inventory at the

end of a particular month with the sales rate of the month in consideration. Inventory includes listings with “Active”,

“Pending”, and “Contingent” (when available) statuses.

SERIES: Unsold Inventory Index of Single Family Homes


Concord

Concord, September 2017: 92 Units

+3.1% 2017 YTD, -17.9% YTY

Sales of Single Family Homes


Concord, September 2017: $649,900

Down 0.1% MTM, Up 6.7% YTY

Median Price of Single Family Homes


Concord, September 2017: 99 Units

-21.2% 2017 YTD, -31.3% YTY

For Sale Properties

Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear

as “Active” any point in time during the month.


Walnut Creek

Walnut Creek, September 2017: 47 Units

+1.4% 2017 YTD, -16.1% YTY



Walnut Creek, September 2017: $1,175,000

Up 7.3% MTM, Up 16.6% YTY



Walnut Creek, September 2017: 45 Units

-3.2% 2017 YTD, -28.6% YTY

For Sale Properties




Antioch

Antioch, September 2017: 96 Units

-5.3% 2017 YTD, -25.0% YTY



Antioch, September 2017: $430,500

Down 0.1% MTM, Up 16.3% YTY



Antioch, September 2017: 107 Units

-14.0% 2017 YTD, -13.0% YTY

For Sale Properties




The Supply Issue

Sept 2016: 3.5 Months; Sept 2017: 3.2 Months

Supply Remains an Issue

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


-11.2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Ja

n-1

5

Ma

r-15

Ma

y-1

5

Jul-1

5

Se

p-1

5

No

v-1

5

Ja

n-1

6

Ma

r-16

Ma

y-1

6

Jul-1

6

Se

p-1

6

No

v-1

6

Ja

n-1

7

Ma

r-17

Ma

y-1

7

Jul-1

7

Se

p-1

7

Year-over-Year % Chg

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jan

-05

Se

p-0

5

Ma

y-0

6

Jan

-07

Se

p-0

7

Ma

y-0

8

Jan

-09

Se

p-0

9

Ma

y-1

0

Jan

-11

Se

p-1

1

Ma

y-1

2

Jan

-13

Se

p-1

3

Ma

y-1

4

Jan

-15

Se

p-1

5

Ma

y-1

6

Jan

-17

Se

p-1

7

Supply Constraint across Most Prices, but Most Obvious in the Lower End

Sept 2017

SERIES: Active Listings of Existing Single Family Homes


-28.3%

-16.2%

-10.6%

-6.6%-10.1%

-7.2%

1.7%

-11.2%

-30%

-20%

-10%

0%

10%

Active Listing

Supply Saw Declines, Especially in Bay Area

-4% -3%

0%

-20%

-13%

-8%

-30%

-20%

-10%

0%

10%

San Francisco Bay Area Southern California Central Valley

Ye

ar-

to-Y

ea

r %

Ch

gSales Active Listings

September 2017

SERIES: Sales and Listings of Existing Single Family Homes


Fewer Units Turning Over Since the Great Recession

SERIES: Percent of existing single-family homes being sold SOURCE: Census Bureau, American Community Survey, Moody’s Analytics, C.A.R.

Housing Turnover Rate

(Single-Family Homes only)

4.6%

5.3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

CA US Linear (CA)

CA turnover rate trend

Long-Time Homeowners are not

moving as in the past because:

• Demographic shift

• Low rate on current mortgage

• Low property taxes

• Capital gains hit

• Where can I afford to go?

0.9% 0.8%1.9%

5.7%

10.7%

21.3%

24.0%

31.8%

24.4%

9.0%11.0%

12.4%14.2%

12.0%

8.9%7.3%

0%

5%

10%

15%

20%

25%

30%

35%

1978 & Earlier 1979 to 1984 1985 to 1989 1990 to 1994 1995 to 1999 2000 to 2005 2005 to 2009 2010 to 2013

California Homeowners by Length of Tenure, 2013

Under 55 55+

Boomers Not Moving as Often

SERIES: Distribution of Home Ownership by Year Moved In

SOURCE: U.S. Census Bureau, 2013 American Housing Survey

71% of Californian’s aged 55+ haven’t moved since 1999

The New Construction Issue

“Missing” 72,000 New Units Annually

SERIES: California New Housing Permits

SOURCE: Construction Industry Research Board

0

50000

100000

150000

200000

250000

300000

350000

Single Family Multi-FamilyCA HCD Projected

Housing Needs:

180,000/yr.

2016: 98,881 (47,889 sf, 50,992 mf)

2017p: 107,756 (53,708 sf, 54,048 mf )

2018f: 115,292 (58,542 sf, 56,750 mf)

…But California Used to Produce More

SERIES: California New Housing Permits

SOURCE: Construction Industry Research Board

Avg. 1955-1989: 200k

Avg. 2008-2016: <70k

CA has produced less housing per capita than other US states

SOURCE: U.S. Census Bureau, McKinsey Global Institute

Housing Supply Gap Will Be Over 2 Million at Current Construction Pace

-1.02

-2.34

-3.36

1.34

-2.02

since 2005 Additional

Demand

Total

Demand

New supply Gap to fill

California Housing Supply Gap

(in millions)

SERIES: Housing Supply Gap

SOURCE: Calculation by CALIFORNIA ASSOCIATION OF REALTORS®

• With housing needs increasing

at a rate of 180,000 every year,

California will need more than

3.3 million units by 2030 to fill the

housing demand and bring it

back to 2005 level.

• At the current construction

pace, however, California will

have a backlog of over 2 million

by 2030

16,144

235,612

438,090

49,693

100,602

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Jobs Created vs. Units Permitted

2010-2016

Jobs Created (2010-2016) Units Permitted (2010-2016)

Most Underbuilt Counties in California

SERIES: Nonfarm Job Growth & Housing Affordability Index (HAI)

SOURCE: CA EDD, Construction Industry Research Board

California Not Building Enough Because…

SOURCE: CA Legislative Analyst Office

Barriers and Constraints to Housing Development

SOURCE: CA HCD

SOURCE: CA HCD

Barriers and Constraints to Housing Development (cont.)

• 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

Why the Production Shortfall?

Building in California is Expensive

SERIES: Homeownership RateSOURCE: CA Legislative Analyst Office

• 2 to 4 times higher on California (CA) Coasts

• High land costs usually mean more units being

built on each plot of land, but not the case in

CA’s coastal metros

• During the 2000’s housing density of a typical

neighborhood in CA’s coastal metro rose only

4%, considerably less than the 11% average

increase in the comparison group

• The new housing unit in the comparison group

was also 40% more dense than that built in CA.

Land Costs Building Costs

• $50k to $75 higher in California (CA)

• Include labor, building material and

government fees, all higher in CA than other

states

• Development fees are higher in California than the rest of the country. A 2012 national

survey found that the average development

fee levied by California local governments

(excluding water-related fees) was $22,000

per single family home, as compared to the

$6,000 per single-family home in the rest of the country.

Case Study: Restrictive Zoning in L.A.

SERIES: Los Angeles Zoned Residential CapacitySOURCE: Morrow (2016), the White House: Housing Development Toolkit

• Los Angeles was zoned to

accommodate 10 million people

in 1960

• Today, the city is zoned for only

4.3 million people after decades

of population growth and

increase in housing demand.

Los Angeles Zoned Residential Capacity

The More “Underbuilding”, the Higher the Price Growth

-2

0

2

4

6

8

10

12

-40% -20% 0% 20% 40% 60% 80% 100% 120%

Un

de

rbu

ildin

g

(Ne

w J

ob

s/N

ew

Pe

rmits)

Price Growth (%)

CA Underbuilding and Price Growth (2010-2015)

SERIES: Nonfarm Job Growth, New Housing Permits, Existing Median Prices

SOURCE: CA EDD, C.A.R., Construction Industry Research Board

The Housing Affordability Issue

Housing Affordability Peaked Q1 2012

California, 1984-2017

SERIES: Housing Affordability Index of Traditional Buyers


29%

57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

% O

F H

OU

SEH

OLD

S T

HA

T C

AN

BU

Y A

MED

IAN

-PR

ICED

HO

ME

Annual Quarterly

55%

29%

0%

10%

20%

30%

40%

50%

60%

70%

Housing affordability taking it on the chin

2017-Q2: % able to purchase median-priced home

SERIES: Housing Affordability Index of Traditional Buyers


Lackluster Income Growth Also Contributed to the Affordability Issue

SERIES: Household income growth vs. Home price growth

SOURCE: U.S. Census Bureau, Current Population Survey/Annual Social and

Economic Supplement, CALIFORNIA ASSOCIATION OF REALTORS®

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Household Income vs. Home Price

Income Growth Price Growth

Income growth could not keep

up with price growth until recently

$29,810

$49,810

$71,790$74,270

$92,380$96,660

$101,750

$120,710

$101,220

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Retail

Salespersons

Chefs and

Head Cooks

Firefighters Elementary

School

Teachers

Computer

Programmers

Police and

Sherriff's Patrol

Officers

Registered

Nurses

Software

Developers

(Applications)

Min. Inc

Required to

Buy a Med.

Home

Most Cannot Afford to Purchase a Home with a Single Income

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

2016 Annual Mean Wage

California

What Will Happen When Mortgage Rates Increase?

Q2-2017 Median Price $553,260

20% Downpayment

INTEREST RATE

MONTHLY MORTGAGE

SERIES: Housing Affordability Index


Minimum Qualifying Income

INTEREST RATE

$1,866$1,988

$2,113$2,243

$2,376$2,513

$2,654$2,798

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

$3,200

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

$100,092$104,950

$109,973$115,155

$120,491$125,973

$131,596$137,353

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

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

Housing Affordability Index - CA

What Will Happen When Mortgage Rates Increase?

33%31%

29%27%

25%23%

22%20%

0%

10%

20%

30%

40%

50%

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

Q2-2017 Median Price $553,260

20% Downpayment

INTEREST RATE

% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT

SERIES: Housing Affordability Index


Affordability Is also an Issue for Renters

SERIES: California asking rent and household incomeSOURCE: California Department of Housing and Community Development, Census Bureau Decennial Census, American Community Survey

173.0

135.9

100

110

120

130

140

150

160

170

180

Rent vs. Household Income

Asking Rent

Household Income

Indexed: 2000=100

$1,032

$1,337

$1,977

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

$2,200California Average Asking Rent

A Mismatch between Supply and Demand in the Rental Market

SOURCE: NYU Furman Center/Capital One National

Affordable Rental Housing Landscape

Growth in Rent Population Exceeded Growth in Rental Stock Vacancy Rates Down; LA and SF Had the Lowest

California Ranked the 2nd Highest in Wages Needed to Afford a Modest Rental Unit

SOURCE: National Low Income Housing Coalition –

Out of Reach 2016

• In 2016, the hourly wage required

to afford a two-bedroom

apartment at the national level

was $20.30

• California minimum wage for

employers with 25 employees or

less: $10/hr.

• California minimum wage for

employers with 26 employees or

more: $10.50/hr.

Housing-Cost Burden Affects Lower-Income Households the Most

SERIES: Renters experiencing rent burdenSOURCE: CA HCD, US Census Bureau, 2016 National Low-Income Housing Coalition

Rent Burdened: paying more than

30% of income toward rent

Severely rent burdened: paying

more than 50% of income toward

rent

% of California’s Renters Experiencing Rent Burden

46%

13%

8.4%

7.8%

7.0%

6.3%

5.5%6.4%

Many Renting Because of Affordability Issue

Can't afford to buy

Poor credit / Can't qualify

Flexibility/Freedom of renting

Cost/Upkeep/Responsibility

Renting is easier

Never considered it/No interest

Young/Starting out/Not ready

Other

Rent Burdens Delay Renters from Buying Homes

69

Q. Why do you rent instead of buying?

9.6%

13%

14%

11%

24%

28%

0% 10% 20% 30%

Within a year

In 2 Years

3-5 Years

In 5+ Years

Not sure

No plans to buy

Nearly Half of Renters Plan to

Buy in the Future Though

SERIES: 2016 C.A.R. Renter SurveySOURCE: California Association of REALTORS®

The Homeownership Issue

Homeownership Dropped, Big Gap in CA

63.5

53.2

50

52

54

56

58

60

62

64

66

68

70

Pe

rce

nt

Homeownership Rate, 2005-2016

U.S. California

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

Q1-0

5

Q4-0

5

Q3-0

6

Q2-0

7

Q1-0

8

Q4-0

8

Q3-0

9

Q2-1

0

Q1-1

1

Q4-1

1

Q3-1

2

Q2-1

3

Q1-1

4

Q4-1

4

Q3-1

5

Q2-1

6

Pe

rce

nta

ge

Po

ints

Homeownership Gap (Smoothed)

SERIES: Homeownership Rate (%)SOURCE: U.S. Census Bureau, Housing Vacancy Survey (HVS)

53.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Ne

w Y

ork

Ca

lifo

rnia

Ne

va

da

Rh

od

e Isl

an

d

Ha

wa

ii

Ma

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use

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Texa

s

No

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Da

ko

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Wa

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gto

n

Arizo

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Ne

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Ge

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ia

Co

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do

Ore

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n

Co

nn

ec

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ut

Lou

isia

na

Flo

rid

a

Ala

ska

Illin

ois

No

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Ca

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a

Oh

io

Virg

inia

Ten

ne

sse

e

Ma

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Mis

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ri

Okla

ho

ma

Ka

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Mo

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exic

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Ark

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Wis

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n

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ska

Pe

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an

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So

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So

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Min

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Ma

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Mic

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De

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We

st V

irg

inia

Homeownership Rate

California Ranked the 2nd Lowest Amongst All States

SERIES: Homeownership RatesSOURCE: U.S. Census Bureau

California

Homeownership Rates Declined the most for Younger Generations …

20%

30%

40%

50%

60%

70%

80%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

SERIES: Homeownership RatesSOURCE: U.S. Census Bureau, American Community Survey

65 &Above

45 – 64

Overall

35 – 44

Under 35

Rise with Income …

SERIES: Homeownership Rates by Income SOURCE: U.S. Census Bureau – 2015 American Housing Survey

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Less than

$10,000

$10,000 to

$19,999

$20,000 to

$29,999

$30,000 to

$39,999

$40,000 to

$49,999

$50,000 to

$59,999

$60,000 to

$79,999

$80,000 to

$99,999

$100,000 to

$119,999

$120,000 or

more

Homeownership Rate by Income

U.S. LA/Long Beach Metro San Francisco Metro Inland Empire

California Homeownership Rates by Race and Ethnicity (2010-2014 Average)

… And Differ by Ethnicity

SERIES: Homeownership rate by ethnicity

SOURCE: CA HCD, PolicyLink, USC Program for Environmental and Regional Equity

California 1970-2030

Population and Households Will Continue to Grow

-

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

50,000,000

197

0

197

2

197

4

197

6

197

8

198

0

198

2

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

202

2

202

4

202

6

202

8

203

0

SOURCE: Moody’s Analytics

Jan. 1, 2017 =

39,523.600 est. by

DOF

Racial/Ethnic Composition in CA, 1980-2040

With California Becoming More Diverse …

SERIES: Ethnic Composition in California

SOURCE: CA HCD, PolicyLink, USC Program for Environmental and Regional Equity

Percent of California Households Paying over 30 Percent of Income toward Housing (2009 – 2013)

…and Housing-Cost Burden not Distributed Evenly across Ethnicity …

SERIES: Homeownership rate by ethnicity

SOURCE: CA HCD, HUD CHAS data set, US Census Bureau

Homeownership Will Deteriorate if the Trend Continues

SERIES: Homeownership RateSOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection

57.1%

59.7%

56.1%

51.3%

45.9%

41.0%

52.8%

50.0%

47.3%52.1%

47.9%

44.2%

30%

40%

50%

60%

70%

2000 2005 2010 2015 2020 2025 2030 2035 2040

California Homeownership Rate

Fast Slow Avearge

Consequence: People Leaving

SERIES: California Migration

SOURCE: U.S. Census, Calculations by the California Association of REALTORS®

-400-300-200-1000100200300

Georgia

North Carolina

Utah

Idaho

Colorado

Washington

Oregon

Arizona

Nevada

Texas

Thousands

Inflow Outflow (CA, 2011-2015)

-16,403

-21,230

-25,147

-28,056

-31,432

-32,598

-70,354

-74,038

-92,367

-124,064

Net Migration (2011-2015)

All-Transactions House Price Index

Index 1980:Q1=100, Annual, Not Seasonally Adjusted

… States with More Affordable Housing –and the Trend is Accelerating!

0

100

200

300

400

500

600

700

Texas

Nevada

Arizona

Oregon

Washington

Colorado

Idaho

Utah

North Carolina

Georgia

California

SERIES: All-Transaction House Price IndexSOURCE: Federal Housing Finance Agency

Californians with Lower Incomes Were More Likely to Move out of the State, but…

-69.0

-51.3

-45.7

-20.8

-12.4

16.1

15.7

14.5

-1.2

6.5

-3.3

-80 -60 -40 -20 0 20 40

Under 10,000

$10,000 to $19,999

$20,000 to $29,000

$30,000 to $39,999

$40,000 to $49,999

$50,000 to $74,999

$75,000 to $99,999

$100,000 to $149,999

$150,000 to $199,999

$200,000 to $250,000

Over $250,000

Net Migration by Personal Income (2011-2015)

Thousand



Young Adults and Baby Boomers also Moved Out of California at a Faster Rate than Other Age Groups

-4.7

-55.7

-14.3

-45.3

-28.1

-1.9

-60 -50 -40 -30 -20 -10 0

Under 18

18-25

26-40

41-50

51-65

Over 65

Net Migration by Age (2011-2015)

Thousand



CA Population Net Gain/Loss (2004 - 2013)

+28

-90286

-112,955

-157,161

-177,967 -23,363

-244,600

-53,829

-46,339 -58,281

-25,656

-4,544

-13,842

-6,082

-2,424

-3,808

-6,427

-8,016

+3,536

-7,422

-15,610

-21,453

-1,892

-8,461

-25,837

-16,381

-30,854

-9,349

-34,561

-16,965-5,913-809

+10,429-4,825+27,641

+1,372

+20,045

+12,098

+36,248

-434

-1,407

+543

+23,083

+25,151+7,794

+574

SERIES: People Leaving/Coming to California

SOURCE: IRS, Sacramento Bee

Left CA: 5 million

Came to CA: 3.9 million

Net Loss: 1million

Consequence: Companies and Jobs Leave or Expand Elsewhere

SOURCE: CA Legislative Analyst Office

Negative impact of excessive barriers to housing development:

• Lower housing affordability for working families

• Increase income inequality by reducing less-skilled workers’ access to high-wage labor markets

• Slow down economic growth by driving labor migration away from the most productive regions

• Nestle (Rosslyn, VA)

• Northrop Grumman (DC)

• Toyota (Plano, TX)

• Jamba Juice (Plano, TX)

• Parsons Engineering (Plano, TX)

• Occidental Petroleum (Woodlands, TX)

Not Merely a Housing Problem

Consequence: Tight Supply Led to Lower Member Productivity

1972 Peak10.4

2007 Trough2.8

20164.4

2017f4.2

0

2

4

6

8

10

12

Num

ber

of

Tra

nsa

cti

ons

What Can Be Done?

• Build More: Regulatory Changes Are Essential

• Free the Existing Inventory

• Add Secondary Units

• Recycle Retail and Commercial Projects

• Utilize Surplus Land (where ever available)

Inadequate Housing Supply

• 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 – CEQA Reform

Solutions

• Attitude Shift is Essential to Moving Toward Solutions…• By Households as Residents

• By Households as Taxpayers

• By Local Elected Officials

• By State Officials

• … and an Attitude Shift Requires Education and Heightened Awareness of Problems, Implications, and Solutions!

• Solutions will take time

Solutions

The Forecast

• Home sales continued to grow in the third quarter, but started showing some signs of slowing

• Sales improved in mid and high priced markets, but declined in lower-priced segments

• Fundamentals remained solid with interest rates at low levels, household growth on an upward trend, and the economy improving at a slow pace

• Imbalance between supply and demand pushed up home prices, with price growth accelerating again in recent months

Summary of Market Conditions

2012 2013 2014 2015 2016 2017p 2018f

SFH Resales (000s) 439.8 414.9 382.7 409.4 416.7 421.9 426.2

% Change 4.1% -5.9% -7.8% 7.0% 1.8% 1.3% 1.0%

Median Price

($000s)$319.3 $407.2 $446.9 $476.3 $502.3 $538.5 $561.0

% Change 11.6% 27.5% 9.8% 6.6% 5.4% 7.2% 4.2%

Housing

Affordability Index51% 36% 30% 31% 31% 29% 26%

30-Yr FRM 3.7% 4.0% 4.2% 3.9% 3.6% 4.0% 4.3%

California Housing Market Outlook

SERIES: CA Housing Market Outlook


421.9426.2

0

100

200

300

400

500

600

700

2005 2007 2009 2011 2013 2015 2017p

Un

its

(Th

ou

san

d)

Sales of Existing Detached Homes

Sales and Price up in 2017 and in 2018



$539 $561

$0

$100

$200

$300

$400

$500

$600

2005 2007 2009 2011 2013 2015 2017p

Pric

e (

Tho

usa

nd

)

Median Price

CA: Dollar Volume Up 8.6% in 2017, Up 5.2% in 2018

$301

$244

$164

$133 $131 $127 $121 $140

$169 $171

$195 $209

$227 $239

-40%

-30%

-20%

-10%

0%

10%

20%

30%

$0

$50

$100

$150

$200

$250

$300

$350

$400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017p 2018f

$ Volume of Sales Percent Change

$ in Billion % Change



C.A.R. Membership & SF Sales

200,400

0

50,000

100,000

150,000

200,000

250,000

0

100,000

200,000

300,000

400,000

500,000

600,000

197

1

197

3

197

5

197

7

197

9

198

1

198

3

198

5

198

7

198

9

199

1

199

3

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

201

7

Home Sales

Membership

Sales Peaks: 1978, 1988, 2004-05

Membership Peaks: 1980, 1990, 2006

Thank You

This presentation can be found on

www.car.org/marketdata

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