housing market overview and forecast
TRANSCRIPT
REAL ESTATE ECONOMICS HOUSING MARKET OVERVIEW AND FORECAST
APPRAISAL INSTITUTE FALL CONFERENCE
NOVEMBER 2012
OVERVIEW WHERE WE’VE BEEN SEVERE HOUSING MARKET DISRUPTION FOLLOWED BY QE INFINITY AND VERY LOW INTEREST RATES UNEVEN RECOVERY
WHERE ARE WE NOW? INVESTORS ARE EVERYWHERE! LISTINGS HAVE PLUMMETED FOREIGN DEMAND SKYROCKETS
WHERE ARE WE GOING? INTEREST RATE OUTLOOK SUBMARKET VALUATION AND FORECASTS
WHERE WE’VE BEEN
BAY AREA OVERVIEW - 11-COUNTY REGION: (ALAMEDA, CONTRA COSTA, MARIN, NAPA, SAN BENITO, SAN
FRANCISCO, SAN MATEO, SANTA CLARA, SANTA CRUZ, SOLANO & SONOMA COUNTIES)
Category 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12
No. of Active Developments 242 352 410 406 311 220 195 190
Average of Base Prices $800,547 $782,611 $737,160 $689,530 $647,487 $638,102 $594,821 $620,461
Average of Unit Sizes (S.F.) 2,413 sf 2,223 sf 2,178 sf 2,083 sf 2,104 sf 2,096 sf 2,172 sf 2,206 sf
Average Price Per Square Foot $332 $352 $338 $331 $308 $304 $274 $281
Average of Minimum Lot Sizes 4,644 sf 4,076 sf 3,762 sf 3,326 sf 3,377 sf 3,159 sf 3,657 sf 3,874 sf
QUARTERLY MARKET STATISTICS
SURVEY-TO-SURVEY NEW HOME MARKET CHANGES
BAY AREA OVERVIEW - 11-COUNTY REGION:
Category 3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12
Total Market Area Monthly Sales Rate 688/mo 745/mo 660/mo 620/mo 453/mo 454/mo 418/mo 587/mo
Average Monthly Sales Rate 2.8/mo 2.1/mo 1.6/mo 1.5/mo 1.5/mo 2.1/mo 2.1/mo 3.1/mo
Total Unsold Released Inventory 697 du 4,451 du 5,141 du 4,794 du 3,311 du 1,977 du 1,728 du 1,318 du
Total Inventory 10,775 du 18,156 du 20,878 du 18,640 du 12,101 du 6,953 du 6,945 du 5,996 du
Months of Unsold Released Inventory 1.0 mos. 6.0 mos. 7.8 mos. 7.7 mos. 7.3 mos. 4.3 mos. 4.1 mos. 2.2 mos.
Months of Total Inventory 15.7 mos. 24.3 mos. 31.6 mos. 30.1 mos. 26.7 mos. 15.3 mos. 16.6 mos. 10.2 mos.
QUARTERLY MARKET STATISTICS
SURVEY-TO-SURVEY NEW HOME MARKET CHANGES
BAY AREA OVERVIEW – YEAR-OVER-YEAR EMPLOYMENT CHANGE
11-COUNTY BAY AREATotal Non-Farm 12-Month Change
-10,
592
-47,
967
3,85
8
6,94
2
71,7
50
111,
342
130,
650
103,
000
91,7
42
154,
667
-34,
017
-186
,442
-100
,925
-16,
058
30,3
92
60,4
08
45,9
75
-14,
550
-201
,850
-42,
283
41,9
42
85,7
42
76,7
75
70,2
25
74,6
00
69,2
00
62,5
33
-250,000
-200,000
-150,000
-100,000
-50,000
0
50,000
100,000
150,000
200,000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
est
2013
prj
2014
prj
2015
prj
2016
prj
2017
prj
5-Year Forecast
BAY AREA OVERVIEW – ANNUALIZED UNEMPLOYMENT RATES
11-COUNTY BAY AREA Civilian Unemployment
4.0%
5.6%
6.8%
6.9%
6.3%
5.7%
4.8%
4.1%
3.7%
3.2%
3.5%
4.6%
6.7%
6.8%
5.8%
5.0%
4.3%
4.6%
5.9%
10.0
%10
.7%
9.8%
8.4%
8.2%
7.6%
7.0%
6.3%
5.7%
0%
2%
4%
6%
8%
10%
12%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
est
2013
prj
2014
prj
2015
prj
2016
prj
2017
prj
5-Year Forecast
BAY AREA OVERVIEW
11-COUNTY BAY AREA
* Over/Under supply measures based on current jobs-to-housing relationship relative to long-term relationship between jobs and housing. Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economicswww.realestateeconomics.com
HOUSING DEMAND AND SUPPLY PATTERNS
2,300,000
2,400,000
2,500,000
2,600,000
2,700,000
2,800,000
2,900,000
3,000,000
3,100,000
3,200,000
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 prj
Jan-14 prj
Jan-15 prj
Jan-16 prj
Jan-17 prj
Jan-18 prjU
nits
Dem
and/
Supp
lied
Supply of Housing Demand for Housing*
5-Year Forecast
COMPARED TO OTHER FINANCIAL ASSETS
WHERE WE ARE NOW
INVESTORS ARE EVERYWHERE!
•Lowest price ranges being cleaned out by rental investors. •Volume surges in high demand neighborhoods (buyers priced out for years want in!) •Surge in resale volume reflects lender preference for short sales. •Total distressed plummets as short sales and loan mods deal with underwater owners.
Count % Count % Count %
By Sales PriceUnder $300,000 9,071 38.4% 9,547 42.5% 8,786 37.5%Over $1.0 million 998 4.2% 775 3.5% 898 3.8%
By Sales TypeResale 17,775 68.6% 15,271 56.0% 16,087 56.4%New Sale 1,068 4.1% 854 3.1% 1,312 4.6%
Foreclosure 2,257 8.7% 4,804 17.6% 5,123 18.0%Foreclosure Sale 4,805 18.5% 6,333 23.2% 6,002 21.0%TOTAL DISTRESSED 7,062 27.3% 11,137 40.9% 11,125 39.0%
CLOSINGS DISTRIBUTION REPORTALL OF ALAMEDA AND CONTRA COSTA COUNTY
Mar '12 to Aug '12
Category Current Period One Year Ago Two Years AgoTotal Number Of Home Sales
TRENDS IN ACTIVE LISTINGS
% DROP IN LISTINGS INVENTORY IN PAST 12 MONTHS
-58.35%
-45.03%-43.13%-42.24%-41.75%-41.36%-41.10%-40.15%-35.45%-34.83%-31.95%-31.92%-31.74%
(70%)
(60%)(50%)
(40%)(30%)
(20%)
(10%)0%
10%
Oak
land
Sto
ckto
n-Lo
di
Fre
sno
Sac
ram
ento
Inla
ndE
mpi
re
Bak
ersf
ield
San
Jos
e
San
Fra
ncis
co
San
taB
arba
ra
San
Die
go
Ora
nge
Cou
nty
Ven
tura
Los
Ang
eles
TRENDS IN FOREIGN DEMAND
• 2011 – Sales to foreigners totaled $82.5 billion or 8.9% of total U.S. transaction volume.
• 2010 - $66.4 billion or 7.7% of total U.S. transaction volume. • 2011 volume equals 371,957 homes at the then-median home
price of $221,800. • 2011 new home sales totaled 303,211. • Foreign buyer market was 23% larger, by volume, than the new
home market in 2011!
• What does this mean for new home product and sales?
WHERE ARE FOREIGN BUYERS COMING FROM?
Source: Dataquick, Inman News
WHERE ARE WE GOING?
INTEREST RATE TRENDS AND FORECAST
30-YEAR FIXED RATE MORTGAGESNATIONAL AVERAGES
OCTOBER 2012
10.1
%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.
8%3.
9%4.
4%5.
2%6.
0%6.
5%
0%
2%
4%
6%
8%
10%
12%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012est
2013prj
2014prj
2015prj
2016prj
2017prj
5-Year ForecastYears 2008 to 2009 - Financial crisis and interest
rate intervention by the Federal Reserve
INTEREST RATE VOLATILITY
October 1993 = 6.83% January 1995 = 9.15%
SUBMARKET VALUATION: What does “supportable home price” mean?
•Interest rates at any point in time are known.
•Household incomes are known.
•The percent of household income that will be dedicated
to mortgage payments can be calculated and customized
to the characteristics of a given market area.
•Therefore, we know what buyers are capable of paying
and what they have been willing to pay over many years.
BAY AREA OVERVIEW
11-COUNTY BAY AREA
* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship between housing value & household incomes.
Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economicswww.realestateeconomics.com
HOUSING VALUATION PATTERNS
$75,000
$175,000
$275,000
$375,000
$475,000
$575,000
$675,000
$775,000
$875,000
$975,000
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 prj
Jan-14 prj
Jan-15 prj
Jan-16 prj
Jan-17 prj
Jan-18 prjM
edia
n H
ousi
ng V
alue
Historical/Forecast Median Home Price Supportable Median Home Price*
5-Year Forecast
SUBMARKET VALUATION: SANTA CLARA COUNTY
SAN JOSE-SUNNYVALE-SANTA CLARA, CA MSA
* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship between housing value & household incomes.
Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economicswww.realestateeconomics.com
HOUSING VALUATION PATTERNS
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
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 prj
Jan-14 prj
Jan-15 prj
Jan-16 prj
Jan-17 prj
Jan-18 prjM
edia
n H
ousi
ng V
alue
Historical/Forecast Median Home Price Supportable Median Home Price*
5-Year Forecast
SUBMARKET VALUATION: S.F. & SAN MATEO
SAN FRANCISCO-SAN MATEO-REDWOOD CITY, CA PMSA
* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship between housing value & household incomes.
Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economicswww.realestateeconomics.com
HOUSING VALUATION PATTERNS
$75,000
$175,000
$275,000
$375,000
$475,000
$575,000
$675,000
$775,000
$875,000
$975,000
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-04Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13 prj
Jan-14 prj
Jan-15 prj
Jan-16 prj
Jan-17 prj
Jan-18 prjM
edia
n H
ousi
ng V
alue
Historical/Forecast Median Home Price Supportable Median Home Price*
5-Year Forecast
SUBMARKET VALUATION: ALAMEDA & CONTRA COSTA
OAKLAND-FREMONT-HAYWARD, CA MSA
* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship between housing value & household incomes.
Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economicswww.realestateeconomics.com
HOUSING VALUATION PATTERNS
$75,000
$175,000
$275,000
$375,000
$475,000
$575,000
$675,000
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-04Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13 prj
Jan-14 prj
Jan-15 prj
Jan-16 prj
Jan-17 prj
Jan-18 prjM
edia
n H
ousi
ng V
alue
Historical/Forecast Median Home Price Supportable Median Home Price*
5-Year Forecast
SUBMARKET VALUATION: SACRAMENTO
SACRAMENTO-ARDEN-ARCADE-ROSEVILLE, CA MSA
* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship between housing value & household incomes.
Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economicswww.realestateeconomics.com
HOUSING VALUATION PATTERNS
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
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-04Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13 prj
Jan-14 prj
Jan-15 prj
Jan-16 prj
Jan-17 prj
Jan-18 prjM
edia
n H
ousi
ng V
alue
Historical/Forecast Median Home Price Supportable Median Home Price*
5-Year Forecast
SUBMARKET VALUATION: CENTRAL VALLEY
CENTRAL VALLEY (MADERA, FRESNO, KINGS, TULARE COS.)
* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship between housing value & household incomes.
Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economicswww.realestateeconomics.com
HOUSING VALUATION PATTERNS
$70,000
$90,000
$110,000
$130,000
$150,000
$170,000
$190,000
$210,000
$230,000
$250,000
$270,000
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-04Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13 prj
Jan-14 prj
Jan-15 prj
Jan-16 prj
Jan-17 prj
Jan-18 prjM
edia
n H
ousi
ng V
alue
Historical/Forecast Median Home Price Supportable Median Home Price*
5-Year Forecast
CONCLUSIONS AND EXPECTATIONS
Interest rates have been a friend to housing prices for 30 years, expect a change. Disposable incomes will be pressured by higher taxes and higher utility costs (food, healthcare, transportation and education too?). Ten years from now the current housing recovery will not be considered to have been as robust as the last real estate cycles. But….. We’re coming off a VERY depressed base, there are numerous sources of pent up demand. Rental investors are clearing out the lower price ranges as fast as supply enters the system. Conventional owner-occupants are locked out of the distressed home market (to the benefit of the new home market). Many huge losses can be (and could have been) avoided with objective and inexpensive research.
John Mulville, S.V. P. , Residential Consulting, 949-502-5151, [email protected],