Planning for the FutureEconomic/Demographic Trends in California and

Beyond

The Last Few Years…

• Warning signs started in 2005 with a widening gap between home values and HH incomes.

• Affordable housing was becoming an issue as supply was taken by purchasing of second homes and investment properties.

• Initial favorable interest rates which encouraged refinancing and home equity loans. This brought more money into the economy.

• Pressure on interest rates came later in year.

The Last Few Years…

• In 2006, rising interest rates and higher inventories began to slow demand and home value appreciation.

• Higher home inventories depressed the sales of new and existing homes.

• Home value decline removed equity as a source of HH wealth.

• Decline of housing market slowed growth in GDP and affected income and job growth.

• Lower job and income growth, combinedwith rising interest rates impacted abilityto service mortgages.

The Last Few Years…

• By mid 2008, the housing market was in decline.

• An increase in home loan defaults was evident which caused lenders to tighten credit.

• HH formation began to slow and population changes slowed.

• Slowing of migration (both in and out).

• The hottest housing markets were hit first and the hardest.

Source: ESRI Demographic Update 2009/14 May 2009

So Where Do We Go From Here?

Latest Research and Thoughts From:

• Demographic Research Unit, California Department of Finance

• USC School of Policy, Planning and Development

• USC Population Dynamics Research Group

• Southern California Association of Governments

• Los Angeles County Economic Development Department

• Hanley Wood Market Intelligence

• California Association of Realtors

• National Center for Education Statistics, U.S. Dept. of Education

• ESRI Business Data, ESRI, Inc.

The Consensus is:

Uncertainty in the Short Term

Long Term Demographic Trends are More Clear

National Enrollment Trends

Source: US Dept of Education, NCES Dec 2007

Regional-Population Change (2000-2008)

Source: ESRI Business Data May 2009

Regional- Enrollment Change

Source: US Dept of Education, NCES Dec 2007

Regional

Source: US Dept of Education, NCES Dec 2007

Planning for the Future

• Economists and demographers say that California will continue to grow.

• How fast this will occur is dependent upon the recession.

• Industries in CA are targets for growth.

• Venture capital still seeks out CA firms.

• The recession will end, but when?...

When Will the Recession End?

• Many economists say between 2010-2011.

• A few economists say longer to around 2012.

• But if we’re planning long-term for California school growth to 2020 and beyond, the difference between 2010 and 2012 doesn’t matter…

Where are we compared with our last recession?

CA Job Loss in 1990s Recession

CA Share of U.S. Jobs (1990s recession)

CA Share of U.S. Jobs (1990-2008)

CA Job Loss Then and NowMonths After Recession Started

Job Trends

Source: Bureau of Labor Statistics, CA EDD

Unemployment- April 2009

Source: ESRI Business Data April 2009

Foreclosures

More about this later…

The Current Recession: Implications for California Growth

• Larger job losses than in the 90s but,

• Only a slight loss in share of U.S. jobs primarily due to housing/construction.

• This is a NATIONAL recession –• Oregon, Nevada and Arizona have larger

% job losses and nine states have higher unemployment rates

Future California Growth

• California’s job, population and household growth depends on:

• The amount of population and job growth nationwide

• The attractiveness of California for entrepreneurs, workers and their families

• The choices made by the two fastest growing demographic groups- over 55 and children/grandchildren of immigrants

What will the Future Bring?

• Internal growth primarily from residents already in the state (in/out migration down).

• Increased births from those who have settled since the 1980s (including the children and grandchildren of immigrants).

What will the Future Bring?

• As in previous up cycles, population growth will occur where:

• Relatively young populations already exist

• Housing costs are moderate (low end housing will rebound first)

• Areas where family formation are likely to occur

• Location will vary widely within California.

California Enrollment

Source: CA Dept of Finance 2008 Series

California Public K-12 Graded Enrollment

5,900,000

6,000,000

6,100,000

6,200,000

6,300,000

6,400,000

6,500,000

6,600,000

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

We are here

California Enrollment

Source: CA Dept of Finance 2008 Series

We are here

What the Components of Pop Change?

• Natural increase in population• Births – deaths

• Net Migration

Components of Population Change

Source: CA Dept of Finance 2007 County Race/Ethnic Pop Estimates

Population Numeric Natural Net

  (July 1) Change Births Deaths Increase Migration

Total

2000 34,095,209

2001 34,766,730 671,521 529,395 231,737 297,658 373,863

2002 35,361,187 594,457 526,280 232,941 293,339 301,118

2003 35,944,213 583,026 537,419 233,295 304,124 278,902

2004 36,454,471 510,258 539,858 239,325 300,533 209,725

2005 36,899,392 444,921 547,137 231,054 316,083 128,838

2006 37,298,417 399,025 553,028 239,036 313,992 85,033

2007 37,712,588 414,171 564,556 234,660 329,896 84,275

Average   516,768 542,525 234,578 307,946 208,822

CA Components of Population Change

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Population Change Net Migration % Migration of Pop Change

Source: CA Dept of Finance 2007 County Race/Ethnic Pop Estimates

White Components of Population Change

Source: CA Dept of Finance 2007 County Race/Ethnic Pop Estimates

-150,000

-100,000

-50,000

0

50,000

100,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

0%

20%

40%

60%

80%

100%

120%

Population Change Net Migration Migration as % of Pop Change

Hispanic Components of Population Change

Source: CA Dept of Finance 2007 County Race/Ethnic Pop Estimates

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Population Change Net Migration Migration as % Pop Change

CA Age-Nativity PyramidArrival Decade and Generation

Source: CA Demographic FuturesUSC School of Policy, Planning and Development

% Immigrant Share of Total PopulationCalifornia 1970 to 2030

Source: CA Demographic FuturesUSC School of Policy, Planning and Development

CA Projected Births

Source: CA Dept of Finance 2008 Series

Projected

CA Projected Births by Ethnic Group

FIGURE 10. BIRTHS BY RACE/ETHNIC GROUP, HISTORICAL AND PROJECTED, 2000-2017

0

50000

100000

150000

200000

250000

300000

350000

400000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

YEAR

BIR

TH

S

AMERINDIANASIAN

BLACK

HISPANIC

MULTIRACE

PACISLANDERWHITE

American Indian births do not register on this chart. Their 2017 projected births are 2,153.

Source: CA Dept of Finance 2008 Series

CA Regional Projected Births

Source: CA Dept of Finance 2008 Series

Fresno, San Joaquin,

Riverside, San Bernardino

CA Regional Projected Births

Source: CA Dept of Finance 2008 Series

Los Angeles, Orange County,

San Francisco, San Diego

The Housing Market

• Housing is the key to long-term continued growth in various areas

• Opportunities are appearing:

• Lower housing costs

• Low interest rates (for now)

• Demand still there

CA Median Price Existing Detached

Source: CA Assoc. of Realtors CA Outlook Sept 2008

Housing Market

• First-time Buyer Housing Affordability Index• California vs. U.S. 2003-2008

Source: CA Assoc. of Realtors CA Outlook Sept 2008

Housing Market

• Sales Hit Bottom in 2007, up in 2008 and 2009

Source: CA Assoc. of Realtors CA Outlook Sept 2008

CA Ratio Median Home Price to Median HH Income

Source: CA Dept of Finance

Housing Market

• Unsold Inventory Index- July 2008 6.7 months and dropping

Source: CA Assoc. of Realtors CA Outlook Sept 2008

Housing Market

• Peak vs. July 2008 prices

• Bay Area:• Sales down• Moderate median price declines

• Central Valley:• Sales up dramatically• Large median price declines

• Southern California:• Moderate to large sales increases• Large median price declines• Varies by county

Source: CA Assoc. of Realtors CA Outlook Sept 2008

2009 CA Housing Market Outlook

• According to California Assoc. of Realtors

• Sales should increase 5-10% over 2008 (primarily low-end and foreclosures)

• California median home price:• Prices stabilize in 2Q 2009 at earliest• Should correspond with foreclosures at/near peak

• Affordability is good; availability of funds uncertain

Source: CA Assoc. of Realtors CA Outlook Sept 2008

2009 CA Housing Market Outlook

• CA Housing Market will stay stagnant for several more years…

• Potential homebuyers waiting on the sideline…skittish about prices

• Buyers unable to get loans even with stellar credit background

• Financing not available for builders in current market

Source: CA Assoc. of Realtors CA Outlook Sept 2008

Summary of K-12 Growth in CA

Potential growth in the future will occur:

• In areas with larger immigrant populations

• Where the population driven by settlement of young families coupled with births

• Areas with affordable housing

California Enrollment

Source: CA Dept of Finance 2008 Series

Thank You For Your Attendance