October Housing Report for Southwest California

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October Housing Report for Southwest California

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October Housing Report for Southwest California

  1. 1. What lies ahead? No, that is not a reference to the President’s latest pronouncements on the Affordable Care Act. I’ve just returned from our state and national association’s year-end meetings where we were apprised by numerous economic and political prognosticators on the state of the state and nation, especially the state of housing. And it’s mostly good news with some being more optimistic than others. I’ve included several charts and graphs from a variety of sources making this a pretty long report, but hopefully with data you can use. Our region is performing very similarly to the rest of the state and better than most of the country, although much of the country is mirroring our market. Inventory had declined precipitously in most market but has started to increase again, as it has in ours. After experiencing heavy demand and rapid upward price pressure early in the year, sales have slowed and price appreciation has moderated nationally, again as it has in ours. Sales have slowed due to increased interest rates coming on the heels of a government shutdown that rattled consumer confidence even though the fiscal impact was minimal. The outlook for 2014 is more of the same – slow sales growth and moderate price increases as the market sorts itself out. Heck, we might even throw in another government shut-down just to help keep economic growth stagnant. As one wag put it, ‘half the people in D.C. are raising hell about stuff that really doesn’t matter at all while the other half aren’t saying anything at all about stuff that really does matter.’ Overall the percentage of homeownership will decline modestly primarily due to the ongoing lack of new home construction and a demographic shift in ownership characteristics. California will suffer disproportionately from the lack of new homes being built. Part of that is due to a lack of available funding for private builders but part of it continues to be regulatory concerns unique to California. For example, did you know that it costs as much to permit and entitle a home in Carlsbad as it does to build the entire house in Houston? Perhaps that’s one reason why they’ve built as many homes in Houston this year as we have in the entire state of California. According to our Chief Economist, the inventory of new homes must increase to 1.5 million from their current rate of just over 900,000, or our housing shortage will become persistent, especially in some areas (California being one). This decline in home ownership will lead to even more unequal distribution of wealth since owning a home is the primary determinant of wealth in the country today. I’ve included a summary of Dr. Lawrence Yun’s remarks at our forum last week where both he and John Krainer, Senior Economist at the San Francisco Federal Reserve, noted significant disconnects in today’s market, the lagging pace of the recovery and disconnects between the economy, housing and consumer confidence. After spiking in 2009 and 2010, the ownership rate for 1st time homebuyers has declined to its lowest level since 2006. Increasing prices and interest rates will continue that trend. Today, 40% of homes are owned by people 55 and over and that percentage will likely increase until us ‘boomers’ start shuffling off the planet. If there’s any good news I guess that’s it.
  2. 2. SW Market @ A Glance Southwest California Reporting Period Existing Home Sales October 2013 (SFR Detached) Current Period Last Period Y ear Ago Change from Last Period Change from Year Ago 592 588 642 1% 8% Median Home Price October 2013 $332,593 $327,460 $263,271 2% 20% Unsold Inventory Index (SFR Units) October 2013 1,502 1,361 725 10% 52% Unsold Inventory Index (Months) October 2013 2.8 2.5 1.3 11% 54% Median Time on Market (Days) October 2013 50 49 82 2% 40% Source: CRMLS October Market Activity By Sales Type Standard Sale Bank Owned Short Sale Active Temecula Murrieta Wildomar Lake Elsinore % of MKT % of Sold MKT 372 92% 126 88% 12 3% 2 1% 16 4% 12 8% 348 88% 119 80% 17 4% 6 4% 27 7% 22 15% 53 85% 23 85% 6 10% 0 0% 3 5% 3 11% Active % of % of MKT Sold MKT Active % of % of MKT Sold MKT Menifee 190 83% 74 74% 10 4% 8 8% 25 11% 14 14% 253 86% 136 87% 17 6% 4 3% 20 7% 19 12% Canyon Lake 110 95% 19 83% 1 1% 1 4% 3 3% 2 9% Regional Average 1326 88% 497 83% 63 4% 21 4% 94 6% 72 12%
  3. 3. 250 Southwest California Homes Single Family Homes Unit Sales 200 150 100 50 0 3/11 6/11 9/11 Temecula 12/11 Murrieta 3/12 Lake Elsinore 6/12 9/12 Menifee 12/12 3/13 Wildomar 6/13 9/13 Canyon Lake October Transaction Value: Temecula $62,113,780 Murrieta $450,000 $56,433,897 Wildomar $8,280,336 Menifee $500,000 Lake Elsinore $25,957,256 $39,413,176 Canyon Lake $8,619,582 Southwest California Homes Single Family Homes Median Price $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 3/11 6/11 Temecula 9/11 Murrieta 12/11 3/12 Lake Elsinore 6/12 9/12 Menifee 12/12 Wildomar 3/13 6/13 Canyon Lake 9/13
  4. 4. $450,000 $400,000 $350,000 Southwest California Homes Single Family Homes Year-Over-Year Median Price $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 3/12 6/12 9/12 Southwest California 12/12 Murrieta 3/13 6/13 Temecula It should be noted that just because the median price of homes in the area has increased by 20+%, that doesn’t necessarily mean the price of your home has increased by 20+%. The increase in median price also factors in the mix of homes sold as we’ve noted before. With the disappearance of homes priced under $100,000 and increased sales of homes over $700,000 that we’ve experienced the past two years, the median price level increase may be disproportionate to the actual selling price of your home. As an indicator, the median may be inaccurate but it is consistent. October Median Price: 2012 2013 % Temecula $341,442 $434,362 21% Murrieta $294,826 $381,669 23% Menifee $186,662 $238,868 22% $198,995 $259,573 23% Wildomar $227,357 $306,679 26% Canyon Lake $330,143 $374,764 12% Southwest California $263,271 $332,593 21% Lake Elsinore
  5. 5. 450 October Demand Chart 400 34 2 90 9 63 25 3 0 350 300 250 1 1 6 200 150 100 6 2 1 1 1 8 6 6 1 61 5 0 1 11 1 44 5 1 83 1 0 0 3 1 7 8 50 0 On Market (Supply) 22 37 Pending Murrieta Closed (Demand) Temecula Lake Elsininore 7 5 4 4314 8647 4 Days on Market Menifee 1 1 . . . . . . 9 8 821 5 8 4 6 9 222252 . . . . . . 783003 Months Supply Canyon Lake Absorption rate * Wildomar * Absorption rate - # of new listings for the month/# of sold listings for the month Sales levels are anticipated to remain slower through year-end as indicated by the number of pending homes coming into November. Months supply has climbed from a low of 1 month in March to 2.8 months in October – a significant increase but still well below the 6 months considered to indicate a ‘normal’ balanced market. Buyers are now absorbing new listings at a much slower pace as well buying just 93% of homes listed during the month compared to 274% of new listings in March. 2500 2000 1500 1 4 6 2 1 4 4 6 2 2 2 1 0 1 1 1 1 1 9 7 9 5 7 6 7 1 7 2 7 4 1 6 4 9 3 5 7 4 6 4 4 6 2 9 2 1 7 1 2 2 2 4 2 2 4 0 2 0 4 5 2 1 2 0 2 0 8 7 2 0 0 9 1 9 9 7 2 0 0 9 2 1 1 1 1 9 1 9 3 8 7 8 9 2 8 8 1 7 2 2 1000 2 2 4 0 1 4 1 1 1 1 0 9 8 9 9 8 8 7 8 8 7 7 7 8 7 6 6 6 4 6 4 9 7 8 5 6 6 6 2 3 2 1 7 3 7 5 8 5 2 8 9 1 0 7 7 2 9 1 1 1 5 1 3 0 2 6 2 2 1 7 500 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 2010 2011 2012 2013
  6. 6. National Flood Insurance Program Last year Realtors won a victory by getting a 5 year extension of the NFIP. We had fought for this for 7 years in part because the 90 day – 6 month extensions and frequent lapses caused great turmoil in coastal markets. However, the passage of the Biggert-Waters Act coincided with a massive revision by the EPA of national flood plain maps. The impact thus far has been minimal on our local market although the new EPA/FEMA flood maps have added areas of Temecula to flood plains that heretofore did not exist. However, as many as 35% of Florida homes have been impacted and the coastal housing market has all but dried up as people have seen their flood insurance bills increase from $1,500/yr to as much as $30,000. People from Louisiana to Washington can’t afford the insurance thereby can’t comply with the terms of their mortgage but can’t sell their homes either because the cost of insurance is higher than a mortgage payment. It’s a mess. There has to be some happy medium. FEMA was at least partially correct in positing that people have built homes in high risk areas in part because of the heavily subsidized flood insurance.
  7. 7. I’ve just year-end forecasts economy beyond. returned from both our state and national meetings and wanted to provide the latest from our panels of experts on where the and housing markets are headed in 2014 and
  8. 8. Home Sales to Hold Steady in 2014, but Prices will Continue to Rise SAN FRANCISCO (November 8, 2012) – Existing-home sales are expected to retain the healthy gains seen this year, while prices will stay on an uptrend in 2014, according to a forecast presentation at a residential forum during the 2013 Realtors® Conference & Expo. Lawrence Yun, chief economist of the National Association of Realtors®, said existing-home sales have shown a 20 percent cumulative increase over the past two years, while prices have gained 18 percent, but incomes have risen only 2 to 4 percent in the same timeframe. “We’ve come off of record high housing affordability conditions in the past year, and are now at a five-year low, but conditions are still the fifth best in the past 40 years,” Yun said. “While the median-income family in many areas will still be well positioned to buy a home in 2014, income is barely budging given growth in consumer prices.” Yun said the other headwinds moving forward include limited inventory conditions in many areas and mortgage lending standards that are still unnecessarily stringent. “Although home sales have recovered over the past two years, mortgage purchase applications have been flat for the past four years, even with rising sales,” he said. With higher mortgage interest rates, he expects refinancings to collapse in 2014 to the lowest level in at least 15 years, and hopes purchase applications will begin to rise. “This is an incentive for banks to increase mortgage origination, especially considering the low default rates in recent years. But even with cheap mortgages for the past four years, all-cash buyers stayed high, accounting for over 30 percent of sales,” Yun noted. Beyond bank motivation, Yun said Washington policies for mortgage lending have been too restrictive. He cited rising fees for Fannie Mae and Freddie Mac, higher Federal Housing Administration premiums, as well as Dodd-Frank banking regulations, which have been strangling community banks. In addition, Yun said banks are holding onto funds for potential Department of Justice lawsuits, rather than making them available to mortgage borrowers. He said job creation, and hopefully a relaxation in stringent lending standards, will offset higher mortgage interest rates. Existinghome sales this year are forecast to rise 10 percent to nearly 5.13 million, but should hold fairly even at about 5.12 million in 2014. Limited supplies were the biggest factor in price performance in the past year, with inventory bouncing around 13-year lows, and seriously delinquent mortgages have been trending steadily down. The national median existing-home price for all of 2013 will be up just over 11 percent, to about $197,000; then increase nearly 6 percent next year. Yun expects the inventory shortages to be felt again next spring. “Housing starts are the only way to alleviate inventory shortages,” he said. “Housing starts need to rise 50 percent to meet underlying demand.” Housing starts are forecast to hit 917,000 this year and reach 1.13 million in 2014, which is still well below the underlying demand of about 1.5 million. New-home sales are likely to total 429,000 in 2013, and grow to 508,000 next year. Inflationary pressure may begin to build during the course of 2014, with consumer prices projected to rise 2.7 percent, but Yun said inflation could reach 4 to 6 percent in 2015. Mortgage interest rates are expected to trend upward and reach 5.4 by the end of next year. Yun projects growth in Gross Domestic Product to be 1.7 percent this year and 2.5 percent in 2014. “If not for the housing recovery, we could be on the verge of a recession,” Yun noted. “The rent component of inflation is rising, so the only way to tame price growth is new home inventory.” Since the economic downturn, 8.8 million jobs were lost, but only 7 million have been regained. “We need another 6 to 8 million jobs to get back to normal,” Yun said. The states with the fastest job growth are North Dakota, Utah Idaho, Texas, Colorado, Minnesota, Georgia, Washington, Arizona and New Jersey. The unemployment rate is projected to decline to about 6.7 percent around the end of next year. Based on the forecast, the top 10 markets to watch for a housing turnaround in 2014 are Salt Lake City; Naples, Fla.; Tampa, Fla.; Atlanta; Boise, Idaho; Houston; Charlotte, N.C.; Denver; Seattle; and Tucson, Ariz. Also speaking was John Krainer, senior economist at the Federal Reserve Bank of San Francisco, who said near-term economic momentum is weakening, but improvement in growth is expected going forward. “Inflation has been subdued, and is expected to remain below the Fed’s 2 percent target over the next few years,” he said. “Despite improvement in the labor market, the unemployment rate remains elevated but will be falling slowly.” Krainer notes improved household net worth, aided by rising home values, is supporting consumption spending, but home sales and inventories are not growing as expected. “New-home sales are significantly underperforming, and have been bouncing around World War II lows,” he said. “There is a big disconnect between rising home prices and inventory slowing down,” Krainer said. Normally, higher levels of new construction would be expected in a rising sales environment. Krainer notes there is a relationship between the share of underwater mortgages and the number of homes for sale. “In markets where we saw a high percentage of underwater home owners, we also saw lower inventory levels.
  9. 9. Political Experts Offer Divergent Views on Fannie, Freddie Reform SAN FRANCISCO (November 9, 2013) – The contentious debate over the future of Fannie Mae, Freddie Mac and the Federal Housing Administration single-family mortgage insurance program may grow to a fever pitch in the coming months, but no meaningful Congressional action is in sight according to two of the nation’s leading housing finance policy experts. Realtors® who attended a legislative and political forum at the 2013 Realtors® Conference and Expo weighed the divergent perspectives of Peter Wallison, former general counsel of the U.S. Treasury Department under President Reagan, and David Min, former Senate Banking Committee counsel to Sen. Chuck Schumer, D-N.Y. Wallison and Min traded opinions about the potential impact of federal policy decisions on the role, mission, and purpose of the government-sponsored enterprises. “The government is the principle enemy of the housing finance market,” said Wallison. He said that the key to bringing stability to the housing finance market is strong underwriting standards, not a government guarantee. “Whenever government agencies are guaranteeing mortgages, there will always be the urge to extend the benefit as broadly as possible, which means that the standards for mortgages are degraded substantially.” In stark contrast, Min attributed the post-Depression era stability of the housing finance market to the federal government’s role, which he said also contributed to an unprecedented era of fiscal success and the creation and popularization of the 30-year fixed-rate mortgage. Min raised concerns about liquidity without a government guarantee from Fannie Mae and Freddie Mac. “Since the financial crisis, the federal government has backstopped more than 90 percent of mortgages, where would we be without that?” he asked. Journalist Ken Harney moderated the forum and asked both speakers whether or not they supported legislation like the PATH Act, introduced by House Financial Services Committee Chairman Jeb Hensarling, RTexas, which would eliminate Fannie and Freddie and the government guarantee. “It would be better for everyone if we just had a private real estate market,” said Wallison, who called on Realtors® to support the bill. NAR strongly opposes the PATH Act because it would create significant obstacles to homeownership for most Americans. The legislation would reduce the availability of safe, reliable mortgage products like the 30year fixed-rate loan, and limit access to capital during economic downturns when private lenders tend to flee the market. While Min opposes the legislation he agrees that it’s time to wind down Fannie and Freddie. “What I worry about is that they are a private-public model that is chasing profits and market share,” he said. “Right now they are bleeding infrastructure, which will ultimately lead to poor performance.” Instead of the PATH Act, Min supports the Housing Finance Reform and Protection Act, introduced by Senators Bob Corker, R-Tenn., and Mark Warner, D-V.A., which would also phase out Fannie and Freddie, but the federal government would remain as an insurer of last resort, much like how the Federal Deposit Insurance Corporation acts as the insurer of last resort for troubled banks. NAR has long called for replacing Fannie and Freddie but maintaining an explicit federal presence in the market to ensure continued mortgage market liquidity. Both Wallison and Minn agreed that while the bipartisan Senate bill may pass the upper chamber, it is extremely unlikely that either bill will make it to the President’s desk this year. Bottom line: Business as usual with neither federal proposal passing anytime soon. By Q1 ‘14, both Fannie & Freddie will have repaid their government bail-outs and remain highly profitable removing much of the knee-jerk calls for elimination.
  10. 10. Gross Domestic Product: Growth is Stalling • 2012: 2.2%; 2013 Q2: 1.7% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ 5% ANNUALLY QUARTERLY 4% 3% 1.7% 2% 1% 0% -1% -2% Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 -4% 2005 2006 2007 2008 2009 2010 2011 2012 -3% SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
  11. 11. Unemployment: Cyclical & Structural Heading Down: Lowest since 2008 14% CA US 12% 9.4% 10% 8% 7.6% 6% 4% 2% SERIES: Unemployment Rate SOURCE: US Bureau of Labor Statistics, CA Employment Development Division Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 0%
  12. 12. Silicon Valley Leads in Job Growth August 2013: CA +1.5%, +233,900 ANNUAL PERCENT CHANGE San Jose 3.1% Orange County 2.3% San Francisco 1.8% Ventura 1.7% Los Angeles 1.4% San Diego 1.2% Fresno MSA 1.1% Stockton MSA 1.0% Bakersfield 0.9% Inland Empire Oakland Sacramento Modesto 0.0% 0.7% 0.4% 0.3% 0.3% 0.5% 1.0% SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division 1.5% 2.0% 2.5% 3.0% 3.5%
  13. 13. Mortgage Rates Up 1% Since May Tapering in 2014? 8% FRM ARM Federal Funds 7% 6% 5% 4.5% 4% 3% 2.6% 2% 1% SERIES: 30Yr FRM, 1Yr ARM, Federal Funds SOURCE: Federal Home Loan Mortgage Corporation Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 0%
  14. 14. US Sales of Existing Homes Aug.2013 Sales: 5,480,000 Units, +12.1% YTD, +13.2% YTY 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 SERIES: Existing Home Sales SOURCE: NATIONAL ASSOCIATION OF REALTORS® Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 0
  15. 15. US Median Price of Existing Homes US, August 2013: $213,500, Up 14.7% YTY $250,000 $200,000 $150,000 $100,000 $50,000 SERIES: Existing Home Sales SOURCE: NATIONAL ASSOCIATION OF REALTORS® Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 $0
  16. 16. CA Housing Affordability Index What Will Happen When Mortgage Rates Increase? % OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT Q2-2013 Median Price $415,770 50% 45% 20% Downpayment 39% 40% 37% 35% 33% 35% 31% 29% 30% 27% 25% 25% 20% 15% 10% 5% 0% 3.0% 3.5% 4.0% 4.5% 5.0% INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® 5.5% 6.0% 6.5%
  17. 17. CA Median Monthly Mortgage Payment What Will Happen When Mortgage Rates Increase? Q2-2013 Median Price $415,770 20% Downpayment MONTHLY MORTGAGE $1,889 $2,000 $2,102 $1,786 $1,588 $1,600 $1,994 $1,685 $1,494 $1,402 $1,200 $800 $400 $0 3.0% 3.5% 4.0% 4.5% 5.0% INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® 5.5% 6.0% 6.5%
  18. 18. Fannie & Freddie are the Market Source: LPS …and these products are the ones proposed to be eliminated by the PATH Act to rely on originations by ‘other’ to fill in the gap. Yeah, that could happen.
  19. 19. CA Underwater Mortgages Dropping Sharply 40% Negative Equity Share in CA Near Negative Equity Share in CA 35% 30% 25% 20% 15% 15.4% 10% 5% 0% SERIES: Underwater Mortgages SOURCE: CoreLogic 2.6%
  20. 20. CA New Housing Permits Still Falling Short 300,000 250,000 Single Family Multi-Family Household Growth: 220,000-250,000/yr 200,000 150,000 100,000 50,000 0 SERIES: New Housing Permits SOURCE: Construction Industry Research Board
  21. 21. Share of Cash Buyers decreases for the first time after 7 years of continuous Increase % of All Cash Sales 35% 27% 30% 25% 20% 15% 5% SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® 2013 2012 2011 2010 2009 2008 2007 0% 2005 • The share of all cash buyers has been on the rise since 2006 10% 2006 • Almost one-third of buyers paid with all cash
  22. 22. Share of First-Time Buyers is the Lowest Since 2006 % First-Time Home Buyers Long Run Average 50% 40% Long Run Average = 38% 30% 28% 20% 10% 0% 2005 2006 2007 2008 Q. Was the buyer a first-time buyer? SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® 2009 2010 2011 2012 2013
  23. 23. California Housing Market Outlook Indicator 2008 2009 2010 2011 2012 2013p 2014f SFH Resales (000s) 381.4 474.9 416.5 422.6 % Change 30.4% 24.5% -12.3% 1.4% 439.4 430.3 444.0 4.0% -2.1% 3.2% Median Price ($000s) $348.5 $275.0 $305.0 $286.0 $319.3 $408.6 $432.8 % Change -37.8% -21.1% 10.9% -6.2% 11.6% 28.0% 6.0% 30-Yr FRM 6.0% 5.0% 4.7% 4.5% 3.7% 4.1% 5.3% 1-Yr ARM 5.2% 4.7% 3.8% 3.0% 2.7% 2.7% 3.1% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  24. 24. CA: Dollar Volume Steadily Improving Up 25.3% in 2013, Up 9.3% in 2014 % Change $ in Billion $400 30% $ Volume of Sales Percent Change $350 $300 20% $301 -60% 10% $244 $250 0% $200 $176 $164 $150 $133 $131 $127 $192 $140 -10% $121 -20% $100 $50 -30% $0 -40% 2005 2006 2007 2008 SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® 2009 2010 2011 2012 2013f 2014f

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