2018 q2 residential housing market review

Adkins Capital Management
“Helping Prospective Home Buyers Make A Prudent Home Purchase Decision”
U.S. Residential Housing Market Review
Adkins 60-City Home Price Index Analysis
Second Quarter, 2018

PRESENTATION CONTENTS
 The purpose of this presentation is for Adkins Capital Management (ACM) to provide
an overview and assessment of:
 The events and trends that have transpired in the U.S. residential housing market
for the second quarter of 2018:
 The 30th anniversary of the annual release of “The State of The Nation’s
Housing” report by the Joint Center for Housing Studies (JCHS) of Harvard
University provided a wealth of information:
 Housing trends over the last 30 years;
 Current state of the nation’s housing activity;
 Current state of the nation’s housing burden; and
 Future state of the nation’s housing.
 The actions of the Federal Reserve as part of its Federal Open Market
Committee operations.
 The home price level for a select group of cities that make up the Adkins 60-
City Home Price Index.
 Top Five Overpriced Cities in the U.S.; and
 Top Five Underpriced Cities in the U.S.
 Conclusion
 Resources for Prospective Home Buyers
 Important Disclosures
1Adkins Capital Management LLC. 2018 Q2 – Residential Housing Market Review

 Privately owned and independently operated company.
 Exclusive focus on residential real estate.
 Company not affiliated with any parties associated
with the residential housing industry.
 Our mission is to bridge the gap in the residential
housing market, where deficiencies in education,
public policy, regulation, product structure, and
personnel have created an environment where
prospective home buyers need objective information
and useful analytical tools in order to make a prudent
home purchase decision.
Adkins Capital Management LLC. 2
 More than 15 years of real estate analysis experience, more than 10 years of
institutional investment consulting experience, and more than eight years of
freelance financial writing experience.
 Author of more than 25 published articles, including publications by Forbes,
Investor’s Business Daily, Yahoo, Investopedia, Financial Edge, and more than
230 news organizations worldwide.
OVERVIEW OF ACM FOUNDER AND CORPORATION
2018 Q2 – Residential Housing Market Review

3Adkins Capital Management LLC.
HOUSING TRENDS OVER THE LAST 30 YEARS
 For the second quarter of 2018, the 30th anniversary of the annual release (since 1988)
of “The State of The Nation’s Housing” report by the Joint Center for Housing Studies
(JCHS) of Harvard University provided a wealth of information pertaining to the
residential housing environment.
 The following is a summary of the key trends in U.S. housing over the last 30 years:
 More than 40 million housing units have been built since 1988.
 The median age of homeowners increased from 50 in 1990 to 56 in 2016.
 The typical home today is larger and more likely to have air conditioning, multiple
bathrooms, and other amenities.
 The share of smaller homes (under 1,800 square feet) built each year fell
from 50 percent in 1988 to 36 percent in 2000 to 22 percent in 2017.
 While high mortgage interest rates put the cost of homeownership out of reach for
many people during the 1980s, homeownership rates among young adults in 2018
are even lower than in 1988 for the following reasons:
 Soaring housing costs;
 Housing construction is considerably more expensive due to sharply higher
costs for building materials and labor, coupled with limited productivity
gains in the homebuilding industry;
 Land prices have skyrocketed as population growth in metro areas has
intensified demand for well-located sites; and
 Weak income growth among low- and moderate-income households.

 The real median income of households in the bottom quartile increased only 3
percent between 1988 and 2016, while the median income among young adults in
the key 25–34 year-old age group was up just 5 percent.
 In 1988, with historically high homeownership costs, the national home price-to-
income ratio was 3.2, with just one metro posting a ratio above 6.0.
 In 2017, the national price-to-income ratio stood at 4.2, and 22 metros had ratios
above 6.0.
 Key Finding: Low interest rates have kept the median monthly
payments on a modest home lower in real terms than in 1988.
 Measured in real terms, home price increases since 2000 have been especially
steep in the nation’s 10 highest-cost metros (including Boston, New York, San
Francisco, and Seattle), where appreciation was an astounding 67 percent.
 Prices in the 10 lowest-cost metros (including Dayton, El Paso, Memphis, and
Syracuse) were up just 3 percent in real terms over this period.
 Between 1990 and 2016, the aging of the baby boomers pushed up the number of
homeowners in their 50s by 75 percent and the number in their 60s by 63 percent.
 In combination with lower homeownership rates among younger
households, these trends mean that the share of homeowners aged 65 and
over increased from one in four in 1990 to one in three in 2016.

 The rate at which U.S. households change residences has been declining for
many years, likely due to the increase in the number of homeowners that are
older than 65.
 In 2017, 11 percent of the population moved to different homes within the
preceding 12 months, down from 12 percent five years earlier and 13
percent in 2007.
 The number of foreign born households more than doubled from 7.7 million in
1990 to 17.8 million in 2016.
 Foreign born households accounted for more than 33 percent of the growth
in households from 1990 through 2016.
 In terms of aggregate homeowners’ credit quality, the median credit score for
new mortgage originations was 755 in the fourth quarter of 2017, and has
remained between 750 and 765 since late 2013.
 This range is significantly higher than the 720 averaged in 1999–2006.

 Here is a summary of the State of the Nation’s housing activity, as captured by the
JCHS of Harvard University:
 In 2017, the national homeownership rate ticked up for the first time in 13 years.
 The total number of homeowner households hit an all-time high of 76.2
million.
 In 2016, the national homeownership rate reached a floor in the second quarter,
after more than a decade of decline:
 62.9 percent in 2016 (50-year low)
 64.2 percent in 2017 (in line with rates in the late 1980s and mid-1990s).
 The median price of an existing home rose from $237,387 in 2016 to $238,800 in
2017.
 In 2017, 6.1 million housing units were sold.
 In 2016, more than 6 million housing units were sold.
 Constrained by limited inventory, growth in home sales slowed from 4.5
percent in 2016 to only 1.9 percent in 2017.
 Calendar-year 2017 was the tenth consecutive year that homeowner outlays
exceeded spending on single-family construction.
 Total housing starts edged up from 1.17 million units in 2016 to 1.20 million
units in 2017.
CURRENT STATE OF THE NATION’S HOUSING ACTIVITY

 Here is a summary of the State of the Nation’s housing activity, as captured by the
 In 2017, single-family starts stood at just 849,000 units, well below the long-run
annual average of 1.1 million units.
 From 2008 through 2017, 610,000 single-family homes were added to the
housing stock on an annual basis.
 From 2016, new home sales rose 9.3 percent to 613,000 units.
 This was the sixth straight year of growth from the five decade low of
306,000 units in 2011.
 More than half (55 percent) of new home sales were in the South, and about
a quarter were in the West.
 Of the remaining sales, 12 percent were in the Midwest and only 7
percent in the Northeast.
 In 2016, the median price for a small home sold was $191,700.
 The median price for all other single-family homes was $324,700 in 2016.
CURRENT STATE OF THE NATION’S HOUSING ACTIVITY

 Here is a summary of the State of the Nation’s housing burden, as captured by the JCHS
of Harvard University:
 More than 38 million U.S. households have housing cost burdens.
 In 2016, nearly one-third of all U.S. households paid more than 30 percent of their
incomes for housing.
 Some 38.1 million households spent more than 30 percent of their incomes
on housing.
 While down by 800,000 from 2015 and by 4.6 million from the peak in
2010, the number of cost burdened households was still some 6.5 million
higher in 2016 than in 2001.
 Increases in the median sales price of existing homes have outstripped growth in
median household income for six years.
 The price of a typical existing home sold in 2017 was more than four times the
median income.
 Among the 100 largest metros, 33 had price-to-income ratios above 4.0, including
five with ratios above 8.0.
 Key Recommendation: Prospective home buyers need to assess the positive
impact that the current low interest rate environment is having on their home
purchase opportunities by using the Adkins Residential Home Valuation
Analyzer.
CURRENT STATE OF THE NATION’S HOUSING BURDEN

 Here is a summary of the State of the Nation’s housing burden, as captured by the JCHS
of Harvard University:
 By the end of 2017, nominal home prices in 59 of the nation’s 100 largest markets
exceeded their pre-crisis peaks.
 Although the share of cost-burdened owners is considerably lower at 23 percent,
their numbers still total 17.3 million and include 7.5 million with severe burdens.
 At the end of 2017, the share of loans in foreclosure was 1.2 percent (461,300), in
line with pre-crash levels.
 The share of loans in foreclosure peaked in the fourth quarter of 2010 at 4.6
percent (2.0 million).
 The number of owners underwater (i.e. negative equity) on their mortgages
shrank from more than 12.1 million in 2011 to 2.5 million in 2017.
 The share of mortgaged residential properties with negative equity had
receded to 4.9 percent at the end of 2017, down sharply from 26.0 percent at
the end of 2009.
 Negative equity should no longer be a significant drag on sales.
 In 2016, 28 percent of homeowners had mortgages with fixed interest rates of 4
percent or lower.
 To the extent that interest rates increase significantly, this group may have an
incentive to stay in their current homes, further limiting the for-sale housing
inventory.

 Here is a summary of the State of the Nation’s housing burden, as captured by the
 The 16 major disaster events in 2017 caused a record-setting $306 billion in
damages.
 These events caused the destruction of hundreds of thousands of homes
and widespread displacement of households across California, Florida,
Puerto Rico, and Texas.
 In Puerto Rico alone, storms destroyed or severely damaged an
estimated 472,000 housing units.

 Here is a summary of the future State of the Nation’s Housing, as anticipated by the
 The choice between owning and renting will depend on a variety of factors,
including relative costs, expected length of stay, tolerance for financial risk, and
the perceived benefits of each option.
 Homeownership will likely be constrained by rising home prices, affordability
challenges, outstanding student loan debt, and the limited inventory of homes
for sale.
 A rising interest rate environment will worsen the affordability pressures
facing potential homebuyers.
 The average age of home owners will continue to increase. By 2035, one out of
every three households will be at least 65 years old.
 Since older people are less likely to move, existing housing inventory for
sale will likely be minimal;
 The supply of new housing will face significant challenges.
 Labor shortages, rising materials costs, limited land availability, and
land-use regulations will hold down growth in new residential
construction.
 With inventories of existing homes for sale expected to remain low, upward
pressure on home prices will make home buying more difficult, especially for
low- and moderate-income households.
FUTURE STATE OF THE NATION’S HOUSING

 Here is a summary of the future State of the Nation’s Housing, as predicted by the
 Immigrants will increasingly drive household growth, especially after 2025
when native-born population growth is expected to decelerate further.
 The rising incidence and intensity of natural disasters will pose new threats to
the housing stocks of entire communities.
FUTURE STATE OF THE NATION’S HOUSING

 For the second quarter of 2018, the national average mortgage loan interest rate for a 30-
year fully-amortized fixed-rate loan began the quarter at 4.54% and ended the quarter at
4.66%.
 For the first time since June of 2011, the national average mortgage loan interest rate for
a 30-year fixed-rate loan exceeded 4.61%.
 In order to better assess the current mortgage loan interest rate environment, prospective
home buyers should remember that the national average mortgage loan interest rate for a
30-year fully-amortized fixed rate loan reached an all-time low of 3.31% in November
of 2012, and it reached an all-time high of 18.63% in October of 1981.
 In view of realized and expected labor market conditions and inflation, the Federal
Reserve elected to raise the range for the target Federal Funds Rate by 25 basis points
from (1.50% - 1.75%) to (1.75% - 2.0%) during their Q2 2018 Federal Open Market
Committee operations meeting.
 Prospective home buyers should closely follow the level of mortgage loan interest rates
in their community, because a rising cost of debt will increase the amount of interest
expense that prospective home buyers will need to pay for their mortgage loan. This in
turn will place downward pressure on the price-level of residential housing in their
community.
 Prospective home buyers should use the Adkins Residential Home Valuation Analyzer in
order to assess the impact of a changing interest rate environment.
IMPLICATIONS OF THE FEDERAL RESERVE’S MONETARY POLICY

ADKINS RESIDENTIAL HOME VALUATION ANALYZER
HOME PRICE-LEVEL ANALYTICAL METHODOLOGY
 JUSTIFIED MORTGAGE LOAN INTEREST RATE
 Represents the cost of debt for a 30-year fully-amortized fixed-rate mortgage
loan that equates the median home price level for a city with the median
household income level for the city.
 Based on the assumption that 28% of household income is the largest amount of
money that should be spent in order to repay the principal and interest costs for a
30-year fully-amortized fixed-rate mortgage loan.
14
 JUSTIFIED PERCENTAGE OF HOUSEHOLD INCOME
 Represents the percentage of pre-tax household income that would have to be
spent by the people that live in a city in order to justify the relationship between
the median household income level for the city and the median home price level
for the city.
 Based on the month-ending national average mortgage loan interest rate for a
30-year fully-amortized fixed-rate mortgage loan.
Adkins Capital Management LLC.
FINANCED-BASED ANALYTICAL METHODOLOGY

TOP FIVE OVERPRICED CITIES IN THE U.S.
 19 cities that make up the Adkins 60-City Home Price Index were classified as overpriced
for the quarter.
 While San Francisco, Honolulu, and Newark and San Diego and Bridgeport had the same
justified percentage of household income amounts, San Francisco and San Diego were
classified as the most overpriced city in their respective category due to their higher required
median household income levels.
 It is not possible to justify the home price level for the top five overpriced cities by reducing
the 30-year fixed rate mortgage loan interest rate from 4.66% to 0.0%.
15
Adkins 60-
City Home
Price Index
Median
Household
Income
Level
Median
Home Price
Level
Justified
Mortgage
Loan
Interest
Rate
Justified
Percentage
of
Household
Income
Required
Median
Household
Income
Level
Justified
Home Price
Level
San Francisco $84,160 $815,000 None 60% $180,105 $380,837
Honolulu $75,312 $730,000 None 60% $161,321 $340,798
Newark, NJ $35,947 $343,100 None 60% $75,821 $162,666
San Diego $63,400 $564,000 None 56% $124,637 $286,895
Bridgeport, CT $39,822 $356,500 None 56% $78,782 $180,201
Adkins Capital Management LLC. 2018 Q2 – Residential Housing Market Review

TOP FIVE OVERPRICED CITIES IN THE U.S.
 In order to classify the homes in the top five overpriced cities as underpriced, it would need to
be deemed prudent by prospective home buyers to spend more than the justified percentage of
household income amount.
 In order to justify the median home price level for each city, the median required household
income level would need to increase to a level within the respective range of $75,821 and
$180,105.
 Based on the median household income level, the quarter ending national average mortgage
loan interest rate, and the assumption that no more than 28% of pre-tax household income
should be spent in order to repay the principal and interest costs of a mortgage loan, the
justified home price level for the top five overpriced cities fell within the respective range of
$162,666 and $380,837.
16
Adkins 60-
City Home
Price Index
Median
Household
Income
Level
Median
Home Price
Level
Justified
Mortgage
Loan
Interest
Rate
Justified
Percentage
of
Household
Income
Required
Median
Household
Income
Level
Justified
Home Price
Level
San Francisco $84,160 $815,000 None 60% $180,105 $380,837
Honolulu $75,312 $730,000 None 60% $161,321 $340,798
Newark, NJ $35,947 $343,100 None 60% $75,821 $162,666
San Diego $63,400 $564,000 None 56% $124,637 $286,895
Bridgeport, CT $39,822 $356,500 None 56% $78,782 $180,201

TOP FIVE UNDERPRICED CITIES IN THE U.S.
 Based upon the justified percentage of household income amount, 31 cities that make up the
Adkins 60-City Home Price Index were classified as underpriced for the quarter.
 Cleveland, Huntington, and Portland were ranked according to their justified mortgage loan
interest rate amount, because interest rates would have to reach these levels before these cities
would be classified as overpriced.
 In order to classify homes in the top five underpriced cities as overpriced:
 The national average mortgage loan interest rate would have to increase from 4.66% to
more than the justified mortgage loan interest rate amount for each city; or
 It would have to be deemed imprudent by prospective home buyers to spend as much as
the justified percentage of household income amount in order to repay the costs of a
mortgage loan.
17
Adkins 60-City
Home Price Index
Median
Household Income
Level
Median Home
Price Level
Justified
Mortgage Loan
Interest Rate
Justified
Percentage of
Household Income
Detroit $25,980 $45,600 15.80% 11%
Buffalo $66,100 $125,900 14.50% 12%
Wichita, KS $52,231 $123,000 11.50% 15%
Cleveland $51,304 $126,100 10.95% 16%
Huntington, WV $44,520 $109,900 10.90% 16%
Portland, ME $49,462 $125,400 10.55% 16%

CONCLUSION
 Given the events that have transpired in the residential housing market, and
taking into account the fact that buying a home will likely be the largest single
financial transaction that prospective home buyers will ever make, and the bulk
of their net worth will likely be tied up in their home, prospective home buyers
should subscribe to use the Adkins Residential Home Valuation Analyzer in
order to accurately assess:
 the level of underpricing or overpricing of homes in their community;
 the largest amount of money they should spend in order to purchase a home;
 the amount of money they would need to earn on an annual basis in order to
be able to afford to purchase a specific home;
 total home ownership costs expressed as a percentage of household income;
and
 how much a home would need to appreciate in value each year in order to
offset the costs associated with owning the home.
 By analyzing residential real estate from these perspectives, prospective home
buyers should be able to make a prudent home purchase decision.
18Adkins Capital Management LLC. 2018 Q2 – Residential Housing Market Review

 ACCESS THE ADKINS RESIDENTIAL
HOME VALUATION ANALYZER
 REVIEW THE ADKINS 60-CITY HOME
PRICE INDEX
 ACCESS THE STRATEGIC RETIREMENT
PLAN SAVINGS CALCULATOR
RESOURCES FOR PROSPECTIVE HOME BUYERS
 WATCH OUR MOVIE CATALOG OF QUARTERLY RESIDENTIAL HOUSING
REVIEWS
 WATCH OUR COMPREHENSIVE HOUSING VALUATION METHDOLOGY
MOVIE PRESENTATIONS
 WATCH OUR STRATEGIC RETIREMENT PLAN SAVINGS METHODOLOGY
MOVIE PRESENTATION
 WATCH OUR ANIMATED MOVIE PRESENTATIONS
 CONTACT ADKINS CAPITAL MANAGEMENT IN ORDER TO DISCUSS
RESIDENTIAL HOUSING ANALYSIS QUESTIONS

THANK YOU!
residentialrealestateanalysis.com
Segments Produced at the New York Public Library & Business Library
Borough of Manhattan, 5TH Avenue and Madison Avenue Locations
New York City, NY, U.S.A.
Contents of this report are the property of Adkins Capital Management. No part of this report may be reproduced,
redistributed, displayed, or transmitted without the written consent from representatives of Adkins Capital Management.
Adkins Capital Management LLC. 20
IMPORTANT DISCLOSURES

2018 q2 residential housing market review

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