Southern California Chapter of the Appraisal Institute 23 rd Annual - - PowerPoint PPT Presentation
Southern California Chapter of the Appraisal Institute 23 rd Annual LA/OC Market Trends Seminar January 2016 OUTLINE INTRODUCTION CAPITAL OUTLOOK ECONOMIC DEMAND DRIVERS FOR HOUSING TRENDS AFFECTING HOME OWNERSHIP HOME SALES
Southern California Chapter of the Appraisal Institute
23rd Annual LA/OC Market Trends Seminar
January 2016
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The U.S. dollar has strengthened in recent years as the U.S. economy has rebounded. Investors buy strengthening currencies and sell weakening currencies. Foreign currencies have weakened as other countries try to reduce the cost of their exported goods to support their domestic industries.
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Emerging market (EM) capital flows have reversed since 2013 which sends billions of dollars back toward the U.S. and other developed economies.
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The Value of The Dollar Impacts Capital Flows
U.S. Dollar compared to the value of the Chinese Yuan. Recent signs that the Chinese currency may still be 10% - 20% overvalued has roiled international stock and bond markets. Chinese companies and households are trying to get their money out of the Yuan and into other currencies. U.S. Dollar rising rapidly against Chinese Yuan
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The Chinese government doesn’t want a rapid depreciation of their currency and has sold dollars and bought Yuan to counteract the trend. Chinese Foreign Exchange (FOREX)
BILLION in December 2015 alone and will approached $1.0 TRILLION for Year 2015.
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Investors know that China’s export based economy relies
China’s neighbors have been devaluing their currencies to support domestic industries. This motivates China to devalue their currency to maintain competitiveness. The weakening in Chinese economic activity accelerates capital outflows.
These outflows migrate around the world in search of stable currencies / investments.
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Companies, venture capital, governments, individuals and hedge funds want to control their exposure to weakening (or strengthening) currencies. In the last few years there have been massive capital flows into dollar denominated assets including stocks, bonds and U.S. real estate.
Article from Wall Street Journal, December, 2015
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At the same time the Coachella Valley is suffering from the departure of Canadian buyers.
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Californians Carry More Debt
Rapid escalation of debt levels occurred during the subprime era. The smaller “correction” in California debt levels indicated a stronger and quicker rebound in housing values. High debt levels have slowed the pace of this recovery.
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Long Term Trends in “Real” Household Income (U.S.)
Although “nominal” incomes have been rising, “real” incomes adjusted for inflation have been stagnant. This is another reason why the current housing recovery has been modest and so reliant on foreign investment.
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Household Configurations are Changing
Changing household dynamics are channeling more demand into floor plans and designs other than the traditional family style house. These trends are also supportive of rental demand.
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Household Formations are Lagging
For Sale housing market conditions are likely to be better in the 2020-2024 period than they are at present, as delayed household formations accelerate.
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Rentals are Taking Market Share From Owned Homes
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Long Term Mortgage Rate Trends
30-YEAR FIXED RATE MORTGAGES NATIONAL AVERAGES
NOVEMBER 2015
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% 3.7% 4.0% 4.2% 3.8% 4.2% 4.6% 5.3% 5.7% 5.8% 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 2013 2014 2015est 2016prj 2017prj 2018prj 2019prj 2020prj
5-Year Forecast
Increasing interest rates tend to strengthen a currency, thus drawing international capital. However, over time U.S. housing and
more expensive to
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Long Term Trends in Household Income (Orange Co.)
MEDIAN HOUSEHOLD INCOME
Anaheim-Santa Ana-Irvine, CA MD
NOVEMBER 2015
$46,411 $47,292 $48,350 $49,491 $50,670 $51,468 $53,033 $55,102 $56,865 $58,451 $60,173 $61,573 $62,999 $64,032 $65,299 $67,914 $71,621 $74,095 $73,605 $71,414 $71,528 $72,151 $72,982 $74,503 $75,800 $78,300 $80,400 $82,900 $85,500 $88,300 $91,100 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015est 2016prj 2017prj 2018prj 2019prj 2020prj
5-Year Forecast
When household incomes are increasing and interest rates are declining this creates a tremendous tailwind for housing prices, as we have seen since the 1980’s.
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Stock Markets Are Weak in 8thYear of Presidential Terms
Financial market volatility undermines consumer confidence, especially in highly discretionary buyer profiles, such as mature households.
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Why Is California A Destination Of Choice?
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Changing Immigration Patterns
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Who Is The New Home Buyer?
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Changing Trends In Household Formation and Homeownership
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Student Loan Debt Isn’t Being Paid Like Other Loan Types
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Time For A Correction in Educational Costs?
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National Existing Home Sales Remain Above Normal Levels
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 Jan-68 Apr-69 Jul-70 Oct-71 Jan-73 Apr-74 Jul-75 Oct-76 Jan-78 Apr-79 Jul-80 Oct-81 Jan-83 Apr-84 Jul-85 Oct-86 Jan-88 Apr-89 Jul-90 Oct-91 Jan-93 Apr-94 Jul-95 Oct-96 Jan-98 Apr-99 Jul-00 Oct-01 Jan-03 Apr-04 Jul-05 Oct-06 Jan-08 Apr-09 Jul-10 Oct-11 Jan-13 Apr-14 Jul-15
Home Sales, 1968- Aug 2015 (Thousands)
45 year average 4.18 million 3.88 million excluding the subprime era 2002-2006 Highest Annualized Rate Since 2006
12-MONTH CHANGE IN TOTAL HOUSING SUPPLY
UNITED STATES
JANUARY 2016
Source: Census Bureau; Real Estate Economics 1,219,692 995,212 1,090,077 1,199,650 1,355,736 1,363,233 1,423,713 1,452,991 1,608,283 1,666,697 1,586,496 1,613,705 1,706,272 1,878,557 2,068,959 2,097,335 1,789,580 1,330,081 901,792 623,053 554,670 568,098 745,519 924,671 989,468 1,088,530 1,248,889 1,367,593 1,430,201 1,442,127 500,000 1,000,000 1,500,000 2,000,000 2,500,000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015… 2016prj 2017prj 2018prj 2019prj 2020prj
5-Year Forecast
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New Home Supply Is Growing Slowly (Includes For sale and rentals)
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New Home Sales Are Below Historical Norms Numerically
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New Home Sales Are Below Historical Norms By Population
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People Saying They Plan to Buy Exceeds Actual Buyers
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What Do Buyers Want?
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And Yet New Homes Are Losing Share To Resale Homes!
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Rental Rates Are Growing Much Faster Than Incomes
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Rents Are At Historic Highs
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Resale Homes Are Old And Lack Modern Features
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Buyers With High Credit Scores Dominate the Market
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Construction Cycle Times Are Increasing
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Construction Trade Sequencing Problems
Free copy of a Real Estate Economics Residential Economic Report for the first person to identify the problem here! ($995 retail price!)
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2016 Housing Market Heating/Cooling Trends
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Orange County Housing Valuation Trends
MEDIAN ANNUAL HOME PRICE Anaheim-Santa Ana-Irvine, CA MD
NOVEMBER 2015
Source: CA Association of Realtors; RealtyTrac; various county recorders offices; Real Estate Economics
$241,100 $239,217 $233,292 $216,025 $212,758 $209,217 $213,733 $230,800 $255,442 $282,842 $319,775 $357,000 $420,525 $499,733 $631,758 $695,517 $707,350 $691,683 $527,250 $481,392 $524,067 $511,330 $548,543 $654,362 $688,125 $728,525 $764,700 $781,075 $790,033 $791,408 $792,325 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015est 2016prj 2017prj 2018prj 2019prj 2020prj
5-Year Forecast
In Orange County prices have exceeded the subprime peak.
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Orange County Housing Valuation Trends
Anaheim-Santa Ana-Irvine, CA MD
HOUSING VALUATION PATTERNS $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 $550,000 $600,000 $650,000 $700,000 $750,000 $800,000 $850,000 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 Jan-14 Jan-15 Jan-16 prj Jan-17 prj Jan-18 prj Jan-19 prj Jan-20 prj Jan-21 prj Median Housing Value Historical/Forecast Home Price Income Supported Home Price
5-Year Forecast
Market overvalued Market undervalued Temporary equilibrium Rates rise faster than incomes
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Orange County Supply / Demand
Anaheim-Santa Ana-Irvine, CA MD
HOUSING DEMAND AND SUPPLY PATTERNS 800,000 900,000 1,000,000 1,100,000 1,200,000 1,300,000 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 Jan-14 Jan-15 Jan-16 prj Jan-17 prj Jan-18 prj Jan-19 prj Jan-20 prj Jan-21 prj Units Demand/Supplied Total Housing Supply Total Housing Demand
5-Year Forecast
Market oversupplied Market undersupplied
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Orange County New Home Market Trends – Detached Homes
Category 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4
65 53 37 37 49 59 73 80 91 Average of Base Prices $1,139,451 $973,565 $888,887 $853,484 $801,903 $835,522 $936,810 $1,019,935 $1,137,721 Average Monthly Sales Rate Per Dev. 1.2/mo 1.1/mo 1.0/mo 1.9/mo 1.4/mo 2.2/mo 2.8/mo 3.4/mo 3.7/mo Months of Total Inventory 28.5 mos. 31.1 mos. 33.9 mos. 16.9 mos. 30.3 mos. 12.1 mos. 10.2 mos. 7.5 mos. 8.2 mos.
ANNUAL MARKET STATISTICS FROM THE 4TH QUARTER OF THE LAST NINE YEARS
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Orange County New Home Market Trends – Attached Homes
Category 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4
33 25 15 26 26 22 29 27 35 Average of Base Prices $540,249 $477,074 $461,246 $477,082 $478,921 $532,291 $573,097 $591,442 $589,180 Average Monthly Sales Rate Per Dev. 1.8/mo 1.7/mo 2.0/mo 2.4/mo 1.7/mo 2.3/mo 2.6/mo 4.2/mo 4.5/mo Months of Total Inventory 31.9 mos. 31.8 mos. 16.8 mos. 13.7 mos. 22.3 mos. 10.4 mos. 13.6 mos. 9.5 mos. 5.7 mos.
ANNUAL MARKET STATISTICS FROM THE 4TH QUARTER OF THE LAST NINE YEARS
Attached community counts have been slow to ramp up as the many new small lot and cluster detached concepts have taken market share.
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Los Angeles County Housing Valuation
MEDIAN ANNUAL HOME PRICE Los Angeles-Long Beach, CA CSA
NOVEMBER 2015
Source: CA Association of Realtors; RealtyTrac; various county recorders offices; Real Estate Economics
$211,567 $218,142 $211,550 $194,658 $187,942 $176,583 $170,558 $174,408 $189,233 $200,017 $218,008 $243,442 $289,358 $354,475 $445,217 $525,008 $579,433 $561,375 $392,992 $327,825 $316,200 $300,833 $326,333 $404,043 $441,950 $473,483 $491,717 $495,983 $499,375 $497,708 $495,750 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015est 2016prj 2017prj 2018prj 2019prj 2020prj
5-Year Forecast
In L.A. County prices have NOT exceeded the subprime peak.
Los Angeles-Long Beach, CA CSA
HOUSING VALUATION PATTERNS $125,000 $175,000 $225,000 $275,000 $325,000 $375,000 $425,000 $475,000 $525,000 $575,000 $625,000 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 Jan-14 Jan-15 Jan-16 prj Jan-17 prj Jan-18 prj Jan-19 prj Jan-20 prj Jan-21 prj Median Housing Value Historical/Forecast Home Price Income Supported Home Price
5-Year Forecast
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Los Angeles County Housing Valuation
Market overvalued Market undervalued
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L.A. County Supply / Demand Trends
Los Angeles-Long Beach, CA CSA
* Over/Under supply measures based on current jobs-to-housing relationship relative to long-term relationship betw een jobs and housing.
HOUSING DEMAND AND SUPPLY PATTERNS 3,000,000 3,100,000 3,200,000 3,300,000 3,400,000 3,500,000 3,600,000 3,700,000 3,800,000 3,900,000 4,000,000 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 Jan-14 Jan-15 Jan-16 prj Jan-17 prj Jan-18 prj Jan-19 prj Jan-20 prj Jan-21 prj Units Demand/Supplied Total Housing Supply Total Housing Demand
5-Year Forecast
Market is undersupplied L.A. County will be undersupplied by more than 200,000 units by 2021, and existing homes are rapidly depreciating in many parts of the county.
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L.A. County New Home Market Trends – Detached Homes Antelope Valley Excluded
Category 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4
54 43 29 28 42 43 39 50 52 Average of Base Prices $835,980 $791,752 $645,609 $691,987 $610,165 $593,983 $563,945 $655,890 $743,453 Average Monthly Sales Rate Per Dev. 1.5/mo 1.0/mo 1.0/mo 0.9/mo 0.9/mo 1.5/mo 2.4/mo 2.5/mo 3.2/mo Months of Total Inventory 25.6 mos. 44.7 mos. 30.0 mos. 39.3 mos. 48.5 mos. 22.6 mos. 14.2 mos. 10.3 mos. 9.0 mos.
ANNUAL MARKET STATISTICS FROM THE 4TH QUARTER OF THE LAST NINE YEARS
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L.A. County New Home Market Trends - Attached Homes
High Rises Excluded
Category 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4
29 25 21 19 32 30 31 39 29 Average of Base Prices $511,162 $434,853 $389,067 $440,136 $444,413 $470,939 $523,405 $608,164 $644,270 Average Monthly Sales Rate Per Development 1.7/mo 1.7/mo 1.3/mo 1.2/mo 0.9/mo 1.4/mo 1.7/mo 3.1/mo 3.3/mo Months of Total Inventory 20.9 mos. 20.1 mos. 42.5 mos. 54.2 mos. 54.4 mos. 26.0 mos. 17.5 mos. 7.6 mos. 5.4 mos.
ANNUAL MARKET STATISTICS FOR THE 4TH QUARTER OF THE LAST NINE YEARS
Active attached developments are widely scattered across the region, very few face meaningful competition from other similar developments. Eleven of the 29 active developments will sell out in this quarter.
recognize that a price recovery is largely in place.
stable.
Key Takeaways for 2016
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Please direct all questions and inquiries to: John Mulville Vice President, Consulting Group 949-502-5151 x102 www.realestateeconomics.com