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2014 Housing Market Forecast

The 2014 Housing Market Forecast by Leslie Appleton-Young, Vice President & Chief Economist, examines critical influences affecting housing markets amidst uncertain economic conditions. As of October 1, 2013, the government shutdown continues to cast a shadow on economic growth. This report analyzes potential outcomes based on the shutdown's duration and other wildcards that could shape the housing landscape. Highlights include trends in home prices, interest rates, and housing demand as we move into 2014.

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2014 Housing Market Forecast

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  1. 2014 Housing Market Forecast October 10,2013 Leslie Appleton-Young, Vice President & Chief Economist
  2. BREAKING NEWS
  3. www.census.gov
  4. The Economy
  5. So many wildcards...Where to begin? October 1st Government Shut Down – Day 10 Impact of shut-down? Depends on how long Looming Oct 17th Debt Limit: $16.699 Trillion Fed will likely begin “Tapering” next year Future of Fannie and Freddie? Viability/relevance of FHA Tax Reform: Mortgage Interest Deduction
  6. The Economic Impact of Government Shutdown
  7. Gross Domestic Product: Growth is Stalling 2012: 2.2%; 2013 Q2: 1.7% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUALLY QUARTERLY 2009 Largest Annual Drop since 1938 (-3.4%) SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
  8. Unemployment: Cyclical & StructuralHeading Down: Lowest since 2008 SERIES: Unemployment Rate SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
  9. CA Added ~250k Jobs Aug-12 to Aug-13 Recession Job Losses: 1.3 million Since Jan’10: +805,700; -500,000 deficit MONTH TO MONTH CHANGES SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division
  10. Silicon Valley Leads in Job Growth August 2013: CA +1.5%, +233,900 ANNUAL PERCENT CHANGE SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division
  11. Construction Jobs Fastest Growing August 2013: CA +1.5%, +233,900 ANNUAL PERCENT CHANGE SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
  12. Metro Commercial Space Vacancy Rates 2013 Q3 SOURCE: National Association of REALTORS®
  13. Consumer Confidence: Better But… September 2013: 79.7 INDEX, 100=1985 SERIES: Consumer Confidence SOURCE: The Conference Board
  14. CPI: Subdued for Now August 2013: All Items +1.5% YTY; Core +1.8% YTY ANNUAL PERCENT CHANGE SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics
  15. Housing & Mortgage finance
  16. Mortgage Rates Up 1% Since MayTapering in 2014? SERIES: 30Yr FRM, 1Yr ARM, Federal Funds SOURCE: Federal Home Loan Mortgage Corporation
  17. US Sales of Existing Homes Aug.2013 Sales: 5,480,000 Units, +12.1% YTD, +13.2% YTY SERIES: Existing Home Sales SOURCE: NATIONAL ASSOCIATION OF REALTORS®
  18. US Median Price of Existing Homes US, August 2013: $213,500, Up 14.7% YTY SERIES: Existing Home Sales SOURCE: NATIONAL ASSOCIATION OF REALTORS®
  19. California vs. U.S. Median Prices 1970-2012 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  20. Housing Affordability Hit by Mortgage Rate and Price Gains But Still Attractive % OF HOUSEHOLDS THAT CAN BUY SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  21. 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 20% Downpayment INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  22. CA Median Monthly Mortgage Payment What Will Happen When Mortgage Rates Increase? Q2-2013 Median Price $415,770 20% Downpayment MONTHLY MORTGAGE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  23. CA Minimum Qualifying Income What Will Happen When Mortgage Rates Increase? Q2-2013 Median Price $415,770 20% Downpayment MONTHLY MORTGAGE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  24. Mortgage Originations: 2005-2013 Refinance Share Dropping with Higher Rates REFINANCE/PURCHASE SHARE 30YR FRM SERIES: Mortgage Originations SOURCE: Mortgage Bankers Association of America
  25. Fannie & Freddie are the Market Source: LPS
  26. THE CALIFORNIA RESIDENTIAL REAL ESTATE MARKET
  27. California’s Housing Cycles and Membership 1970-2012 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  28. CA Sales of Existing Detached Homes August 2013 Sales: 434,700 Units, -3.2% YTD, -1.9% YTY SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized
  29. 85% Equity “Retail” Sales in August California: Aug 2013 SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  30. Share of Equity Sales Has Increased Sharply Since Early 2012 SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  31. REO & Short Sales Percent of Total Sales, Southern California: August 2013 SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  32. REO & Short Sales Percent of Total Sales, Bay Area: August 2013 SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  33. REO & Short Sales Percent of Total Sales, Central Valley: August 2013 SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  34. REO & Short Sales Percent of Total Sales, N CA & Central Coast August 2013 SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  35. Sales Share by Price Range SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  36. Median Price of Existing Detached Homes California, August 2013: $441,330, Up 28.4% YTY SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  37. CA Underwater Mortgages Dropping Sharply SERIES: Underwater Mortgages SOURCE: CoreLogic
  38. Unsold Inventory Index California, August 2013: 3.1 Months Note: “Unsold Inventory Index” represents the number of months it would take to sell the remaining inventory for the month in question. The remaining inventory for the month is defined as the number of properties that were “Active”, “Pending”, and “Contingent” (when available) and divide the sum by the number of “Sold” properties for the month in question. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  39. Unsold Inventory Index Monthsof Supply Note: “Unsold Inventory Index” represents the number of months it would take to sell the remaining inventory for the month in question. The remaining inventory for the month is defined as the number of properties that were “Active”, “Pending”, and “Contingent” (when available) and divide the sum by the number of “Sold” properties for the month in question. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  40. Change in Inventory by Price Range (Year-to-Year) SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  41. Tight Supply Across the Board California: August 2013 UNSOLD INVENTORY INDEX (MONTHS) SERIES: Distressed Unsold Inventory Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  42. Why is Inventory so Low? Demand Side Housing affordability is at historic highs Low rates impacting other investment alternatives Supply Side Little new construction for last 5 years Underwater homeowners are stuck Foreclosure pipeline drying up in non-judicial states Investors are renting instead of flipping Off-market (aka “pocket’) listings growing
  43. Mortgage Foreclosure & Delinquency Rates California: Q2-2013 Delinquencies: Long Run Average: 4.5% Foreclosure Rate: Long Run Average: 1.3% SERIES: Mortgage Foreclosure & Delinquency Rates SOURCE: Mortgage Bankers Association
  44. California Foreclosure Filings, August 2013 NTS: 8,223, -54.7% YTD • NOD: 8,189, -59.1% YTD 6 Month Average: NTSs: 8,225 NODs: 9,012 SERIES: Foreclosure Filings SOURCE: PropertyRadar.com
  45. California Foreclosure Inventories, Aug. 2013 Preforeclosure: -48% YTD • Schedule for Sale: -62% YTD • Bank Owned: -36% YTD 6 Month Average: Preforeclosure: 45,733 Schedule for Sale: 28,245 Bank Owned: 46,247 SERIES: Foreclosure Inventories SOURCE: PropertyRadar.com
  46. CA New Housing PermitsStill Falling Short Household Growth: 220,000-250,000/yr SERIES: New Housing Permits SOURCE: Construction Industry Research Board
  47. 2013 Annual Housing Market Survey
  48. Stiff Market Competition Leads to Fewer Sales with Price Discount & Less Time on the Market Q. What was the original list sales price of the property?What was the final sales price of the property? How many weeks did the property remain on the MLS?
  49. Multiple Offers at Record Highs Share of home sales with multiple offers highest in at least the last 15 years SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  50. Median Net Cash Gain to Sellers Rebounding Q. What was the net cash gain or net loss to the seller as a result of this sale? SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  51. Share of Sellers with Net Cash Loss: Lowest Since 2007 Long Run Average = 12.8% Q. What was the net cash gain or net loss to the seller as a result of this sale? SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  52. More Sellers Planning to Repurchase Repeat Buyers are Back Q. Is the seller planning on purchasing another home? SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  53. Equity Sales (2011 vs. 2012 vs. 2013) SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  54. REO Sales (2011 vs. 2012 vs. 2013) SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  55. Short Sales (2011 vs. 2012 vs. 2013) SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  56. Investment & Second/ Vacation Homes : 25% Market Share 6% 19% SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  57. Buying to Rent: Winning Investment Strategy 18% Investment to Flip 82% Rental Property SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  58. Share of Cash Buyers decreases for the first time after 7 years of continuous Increase Almost one-third of buyers paid with all cash The share of all cash buyers has been on the rise since 2006 SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  59. Median Down Payment: 20%Tight Underwriting & Prices Gains Q. What was the amount of downpayment? SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  60. Buyers Have More “Skin” in the Game SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  61. Share of FHA Lowest in 6 Years Q. Please indicate the type of mortgage. SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  62. Share of First-Time Buyers is the Lowest Since 2006 Long Run Average = 38% Q. Was the buyer a first-time buyer? SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  63. Share of International Buyers is Growing36% All Cash Q. Was the buyer an international buyer – a person who was a citizen of another country who wished to purchase residential real estate in the U.S.?
  64. Country of International Buyer China (30%) Canada (9%) India (6%) Mexico (13%)
  65. Regional Housing Markets
  66. Northern California
  67. Regional Report Card – Northern California
  68. Sales of Existing Detached Homes Northern CA, Aug. 2013: 1,346 Units, +4.1% YTD, +4.1% YTY SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  69. Sales of Existing Detached Homes Northern California Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  70. Median Price of Existing Detached Homes Northern CA, August 2013: $294,020, Up 22.9% YTY SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  71. Median Price of Existing Detached Homes Northern California Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  72. Supply of Inventory in Northern CA SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  73. Northern Wine Country
  74. Regional Report Card – Northern Wine
  75. Sales of Existing Detached Homes Northern Wine Country, Aug.2013: 673 Units, -5.1% YTD, -1.0% YTY SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  76. Home Sales in Northern Wine Country Counties SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  77. Sales of Existing Detached Homes Northern Wine Country Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  78. Median Price of Existing Detached Homes Northern Wine Country, Aug. 2013: $449,010, Up 19.5% YTY SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  79. Median Price of Existing Detached Homes Northern Wine Country Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  80. Bay Area
  81. Regional Report Card – Bay Area
  82. Sales of Existing Detached Homes Bay Area, Aug. 2013: 4,221 Units, -3.7% YTD, -0.8% YTY SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  83. Sales of Existing Detached Homes Bay Area Counties SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  84. Median Price of Existing Detached Homes Bay Area, August 2013: $704,830, Up 24.1% YTY SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  85. Median Price of Existing Detached Homes Bay Area Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  86. Supply of Inventory in Bay Area SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  87. Central Valley Region
  88. Regional Report Card – Central Valley
  89. Sales of Existing Detached Homes Central Valley, Aug.2013 Sales: 4,477 Units, -10.5% YTD, -11.4% YTY SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  90. Sales of Existing Detached Homes Central Valley Regions SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  91. Median Price of Existing Detached Homes Central Valley, August 2013: $219,870, Up 34.3% YTY SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  92. Median Price of Existing Detached Homes Central Valley Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  93. Supply of Inventory in Central Valley SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  94. Central Coast
  95. Regional Report Card – Central Coast Neutral
  96. Sales of Existing Detached Homes Central Coast, Aug. 2013: 757 Units, -2.9% YTD, -3.8% YTY SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  97. Sales of Existing Detached Homes Central Coast Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  98. Median Price of Existing Detached Homes Central Coast, August 2013: $474,780, Up 23.7% YTY SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  99. Median Price of Existing Detached Homes Central Coast Counties SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  100. Supply of Inventory in Central Coast SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  101. Southern California Region
  102. Regional Report Card – Southern California Neutral
  103. Sales of Existing Detached Homes Southern CA Aug-13 Sales: 11,977 Units, -2.0% YTD, -4.1% YTY SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  104. Sales of Existing Detached Homes Southern California Counties SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  105. Median Price of Existing Detached Homes Southern California, Aug.2013: $419,340, +24.6% YTY SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  106. Median Price of Existing Detached Homes Southern California Region SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  107. Supply of Inventory in Southern CA SERIES: Distressed Sales SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  108. 2014 Forecast
  109. 2014 Forecast
  110. U.S. Economic Outlook 2014 SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  111. California Economic Outlook 2014 SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  112. California Housing Market Outlook SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  113. Sales Bounce back in 2014, as Price Continues to Grow Units (Thousand) Price (Thousand) SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  114. CA: Dollar Volume Steadily Improving Up 25.3% in 2013, Up 9.3% in 2014 $ in Billion % Change -60% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  115. MARKET Opportunities 2014
  116. Share of First-Time Buyers is the Lowest Since 2006 Long Run Average = 38% Q. Was the buyer a first-time buyer? SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  117. 2013: 6 out of 10 Buyers Said They Found Their Home through Agent Q. How did you find the home you purchased?
  118. 2007: Almost 9 out of 10 Buyers Said They Found Their Home through Agent Q. How did you find the home you purchased?
  119. Nearly All Buyers Use an Agent Q. Did you use a real estate agent in your home buying process?
  120. First-time Buyers need YOUR help Connect EARLY and OFTEN Financial Literacy: How to manage their finances What about student-loan debt? Can my parents help me out? How do I increase my credit score? How to save for a down payment and how much? What programs are available? Tools to find out – Downpayment Resource on car.org
  121. 2014: Many Market Opportunities First-time Buyers Formerly “Underwater” Homeowners Property Management International Clients New Construction Embrace Learning
  122. Most Buyers and Sellers Interviewed Multiple Agents before Selecting One Q. How many agents did you interview prior to selecting the agent you used in your recent home purchase? Source: C.A.R. 2012 Buyer and Seller Surveys
  123. Thank You! www.car.org/marketdatalesliea@car.org
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