2005 Real Estate Market Forecast

1
2005 Real Estate Market Forecast
By Leslie Appleton-Young, Vice President and
Chief Economist
California Association of REALTORS?
2
Overview

• Economic Conditions
• California Housing Market
• Regional Real Estate Markets
• Southern California
• Bay Area
• Central Valley
• 2005 Forecast

3
Economic Conditions
California Association of REALTORS?
4
Gross Domestic Product

• 2004 Q2 3.3

QUARTERLY PERCENT CHANGE, ANNUAL RATE
5
Personal Consumption

• 2004 Q2 1.6

QUARTERLY PERCENT CHANGE
6
Employment Growth, California vs. U.S.

YEAR TO YEAR CHANGE
7
Employment Growth, California vs. U.S.

• Month-to-Month Change in Number of Jobs

CA
US
8
Nonfarm Employment By Region

SOURCE CA Employment Development Division
9
Capacity Utilization Rate

• August 2004 77.3

SA, PERCENT OF CAPACITY
10
Consumer Confidence Index

• September 2004 96.8

INDEX, 1001985
11
National Economy

• Economic growth in 2005 will be moderate
• Accompanied by
• Modest job growth
• Low inflation
• Continued strength in Business Investment
• Weaker than usual Consumer Spending
• Reduced Fiscal Stimulus

12
Consumer Price Index

• Inflation August 2004 2.7 Y-T-Y

PERCENT CHANGE FROM A YEAR AGO
13
Crude Oil Prices

Dollars per Barrel of West Texas Intermediate,
Adjusted by CPI (1982-84100, SA)
14
Dow Jones Stock Price

• 30 Industrial Index 1987-2004

Monthly Average
15
NASDAQ Composite

• 1987-2004

MONTHLY AVERAGE
16
National Economy

• US Housing Market and Mortgage Rates
• Continued strong demand in 2005 with
• sales off 2004 record pace
• prices up moderately
• Driven by
• higher but still favorable mortgage rates
• easy credit
• flight from stocks
• demographic growth

17
US Sales and Median Price

ANNUAL RATE
18
Mortgage Rates

• 2000-2004

SOURCE Federal Home Loan Mortgage Corp.
19
30-Year FRM vs. 10-Year T-Bond

SOURCE Federal Home Loan Mortgage Corporation
30-yr FRM Federal Reserve Board 10-Year T-Bond
20
1-Year ARM vs. 1-Year T-Bill

SOURCE Federal Home Loan Mortgage Corporation
1-yr ARM Federal Reserve Board 1-Year T-Bill
21
ARMs as a Percent of All Mortgages
SOURCE Mortgage Bankers Association
Source Federal Housing Finance Board
22
Mortgage Origination

• Refinance vs. Purchase

Origination (Bil )
30-Yr Fixed Rate Mortgage
SOURCE Mortgage Bankers Association
Source Mortgage Bankers Association of America
23
Mortgage Origination

• Refinance Share vs. Purchase Share

30- Yr Fixed Rate Mortgage
Origination (Bil )
SOURCE Mortgage Bankers Association
Source Mortgage Bankers Association of America
24
Forecast Risks

• Interest Rate Risk Higher rates if there is
• Unexpectedly high inflation
• Budget deficit run up in rates
• Significant decline in value of dollar
• Weak consumer spending hinders economic expansion
  and job growth

25
California Real Estate Market
California Association of REALTORS?
26
Housing CyclesPeaks and Valleys
THOUSANDS
SOURCE California Association of REALTORS
27
Sales of Existing Detached Homes and Pacific West
Consumer Confidence

• California, August 2004 Sales 591,146 Units, Up
  5.2 Y-T-D, Down 8.5 Y-T-Y

INDEX
UNITS
SOURCE California Association of REALTORS
The Conference Board
28
Sales of Existing Detached Homes and Pacific West
Consumer Confidence

• California, August 2004 Sales 591,146 Units, Up
  5.2 Y-T-D, Down 8.5 Y-T-Y

INDEX
UNITS
SOURCE California Association of REALTORS
The Conference Board
29
Median Price of Existing Detached Homes

• California, August 2004 474,370, Up 16.8 Y-T-Y

SOURCE California Association of REALTORS
30
Annual Percent Change in Home Price California,
1990-2004
PERCENT CHANGE IN PRICE
SOURCE California Association of REALTORS
31
Unsold Inventory Index

• California, August 2004 4.3 Months

MONTHS
SOURCE California Association of REALTORS
32
Unsold Inventory By Price Range

• California - Existing Homes August 2004 vs.
  August 2003

SOURCE California Association of REALTORS
33
Listings vs Sales Index

• California (Long-Run Average100)

SOURCE California Association of REALTORS
34
Californias Million-Dollar Home Sales

Year
Number of Homes
Source DataQuick Information Systems
35
International Comparison

• Price Per Square Foot

SOURCE The Corcoran Group
36
Jumbo Originations in California

• Total Volume and Share of US

Jumbo Loan Volume
Percent of US Jumbo Total
44.9
SOURCE Inside Mortgage Finance
37
Californias HousingCrisis
California Association of REALTORS?
38
Housing Affordability Index

• California Vs. U.S.

OF HOUSEHOLDS THAT CAN BUY
SOURCE California Association of REALTORS
39
California vs. U.S. Median Prices

• 1970-2003

SOURCE California Association of REALTORS
40
California vs. U.S. Household Income

• 1980 - 2003

Current Dollars
SOURCE U.S. Census Bureau, CA Dept of Finance
41
Homeownership Rates California ( 58.9) vs. U.S.
(68.3)
SOURCE U.S, Census Bureau
42
New Housing Permits CA
SOURCES CAR Construction Industry Research
Board CSHP
43
Annual Housing Survey
California Association of REALTORS?
44
Median Price Discount And Weeks On Market
45
Median Net Cash To Sellers
46
Type of Residence
Note Figures do not total 100 due to other
types of homes sold.
47
Proportion of First-Time Homebuyers (Single-Family
Detached vs. Condo/Townhome)
48
Proportion of First-Time HomebuyersCalifornia
49
Primary Sources of DownpaymentPercent of All
Repeat Homebuyers
50
Median DownpaymentFirst-Time Homebuyers Vs.
Repeat Homebuyers
51
Median DownpaymentSingle-Family Detached Vs.
Condo/Townhomes
52
Types Of New First Mortgages
53
Proportion of Transactions With Second Mortgages
54
Regional Market Southern California
California Association of REALTORS?
55
Southern California Outlook

• Jobs
• Stronger growth in San Diego, Riv/SB
• Weaker in LA, Orange, and Ventura
• Coastal
• Supply constrained sales down in 2004
• Prices up sharply
• Inland
• Strong sales and price appreciation
• Rapidly declining affordability

56
Nonfarm Employment

• Southern California

SOURCE California Economic Development Dept.
57
Sales of Existing Detached Homes

• Southern California August 2004 Sales 13,721
  Units, Down 1.3 Y-T-D, Down 12.2 Y-T-Y

UNITS
SOURCE California Association of REALTORS The
Conference Board
58
Annual Percent Change in SalesSouthern
California Existing Homes
PERCENT CHANGE IN SALES
SOURCE California Association of REALTORS
59
Median Home Price Southern California, 1990-2004
ANNUAL MEDIAN SALES PRICE
SOURCE California Association of REALTORS
60
Annual Percent Change in Home Price Southern
California, 1990-2004
PERCENT CHANGE IN PRICE
SOURCE California Association of REALTORS
61
Median Home Price

• Southern California Regions

SOURCE California Association of REALTORS
62
Sales By Price Range

• Southern California - Existing Homes

SOURCE California Association of REALTORS
63
Supply Indicators

• Southern California

SOURCE California Association of REALTORS
64
Housing Affordability

• August 2004

SOURCE California Association of REALTORS
65
New Housing Permits Southern CaliforniaNeed110,
000 units
SOURCES CAR Construction Industry Research
Board CCSCE
66
Vacancy Rates for Class A B Apts

SOURCE Real Facts
67
Rental Rates for Class A B Apts

SOURCE Real Facts
68
Office Vacancy Rates

SOURCE Torto Wheaton
69
Industrial Vacancy Rates

SOURCE Torto Wheaton
70
Non-Residential Permits, Valuations7 Southern
California Counties (1989-2003)
MILLION OF DOLLARS
SOURCEU.S. Real Estate Research Council of
Northern California
71
Total Nonresidential Buildings7 Southern
California Counties First 2 Quarters 2004 Up
15.1 Y-T-D
MILLIONS OF DOLLARS
SOURCEU.S. Real Estate Research Council of
Northern California
72
Regional Market Bay Area
California Association of REALTORS?
73
Bay Area Outlook

• Regional economy hardest hit in state
• R.E. sales rebounded strongly in 2004
• Home price YTY increases in teens
• Lowest affordability in state
• Commercial R.E. sector slowly recovering from
  over-supply

74
Nonfarm Employment

• Bay Area Region

SOURCE California Economic Development Dept.
75
Nonfarm Employment

• Santa Clara County, August 2004 Down 1.3 Y-T-Y

Y-T-Y PERCENT CHANGE
SOURCE CA Employment Development Division
76
Nonfarm Employment

• Santa Clara vs.California

Santa Clara
CA
SOURCE CA Employment Development Division
77
Sales of Existing Detached Homes

• Bay Area, August 2004 4,971 Units, Up 11.6
  Y-T-D, Down 4.1 Y-T-Y

UNITS
SOURCE California Association of REALTORS The
Conference Board
78
Annual Percent Change in SalesBay Area
Existing Homes
PERCENT CHANGE IN SALES
SOURCE California Association of REALTORS
79
Median Home Price Bay Area, 1990-2004
ANNUAL MEDIAN SALES PRICE
SOURCE California Association of REALTORS
80
Median Price of Existing Detached Homes

• Bay Area, August 2004 644,920, Up 12.5 Y-T-Y

SOURCE California Association of REALTORS
81
Annual Percent Change in Home Price Bay Area,
1990-2004
PERCENT CHANGE IN PRICE
SOURCE California Association of REALTORS
82
Sales By Price Range

• Bay Area Existing Homes August 2004 vs.
  August 2003

SOURCE California Association of REALTORS
83
Median Home Price in Bay Area Counties

SOURCE California Association of REALTORS
84
Supply Indicators

• Bay Area

SOURCE California Association of REALTORS
85
Housing Affordability

• August 2004

SOURCE California Association of REALTORS
86
New Housing Permits SF Bay AreaNeed 34,600 units
SOURCES CAR Construction Industry Research
Board CCSCE
87
Vacancy Rates for Class A B Apts

SOURCE Real Facts
88
Rental Rates for Class A B Apts

SOURCE Real Facts
89
Industrial Vacancy Rates

SOURCE Torto Wheaton
90
Office Vacancy Rates

SOURCE Torto Wheaton
91
Non-Residential Permits Valuations9 Bay-Area
Counties (1989-2003)
MILLIONS OF DOLLARS
SOURCEU.S. Real Estate Research Council of
Northern California
92
Total Nonresidential Buildings 9 Bay Area
Counties First 1 Quarter 2004 Up 1.2 Y-T-D
MILLIONS OF DOLLARS
SOURCEU.S. Real Estate Research Council of
Northern California
93
Regional Market Central Valley
California Association of REALTORS?
94
Central Valley Outlook

• Jobs
• Generally flat overall
• Up in Merced, Stockton
• Existing Single-Family Home Sales
• Up 21.4 year-to-date
• Extraordinary increases in Merced, Stanislaus,
  Kern, and San Joaquin Counties
• Smaller but impressive increases in Sacramento
  and Fresno Counties
• Home prices increasing sharply
• Region with greatest growth potential

95
Nonfarm Employment

• Central Valley Region

SOURCE California Economic Development Dept.
96
Sales of Existing Detached Homes

• Central Valley, August 2004 5,307 Units, Up
  21.4 Y-T-D, Up 15.9 Y-T-Y

UNITS
SOURCE California Association of REALTORS The
Conference Board
97
Annual Percent Change in SalesCentral Valley
Existing Homes
PERCENT CHANGE IN SALES
SOURCE California Association of REALTORS
98
Median Home Price Central Valley, 1990-2004
ANNUAL MEDIAN SALES PRICE
SOURCE California Association of REALTORS
99
Annual Percent Change in Home Price Central
Valley, 1990-2004
PERCENT CHANGE IN PRICE
SOURCE California Association of REALTORS
100
Median Home Price in Central Valley Regions

SOURCE California Association of REALTORS
101
Housing Affordability

• August 2004

SOURCE California Association of REALTORS
102
Non-Residential Permits ValuationsSacramento
County (1989-2003)
MILLIONS OF DOLLARS
SOURCEU.S. Real Estate Research Council of
Northern California
103
Total Nonresidential BuildingsSacramento County
First 1 Quarter 2004 Down 16.9 Y-T-D
MILLIONS OF DOLLARS
SOURCEU.S. Real Estate Research Council of
Northern California
104
Summary

• Southern California Bay Area following
  different cycles
• Central Valley growing most rapidly
• No Bubble more like a soft landing
• Interest Rate Risk on the rise

105
Top Reasons For Buying HomeCalifornia Homebuyers
106
Regional Dynamics

SOURCE California Association of REALTORS
107
2005 U.S. Economic Forecast
SOURCE California Association of REALTORS
108
2005 U.S. Housing Market Forecast
SOURCE National Association of REALTORS
109
2005 California Economic Forecast
SOURCE California Association of REALTORS
110
2005 California Housing Market Forecast
SOURCE California Association of REALTORS
111
Sales and Median Home Price California, 1990-2005
SALES ACTIVITIES
ANNUAL MEDIAN SALES PRICE
SOURCE California Association of REALTORS