Strengthening California Cities through Advocacy & Education

The Voice for Real Estate

It’s important to keep real estate

in perspective…

Things aren’t always what they seem.

Area

Riverside County

City of Riverside

Temecula

Blythe

Desert Hot Springs

Canyon Lake

Moreno Valley

Palm Springs

Median

Income

$56,005

$54,206

$75,658

$45,114

$32,002

$92,656

$55,797

$48,561

Median

Age

34

30

34

38

32

42

29

52

Education

Some College

Bachelors

No HS

HS Grad

Some College

Bachelors

No HS

HS Grad

No HS

HS Grad

Bachelor

Graduate

No HS

HS Grad

Bachelor

Graduate

Net

Worth

$175,082

$41,572

$175,142

$12,275

$12,275

$368,522

$41,572

$331,108

• Affordability is worsening

• Homeownership rate for 18-34 - year-olds still falling

• Household formation is VERY slow

• Census: US added 476,000 HH v. 1.3 m HH prior 2 years

• Majority of new households rent: “Renter Nation”

• Millennials delaying “adulthood”: Getting married later or not at all; Student loans; dim job prospects

• Baby boomers delaying “retirement” and staying put longer; they will love their loans when rates do rise

• Inventory is better but still well below “normal”

CA Home Sales: 2000 – 2014

-5.8%-8.2%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Sales Percent Change

SERIES: Sales of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Units YOY % Chg

CA Home Median Price: 2000 – 2014

27.5%

11.8%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Median Price Percent Change

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Median Price YOY % Chg

Peak - 5/07

$594,530

Trough – 2/09

$245,230

-59%

0

500

1000

1500

2000

2500

1/1

1

2/1

1

3/1

1

4/1

1

5/1

1

6/1

1

7/1

1

8/1

1

9/1

1

10

/11

11

/11

12

/11

1/1

2

2/1

2

3/1

2

4/1

2

5/1

2

6/1

2

7/1

2

8/1

2

9/1

2

10

/12

11

/12

12

/12

1/1

3

2/1

3

3/1

3

4/1

3

5/1

3

6/1

3

7/1

3

8/1

3

9/1

3

10

/13

11

/13

12

/13

1/1

4

2/1

4

3/1

4

4/1

4

5/1

5

6/1

4

7/1

4

8/1

4

9/1

4

10

/14

Inventory Sales

Southwest California

Inventory v Sales

REO’s & SS Decline

Standard SalesIncrease

Trough vs. Current Price

By Counties, August 2014

SERIES: Median Price of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Region Trough Month

Trough Price Aug-14Median

%Chg FrTrough

Santa Barbara Mar-09 $296,590 $806,030 171.8%

Monterey May-09 $203,500 $492,500 142.0%

Alameda Jan-09 $346,236 $732,220 111.5%

Lake Jun-11 $85,620 $178,330 108.3%

California Feb-09 $245,230 $480,280 95.8%

Santa Clara Feb-09 $445,000 $865,000 94.4%

Merced Jan-10 $96,670 $186,670 93.1%

Los Angeles May-10 $248,850 $474,640 90.7%

Tehama Feb-11 $83,330 $156,000 87.2%

Riverside Apr-09 $171,480 $318,640 85.8%

Housing Affordability: So Cal

0 10 20 30 40 50 60 70 80 90

Los Angeles Metro

Inland Empire

Los Angeles

Orange

Riverside

San Bernardino

San Diego

Ventura

Santa Barbara

Q1/2012 Q2/14

SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000 California US

California vs. U.S. Median Prices

1970-2014

SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

-5,485

165,105223,058

575,156

957,834

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2009 2010 2011 2012 2009 - 2012

Households not formed

# of Households Lost Since the Great

Recession

SOURCE: California Dept. of Finance; compiled by C.A.R.

Younger Buyers Continue to Decline

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Refused

65+

55-64

45-54

35-44

25-34

Under 25

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Share of First-Time Buyers Up

But Still Below Long-Run Average

28.1%30.5%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% First-Time Home Buyers Long Run Average

Long Run Average = 38%

SERIES: 2014 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Millennial Homeownership falling

SOURCE: Census Bureau

Where are the young people hiding?

Renters: Majority rent because they

can’t afford to buy

SOURCE: C.A.R. 2014 Millennial SurveyQ: Why do you rent instead of own?

2%

4%

7%

9%10%

15%

16%

17%

20%

24%

37%

67%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Believe housing market will decline in the near future

No interest in buying

Don't want the responsibility of owning

Don't have a job

Enjoy the flexibility/freedom of renting

Too costly to maintain property as owner

Can't qualify for a mortgage

Don't have a down payment

It's easier to rent

Not ready to buy

Can't afford to buy

People would prefer the following over going

through the home mortgage process again:

SOURCE: Guaranteed Rate Mortgage Survey of 1,000 adults 25 and older USA Today April 2014

Housing Fundamentals are positive.

What are some upsides?

• Mortgage rates are low & lending is loosening up a bit

• Affordability is still good and price gains are slowing

• Foreclosure & delinquency rates are low & distressed sales are less than 10% of the market

• Investors are leaving creating more opportunity for buyers needing financing

• Overall homeownership rate has stabilized

• International demand for housing in CA still strong

• Construction is up – residential and non-residential

Share of underwater Mortgages in Plunging

Q409 – Q114Share of Underwater Mortgages is Plunging

Distressed Sales: Southern CA

Percent of Total Sales

0%

10%

20%

30%

40%

50%

60%

Los Angeles Orange Riverside San Bernardino San Diego

7.6% 4.9%11% 14%

6.2%

36%

27%

52% 49%

17%

Aug-14 Aug-12

SERIES: Distressed Sales, Not Seasonally AdjustedSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

We’ve Come a Long Way:

Equity Sales Now 9 out of 10 Transactions

90.6%

4.9%

4.1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Equity Sales Short Sale REO

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

0

50,000

100,000

150,000

200,000

250,000

300,000 Single Family Multi-Family

CA Permits UP but more units needed

2013: 57,496 Units, Up 43.0% from 2012

Household Growth: 220,000-250,000/yr

SOURCE: Construction Industry Research Board

Housing Starts are Up

But Lagging Historical Average

Source: Bankrate.com

Mortgage Interest Rates

Remain Very Attractive

Unemployment Declines

Job Growth Continues

Source: Bureau of Labor Statistics

Riverside County

15.2

8.2

Personal Income: % Change Q2 14 – Q3 14

Home Price Advantage

Median Price Homes, Q2 14

Increased Sales to International Buyers

Benefit of Ownership

Total Equity Appreciation

What to look forward to:

3. Mortgage interest rates will finally be on the rise.

5. Builders shift to building less expensive homes.

6. Foreclosures fall back to pre-recession levels.

1.Home appreciation will continue to slow. Prices didn't increase as

fast this year, and they are expected to stick to that trend into the new

year. "Easing housing inventory levels and the exit of investors from the

market are helping to put the brakes on home-price escalation,"

Forbes.com reports. "At a deeper level, this change represents a

fundamental shift in the market: We've moved out of rapid recovery

phase and into a new normal." Gone are the double-digit gains of

2013. Realtor.com® predicts an annual gain in home prices of 4

percent to 5 percent next year.

2.Buying frenzy becomes more muted. The home-buying process is expected to be less chaotic in the new year, with for-sale inventories easing and credit loosening, which could make it easier for first-time home buyers to enter the market. Investors have also pulled back in many markets. NAR statistics from October show that individual investors purchased 15 percent of homes, a drop from 19 percent year-over-year. Also, as more homes come on the market, buyers will have more choices and sellers may face more of the competitive pressure. Housing analysts note that this can help create a more balanced market for everyone: buyers in search of a competitive advantage and sellers who turn around and become buyers themselves.

3.Mortgage interest rates will finally be on the rise. The Mortgage Bankers Association still predicts that mortgage rates will increase to 5 percent by the end of 2015. Freddie Mac expects a 4.5 percent average in 2015. However, in 2013, economists had predicted mortgage rates to reach 5 percent by the end of this year. The 30-year fixed-rate mortgage has averaged below 4 percent in recent weeks. But with the end of the Federal Reserve's quantitative easing, MBA believes that a short-term fund rate hike is more likely by mid-2015, which would then push interest rates up.

4.Rent rises will outpace home value growth. Rents likely will continue to keep rising in the new year, and many housing analysts predict that an increase in rental costs in 2015 will outpace annual home-price gains. The rental market will likely remain a "landlord's market" in 2015, with vacancy rates expected to stay below 5 percent in the new year, according to NAR

forecasts. That should lead to demand pushing rents up even higher and keeping them above inflation, NAR Chief Economist Lawrence Yun notes. Apartment rents are projected to increase 4 percent in 2014 and 4.1 percent in 2015. The rise in rents could push more Millennial renters to become home owners. Realtor.com® analysts predict that households headed by Millennials will drive household formations in the new year. Millennials are expected to drive two-thirds of household formations over the next five years, according to realtor.com®'s predictions. "Next year's addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales," realtor.com® notes.

5.Builders shift to building less expensive homes. In the last few years, builders have been building fewer, more expensive homes. But that trend may change in the new year, as more builders look to target less-expensive markets. New-home sales are expected to top the 500,000 mark in 2015, but in order to do that, builders may have to sell less expensive homes, housing analysts note. Earlier this year, representatives from D.R. Horton, the nation's largest home builder, said they planned to capture more of the entry-level market with its newly launched brand called Express Homes. The properties will be priced between $120,000 and $150,000, and they will be concentrated in Texas, Georgia, and Florida. "We wouldn't be getting into Express Homes if we didn't think it was the next segment of the market to recover," D.R. Horton CEO Donald Tomnitz told CNBC in April.

6.Foreclosures fall back to pre-recession levels. Foreclosure filings have been on the decline this year and are expected to continue their descent well into 2015. From January through November, foreclosure filings fell about 172 percent compared to the same period one year prior, according to RealtyTrac. "Every month so far this year, we've been down from a year ago," says Daren Blomquist, vice president of RealtyTrac. The only uptick has been in foreclosure auctions, which are up 5 percent in November compared to one year earlier. Foreclosures will likely fall to pre-crisis levels in 2015, Blomquistpredicts.

7. Millennials to drive household formation. Households headed by Millennials are expected to see significant growth in 2015, particularly as the economy continues to make gains. Millennials are expected to drive two-thirds of household formations over the next five years, according to realtor.com®'sreport. The forecasted addition of 2.5 million jobs next year, as well as an increase in household formation, are the two factors that realtor.com® points to in driving more first-time home buyers to the housing market.

1. Home appreciation will continue to slow.

2. Buying frenzy becomes more muted.

4. Rent rises will outpace home value growth.

7. Millennials to drive household formation.

8. Housing affordability will decline.

8. Housing affordability will decline. Affordability for homes, based on home-price appreciation and rising mortgage interest rates, will likely fall by 5 to 10 percent in 2015. However, the decline in affordability likely will be offset by an increase in salaries next year for many households. "When considering historical norms, housing affordability will continue to remain strong next year," realtor.com® notes.

National Housing Market Forecast

National Housing Market Forecast

California Housing Market Outlook

Sales Down for 2014 but will Improve in 2015;

Price Gains Slowing

Units (Thousand)

380 403

0

100

200

300

400

500

600

700

2005 2007 2009 2011 2013 2015f

Tho

usa

nd

s

Sales of Existing Detached Homes

$455

$479

$0

$100

$200

$300

$400

$500

$600

2005 2007 2009 2011 2013 2015f

Tho

usa

nd

s

Median PricePrice

(Thousand)

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

• Federal Economic Policy

• Regulations

• Mortgage Interest Deduction

• CFPB

• Future of GSE’s

• Lender Requirements

• Short Sales

• Foreclosures

• Interest Rates

• Inflation

• Shadow Inventory

• Global Economy

• Unemployment

Unprecedented era of government involvement in housing

Sovereign

Debt

Crisis in

EuroZone

Oil Price Spikes

Arab Spring

Political

Change

on

Capitol

Hill

Debt Limit

Ceiling &

Downgrade

of US Debt

Stock

Market

Volatility

The Realtor® HomeWashington D.C.

The National Association of REALTORS®, “The Voice for

Real Estate,” is America’s largest trade association.

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