dr. james p. gaines research economist recenter.tamu.edu

Dr. James P. GainesResearch Economist

recenter.tamu.edu

The Current Housing Market

• Oil prices, the economy and home prices

• Recent price increases and Affordability

• Tight/Difficult mortgage credit

• Interest rates

• Shifting demographics: families, age, ethnic• Gen Y demand • Difficulty of first-time buyers to enter the market • Attitude toward Homeownership

• Percentage of sales by institutional investors

• Volume of all-cash sales

Texas Monthly Home Sales & WTI Price/bl

May 1987 to Present

Source: WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University

Correlation coefficient of 0.68

Texas SF Permits & WTI Price/bl

Monthly January 1995 to Current

Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University

Correlation coefficient of -0.12

Texas Median Price & WTI Price/bl

Monthly January 1990 to Current

Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University

Correlation coefficient of 0.86

US and Texas Median Price of SF Home

Source: NAR, Real Estate Center at Texas A&M University

U.S.

Texas

Texas “Price Gap” rapidly closing

U.S. Median Price of Existing SF Homes

Source: NAR

+176.3%

+49.5%

+57.3%

+49.7% -25.1%

Peak-to-Trough2006-2011 = -25%

Trough-to-Peak2011-2014 = +25%

Annual Percent Change in the Median Price of Existing SF

Homes

Source: NAR

1969-1999 Average Change +6.4%1985-2000 Average Change +4.6%1969-2014 Average Change +5.25%

Source: Real Estate Center at Texas A&M University

Annual Texas Home Sales

$93.26$66.05

$56.64

$41.51

$72.34

Record Texas Median Home Price Five Years in a

Row

Source: Real Estate Center at Texas A&M University 11

2013 +9%; 2014 +7%

Annual Percent Change in the Median Home Price in Texas

Source: NAR

1990-1999 Average Change +4%2000-2014 Average Change +4.151990-2014 Average Change +4.1%

2007-2009 “peak-to-trough”-1.0%2009-2014 “trough-to-peak”+26.5

Texas Home Sales by Price

Source: Real Estate Center at Texas A&M

2004 66% sales <$160,0002014 40% sales <$160,000‘13-’14 <$100,000 -15% ‘13-‘14 <$160,000 -8%

Who’s Buying?

Who’s Not Buying?

First-Time Home Buyer Percent of All Buyers

Source: NAR Home Buyers and Sellers Survey; 2014 Texas Home Buyers and Sellers Survey

Long-term average 40%

First-Time Home Buyers by Age Group (Percent of All Buyers)

Source: 2014 NAR Home Buyers and Sellers Survey

2014 Texas first-time buyer was 32

Age of All Home Buyers (Percent Distribution and Median Age

in Group)

Source: 2014 NAR Home Buyers and Sellers Survey

2940

5363

72

2014 Texas buyer was 45

Biggest Obstacles to Homeownership

All adults 18-34 year-olds only

Saving enough for a down payment 55% 58%

Not having a stable job 36% 43%

Having a poor credit history 35% 33%

Qualifying for a mortgage 32% 29%

Unable to pay off existing debt 26% 30%

Rising home prices 22% 23%

Rising mortgage rates 15% 18%

Limited inventory 5% 5%

Among renters who wish to buy a home right now. Respondents could choose multiple options. Survey conducted November 2013. Trulia Trends, December 2013.

Many renters say they tend to live payday to

payday.

Source: FHLMC, “Perceptions of Renting and Homeownership,” Multifamily Research Perspectives, December 8, 2014

In the next three years, do you expect to

continue renting or purchase home?

Total 18-24 25-34 35-44 45-54 55-64 65+

Continue Renting 61% 69% 53% 42% 72% 74% 79%

Purchase a Home 39% 31% 47% 58% 28% 26% 21%


What are the main reasons you expect to still be renting in the next three years? (More than one answer

could be selected). Asked among renters who plan to continue renting

in the next three years.


2013 Texas Population by Age

22

26.8%

10.2%

14.3%13.6% 13.1%

6.0% 4.9% 6.5%

1.2%

Total 26,664,574

3.3%

Source: Texas State Demographer’s Office 2012 Projections 2000-2010 1.0 Scenario

11.0% 65+

Percent Change from 2010 to 2050 by Age Groups in the

Texas Population

23Sources: Texas State Demographer’s Office 2012 Projections 1.0 Scenario

Gen Y Housing OutlookGen Y

•Emerging Adults•Plugged in•Social•Educated•Outspoken•More liberal•Multicultural•High performance•High expectations•Marry later – buy later•Fewer children, later

24

Gen Y Housing•Seen the housing collapse•Currently 51% rent•80+% eventually want to buy•First-time buyers mostly with financial constraints to buying•Jobs and student debt = less savings for down payment•First-time buyers <30% vs. historic 40%•“Gen Rent”

Sources: M. Leanne Lachman and Deborah L. Brett, “Generation Y: America's New Housing Wave,” Urban Land, February 2011, FNMA National Housing Survey; Pew Research Group; Real Estate Center at Texas A&M University

AFFORDABILITY

How much down? How much per month?

U.S. Housing Affordability Index

Source: NAR Composite Index

Average 1994-2003 = 132.4

Drop of 31.5% from April 2003 to July 2006

Increase of 84% from July 2006 to April 2013

Decline of 20% since Jan 2013

National Housing Affordability Index and

Median Home Price

Source: NAR

Median Home Price(Left Scale)

NAR Affordability Index (right scale)

Texas Housing Affordability Index

Source: Real Estate Center at Texas A&M University HAI

TexasSince 4Q2011:Texas down 32%

Texas & U.S. Housing Affordability Index

Source: Real Estate Center at Texas A&M University HAI

Texas

U.S.

Since 4Q2011:Texas down 32%U.S. down 39%

Texas Housing Affordability Index & 30-Year FMR

Source: Real Estate Center at Texas A&M University

Texas HAI (left)

30-Year Fixed Mortgage Rate (right)

Median Home Price as a Multiple of Median Household Income

US New Homes (‘75-’00 avg. = 3.82)

US Existing Homes (‘75-’00 avg. = 3.36)

Source: US Census Bureau, NAR, Real Estate Center at Texas A&M University

Texas MLS Homes (‘89-’10 avg. = 2.88)

Texas Median HH Income Indexed to 1989

Source: U.S. Census Bureau; Real Estate Center at Texas A&M University

Real HH Income

Nominal HH Income

Texas Median HH Income & Median Home Price Indexed

to 1989

Source: U.S. Census Bureau; Real Estate Center at Texas A&M University

Real HH Income

Nominal HH Income

Median Texas Home Price

Home-Price Multiplier:

4.15% FMR; 5.5% TIUs; 35% QR

Down Payment

Maximum Home Price Multiplier

3% 3.14

5% 3.17

10% 3.26

15% 3.35

20% 3.44

25% 3.54

30% 3.65The more down payment, the lower the monthly payment, the

higher price one can pay

Texas Households by Highest Affordable Price

Source: US Census Bureau 2013 American Community Survey; Real Estate Center at Texas A&M University

18.5%

9.4%

7.6%

7.1%

6.3%

5.8%

9.8%

7.1%

11.1%

6.6%

20% down; 4.15% interest; 35% qualifying ratio; and 5.5% taxes, insurance & utilities

5.9%

4.9%

~43% of Texas HHs cannot afford home priced > $150,000



19.8%

5.4%

12.3%

7.4%

6.3%

5.9%

9.7%

7.0%

10.9%

5.7%


4.7%

4.9%


10 U.S. Counties with Most Homes Qualifying for Down

Payment Help

State County

Total Single Family Homes & Condos in

County

Total that Qualify for Down Payment

AssistancePercent

that QualifyCA Los Angeles 1,762,256 1,377,813 78.18%IL Cook 1,372,463 1,163,913 84.80%AZ Maricopa 1,227,121 1,052,746 85.79%TX Harris 1,038,027 961,957 92.67%MI Wayne 692,174 653,221 94.37%CA San Diego 717,165 618,050 86.18%FL Miami-Dade 716,924 589,683 82.25%NV Clark 605,679 558,411 92.20%TX Dallas 574,849 533,518 92.81%FL Broward 623,634 523,178 83.89%

Source: Joint Study by RealtyTrac and Down Payment Resources, February 4, 2015

Dr. James P. GainesResearch Economist

recenter.tamu.edu

dr. james p. gaines research economist recenter.tamu.edu

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