Housing market forecast

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949.769.1599. OC Housing News market reports information on housing market valuation and price trends essential to homebuyers and home sellers.

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  • 1. Housing MarketReportsUnderstanding and interpreting OCHNmonthly housing market reportsHOUSING MARKET FORECAST

2. HousingMarketReportsOCHousingNewsMonthlyMarketReport.....................................................................................................................3UsingtheOCHNMonthlyReport........................................................................................................................................3InterpretinganOCHNMonthlyMarketReport............................................................................................................4NewsOverview..........................................................................................................................................................................................4MedianHomePriceandRentalParityTrailingTwelveMonths..........................................................................................4Resale$/SFandYear-Over-YearPercentageChangeTrailingTwelveMonths............................................................6RentalRateandYear-Over-YearPercentageChangeTrailingTwelveMonths.............................................................7HistoricMarketDataCharts................................................................................................................................................................8PercentageChangeCharts.................................................................................................................................................................10HistoricValuation..................................................................................................................................................................................12OCHNRatingSystemChart...............................................................................................................................................................13InvestorAnalysis...................................................................................................................................................................................14MarketPerformanceandTrendsTable.......................................................................................................................................15MarketTimingRatingandValuationsTable.............................................................................................................................17Theimportanceofrentalparity.....................................................................................................................................18RentalParityasbasisofvalue.........................................................................................................................................................18Premiumsordiscountstorentalparity..........................................................................................................19Benchmarkvalueofstablemarket....................................................................................................................19Howrentalparityiscalculated........................................................................................................................................................20Conventionalfinancing...........................................................................................................................................20Year-over-yearpercentagechange................................................................................................................................................21Per-Square-FootBasis.............................................................................................................................................21Salespricesonaper-square-footbasis...........................................................................................................21Rentsonaper-square-footbasis........................................................................................................................22OCHNRating..........................................................................................................................................................................22SystemCriteria.......................................................................................................................................................................................22Valuationrating.........................................................................................................................................................23Resalemomentumrating.......................................................................................................................................23Rentalmomentumrating.......................................................................................................................................24Whatwouldatypicalmarketlooklike?..........................................................................................................26Whatwouldbeaperfectworld?.........................................................................................................................26info@ochousingnews.com949.769.1599 3. HousingMarketReportsOCHousingNewsMonthlyMarketReportOCHousingNewsmonthlymarketreportandnewsletterprovidesaclearpictureofthehealthofthehousingmarket.Bothbuyersandsellersfindtheinformationonlocation,valuation,andpricetrends,timelyandrelevanttotheirdecisiontobuyorsellahome.TheOCHousingNewsreportanswersthemostimportantquestionstobuyersandsellers:(1)WhereshouldIlookforbargains,(2)Arecurrentpricesoverorundervaluedinmyarea,and(3)whatdirectionarepricesheaded,upordowninmyarea?Armedwithbetterinformation,peoplemakebetterdecisions.ThereistoomuchinformationabouthousingfloatingaroundtheInternet,andmostofitisbad.Itiseasytotakedataandcreateprettychartsandgraphsthatdon'tprovideanyusefulinformationsomeonemightusetomakeagooddecision.TheOCHousingNewshaseliminatedtheuselessinformationanddistilledthemarketdowntothreekeypiecesofinformation:(1)resalevaluerelativetorent,(2)yearlychangeinresaleprices,and(3)yearlychangesinrents.Forthosewhoareverytechnicalandanalytical,theinformationonthetheoryandthecalculationsbehindthereport,thelatersectionsofthisworkstartingwithTheimportanceofrentalparityonpage18,providesmoredetail.Forthosemoreinterestedinusingthisinformationtofindahome,keepreading.UsingtheOCHNMonthlyReportWhenmostpeopleareconsideringrentingorbuyingahome,theyalreadyhavenarrowedtheirchoicesforlocation.Mostwanttobenearwork,buttheymayalsowanttobenearfamily,friends,oraparticularschooldistrict.ThetableofcontentsonthefrontpageoftheOCHNmonthlyreportorganizesthereportsbycountysopeoplecannarrowtheirsearchtotheareatheyaremostinterestedin.Isuggestsearchersstartwiththeoverviewofthecountyasthisprovidesimportantdataonthebroaderrealestatemarket.info@ochousingnews.com949.769.1599Page3of27 4. HousingMarketReportsInterpretinganOCHNMonthlyMarketReportThefirstpageofacountyreportbreaksdownintofourparts:Thenewsoverview,MedianHomePriceandRentalParitytrailingtwelvemonths,Resale$/SFandyear-over-yearpercentagechangetrailingtwelvemonths,Rentalrateandyear-over-yearpercentagechangetrailingtwelvemonths.NEWSOVERVIEWThenewsoverviewprovidesconcisedescriptionsofthefactsandconditionsinthemarket.Itstateswhetherthemarkettradesatapremiumoradiscounttorentalparityandprovidesameasureofit.Amarkettradingatapremiumtorentalparityismoredesirable,sobuyersarewillingtopaymorethanrentalparitytolivethere.Amarkettradingatadiscountislessdesirable,andpeoplemustbemotivatedtolivetherebysavingversusrenting.Thenewsoverviewmeasuresthecurrentpremiumordiscount,comparesittothehistoricpremiumordiscount,andstateswhetherthemarketiscurrentlyovervaluedorundervalued.Thisisanimportantmeasureoffuturefinancialperformance.MEDIANHOMEPRICEANDRENTALPARITYTRAILINGTWELVEMONTHSForthosewhowantthebottomlinewithoutalltheanalysisanddetail,themarketratingisthefirstrowofthefirstsectionofdata.Theratingencapsulatesalltheconditionsofthemarketintoonefigure.Formoreinformationoninfo@ochousingnews.com949.769.1599Page4of27 5. HousingMarketReportshowthisiscalculated,seeOCHNRatingonpage22.Sufficetosaythataratingof10isgoodandaratingof1isbad.Buyerscanrestassuredthatahighlyratedpropertyormarketisagoodfinancialbuy.Thechartdisplaysthreelinesthatrevealmuchaboutthemarket.Thefirsttwolinestonotearetheparallelgreenandorangelines,rentalparity(green)andhistoricvalue(orange).Asmentionedpreviously,somemarketstradeatadiscountandsomeatapremiumtorentalparity.Iftheorangeline(historicvalue)isabovethegreenline(rentalparity),themarketisapremiummarket.Iftheorangeline(historicvalue)isbelowthegreenline(rentalparity),themarketisadiscountmarket.Thelargerthegap,thegreaterthepremiumordiscountis.Thethirdlineplottedagainstthesetwoparallellinesisthemedianresalepriceforthearea.Thislinerevealswhetherthemarketiscurrentlytradingatapremiumordiscounttorentalparityandhistoricvalue.Themoreimportantoftheserelationshipsisbetweenmedianresalepriceandhistoricvalue.Overtime,themarkethasshownatendencytowardtradingathistoricvalue.Ifittradesaboveforawhile,overtimeitwillrevertbacktothisvalue.Thatmayhappeneitherbyanextendedperiodoflittleornoappreciationoranoutrightdeclineinprices.Ifthemarkettradesbelowitshistoricvalue,itslikelytoseeareboundbacktothisvalueinthefuture.Thebestmarketsarethosetradingatasteepdiscounttoitshistoricvalue.info@ochousingnews.com949.769.1599Page5of27 6. HousingMarketReportsRESALE$/SFANDYEAR-OVER-YEARPERCENTAGECHANGETRAILINGTWELVEMONTHSSincethehistoricvalueissoimportant,thefirstcolumninnextsectiondisplaysthepremiumordiscountfromhistoricvalueoverthelastyear.Thesecondcolumnandthechartshowsthedollars-per-square-footresalepriceinthemarket.Thelineonthechartvisuallyshowsthegeneraldirectionofprices,andthethirdcolumnshowstheactualpercentagechange.Itsimportanttonotethatthepercentagechangeinresalepricescanbemisleading.Mostbuyersfoolishlyextrapolateshort-termmovementsinmarketpriceswillcontinueforever,motivatingthemtobuyatwhatisoftentheworstpossibletime.Inreality,buyinginadecliningmarketwhenvaluationsarelowisgenerallythebesttimetobuybecausesellersaremotivatedandsupplyisabundant.Buyinginanappreciatingmarketmaynotbewise,particularlyifvaluationsignalsabubble.Inshort,valuationismuchmoreimportantthatpricemovement.info@ochousingnews.com949.769.1599Page6of27 7. HousingMarketReportsRENTALRATEANDYEAR-OVER-YEARPERCENTAGECHANGETRAILINGTWELVEMONTHSThefinaltableandchartonthepageissimilartothefirstgrouping;itdisplaysthreelines,twoofwhichareparallelandshowcurrentrentandthehistoriccostofownershiprelativetorent,andthethirdlineisthecurrentcostofownership.Therelationshipsaresimilar,thechartswilllooksimilar,andtheinterpretationsarethesame.Thismethodoflookingatthedataismorerevealingtothosewholiketofocusonmonthlycostsratherthanpurchaseprice.Itrevealshowaffordablepropertiesarerelativetomonthlyrent,whichiswhatrentalparityanalysisisallabout.Thefirstcolumnofdatashowstherateofrentgrowthoverthelastyear,andthenexttwocolumnsshowthecostofrentingandthecostofowningduringthesameperiod.info@ochousingnews.com949.769.1599Page7of27 8. HousingMarketReportsHISTORICMARKETDATACHARTSThenextpageofthereportshowstwocharts:CountymedianhomepricesinceJanuary1988,andCountymedianrentandmonthlycostofownershipsinceJanuary1988.Thesechartsaredesignedtoputcurrentcircumstancesinhistoriccontext.Theyanswerquestionslike,Howvolatileareprices?andHowdoestodayspricingcomparetothefluctuationsofthepast?andHowmuchdangeristhereinbuyingtoday?ThechartabovedisplaysLACountythroughearly2014,butthepatternissimilaracrossCalifornia.Withthegreenlineforrentalparityandtheorangelineforhistoricvalue,itseasytotellwhenthemarketisfairlyvalued,overvalued,orundervalued.info@ochousingnews.com949.769.1599Page8of27 9. HousingMarketReportsThechartaboveshowsrentandmonthlycostofownership.Itlookssimilartotherentalparityandresalehomepricechart,asitmerelyconvertsthatinformationtoamonthlyformat.Forthosewhohavedifficultyrelatingtothelargenumbersofpurchaseprice,viewingthedataintermsofmonthlyexpensesiseasiertoputintocontext.info@ochousingnews.com949.769.1599Page9of27 10. HousingMarketReportsPERCENTAGECHANGECHARTSThefollowpageinthereportcontainstwomorechartsdisplayinghistoricinformation.Thistime,thedatashowspercentagechangesovertime.Thisisimportantbecausemanypeoplebelievemoreisalwaysbetter.Thatsnotthecase.Whenhousepricesorrentsgoupquickly,itsoftenasignofsomeunderlyingdistortioninthemarket,andbuyersshouldbecautious.Asmentionedpreviously,mostpeopleerroneouslyextrapolaterecentpastpricebehaviorasapermanenttrend,motivatingthemtobuyattheworstpossibletimeasmanywhopurchasedin2004and2005foundoutpainfully.Throughout2013,housepricesroseveryrapidlycausingsomeanalyststoproclaimanewhousingbubble.Thoughsuchpriceactioniscertainlyacauseforconcern,itmustbeplacedincontext;pricesrosefromanextremelyundervaluedcondition.Thepricerallywasabrupt,butitdoesnotrepresentanewbubbleuntilvaluationssoarabovehistoricnorms.info@ochousingnews.com949.769.1599Page10of27 11. HousingMarketReportsWhenpricesgoupveryquicklyandrentsdonot,affordabilityplummets,likeitdidin2013.Whenbothgouptogether,itmaybeasignofanoverheatingeconomy,andwhenbothgodowntogether,itsasignofaweakeconomy.info@ochousingnews.com949.769.1599Page11of27 12. HousingMarketReportsHISTORICVALUATIONThenextpageinthereportshowstwocharts:HistoricMedianHomePriceRelativetoRentalParity:CountysinceJanuary1988,andOCHNMarketTimingSystemRating:LosAngelesCountysinceJanuary1988.Thechartaboveshows,ataglance,howclosethemarkettradestoitshistoricnorm.Thebenchmarkperiodisshowningreen,andthedegreeofmarketvolatilitycanbeinferredfromthescaletotheleft.Forexample,LACountytradedforasmuchas42%belowrentalparityand84%aboveitduringthe26-yearperiodshown.Needlesstosay,thatisveryvolatile,andpeoplewhoboughtduringtheovervaluedperiodsenduredpainfulpricecorrectionswhentheirhouseswereworthfarlessthantheypaid.info@ochousingnews.com949.769.1599Page12of27 13. HousingMarketReportsOCHNRATINGSYSTEMCHARTThemarkettimingratingsystemmechanicallyidentifiesbothgoodandbuydimestobuybasedonvaluation,resalepricechange,andrentalratechange.Since1988,inLACounty,itwaswronginitsrecommendationinonlyasingletwo-yearperiodfromlate1999tomid2001asthelocaleconomytippedintoarecession.Thesystemcorrectlyidentifiedthehousingbubblesfromthelate80sandthemid00saswellasthebuyingopportunitiesinthemid90sandearly10s.info@ochousingnews.com949.769.1599Page13of27 14. HousingMarketReportsINVESTORANALYSISThefinalpageofthecountymarketanalysiscontainstwochartsfocusingoninvestmentopportunities:CashInvestorCapitalizationRate:CountysinceJanuary1988,andFinancedInvestorCash-on-CashReturn:CountysinceJanuary1988.Thispagecanbeignoredbyfamilyhomeshoppers.Thechartoncapitalizationrate(shownabove)displaysthemortgageinterestrate(yellow)andthecapitalizationrate(purple).Thecapitalizationrateisthenetrentdividedbythepurchaseprice.Itgoesupwhenrentsgouporhousepricesgodown;anditgoesdownwhenrentsgodownorhousepricesgoup.Mostofthevolatilityincapitalizationrateiscausedb...