February Housing Market Update

March 19, 2019

Jordan G. Levine
Deputy Chief Economist
Overview

Why It Isn’t As Bad As You’ve Heard

• Economic fundamentals solid
• Sales Bounced Back Modestly
• Listings Growth Decelerating
• Price Growth Stabilizing
Why We Shouldn’t Pop the Champagne
• Sales Still Falling From Last Year
• Price Growth Poised For Slower Growth
• Affordability has eroded a LOT
• Market Much Less Competitive
2019 Will Be Tough, But Not A Disaster
Economic Update
Economic Fundamentals Remain Strong

2.6% 2.8% 2.2%

GDP 2018-Q4 Consumption Core CPI

2018-Q4 January 2019

4.0% 1.9%

Unemployment Job Growth

January 2019 January 2019
 Unemployment Lowest in 40+ Years
Unemployment Rate 8.6%
Kings
14 California U.S. Merced
6.6%
12 Yuba City
Modesto
10 Monterey
Shasta
8
Santa Cruz
6 Ventura
Sacramento
4
San Diego

2 Orange County
Napa
0 South Bay
Jan-76

Jan-89

Jan-02

Jan-15
Nov-86
May-80
Jul-82
Sep-84

May-93
Jul-95
Sep-97

Sep-10
Nov-99

Nov-12
Mar-78

Mar-91

Mar-04
May-06
Jul-08

Mar-17 San Francisco 2.1%

0% 2% 4% 6% 8% 10%
Sales Bounce Modestly
 Sales Highest in 6 Months
California, February 2019 Sales: 399,080 Units, -9.0% YTD, -5.6% YTY
700,000

600,000
Feb-18: Feb-19:
422,910 399,080
500,000

400,000

300,000

200,000

100,000

SERIES: Sales of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized
 Sales Trending Downward Prior to Drop
20%

15% Avg. year-over-year

% chg. = -8.5%
10%

5%

0%

-5%

-10% Last 4+ consecutive mo. with decline:

Avg. year-over-year % chg. = -1.9%
-15%

*Sales are seasonally adjusted and annualized

SERIES: Sales of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Sales Declined in All Price Segments
February 2019 (YTY% Chg.) Share by Price Segment
0% 0% 5% 10% 15% 20% 25% 30%
-0.3%
$0 - $199k 5.9%
-5% -3.6%
-4.2% -5.6% $200 - $299k 14.9%
-6.4%
-10%
$300 - $399k 16.3%
-11.4%
-15% $400 - $499k 14.4%

$500 - $749k 24.0%

-20%
-19.5%
$750 - $999k 10.4%

-25% -23.1%
$1,000 - $1,999k 10.9%

$2,000k+ 3.2%

SERIES: Sales of Existing Detached Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Bay Area Sales Still down but Had the Smallest
Decline since Oct 2018
Bay Area 6 per. Mov. Avg. (Bay Area)
30%

20%

10%
YoY % chg.

0%
-5.8%

-10%

-20%

-30%
Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17

May-18

Sep-18
Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17
SERIES: Sales of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are not seasonally adjusted and annualized
 So. California Sales Declined, but Drop Less
than 10% for the1st Time in 4 Months
YoY % chg. So CA 6 per. Mov. Avg. (So CA)
40%

30%

20%

10%

0%
-9.6%
-10%

-20%

-30%

SERIES: Sales of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are not seasonally adjusted and annualized
 Central Valley Sales Continues to Decline,
but Decrease at a Slower Pace
YoY % chg. Central Valley 6 per. Mov. Avg. (Central Valley)
30%

20%

10%

0%

-6.3%
-10%

-20%

-30%
Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
May-10

May-11

May-12

May-13

May-14

May-15

May-16

May-17

May-18
Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18
SERIES: Sales of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are not seasonally adjusted and annualized
Listings Decelerating
 Inventory Index Highest in Three Years
February 2018: 3.9 Months; February 2019: 4.6 Months
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

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®
 Active Listings Had Smallest Growth in Six
Months
Year-over-Year % Chg
40%

30%

19.2%
20%

10%

0%

-10%

-20%

SERIES: Active Listing of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Housing Supply Improved in Most Segments
Feb 2019
Active Listing
40%
31.3%
30% 25.9%
22.1%
18.0% 19.2%
20% 14.3%
9.3%
10%

0%

-10%
-9.0%
-20%

SERIES: Active Listings of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Inventory Improved as Sales Continued to Fall
9.0 Bay Area So CA Central Valley

8.0

7.0

6.0

5.0 5.3

4.0 3.8
3.3
3.0

2.0

1.0

0.0

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®
 Active Listings Increased in All Regions

Feb-18 Feb-19
30,000
26,946

25,000
22,379

20,000
Active Listings

15,000

10,000 9,383
8,078
5,593
5,000 3,941
2,092 2,225

0
San Francisco Bay Area Southern California Central Valley Central Coast

SERIES: Active Listings of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Active Listings Increased in All Regions
Feb 2019

Sales Active Listings

50%
41.9%
40%
Year-to-Year % Chg

30%
20.4%
20% 16.2%

10% 6.4%

0%
-4.4% -3.8%
-10% -6.3%
-9.6%
-20%
San Francisco Bay Southern California Central Valley Central Coast
Area

SERIES: Sales and Listings of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Inventory Index Highest in Millions
California Unsold Inventory Index by Segment
18
15.8
16
14
12 11.5

10
8.3
8 7.0
6.1 6.3
6 5.2 5.1 5.4
4.3 4.4 4.6 4.6
4.0 4.0 3.9 3.9
4 3.43.7 3.4 3.4 3.6

2
0

Feb-18 Feb-19
SERIES: Unsold Inventory Index of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Prices Still Growing
 Home Prices Grow At Very Modest Pace
California, February 2019: $534,140, -0.6% MTM, +2.2% YTY Feb-19:
P:May-07
$700,000 $534,140
$594,530 Feb-18:
$522,440
$600,000

$500,000
T: Feb-09
$245,230
$400,000 -59% from
peak
$300,000

$200,000

$100,000

$-

SERIES: Median Price of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Median Price

$100,000
$200,000
$300,000
$400,000
$500,000
$600,000

$0
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SERIES: Median Price of Existing Condos/Townhomes
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Condo

Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Condos Had First Dip since April 2012

Sep-16
Feb-17
Jul-17
Dec-17
Feb-18:
$454,500

May-18
Oct-18
Feb-19:
$450,000
 List Price Suggests More Modest Growth
California Median Sales vs. List Price Growth
Sales Price Growth Lags List Price Growth by 4-6 Months
40%

30%
YTY% Chg. in Price

20%

10% 2.9%

0%

-10%

-20%
Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
Jul-15
Jul-12

Jul-13

Jul-14

Jul-16

Jul-17

Jul-18
Oct-12

Oct-13

Oct-14

Oct-15

Oct-16

Oct-17

Oct-18
Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18
Listing Price Sales Price

SERIES: Sales to List Ratio of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Price Growth by Region
Existing SFR Price Growth, February 2019
7.0%

6.0% 5.7%

5.0%

4.0%
3.2%
3.0%

2.0% 1.4%
1.0%

0.0%

-1.0%
-0.9%
-2.0%

-3.0% -2.3%
Los Angeles Central Coast Central Valley Inland Empire S.F. Bay Area
Metropolitan Area
 Bay Area Price vs. Price/Sq. Ft: Shifting Mix

Feb 2019
Median Price (YTY% Chg.) Median Price/Sq. Ft. (YTY% Chg.)
20%
12.5%
10% 6.5% 6.8%
5.2%
3.4%
1.7%
0%
-1.2%
-5.9% -6.1% -4.7% -4.9%
-10% -8.4% -7.1%
-9.2%
-12.4% -11.5%
-13.0%
-15.4%
-20%

SERIES: Active Listings of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2,650,615 6,669,522
2,737,014 6,750,089
2,560,405 6,674,010
2,674,808 6,527,730
Signs of Investors Jumping Ship?

2,633,238 6,368,348
2,578,966 6,618,323
2,487,949 6,523,696
California Single-Family Housing Stock

Renter-Occupied

2,478,430 6,489,607
2,222,589 6,618,373
2,281,491 6,696,502
2,080,618 6,793,440
Owner-Occupied
2,053,107 6,754,095
1,958,648 6,820,133
1,940,607 6,919,164
1,768,833 6,877,251
1,787,309 6,824,802
1,776,303 6,377,572
1,754,913 6,472,732
1,883,210 6,295,466
9,000,000

7,000,000
8,000,000

6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
10,000,000
 SoCal Price vs. Price/Sq. Ft: Shifting Mix Here?

Feb 2019
Median Price (YTY% Chg.) Median Price/Sq. Ft. (YTY% Chg.)
8% 7.3%
7%
6%
4.8%
5%
4% 3.5% 3.5% 3.3%
3% 2.7%
1.4% 1.8%
2% 0.9% 0.9%
1% 0.0%
0%
-1%
-2%
-1.6%
-3%

SERIES: Active Listings of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Central Coast Price vs. Price/Sq. Ft

Feb 2019
Median Price (YTY% Chg.) Median Price/Sq. Ft. (YTY% Chg.)
20% 15.9%
15%
10% 6.6%
4.3%
5%
0.7% 0.0%
0%
-5% -2.1%
-10%
-15%
-14.6%
-20% -17.8%

SERIES: Active Listings of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Central Valley Price vs. Price/Sq. Ft

Feb 2019
Median Price (YTY% Chg.) Median Price/Sq. Ft. (YTY% Chg.)
30% 28.0%

25%
20%
15% 10.2%
10.1%
10% 7.6% 4.2% 8.2%
5.9% 4.9% 4.8% 3.2% 5.9%
4.5% 3.7% 3.9% 3.3%
5% 2.8% 0.6% 2.9% 2.8%
1.3% 1.6% 0.4% 1.4%
0%
-0.5%
-5%

SERIES: Active Listings of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Supply Problems Have
Become Demand Issues
 Is It a Good Time to Buy or Sell?

Do you think it’s a good time to buy a Do you think it’s a good time to sell a
home in California? home in California?

57% 56% 53%

51% 48% 50%
46%

22% 21% 27% 25% 22% 25% 24%

Do you think it’s a good time to buy a home in California? (n=300) SERIES: 2018/2019 Google Consumer Poll
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Do you think it’s a good time to sell a home in California? (n=300)
 Housing Affordability Peaked at Q1 2012
California, 1984-2018
80%
Annual Quarterly
% OF HOUSEHOLDS THAT CAN BUY A

70%

60%
54%
MEDIAN-PRICED

50%
HOME

40%

30%
28%
20%

10%

0%

CA US
SERIES: Housing Affordability Index of Traditional Buyers
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Housing Affordability Down Significantly
2018-Q4: % able to purchase median-priced home
70% 66%
53%
60%
54%

50%

40%

30% 28%

20%
12%
10%

0%

SERIES: Housing Affordability Index of Traditional Buyers

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 Less Competition
Highlights Weak Demand
 DAYS ON MARKET

0
10
20
30
40
50
70
80

60
Jan-05
Sep-05
May-06
Jan-07
Sep-07
May-08
Jan-09
Sep-09
May-10
Jan-11
Sep-11
May-12
Jan-13
Sep-13
May-14
Median Days on Market

Jan-15
Sep-15
May-16
Jan-17
Sep-17
May-18
Jan-19

Sales-to-List Price Ratio

90%
94%
96%
98%
100%

92%

Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Market Looking Less Competitive

Jul-13
Sales/List Ratio

Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
 10%
15%
20%
25%
35%
40%
45%
50%

30%

0%
5%
1/1/2010
4/1/2010
7/1/2010
10/1/2010
1/1/2011
4/1/2011
7/1/2011
10/1/2011
1/1/2012
4/1/2012
7/1/2012
10/1/2012
1/1/2013
4/1/2013
7/1/2013
10/1/2013
1/1/2014
Share Reduced 4/1/2014
7/1/2014
10/1/2014
1/1/2015
4/1/2015
7/1/2015
10/1/2015
1/1/2016
Reduced-Price Listings in California

Median Reduction

4/1/2016
7/1/2016
10/1/2016
1/1/2017
4/1/2017
7/1/2017
10/1/2017
1/1/2018
4/1/2018
7/1/2018
10/1/2018
More Actives Coming Down From List

1/1/2019
0%
2%
3%
4%
5%
33.40%7%
8%
9%

1%
6%

4.0%
10%
 Rural Counties Seeing More Reductions
Reduced-Price Listings by County
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
 Despite All This,
Room For Optimism
 Perspective is Everything
• Rates still low: 4.5% 30-Year Fixed Rate Mortgage
20
• Likely won’t rise as fast 18

• Homeownership still the dream 16

14
15.6

• Buyers overestimate 12
downpayments 10
• Would jump in if they could 8
6
• Don’t know about FHA loans
4
• Economy still going strong 2
0
• List prices are still growing

1971-04-02
1974-04-02
1977-04-02
1980-04-02
1983-04-02
1986-04-02
1989-04-02
1992-04-02
1995-04-02
1998-04-02
2001-04-02
2004-04-02
2007-04-02
2010-04-02
2013-04-02
2016-04-02
• Rising rates motivate buyers
Also, We Know How to
Fix This…
 California Is Not Building Enough
2018: 114,370 (57,346 sf, 57,024 mf )

350000
2019f: 111,080 (54,056 sf, 57,024 mf)

300000 CA HCD Projected

Single Family Multi-Family Housing Needs:
250000 180,000/yr.
200000

150000

100000

50000

SERIES: California New Housing Permits

SOURCE: Construction Industry Research Board
 New Building Not Keeping Pace w/Economy
California New Jobs vs. New Construction
2010-2018

1,424,208

845,833

379,967 386,467

183,111
134,437 111,792
28,670

SoCal Bay Area Central Valley Central Coast

New Jobs Permits

SERIES: Nonfarm Job Growth & New Housing Permits

SOURCE: CA EDD, Construction Industry Research Board
 Less housing per capita than other
Ratio of Housing Units Added to
Population Added Housing Units Added Population Added
1,000 People Number Units per 1,000 People

Arizona 1,101 Arizona 416,330 Arizona 378

Nevada 559 Nevada 202,332 Nevada 362

New York 1,090 New York 379,019 New York 348

Washington 1,142 Washington 374,157 Washington 328

Oregon 533 Oregon 174,466 Oregon 327

Texas 5,592 Texas 1,728,257 Texas 309

California 3,971 California 1,072,121 California 270

+40%

SOURCE: U.S. Census Bureau, C.A.R.

 ~880K People Left Since Recession Ended
California Net Domestic Migration
0

-20,000 -11,405
-25,498
-40,000

-60,000 -54,023

-80,000
-76,180
-100,000
-104,712
-120,000 -115,491
-140,000

-160,000
-159,421
-169,336 -165,828
-180,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
The Forecast
 U.S. Economic Outlook

2013 2014 2015 2016 2017 2018p 2019f

US GDP 1.7% 2.4% 2.6% 1.6% 2.3% 3.0% 2.4%

Nonfarm Job Growth 1.7% 1.9% 2.1% 1.8% 1.4% 1.6% 1.3%

Unemployment 7.4% 6.2% 5.3% 4.9% 4.4% 3.9% 3.7%

CPI 1.5% 1.6% 0.1% 1.4% 2.0% 2.5% 2.4%

Real Disposable Income, % Change -1.4% 2.7% 3.4% 2.7% 2.1% 2.8% 2.6%

30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2%

SERIES: U.S. Economic Outlook

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
 CA Housing Market Outlook

2019 2019 2019

2013 2014 2015 2016 2017 2018p
Likely Best Worst

SFH Resales (000s) 414.9 382.7 409.4 417.7 424.1 410.5 371.1 396.8 347.3

% Change -5.9% -7.8% 7.0% 2.0% 1.5% -3.2% -6.9% -3.3% -10.4%

Median Price ($000s) $407.2 $446.9 $476.3 $502.3 $538.0 $575.8 $574.5 $593.4 $534.4

% Change 27.5% 9.8% 6.6% 5.4% 7.2% 7.0% -0.2% 3.1% -6.5%

Housing Affordability
36% 30% 31% 31% 29% 28% 26% 25% 30%
Index

30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2% 5.2% 5.2%

SERIES: CA Housing Market Outlook

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Conclusion
 Putting it all Together
• Economy still going strong
• People still want to own homes
• Still demand for housing
• More listings for REALTORS®
• RE moving relatively quick
• Rising rates get folks off fence
• Rates won’t go up as fast
• Market not as competitive
• Buyers can start to negotiate
• Supply issues have become a
demand problem – Migration
• Signs of a shift
• Sales weak at bottom
• Inventory not snapped up
• Sellers starting to reduce prices
• Rising rates DO hurt
• Market to soften in ’19
• Focus on Selling Ownership