2016 Economic and Housing Outlook
2016 Economic and Housing Outlook Presented by: Kevin C. Gillen Ph.D., Chief Economist
Februaryt 2016 | HomeAid OC,
Agenda
I.
Economic Trends in US and CA
II.
Housing Market Trends in US and CA
III. Putting
It All Together: Summary and Where We Go From Here
March 2016 | OC HomeAid 2
ECONOMIC TRENDS IN US AND CA
Post-Recession: GDP Growth is Positive, but Slow: GDP Growth and Forecast in US v. California v. Los Angeles v. Orange v. San Diego: 1990-2020 18,025,000 16,025,000 14,025,000
US GDP (MIL. CH. 2009 USD)
2,500,000
Pre-Great Recession Avg. Annual Growth: ~3.25%
2,000,000 12,025,000 10,025,000
1,500,000
8,025,000 1,000,000
6,025,000 4,025,000
500,000 2,025,000 -
1990Q1 1990Q4 1991Q3 1992Q2 1993Q1 1993Q4 1994Q3 1995Q2 1996Q1 1996Q4 1997Q3 1998Q2 1999Q1 1999Q4 2000Q3 2001Q2 2002Q1 2002Q4 2003Q3 2004Q2 2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 2009Q3 2010Q2 2011Q1 2011Q4 2012Q3 2013Q2 2014Q1 2014Q4 2015Q3 2016Q2 2017Q1 2017Q4 2018Q3 2019Q2 2020Q1 2020Q4
25,000
(MIL. CH. 2009
3,000,000
CALIFORNIA ,LOS ANGELES ,ORANGE AND SAN DIEGO GDP USD)
Forecast
US
Source: Moody’s
California
Los Angeles
Orange
San Diego
March 2016 | OC HomeAid 4
CA Unemployment Exceeds US Average: Unemployment Rate and Forecast: 1990-2020-US v. California v. Los Angeles v. Orange v.San Diego 14%
12%
Forecast 10%
8%
6%
4%
2%
California
Source: Moody’s
US
Los Angeles
Orange
Nov-20
Jan-20
Mar-19
Jul-17
May-18
Sep-16
Nov-15
Jan-15
Mar-14
May-13
Jul-12
Sep-11
Nov-10
Jan-10
Mar-09
May-08
Jul-07
Sep-06
Nov-05
Jan-05
Mar-04
May-03
Jul-02
Sep-01
Jan-00
Nov-00
Mar-99
May-98
Jul-97
Sep-96
Nov-95
Jan-95
Mar-94
Jul-92
May-93
Sep-91
Nov-90
Jan-90
0%
San Diego March 2016 | OC HomeAid 5
CA Got Hit Especially Hard by the Great Recession: Job Growth (Annualized %) Rate and Forecast: 1990-2020: US v. California v. Los Angeles v. Orange v.San Diego 0.08 0.06
Forecast
0.04
0.02
Nov-20
Jan-20
Mar-19
May-18
Jul-17
Sep-16
Nov-15
Jan-15
Mar-14
May-13
Jul-12
Sep-11
Nov-10
Jan-10
Mar-09
May-08
Jul-07
Sep-06
Nov-05
Jan-05
Mar-04
May-03
Jul-02
Sep-01
Nov-00
Jan-00
Mar-99
May-98
Jul-97
Sep-96
Nov-95
Jan-95
Mar-94
May-93
Jul-92
Sep-91
Nov-90
-0.02
Jan-90
0
-0.04
-0.06 -0.08 -0.1
US
California
Los Angeles
Orange
San Diego
US Forecast
California Forecast
Los Angles Forecast
Orange Forecast
San Diego Forecast
Source: BLS, Moody’s
March 2016 | OC HomeAid 6
And Real Estate Sector Has Yet to Fully Recover… Home prices in most areas of the country have recovered significantly from the postbubble lows. But jobs related to housing still struggle. Overall, jobs in construction and real estate have declined by 19% since the recession—hundreds of thousands more than health care has added.
Decreased
Net Change in Jobs Since Recession
Increased
A Long Housing Bust
Lower Wages
Wages Paid by Industry
Higher Wages
Source: NY Times March 2016 | OC HomeAid 7
CA Has a Significant Wage Premium Over the US: Average Weekly Wage, Total ($) Growth and Forecast : US v. CA v. Los Angeles County 1300
1200
1100
1000
900
800
700
600
US Linear (US) Source: Zonda
California Linear (California)
Los Angeles Linear (Los Angeles)
Orange Linear (San Diego)
San Diego Linear (San Diego) March 2016 | OC HomeAid 8
But the 3-County Income Growth Rate Is Projected to Slow: $3,000,000 $20,000,000
$15,000,000 $2,000,000
$1,500,000
$10,000,000
Forecast
4.3% annual growth rate v. 4.6% annual Statewide growth rate.
$5,000,000
$1,000,000
$500,000
$0
Source: BEA and Moody’s
CA
Orange
2020Q1
2019Q1
2018Q1
2017Q1
2015Q1
2016Q1
2014Q1
2013Q1
2011Q1
2012Q1
2010Q1
2009Q1
2007Q1
Los Angeles
2008Q1
2006Q1
2005Q1
2004Q1
2002Q1
2003Q1
2001Q1
2000Q1
1998Q1
1999Q1
1997Q1
1996Q1
1994Q1
US
1995Q1
1993Q1
1992Q1
1990Q1
1991Q1
$0
CA, Los Angeles ,Orange and San Diego Income ($ Mil
US Total Personal Income( $ Mil)
$2,500,000
Total Personal
Total Personal Income($mn and Forecast
San Diego
March 2016 | OC HomeAid 9
Source: Freddie Mac, St. Louis Fed Jul-17 Jan-20
Oct-18
8%
Apr-16
Jan-15
Oct-13
Jul-12
Apr-11
Jan-10
Oct-08
Jul-07
Apr-06
Jan-05
Oct-03
Jul-02
Apr-01
Jan-00
Oct-98
Jul-97
Apr-96
Jan-95
Oct-93
Jul-92
Apr-91
Jan-90
Oct-88
Jul-87
Apr-86
Jan-85
Oct-83
Jul-82
Apr-81
Jan-80
Oct-78
Jul-77
Apr-76
Jan-75
Oct-73
Jul-72
Apr-71
We Know That Interest Rates Are Headed Up: Interest Rate on 30-Year Fixed-Rate Mortgage and forecast 1971-2020
20%
18%
16%
14%
12%
10%
Forecast
6%
4%
2%
0%
March 2016 | OC HomeAid 10
Short-term Consumer Sentiment Is Up…but Long-Term…: Index of US Consumer Sentiment: 1981-2015 120.0 110.0 100.0 90.0
80.0 70.0 60.0 50.0
Source: Zonda
Jan-15
Aug-13
Mar-12
Oct-10
May-09
Dec-07
Jul-06
Feb-05
Sep-03
Apr-02
Nov-00
Jun-99
Jan-98
Aug-96
Mar-95
Oct-93
May-92
Dec-90
Jul-89
Feb-88
Sep-86
Apr-85
Nov-83
Jun-82
Jan-81
40.0
March 2016 | OC HomeAid 11
HOUSING MARKET TRENDS IN US AND CA
House Prices Have Largely Recovered From the Bubble: Median House Prices-1996-2015: US v. CA v. Los Angeles v. Orange v. San Diego $700,000
Current prices are near pre-recession peak:
$600,000
$500,000
$400,000
$300,000
$200,000
US
Source: FHFA
California
Los Angeles
San Diego
Jul-15
Dec-14
May-14
Oct-13
Mar-13
Aug-12
Jan-12
Jun-11
Nov-10
Apr-10
Sep-09
Feb-09
Jul-08
Dec-07
May-07
Oct-06
Mar-06
Aug-05
Jan-05
Jun-04
Nov-03
Apr-03
Sep-02
Feb-02
Jul-01
Dec-00
May-00
Oct-99
Mar-99
Aug-98
Jan-98
Jun-97
Nov-96
Apr-96
$100,000
Orange
March 2016 | OC HomeAid 13
New House Prices in CA Significantly Above Nation’s: Median Sales Price of New Homes: US v. CA v. Los Angeles v. Orange v.San Diego $1,000,000 $900,000
$800,000 $700,000 $600,000 $500,000 $400,000
$300,000 $200,000
US
Source: Zonda
CA
Los Angeles
San Diego
Dec-15
Jul-15
Feb-15
Sep-14
Apr-14
Nov-13
Jun-13
Jan-13
Aug-12
Mar-12
Oct-11
May-11
Dec-10
Jul-10
Feb-10
Sep-09
Apr-09
Nov-08
Jun-08
Jan-08
Aug-07
Mar-07
Oct-06
May-06
Dec-05
Jul-05
Feb-05
Sep-04
Apr-04
Nov-03
Jun-03
Jan-03
$100,000
Orange March 2016 | OC HomeAid 14
The “Price Premium” of New Housing Is Increasing: "Price Premium" Spread: Ratio of Median New Home Price to Median Existing Home Price 1.65
Post-Recession
Pre-Recession
1.55 1.45 1.35 1.25 1.15
1.05 0.95
US Source: Zonda
CA
Los Angeles
San Diego
Dec-15
Jul-15
Feb-15
Sep-14
Apr-14
Nov-13
Jun-13
Jan-13
Aug-12
Oct-11
May-11
Dec-10
Jul-10
Feb-10
Sep-09
Apr-09
Nov-08
Jun-08
Jan-08
Aug-07
Mar-07
Oct-06
May-06
Dec-05
Jul-05
Feb-05
Sep-04
Apr-04
Nov-03
Jan-03
0.75
Jun-03
After declining an average of 30 points during the housing boom…
0.85
Mar-12
…the price premium of new homes over existing ones has increased by an average of 40 points.
Orange March 2016 | OC HomeAid 15
Which Is Making New Housing Less Affordable: Housing Affordability 1996-2016: Ratio of Median Price to Median Household Income 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0
US
Source: Zonda
California
Los Angeles
San Diego
Jul-15
Dec-14
May-14
Oct-13
Mar-13
Aug-12
Jan-12
Jun-11
Nov-10
Apr-10
Sep-09
Feb-09
Jul-08
Dec-07
May-07
Oct-06
Mar-06
Aug-05
Jan-05
Jun-04
Nov-03
Apr-03
Sep-02
Feb-02
Jul-01
Dec-00
May-00
Oct-99
Mar-99
Aug-98
Jan-98
Jun-97
Nov-96
Apr-96
1.0
Orange March 2016 | OC HomeAid 16
Which Is Driving Down Homeownership: Home Ownership Rate 2001-2016 75%
70%
65%
60%
55%
California Source: US Census
US
Linear (California)
Aug-15
Jan-15
Jun-14
Nov-13
Apr-13
Sep-12
Feb-12
Jul-11
Dec-10
May-10
Oct-09
Mar-09
Aug-08
Jan-08
Jun-07
Nov-06
Apr-06
Sep-05
Feb-05
Jul-04
Dec-03
May-03
Oct-02
Mar-02
Aug-01
Jan-01
50%
Linear (US) March 2016 | OC HomeAid 17
Sales of New Homes Have Yet to Recover: US New v. Existing Home Sales: 1999-2016 8,000,000
Back to average levels.
7,000,000
1,200,000
6,000,000
1,000,000
5,000,000
800,000
4,000,000
600,000
3,000,000
400,000
2,000,000
200,000
New Home Sales
Source: Zonda
1,000,000 -
Jul-15
Oct-14
Jan-14
Apr-13
Jul-12
Oct-11
Jan-11
Oct-08
Jan-08
Apr-07
Jul-06
Oct-05
Jan-05
Apr-04
Jul-03
Oct-02
Jan-02
Apr-01
Jul-00
Oct-99
Jan-99
-
Apr-10
Still below average levels. Jul-09
Existing Sales
1,400,000
New Sales
1,600,000
Existing Home Sales
March 2016 | OC HomeAid 18
Sales of Both Have Recently Dropped in CA: Los Angeles New v. Existing Home Sales: 1999-2016 70,000
1,200
14,000
12,000
60,000
1,000
12,000
10,000
50,000
8,000
40,000
4,000
20,000
2,000
10,000
6,000 400
2,000
Sep-15
Jan-14
Nov-14
Mar-13
Jul-11
May-12
Sep-10
Jan-09
Nov-09
Mar-08
Jul-06
May-07
Sep-05
Jan-04
Nov-04
New Home Sales
New sales
Aug-15
Nov-14
Feb-14
Aug-12
May-13
Nov-11
Feb-11
May-10
Aug-09
Feb-08
Nov-08
May-07
Aug-06
Nov-05
Feb-05
Aug-03
Jul-15
Oct-14
Jan-14
Apr-13
Jul-12
Jan-11
Oct-11
Jul-09
Apr-10
Jan-08
Oct-08
Jul-06
Apr-07
Jan-05
Oct-05
Apr-04
Jul-03
Oct-02
Jan-02
Jul-00
Apr-01
Jan-99
Oct-99
-
1,000
100 May-04
1,000
200
Nov-02
400
2,000
200
Feb-02
2,000
3,000
300
Aug-00
600
4,000
400
May-01
3,000
5,000
500
Feb-99
800
600
Nov-99
4,000
1,000
Existing Sales
5,000
New sales
Existing Sales
Existing Home Sales
Orange New v. Existing Home Sales: 1999-2016
1,200
Existing Home Sales
Mar-03
New Home Sales
1,400
Source: Census, NAR, NAHB
Jul-01
Existing Home Sales
San Diego New v. Existing Home Sales: 1999-2016
New Home Sales
May-02
Jan-99
Sep-00
-
Oct-14 Jul-15
Apr-13 Jan-14
Oct-11 Jul-12
Jul-09
Apr-10 Jan-11
Jan-08 Oct-08
Jul-06 Apr-07
Jan-05 Oct-05
Jul-03 Apr-04
Oct-02
Apr-01 Jan-02
Jan-99
New Home Sales
4,000
200
Oct-99 Jul-00
-
8,000 600
New sales
30,000
10,000
800
Nov-99
6,000
Existing Sales
14,000
New Sales
Existing Sales
California New v. Existing Home Sales: 1999-2016
Existing Home Sales
March 2016 | OC HomeAid 19
Source: Zillow Los Angeles San Diego Orange US
Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
4.00
Jul-13
8.00
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Supply is Starting to Become an Issue: Months' Supply of Homes for Sale
14.00
12.00
10.00
Buyer’s Market
6.00
Seller’s Market
2.00
0.00
California
March 2016 | OC HomeAid 20
Thankfully, Foreclosures No Longer a Major Issue: Foreclosure Rate : US v. California v. Los Angeles 40.0%
35.0% 30.0% 25.0% 20.0% 15.0% 10.0%
5.0%
US Source: RealtyTrac
California
Los Angeles
San Diego
Jan-16
May-15
Sep-14
Jan-14
May-13
Sep-12
Jan-12
May-11
Sep-10
Jan-10
May-09
Sep-08
Jan-08
May-07
Sep-06
Jan-06
May-05
Sep-04
Jan-04
May-03
Sep-02
Jan-02
May-01
Sep-00
Jan-00
May-99
Sep-98
Jan-98
0.0%
Orange
March 2016 | OC HomeAid 21
Multifamily Product Now Dominating New Construction: California Residential Building Permits: 1988-2016 18,000 16,000 14,000 12,000 10,000 8,000
6,000 4,000 2,000
Single Family
Source: Zonda
Jul-15
Sep-14
Nov-13
Jan-13
Mar-12
May-11
Jul-10
Sep-09
Nov-08
Jan-08
Mar-07
May-06
Jul-05
Sep-04
Nov-03
Jan-03
Mar-02
May-01
Jul-00
Sep-99
Nov-98
Jan-98
Mar-97
May-96
Jul-95
Sep-94
Nov-93
Jan-93
Mar-92
May-91
Jul-90
Sep-89
Nov-88
Jan-88
-
Multi Family
March 2016 | OC HomeAid 22
Homebuilder Sentiment Up Significantly: Index of Homebuilder Sentiment: 1985-2016 (Seasonally Adjusted) 100 90
80 70 60 50 40
30
The Index represents the current sentiment of U.S. homebuilders. The index is computed via a regular monthly survey of homebuilders. An index value above 50 indicates that more builder are optimistic than pessimistic, while an index value below 50 indicates that more builders are pessimistic than optimistic.
20 10
National
Source: NAHB
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
0
West
March 2016 | OC HomeAid 23
WHERE DO WE GO FROM HERE?
Will We Have Another Recession? Length of Postwar expansions: The length of the current economic expansion is longer than average.
Source: St. Louis Federal Reserve
March 2016 | OC HomeAid 25
When Will We Have the Next Recession? Probability of Recession by Year, According to Survey of Economists
The majority of economists are predicting the next recession will begin sometime in next two years. Sources: Bloomberg News
March 2016 | OC HomeAid 26
A Major Structural Issue: Development Costs
Source: Zonda
March 2016 | OC HomeAid 27
Construction Costs Remain High… and Expected To Go Higher:
Construction Employment in US
Current construction employment is at its historic average, so there is little slack in the labor pool of workers to draw from without putting further upward pressure on wages.
Forecast Consequently, the forecast is for increased construction costs.
Source: US BLS Source: Zonda
March 2016 | OC HomeAid 28
A Major Structural Issue: Development Costs
Source: Zonda
March 2016 | OC HomeAid 29
A Major Structural Issue: Development Costs
Source: Zonda
March 2016 | OC HomeAid 30
Unaffordability Will Remain CA’s Key Housing Issue House Price Return v. Risk by Metro Area E[R] 0.075 0.070
Regression Results: E[R] = 0.036 + 0.72(σ) (10.95) (7.43) R-sq.=0.5244
San Francisco
Nassau
Seattle New York
Cambridge
Newark
0.065
New Haven Oakland
Portland Tacoma
0.060
Edison Bethesda
0.055
Denver Charlotte
0.050
Chicago
Boston San Diego
Santa Ana
Washington Miami Las Vegas
Tampa
Dallas
Atlanta
Poughkeepsie
Trenton
Phoenix
Minneapolis 0.045
Los Angeles
Bridgeport
Fort Worth Detroit
Fort Lauderdale
West Palm Beach
Houston
0.040 0.035
Cleveland
0.030 0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
0.11
0.12
Sigma
Source: Zonda
March 2016 | OC HomeAid 31
Unaffordability: Why You Should Care • Short-Term: Leads to higher municipal service costs, and eventually higher property taxes. -Municipal workers (police, fire, sanitation, school teachers) can’t afford to live in the municipality that employs them.
• Long-Term: Leads to a contracting spiral of decline -As the municipality becomes less affordable, home sales drop, followed by population and employment declines, tax base contracts, quality of public services erodes…leading to further population and employment losses…and further tax base contraction. -Very difficult to reverse this spiral (ask Detroit). Source: Zonda
March 2016 | OC HomeAid 32
Summary and Conclusions • GDP Growth and House Price Appreciation expected to continue, but at a decreasing rate. -2016 expected to be a decent year…BUT: -We are closer to the next recession than we are from the previous one. • Will still be several years before housing has completely recovered from the last recession. -Prices are there, but jobs and new home sales are not. -Rising interest rates and labor costs plus next recession won’t help. =>Plan accordingly! • You can’t do much about national cyclical factors, but you can address local structural issues. -Drought and high water costs are avoidable. -Bring rationality to land use policy…get involved! Source: Zonda
March 2016 | OC HomeAid 33
Thank You! For further information, please contact:
Kevin Gillen, Ph.D. Chief Economist, Meyers Research LLC
[email protected] 215.880.6630
Source: Zonda
March 2016 | OC HomeAid 34
Februaryt 2016 | HomeAid OC,
Agenda
I.
Economic Trends in US and CA
II.
Housing Market Trends in US and CA
III. Putting
It All Together: Summary and Where We Go From Here
March 2016 | OC HomeAid 2
ECONOMIC TRENDS IN US AND CA
Post-Recession: GDP Growth is Positive, but Slow: GDP Growth and Forecast in US v. California v. Los Angeles v. Orange v. San Diego: 1990-2020 18,025,000 16,025,000 14,025,000
US GDP (MIL. CH. 2009 USD)
2,500,000
Pre-Great Recession Avg. Annual Growth: ~3.25%
2,000,000 12,025,000 10,025,000
1,500,000
8,025,000 1,000,000
6,025,000 4,025,000
500,000 2,025,000 -
1990Q1 1990Q4 1991Q3 1992Q2 1993Q1 1993Q4 1994Q3 1995Q2 1996Q1 1996Q4 1997Q3 1998Q2 1999Q1 1999Q4 2000Q3 2001Q2 2002Q1 2002Q4 2003Q3 2004Q2 2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 2009Q3 2010Q2 2011Q1 2011Q4 2012Q3 2013Q2 2014Q1 2014Q4 2015Q3 2016Q2 2017Q1 2017Q4 2018Q3 2019Q2 2020Q1 2020Q4
25,000
(MIL. CH. 2009
3,000,000
CALIFORNIA ,LOS ANGELES ,ORANGE AND SAN DIEGO GDP USD)
Forecast
US
Source: Moody’s
California
Los Angeles
Orange
San Diego
March 2016 | OC HomeAid 4
CA Unemployment Exceeds US Average: Unemployment Rate and Forecast: 1990-2020-US v. California v. Los Angeles v. Orange v.San Diego 14%
12%
Forecast 10%
8%
6%
4%
2%
California
Source: Moody’s
US
Los Angeles
Orange
Nov-20
Jan-20
Mar-19
Jul-17
May-18
Sep-16
Nov-15
Jan-15
Mar-14
May-13
Jul-12
Sep-11
Nov-10
Jan-10
Mar-09
May-08
Jul-07
Sep-06
Nov-05
Jan-05
Mar-04
May-03
Jul-02
Sep-01
Jan-00
Nov-00
Mar-99
May-98
Jul-97
Sep-96
Nov-95
Jan-95
Mar-94
Jul-92
May-93
Sep-91
Nov-90
Jan-90
0%
San Diego March 2016 | OC HomeAid 5
CA Got Hit Especially Hard by the Great Recession: Job Growth (Annualized %) Rate and Forecast: 1990-2020: US v. California v. Los Angeles v. Orange v.San Diego 0.08 0.06
Forecast
0.04
0.02
Nov-20
Jan-20
Mar-19
May-18
Jul-17
Sep-16
Nov-15
Jan-15
Mar-14
May-13
Jul-12
Sep-11
Nov-10
Jan-10
Mar-09
May-08
Jul-07
Sep-06
Nov-05
Jan-05
Mar-04
May-03
Jul-02
Sep-01
Nov-00
Jan-00
Mar-99
May-98
Jul-97
Sep-96
Nov-95
Jan-95
Mar-94
May-93
Jul-92
Sep-91
Nov-90
-0.02
Jan-90
0
-0.04
-0.06 -0.08 -0.1
US
California
Los Angeles
Orange
San Diego
US Forecast
California Forecast
Los Angles Forecast
Orange Forecast
San Diego Forecast
Source: BLS, Moody’s
March 2016 | OC HomeAid 6
And Real Estate Sector Has Yet to Fully Recover… Home prices in most areas of the country have recovered significantly from the postbubble lows. But jobs related to housing still struggle. Overall, jobs in construction and real estate have declined by 19% since the recession—hundreds of thousands more than health care has added.
Decreased
Net Change in Jobs Since Recession
Increased
A Long Housing Bust
Lower Wages
Wages Paid by Industry
Higher Wages
Source: NY Times March 2016 | OC HomeAid 7
CA Has a Significant Wage Premium Over the US: Average Weekly Wage, Total ($) Growth and Forecast : US v. CA v. Los Angeles County 1300
1200
1100
1000
900
800
700
600
US Linear (US) Source: Zonda
California Linear (California)
Los Angeles Linear (Los Angeles)
Orange Linear (San Diego)
San Diego Linear (San Diego) March 2016 | OC HomeAid 8
But the 3-County Income Growth Rate Is Projected to Slow: $3,000,000 $20,000,000
$15,000,000 $2,000,000
$1,500,000
$10,000,000
Forecast
4.3% annual growth rate v. 4.6% annual Statewide growth rate.
$5,000,000
$1,000,000
$500,000
$0
Source: BEA and Moody’s
CA
Orange
2020Q1
2019Q1
2018Q1
2017Q1
2015Q1
2016Q1
2014Q1
2013Q1
2011Q1
2012Q1
2010Q1
2009Q1
2007Q1
Los Angeles
2008Q1
2006Q1
2005Q1
2004Q1
2002Q1
2003Q1
2001Q1
2000Q1
1998Q1
1999Q1
1997Q1
1996Q1
1994Q1
US
1995Q1
1993Q1
1992Q1
1990Q1
1991Q1
$0
CA, Los Angeles ,Orange and San Diego Income ($ Mil
US Total Personal Income( $ Mil)
$2,500,000
Total Personal
Total Personal Income($mn and Forecast
San Diego
March 2016 | OC HomeAid 9
Source: Freddie Mac, St. Louis Fed Jul-17 Jan-20
Oct-18
8%
Apr-16
Jan-15
Oct-13
Jul-12
Apr-11
Jan-10
Oct-08
Jul-07
Apr-06
Jan-05
Oct-03
Jul-02
Apr-01
Jan-00
Oct-98
Jul-97
Apr-96
Jan-95
Oct-93
Jul-92
Apr-91
Jan-90
Oct-88
Jul-87
Apr-86
Jan-85
Oct-83
Jul-82
Apr-81
Jan-80
Oct-78
Jul-77
Apr-76
Jan-75
Oct-73
Jul-72
Apr-71
We Know That Interest Rates Are Headed Up: Interest Rate on 30-Year Fixed-Rate Mortgage and forecast 1971-2020
20%
18%
16%
14%
12%
10%
Forecast
6%
4%
2%
0%
March 2016 | OC HomeAid 10
Short-term Consumer Sentiment Is Up…but Long-Term…: Index of US Consumer Sentiment: 1981-2015 120.0 110.0 100.0 90.0
80.0 70.0 60.0 50.0
Source: Zonda
Jan-15
Aug-13
Mar-12
Oct-10
May-09
Dec-07
Jul-06
Feb-05
Sep-03
Apr-02
Nov-00
Jun-99
Jan-98
Aug-96
Mar-95
Oct-93
May-92
Dec-90
Jul-89
Feb-88
Sep-86
Apr-85
Nov-83
Jun-82
Jan-81
40.0
March 2016 | OC HomeAid 11
HOUSING MARKET TRENDS IN US AND CA
House Prices Have Largely Recovered From the Bubble: Median House Prices-1996-2015: US v. CA v. Los Angeles v. Orange v. San Diego $700,000
Current prices are near pre-recession peak:
$600,000
$500,000
$400,000
$300,000
$200,000
US
Source: FHFA
California
Los Angeles
San Diego
Jul-15
Dec-14
May-14
Oct-13
Mar-13
Aug-12
Jan-12
Jun-11
Nov-10
Apr-10
Sep-09
Feb-09
Jul-08
Dec-07
May-07
Oct-06
Mar-06
Aug-05
Jan-05
Jun-04
Nov-03
Apr-03
Sep-02
Feb-02
Jul-01
Dec-00
May-00
Oct-99
Mar-99
Aug-98
Jan-98
Jun-97
Nov-96
Apr-96
$100,000
Orange
March 2016 | OC HomeAid 13
New House Prices in CA Significantly Above Nation’s: Median Sales Price of New Homes: US v. CA v. Los Angeles v. Orange v.San Diego $1,000,000 $900,000
$800,000 $700,000 $600,000 $500,000 $400,000
$300,000 $200,000
US
Source: Zonda
CA
Los Angeles
San Diego
Dec-15
Jul-15
Feb-15
Sep-14
Apr-14
Nov-13
Jun-13
Jan-13
Aug-12
Mar-12
Oct-11
May-11
Dec-10
Jul-10
Feb-10
Sep-09
Apr-09
Nov-08
Jun-08
Jan-08
Aug-07
Mar-07
Oct-06
May-06
Dec-05
Jul-05
Feb-05
Sep-04
Apr-04
Nov-03
Jun-03
Jan-03
$100,000
Orange March 2016 | OC HomeAid 14
The “Price Premium” of New Housing Is Increasing: "Price Premium" Spread: Ratio of Median New Home Price to Median Existing Home Price 1.65
Post-Recession
Pre-Recession
1.55 1.45 1.35 1.25 1.15
1.05 0.95
US Source: Zonda
CA
Los Angeles
San Diego
Dec-15
Jul-15
Feb-15
Sep-14
Apr-14
Nov-13
Jun-13
Jan-13
Aug-12
Oct-11
May-11
Dec-10
Jul-10
Feb-10
Sep-09
Apr-09
Nov-08
Jun-08
Jan-08
Aug-07
Mar-07
Oct-06
May-06
Dec-05
Jul-05
Feb-05
Sep-04
Apr-04
Nov-03
Jan-03
0.75
Jun-03
After declining an average of 30 points during the housing boom…
0.85
Mar-12
…the price premium of new homes over existing ones has increased by an average of 40 points.
Orange March 2016 | OC HomeAid 15
Which Is Making New Housing Less Affordable: Housing Affordability 1996-2016: Ratio of Median Price to Median Household Income 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0
US
Source: Zonda
California
Los Angeles
San Diego
Jul-15
Dec-14
May-14
Oct-13
Mar-13
Aug-12
Jan-12
Jun-11
Nov-10
Apr-10
Sep-09
Feb-09
Jul-08
Dec-07
May-07
Oct-06
Mar-06
Aug-05
Jan-05
Jun-04
Nov-03
Apr-03
Sep-02
Feb-02
Jul-01
Dec-00
May-00
Oct-99
Mar-99
Aug-98
Jan-98
Jun-97
Nov-96
Apr-96
1.0
Orange March 2016 | OC HomeAid 16
Which Is Driving Down Homeownership: Home Ownership Rate 2001-2016 75%
70%
65%
60%
55%
California Source: US Census
US
Linear (California)
Aug-15
Jan-15
Jun-14
Nov-13
Apr-13
Sep-12
Feb-12
Jul-11
Dec-10
May-10
Oct-09
Mar-09
Aug-08
Jan-08
Jun-07
Nov-06
Apr-06
Sep-05
Feb-05
Jul-04
Dec-03
May-03
Oct-02
Mar-02
Aug-01
Jan-01
50%
Linear (US) March 2016 | OC HomeAid 17
Sales of New Homes Have Yet to Recover: US New v. Existing Home Sales: 1999-2016 8,000,000
Back to average levels.
7,000,000
1,200,000
6,000,000
1,000,000
5,000,000
800,000
4,000,000
600,000
3,000,000
400,000
2,000,000
200,000
New Home Sales
Source: Zonda
1,000,000 -
Jul-15
Oct-14
Jan-14
Apr-13
Jul-12
Oct-11
Jan-11
Oct-08
Jan-08
Apr-07
Jul-06
Oct-05
Jan-05
Apr-04
Jul-03
Oct-02
Jan-02
Apr-01
Jul-00
Oct-99
Jan-99
-
Apr-10
Still below average levels. Jul-09
Existing Sales
1,400,000
New Sales
1,600,000
Existing Home Sales
March 2016 | OC HomeAid 18
Sales of Both Have Recently Dropped in CA: Los Angeles New v. Existing Home Sales: 1999-2016 70,000
1,200
14,000
12,000
60,000
1,000
12,000
10,000
50,000
8,000
40,000
4,000
20,000
2,000
10,000
6,000 400
2,000
Sep-15
Jan-14
Nov-14
Mar-13
Jul-11
May-12
Sep-10
Jan-09
Nov-09
Mar-08
Jul-06
May-07
Sep-05
Jan-04
Nov-04
New Home Sales
New sales
Aug-15
Nov-14
Feb-14
Aug-12
May-13
Nov-11
Feb-11
May-10
Aug-09
Feb-08
Nov-08
May-07
Aug-06
Nov-05
Feb-05
Aug-03
Jul-15
Oct-14
Jan-14
Apr-13
Jul-12
Jan-11
Oct-11
Jul-09
Apr-10
Jan-08
Oct-08
Jul-06
Apr-07
Jan-05
Oct-05
Apr-04
Jul-03
Oct-02
Jan-02
Jul-00
Apr-01
Jan-99
Oct-99
-
1,000
100 May-04
1,000
200
Nov-02
400
2,000
200
Feb-02
2,000
3,000
300
Aug-00
600
4,000
400
May-01
3,000
5,000
500
Feb-99
800
600
Nov-99
4,000
1,000
Existing Sales
5,000
New sales
Existing Sales
Existing Home Sales
Orange New v. Existing Home Sales: 1999-2016
1,200
Existing Home Sales
Mar-03
New Home Sales
1,400
Source: Census, NAR, NAHB
Jul-01
Existing Home Sales
San Diego New v. Existing Home Sales: 1999-2016
New Home Sales
May-02
Jan-99
Sep-00
-
Oct-14 Jul-15
Apr-13 Jan-14
Oct-11 Jul-12
Jul-09
Apr-10 Jan-11
Jan-08 Oct-08
Jul-06 Apr-07
Jan-05 Oct-05
Jul-03 Apr-04
Oct-02
Apr-01 Jan-02
Jan-99
New Home Sales
4,000
200
Oct-99 Jul-00
-
8,000 600
New sales
30,000
10,000
800
Nov-99
6,000
Existing Sales
14,000
New Sales
Existing Sales
California New v. Existing Home Sales: 1999-2016
Existing Home Sales
March 2016 | OC HomeAid 19
Source: Zillow Los Angeles San Diego Orange US
Jan-16
Nov-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
4.00
Jul-13
8.00
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Supply is Starting to Become an Issue: Months' Supply of Homes for Sale
14.00
12.00
10.00
Buyer’s Market
6.00
Seller’s Market
2.00
0.00
California
March 2016 | OC HomeAid 20
Thankfully, Foreclosures No Longer a Major Issue: Foreclosure Rate : US v. California v. Los Angeles 40.0%
35.0% 30.0% 25.0% 20.0% 15.0% 10.0%
5.0%
US Source: RealtyTrac
California
Los Angeles
San Diego
Jan-16
May-15
Sep-14
Jan-14
May-13
Sep-12
Jan-12
May-11
Sep-10
Jan-10
May-09
Sep-08
Jan-08
May-07
Sep-06
Jan-06
May-05
Sep-04
Jan-04
May-03
Sep-02
Jan-02
May-01
Sep-00
Jan-00
May-99
Sep-98
Jan-98
0.0%
Orange
March 2016 | OC HomeAid 21
Multifamily Product Now Dominating New Construction: California Residential Building Permits: 1988-2016 18,000 16,000 14,000 12,000 10,000 8,000
6,000 4,000 2,000
Single Family
Source: Zonda
Jul-15
Sep-14
Nov-13
Jan-13
Mar-12
May-11
Jul-10
Sep-09
Nov-08
Jan-08
Mar-07
May-06
Jul-05
Sep-04
Nov-03
Jan-03
Mar-02
May-01
Jul-00
Sep-99
Nov-98
Jan-98
Mar-97
May-96
Jul-95
Sep-94
Nov-93
Jan-93
Mar-92
May-91
Jul-90
Sep-89
Nov-88
Jan-88
-
Multi Family
March 2016 | OC HomeAid 22
Homebuilder Sentiment Up Significantly: Index of Homebuilder Sentiment: 1985-2016 (Seasonally Adjusted) 100 90
80 70 60 50 40
30
The Index represents the current sentiment of U.S. homebuilders. The index is computed via a regular monthly survey of homebuilders. An index value above 50 indicates that more builder are optimistic than pessimistic, while an index value below 50 indicates that more builders are pessimistic than optimistic.
20 10
National
Source: NAHB
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
0
West
March 2016 | OC HomeAid 23
WHERE DO WE GO FROM HERE?
Will We Have Another Recession? Length of Postwar expansions: The length of the current economic expansion is longer than average.
Source: St. Louis Federal Reserve
March 2016 | OC HomeAid 25
When Will We Have the Next Recession? Probability of Recession by Year, According to Survey of Economists
The majority of economists are predicting the next recession will begin sometime in next two years. Sources: Bloomberg News
March 2016 | OC HomeAid 26
A Major Structural Issue: Development Costs
Source: Zonda
March 2016 | OC HomeAid 27
Construction Costs Remain High… and Expected To Go Higher:
Construction Employment in US
Current construction employment is at its historic average, so there is little slack in the labor pool of workers to draw from without putting further upward pressure on wages.
Forecast Consequently, the forecast is for increased construction costs.
Source: US BLS Source: Zonda
March 2016 | OC HomeAid 28
A Major Structural Issue: Development Costs
Source: Zonda
March 2016 | OC HomeAid 29
A Major Structural Issue: Development Costs
Source: Zonda
March 2016 | OC HomeAid 30
Unaffordability Will Remain CA’s Key Housing Issue House Price Return v. Risk by Metro Area E[R] 0.075 0.070
Regression Results: E[R] = 0.036 + 0.72(σ) (10.95) (7.43) R-sq.=0.5244
San Francisco
Nassau
Seattle New York
Cambridge
Newark
0.065
New Haven Oakland
Portland Tacoma
0.060
Edison Bethesda
0.055
Denver Charlotte
0.050
Chicago
Boston San Diego
Santa Ana
Washington Miami Las Vegas
Tampa
Dallas
Atlanta
Poughkeepsie
Trenton
Phoenix
Minneapolis 0.045
Los Angeles
Bridgeport
Fort Worth Detroit
Fort Lauderdale
West Palm Beach
Houston
0.040 0.035
Cleveland
0.030 0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
0.11
0.12
Sigma
Source: Zonda
March 2016 | OC HomeAid 31
Unaffordability: Why You Should Care • Short-Term: Leads to higher municipal service costs, and eventually higher property taxes. -Municipal workers (police, fire, sanitation, school teachers) can’t afford to live in the municipality that employs them.
• Long-Term: Leads to a contracting spiral of decline -As the municipality becomes less affordable, home sales drop, followed by population and employment declines, tax base contracts, quality of public services erodes…leading to further population and employment losses…and further tax base contraction. -Very difficult to reverse this spiral (ask Detroit). Source: Zonda
March 2016 | OC HomeAid 32
Summary and Conclusions • GDP Growth and House Price Appreciation expected to continue, but at a decreasing rate. -2016 expected to be a decent year…BUT: -We are closer to the next recession than we are from the previous one. • Will still be several years before housing has completely recovered from the last recession. -Prices are there, but jobs and new home sales are not. -Rising interest rates and labor costs plus next recession won’t help. =>Plan accordingly! • You can’t do much about national cyclical factors, but you can address local structural issues. -Drought and high water costs are avoidable. -Bring rationality to land use policy…get involved! Source: Zonda
March 2016 | OC HomeAid 33
Thank You! For further information, please contact:
Kevin Gillen, Ph.D. Chief Economist, Meyers Research LLC
[email protected] 215.880.6630
Source: Zonda
March 2016 | OC HomeAid 34
