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Economic and Housing Market Forecast California Community Colleges Real Estate Education Center October 27, 2006

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Economic and Housing Market Forecast California Community Colleges Real Estate Education Center October 27, 2006. Robert A. Kleinhenz, Ph.D. Deputy Chief Economist California Association of REALTORS®. Overview. California Housing Market Local & Regional Outlook 2006 Forecast

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Economic and Housing Market ForecastCalifornia Community Colleges Real Estate Education CenterOctober 27, 2006

Robert A. Kleinhenz, Ph.D.Deputy Chief EconomistCalifornia Association of REALTORS®

overview
Overview
  • California Housing Market
  • Local & Regional Outlook
  • 2006 Forecast
  • Market & Membership
  • Buyers & Technology
current market conditions
Current Market Conditions
  • Sales down significantly from 2004-05 record
  • Price appreciation slowing throughout 2006
  • Higher inventories than record lows of ‘04-05
sales of existing homes consumer confidence
Sales of Existing Homes & Consumer Confidence
  • California, September ‘06: 444,780 Units, Down 24.0% YTD, Down 31.7% YTY

Cons Conf Index

Sales of Homes

2+ yrs above 600,000

SOURCE: California Association of REALTORS®;

The Conference Board

median price of existing detached homes
Median Price of Existing Detached Homes
  • California, September 2006: $553,050, Up 1.8% Y-T-Y

SOURCE: California Association of REALTORS®

median price annual percentage change
Median Price, Annual Percentage Change
  • California vs. U.S.

Greater Price Volatility in California than US

SOURCE: California Association of REALTORS®

market drivers little changed in 2006
Market Drivers Little Changed in 2006
  • Rates higher but still at near-record low levels
  • Steady job & income growth
  • Equity wealth effect of repeat buyers
  • Long-run supply constraints
  • Higher inventory levels & smaller price gains
mortgage rates
Mortgage Rates

SOURCE: Federal Home Loan Mortgage Corporation

national economy 2006
National Economy 2006
  • Steady sustainable GDP growth in 3-4% range
  • Inflation ~ 3%+
  • Solid, not outstanding, job growth
  • Low unemployment rate
  • RESULT: 2006 economy looks much like 2005
gross domestic product
Gross Domestic Product
  • Year 2005: +3.5%; 2006 Q3: +1.6%

ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $

Annual

Quarterly

unemployment rate
Unemployment Rate
  • California vs. United States

SOURCE: CA Employment Development Division

consumer price index august 2006 all items 3 8 y t y core 2 8 y t y
Consumer Price Index August 2006: All Items 3.8% Y-T-Y; Core 2.8% Y-T-Y

PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

slide17

#3 - Supply Conditions:

Inventory & Time on Market

unsold inventory 2000 present
Unsold Inventory, 2000-Present
  • California, September 2006: 7.0 Months

MONTHS

Average Since 1/88: 6.9 months

SOURCE: California Association of REALTORS®

unsold inventory index 1988 present
Unsold Inventory Index, 1988-Present

MONTHS

SOURCE: California Association of REALTORS®

unsold inventory index vs price changes california 1982 2005
Unsold Inventory Index vs. Price ChangesCalifornia, 1982-2005

Inventory below 7 mos.

13% avg price increase

SOURCE: California Association of REALTORS®

listings by month selected years
Listings by Month, Selected Years
  • California (1982-2005 Average=100)

SOURCE: California Association of REALTORS®

median time on the market
Median Time on the Market
  • CA Single-Family Homes, September ‘06: 53.9 days

DAYS ON MARKET

SOURCE: California Association of REALTORS®

slide23

#4 - Demand Conditions:

Repeat Buyers Dominate Market

market share of repeat homebuyers california
Market Share of Repeat HomebuyersCalifornia

SOURCE: California Association of REALTORS®

slide25

#5 - Demand Conditions:

Demand > Supply in Long Run

new housing permits california august 2006 13 128 units down 16 7 y t d
New Housing Permits California, August 2006: 13,128 Units, Down 16.7% Y-T-D

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

SOURCE: Construction Industry Research Board

homeownership rates
Homeownership Rates
  • California Vs. U.S.

SOURCE: U.S, Census Bureau

market drivers little changed in 200628
Market Drivers Little Changed in 2006
  • Rates higher but still at near-record low levels
  • Steady job & income growth
  • Equity wealth effect of repeat buyers
  • Long-run supply constraints
  • Higher (but less than avg) inventory levels
  • Q: So why the slowdown in 2006?
q so why the slowdown in 2006
Q: So why the slowdown in 2006?
  • Interest Rate Expectations
  • Change in Market Psychology
  • Affordability Constraints
interest rate expectations
Interest Rate Expectations
  • 2002-2004
  • Expectations of steady/falling rates
  • Acceleration/deceleration in reaction to expected rate changes.
  • 2005-2006
  • Fed raised rates with expectations of further rate hikes.
  • Shrinking spread between short and long rates
  • Uncertainty about future direction of rates
federal funds rate vs 10 year t bond
Federal Funds Rate vs. 10-Year T-Bond

SOURCE: Federal Home Loan Mortgage Corporation – 30-yr FRM

Federal Reserve Board – 10-Year T-Bond

change in market psychology
Change in Market Psychology
  • 2002-2005
    • Both buyers & sellers knew it was a boom market
    • Brisk movement in market
  • 2006
    • Buyers expecting prices to tumble because of higher inventories
    • Sellers still want $$ their neighbor received+
    • More market friction, longer time on market
affordability
Affordability
  • 2004-2005
  • Increase in use of alternative loan products extended the duration of market upswing
  • Increased pool of potential buyers as well
  • 2006
  • Buyer purchasing power seemingly stretched to limit
  • Rates still near historic lows, but rate increases have eroded affordability (monthly payment up 20%+ year-to-year)
first time buyer housing affordability index us vs ca
First-Time Buyer Housing Affordability Index,US vs CA

% OF HOUSEHOLDS THAT CAN

AFFORD ENTRY LEVEL HOME

SOURCE: California Association of REALTORS®

nonfarm employment
Nonfarm Employment
  • Bay Area Region

SOURCE: California Economic Development Dept.

sales of existing detached homes and pacific west consumer confidence
Sales of Existing Detached Homes and Pacific West Consumer Confidence
  • Bay Area, September 2006: 3,293 Units, Down 19.6% Y-T-D, Down 23.8% Y-T-Y

UNITS

INDEX

SOURCE: California Association of REALTORS®;

The Conference Board

median price of existing detached homes38
Median Price of Existing Detached Homes
  • Bay Area, September 2006: $725,870, Up 2.2% Y-T-Y

SOURCE: California Association of REALTORS®

sales of existing detached homes
Sales of Existing Detached Homes
  • Bay Area Counties

SOURCE: California Association of REALTORS®

median price of existing detached homes40
Median Price of Existing Detached Homes
  • Bay Area Counties

SOURCE: California Association of REALTORS®

first time buyer housing affordability
First-time Buyer Housing Affordability
  • 2nd Quarter 2006

SOURCE: California Association of REALTORS®

nonfarm employment43
Nonfarm Employment
  • Central Valley Region

SOURCE: California Economic Development Dept.

sales of existing detached homes and pacific west consumer confidence44
Sales of Existing Detached Homes and Pacific West Consumer Confidence
  • Central Valley, September 2006 Sales: 3,189 Units, Down 32.6% Y-T-D, Down 39.7% Y-T-Y

UNITS

INDEX

SOURCE: California Association of REALTORS®;

The Conference Board

sales of existing detached homes45
Sales of Existing Detached Homes
  • Central Valley Region

SOURCE: California Association of REALTORS®

median price of existing detached homes46
Median Price of Existing Detached Homes
  • Central Valley, September 2006: $348,960, Down 3.4% Y-T-Y

SOURCE: California Association of REALTORS®

median price of existing detached homes47
Median Price of Existing Detached Homes
  • Central Valley Regions

SOURCE: California Association of REALTORS®

first time buyer housing affordability48
First-time Buyer Housing Affordability
  • 2nd Quarter 2006

SOURCE: California Association of REALTORS®

nonfarm employment50
Nonfarm Employment

SOURCE: California Economic Development Dept.

sales of existing detached homes and pacific west consumer confidence51
Sales of Existing Detached Homes and Pacific West Consumer Confidence
  • Southern California Sept 2006 Sales: 9,435 Units, Down 32.7% Y-T-Y, Down 22.9% Y-T-D

UNITS

INDEX

SOURCE: California Association of REALTORS®;

The Conference Board

sales of existing detached homes52
Sales of Existing Detached Homes

SOURCE: California Association of REALTORS®

median price of existing detached homes53
Median Price of Existing Detached Homes
  • Southern California, September 2006: $565,390 Up 5.2% Y-T-Y

SOURCE: California Association of REALTORS®

median price of existing detached homes54
Median Price of Existing Detached Homes
  • Southern California Regions

SOURCE: California Association of REALTORS®

unsold inventory index
Unsold Inventory Index
  • Los Angeles County, September 2006: 8.3 Months

MONTHS

SOURCE: California Association of REALTORS®

unsold inventory index56
Unsold Inventory Index
  • Orange County, September 2006: 10.3 Months

MONTHS

SOURCE: California Association of REALTORS®

unsold inventory index57
Unsold Inventory Index
  • San Diego County, September 2006: 9.8 Months

MONTHS

SOURCE: California Association of REALTORS®

first time buyer housing affordability58
First-time Buyer Housing Affordability
  • 2nd Quarter 2006

SOURCE: California Association of REALTORS®

u s economic forecast
U.S. Economic Forecast

SOURCE: California Association of REALTORS®

california economic forecast
California Economic Forecast

SOURCE: California Association of REALTORS®

california housing market forecast
California Housing Market Forecast

SOURCE: California Association of REALTORS®

membership vs sales membership follows sales with a 2 yr lag
Membership vs SalesMembership follows Sales with a 2-Yr Lag

Sales Peaks: 1978, 1988, 2004-05Membership: 1980, 1990, 2006?

productivity competition average 7 6 sides
Productivity & CompetitionAverage: 7.6 sides

# of Members

# of Sides Per Member

Membership declines when sides/member falls below 6

SOURCE: C.A.R. Membership Records

estimated gross commission per member inflation adjusted
Estimated Gross Commission Per Member(Inflation Adjusted)

Mem Inc > HH Inc 2006

SOURCE: California Association of REALTORS®

wild cards
Wild Cards
  • Consumer psychology/expectations regarding:
    • home prices
    • interest rates
  • Impact of non-traditional mortgages
  • Unexpected major downturn
mortgage foreclosure rates
Mortgage Foreclosure Rates
  • California

DELINQUENCY RATE

FORECLOSURE RATE

SOURCE: Mortgage Bankers Association

what clients need to hear
What Clients Need to Hear
  • Large/widespread price decreases not expected
  • Properties will be on the market longer
  • Stabilizing economic conditions, but mixed news
  • Little movement in rates expected
  • Buy home that meets needs & wants
  • In the long-run, California prices go up!
housing cycles
Housing Cycles
  • Sales Decline, But Market is Not in the Tank!!

UNITS

SOURCE: California Association of REALTORS®

rates remain near 40 year lows
Rates Remain Near 40 Year Lows
  • Federal Housing Finance Board Rate,1963-2007

ANNUAL AVERAGE

SOURCE: FHFB, CAR

5 year rate of return on median price home
5-Year Rate of Return on Median Price Home
  • Purchased in Year Shown - Sold After 5 Years

Annual Average: 11.3%

introduction
Introduction
  • What?
    • Client’s Use of Technology
  • Why?
    • Consumers Have Become:
      • Better Informed via Internet
      • Empowered
      • More Demanding
    • Buyer/Seller Expectations Higher
    • Need to Look Beyond Current Market Conditions and Be Aware of Forces Changing the Way People Buy/Sell Homes
percent of internet users in the u s
Percent of Internet Users in the U.S.

Source: Pew Internet & American Life Project

slide75

Percent of Internet Buyers/Sellers

Share of All Homebuyers/Home Sellers Surveyed

Source: C.A.R. 2005 Internet Versus Traditional Buyer Survey and C.A.R. 2006 California Home Seller Survey

what web sites are buyers visiting
What Web Sites are Buyers Visiting?

Q: What Internet sites did you visit as a part of your home buying process ?

web sites of interest
Web Sites Of Interest
  • Property Listing Sites:
    • Google Base
    • Propsmart.com
    • Trulia.com
  • Home Value Estimators
    • RealEstateABC.com
    • HomeValues.com
    • Zillow.com
  • Online Classified Ads Sites:
    • Craigslist
    • Oodle
    • LiveDeal
reason for use of an agent first time buyers verbatims
Reason For Use of an Agent First-Time Buyers – Verbatims
  • “ Home buying is a very confusing process – the
  • paperwork, etc. I felt I needed an expert to help. ”
  • “ I wanted to feel secure in the process. “
  • “ It’s a big purchase, and it’s very stressful …”
  • “ It’s like getting a lawyer. Without one you can get
  • burned because you don’t speak the language. “
reason for use of an agent experienced buyers verbatims
Reason For Use of an Agent Experienced Buyers – Verbatims
  • “ I wanted someone who really knew the area and
  • understood the market conditions. “
  • “ We looked at some places on our own, and they
  • Purchased before we could make our offer. “
  • “ I think they can find a better deal than I can on my
  • own. “
  • “ I needed to make sure all of the details were
  • handled correctly. “
why client chose a specific agent first time buyers verbatims
Why Client Chose a Specific Agent First-Time Buyers – Verbatims
  • “ It is all about trust and comfort. Is this person honest?
  • Do they have integrity? I also have to trust that they
  • will find me the best deal and work hard for me. “
  • “ I needed someone I could trust, rely on and has
  • high moral standards. My agent was recommended by a
  • friend of the family that I trust very much“
  • “ She sincerely seemed to want to help me and didn’t
  • rush me. “
  • “ I felt very comfortable with her. “
why client chose a specific agent experienced buyers verbatims
Why Client Chose a Specific AgentExperienced Buyers – Verbatims
  • “My previous agent messed me around. I wanted someone could trust. “
  • “I chose him because he seemed the most familiar
  • and knowledgeable about the area I wanted to buy in.”
  • “For me it was all about competency. I wanted someone who had good ideas on how to get the best deal.”
  • “She sold my previous house, and did such a good
  • job I figured she would do so again.”
satisfaction with communication first time buyers verbatims
Satisfaction With CommunicationFirst Time Buyers - Verbatims
  • “She was quick to return my calls, and communicated well and often.”
  • “If I needed to know anything she was there to explain it to me. She was a really good listener.”
  • “She always called to keep me updated.”
  • “It was great. If we heard from him any more often he would have been living with us.”
satisfaction with communication experienced buyers verbatims
Satisfaction with CommunicationExperienced Buyers - Verbatims
  • “She was very good at keeping us informed on what was going on, even if nothing was going on.”
  • “My agent anticipated a lot of things and communicated with me before I even asked.”
  • “We kept in close contact throughout the whole
  • process.”
  • “I was misinformed or uninformed. She didn’t do her job.”
realtor value proposition
REALTOR® Value Proposition
  • Timely & Effective Communication
  • Negotiating Skills
  • Marketing Expertise
  • Market Knowledge
  • Knowledge of the Process
  • A Trusted Advisor!
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