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


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    Presentation Transcript
    1. Economic and Housing Market ForecastCalifornia Community Colleges Real Estate Education CenterOctober 27, 2006 Robert A. Kleinhenz, Ph.D.Deputy Chief EconomistCalifornia Association of REALTORS®

    2. Overview • California Housing Market • Local & Regional Outlook • 2006 Forecast • Market & Membership • Buyers & Technology

    3. California Real Estate Market

    4. Current Market Conditions • Sales down significantly from 2004-05 record • Price appreciation slowing throughout 2006 • Higher inventories than record lows of ‘04-05

    5. 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

    6. Median Price of Existing Detached Homes • California, September 2006: $553,050, Up 1.8% Y-T-Y SOURCE: California Association of REALTORS®

    7. Median Price, Annual Percentage Change • California vs. U.S. Greater Price Volatility in California than US SOURCE: California Association of REALTORS®

    8. 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

    9. #1- Interest Rates

    10. Mortgage Rates SOURCE: Federal Home Loan Mortgage Corporation

    11. #2 - Economic Conditions

    12. 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

    13. Gross Domestic Product • Year 2005: +3.5%; 2006 Q3: +1.6% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $ Annual Quarterly

    14. Unemployment Rate • California vs. United States SOURCE: CA Employment Development Division

    15. Employment Growth, California vs. U.S. YEAR TO YEAR % CHANGE

    16. 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

    17. #3 - Supply Conditions: Inventory & Time on Market

    18. Unsold Inventory, 2000-Present • California, September 2006: 7.0 Months MONTHS Average Since 1/88: 6.9 months SOURCE: California Association of REALTORS®

    19. Unsold Inventory Index, 1988-Present MONTHS SOURCE: California Association of REALTORS®

    20. Unsold Inventory Index vs. Price ChangesCalifornia, 1982-2005 Inventory below 7 mos. 13% avg price increase SOURCE: California Association of REALTORS®

    21. Listings by Month, Selected Years • California (1982-2005 Average=100) SOURCE: California Association of REALTORS®

    22. Median Time on the Market • CA Single-Family Homes, September ‘06: 53.9 days DAYS ON MARKET SOURCE: California Association of REALTORS®

    23. #4 - Demand Conditions: Repeat Buyers Dominate Market

    24. Market Share of Repeat HomebuyersCalifornia SOURCE: California Association of REALTORS®

    25. #5 - Demand Conditions: Demand > Supply in Long Run

    26. 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

    27. Homeownership Rates • California Vs. U.S. SOURCE: U.S, Census Bureau

    28. 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?

    29. Q: So why the slowdown in 2006? • Interest Rate Expectations • Change in Market Psychology • Affordability Constraints

    30. 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

    31. Federal Funds Rate vs. 10-Year T-Bond SOURCE: Federal Home Loan Mortgage Corporation – 30-yr FRM Federal Reserve Board – 10-Year T-Bond

    32. 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

    33. 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)

    34. First-Time Buyer Housing Affordability Index,US vs CA % OF HOUSEHOLDS THAT CAN AFFORD ENTRY LEVEL HOME SOURCE: California Association of REALTORS®

    35. Bay Area & Surrounding Counties

    36. Nonfarm Employment • Bay Area Region SOURCE: California Economic Development Dept.

    37. 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

    38. Median Price of Existing Detached Homes • Bay Area, September 2006: $725,870, Up 2.2% Y-T-Y SOURCE: California Association of REALTORS®

    39. Sales of Existing Detached Homes • Bay Area Counties SOURCE: California Association of REALTORS®

    40. Median Price of Existing Detached Homes • Bay Area Counties SOURCE: California Association of REALTORS®

    41. First-time Buyer Housing Affordability • 2nd Quarter 2006 SOURCE: California Association of REALTORS®

    42. Central Valley Region

    43. Nonfarm Employment • Central Valley Region SOURCE: California Economic Development Dept.

    44. 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

    45. Sales of Existing Detached Homes • Central Valley Region SOURCE: California Association of REALTORS®

    46. Median Price of Existing Detached Homes • Central Valley, September 2006: $348,960, Down 3.4% Y-T-Y SOURCE: California Association of REALTORS®

    47. Median Price of Existing Detached Homes • Central Valley Regions SOURCE: California Association of REALTORS®

    48. First-time Buyer Housing Affordability • 2nd Quarter 2006 SOURCE: California Association of REALTORS®

    49. Southern California Region

    50. Nonfarm Employment SOURCE: California Economic Development Dept.