SOURCE: US Dept of Commerce, Bureau of Economic Analysis Components of GDP Percent Change
INDEX, 100=1985 Consumer Confidence Index May 2011: 60.8
DJI Monthly Avg. Dow Jones Stock Price and Consumer Confidence 30 Industrial Index vs. Consumer Confidence Index 1987-2011 Cons. Conf.
SOURCE: CA Employment Development Division Unemployment Rate CA v. US Disappointing May Jobs Report
U.S. Non-farm Job Growth SOURCE: US Dept of Labor, Bureau of Labor Statistics Month-to-Month Changes Recession Job Losses: 8.4 million Since Jan10: +1.14 million
Consumer Price Index May 2011: All Items +3.4% YTY; Core +1.5% YTY PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984
Dollars per Barrel Oil Prices A Near Term Concern West Texas Intermediate: Mar-11: $102.90 Mar-10: $81.20 CPI (1982-84=100, NSA)
SOURCE: Federal Home Loan Mortgage Corporation Mortgage Rates Header Higher in 2012
U.S. Existing Single-Family Home Sales May 2011 Sales: -15.4% YTY, Median Price: -4.5% YTY
Monthly 2005 - Present SEASONALLY ADJUSTED ANNUAL RATE U.S. Pending Home Sales Index WESTUS
Positive Signs… Strong international growth Stock market recovery Real Estate net worth stabilizing Rising rents and more qualified renters Strong demand for distressed properties Smart money chasing real estate (all cash sales)
Structural Concerns… Balance sheet and deleveraging issues Financial sector weakness Housing sector struggling – tight credit & inventory over-hang: 4 million delinquent loans; 1.1 million homes in foreclosure and 900,000 REOs Mis-match between jobs and workforce skills
Temporary Factors Japanese Tsunami and earthquake Middle East turmoil – Arab Spring Greek/EU debt crisis US debt ceiling debate
U.S. Economic Outlook SOURCE: California Association of REALTORS® Forecast Date: May 2011
California Economic Outlook SOURCE: California Association of REALTORS® Forecast Date: May 2011
Federal Issues High-cost Loan Limit - expires 10/1/11 Future of Fannie and Freddie in flux MID and Tax Reform on the horizon FHA targeted for market share drop QRM (Qualified Residential Mortgage) 20% Down – 30 year mortgage??? Short Sales – Standardization, Transparency and Communication
% Over 90-Days Delinquent (All Mortgages FRMs +ARMs) SF Mortgages Originated between 2001 – 2008 SOURCE: Federal Housing Finance Agency (using data from Fannie Mae, Freddie Mac, and CoreLogic, Inc.), Mortgage Bankers Association
Now You See Fannie/Freddie Sales… California, 2010 Sales: 494,900 Units, 2010 Conforming Share of CA Mtgs: 92%* UNITS SOURCE: California Association of REALTORS® *Based on C.A.R. estimates, includes All Conforming: Fannie/Freddie/FHA/VA
…Now You Dont! Without Fannie & Freddie Worst Case Scenario: No Private Response 2010 Conforming Share of CA Mortgages: 92%* UNITS SOURCE: California Association of REALTORS® *Based on National Share of Fannie/Freddie Share from Inside Mortgage Finance Estimates
QRM – Qualified Residential Mortgage Proposed Requirements (March 2011) 20% Down 28/36 Debt to Income 25% equity stake to refi ; 30% equity for cash-out refi Squeaky clean credit Exempt Fannie and Freddie (under conservatorship) FHA and VA Estimates of rate differential:.75% to 3% Comment period ends August 2011
On Average over last 12 years, Less than 1 in 5 Fannie/Freddie Loans Would Have Met QRM SOURCE: Mortgage Bankers Association, C.A.R. SOURCE: Federal Housing Finance Agency
ORIGINATION (BIL $)30-YR FIXED RATE MORTGAGE Mortgage Originations: 1990-2010 Source: Mortgage Bankers Association of America Refinance vs. Purchase
1872 W. Admiral, 92801 3 bd, 2.5 ba, built in 1982 Purchased in Sept 2005 for $594,000 with 30% down. In April 2006, added a second for $57,000. In Oct 2006, refinanced the second into a new second for $100,000. Defaulted in 2010 Zestimate of current value = $364,000.
1572 W. Orangewood, 92802 3 bd, 2 ba, 2,016 sq ft built in 1977. Purchased in June 2003 for $455,000 with 30% down. March 2004: added a second for $75,000; added a third for $90,500; added a fourth for $80,000. Within one year of purchase, the property had $565,000 in debt on it! Defaulted in 2010. Zestimate of current value = $442,000.
8871 Regal, 92804 3 bd, 2 ba, 1,314 sq ft built in 1956. Purchased as REO in 2007 for $417,000 with zero down. Had previously sold for $568,000 in 2005. Defaulted in 2010. Zestimate of current value = $367,500.
2414 E. Underhill, 92806 3 bd, 2 ba, 1,459 sq ft built in 1957. Purchased for $640,000 in July 2006 with piggyback financing: $500,000 first and $140,000 second, i.e. zero down. Defaulted in 2010. Zestimate of current value = $387,000.
Conclusions Excessive borrowing against home equity contributed significantly to the foreclosure story. 39% of new defaults from 2006 to 2008 attributable to home equity borrowing House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis by Mian and Sufi: American Economic Review (forthcoming):
THOUSANDS Californias Housing Cycles and Membership 1970-2010
Hitting Bottom: Sales 2007, Prices 2009 UNITS/MEDIAN PRICE $ SOURCE: California Association of REALTORS® California Sales of Existing Homes and Median Price -61% -25% -44%
% Change$ in Billion Dollar Volume of Sales 2011 Projection: +4% SOURCE: California Association of REALTORS® - 54%
Sales of Existing Detached Homes and Pacific West Consumer Confidence California, May 2011 Sales: 471,840 Units, -2.0 YTD, -5.8% MTM, -14.4% YTY INDEXUNITS SOURCE: California Association of REALTORS®; The Conference Board *Sales are seasonally adjusted and annualized
Median Price of Existing Detached Homes California, May 2011: $291,760 -.07% MTM 10.9 YTY SOURCE: California Association of REALTORS®
Unsold Inventory Index California, May 2011: 5.4 Months SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® MONTHS
Unsold Inventory By Price Range California - Existing Homes May 2010 vs. May 2011 SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Unsold Inventory Index (Months) SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Unsold Inventory By Price Range Jan 2005 – March 2011 SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® MONTHS
Home Buyers Who Looked at Newspaper/Magazine Ads to Search for a Home Q. Did you look at newspaper/magazine ads to search for a home?
Became Aware of Home Purchased Through Agent Q. Did you become aware of the home you purchased through a real estate agent?
2009: Mean = 8.1 Median = 9 2010: Mean = 8.5, Median = 9 Scale: 1 = very easy, 10 = very difficult Level of Difficulty to Obtain Financing (All Buyers) Q. Please rate how easy of difficult it was to obtain financing on a scale of 1 to 10, with 1 being very easy and 10 being very difficult.
Buyers Who Know the Terms of Their Loan Q. Do you know the terms of your loan?
2011 Survey of Home Buyers: The Agent Experience
Quick Facts 94% of buyers used an agent 58% of buyers found their agent online 56% of buyers interviewed at least 2 agents 51% Googled their agent 93% are receptive to receiving information via social media 54% would work with same agent again 80% would find agent ratings beneficial
How Buyers Found Their Agents Q. How did you find your real estate agent?
# of Agents Interviewed Q. How many agents did you interview prior to selecting the agent you used in your recent home purchase?
Why Buyers Chose their Agent 1.Most responsive (28%) 2.Worked with agent before (18%) 3.First to respond (17%) 4.Most aggressive (16%) 5.Most knowledgeable (6%) Q. What was the single most important reason for selecting the agent that you used in your recent home purchase?
Buyers Who Googled Their Agent - Historical Trend - Q. Did you Google your agent to find out information about him/her before the final selection?
Percent of Home Buyers Who Google Agent Before Final Selection Q. Did you Google your agent to find out information about him/her before the final selection?
Method of Communicating With Agent - Preferred vs Actual - Q. What was your preferred method of communicating with your agent? How did your agent actually communicate with you?
Agent Response Time Is Important - Rating on 1 to 5 Scale - Q. Please rate the importance of the agents response time in the decision on your final selection on a scale of one to five, with five being extremely important and one being not at all important. Median Rating: 5
Expected vs. Actual Agent Response Time Q. Did your agent meet your expectations on response time?
Agents Need to Improve Response Time - Rating on 1 to 5 Scale - Q. Did your real estate agent meet your expectations on response time? Please rate your agents response time on a scale of one to five, with five being agent exceedingly surpassed expectations and one being agent fell way below expectations.
Reasons for Satisfaction With Agent 1.Worked hard on my behalf (55%) 2.Helped find the best home for me (55%) 3.Always quick to respond (31%) 4.Negotiated good deal on my behalf (29%) 5.Listened to what we needed (20%) Q. Why do you have that level of satisfaction with your agent?
Reasons for Dissatisfaction With Agent 1.Slow to respond (51%) 2.Didnt communicate they way I wanted (19%) 3.Didnt communicate effectively during transaction (14%) 4.Didnt negotiate aggressively on my behalf (12%) 5.Wasted time with homes Im not likely to buy (3%) Q. Why do you have that level of satisfaction with your agent?
Most Buyers Would Work With Agent Again Q. Would you work with the same agent again?
Advice to Agents from Home Buyers 1.Gain better understanding of where market is headed 2.Learn how to handle a distressed property transaction 3.Respond faster 4.Communicate how the client wants and better 5.Gain better understanding of where interest rates are headed 6.Provide more assistance in acquiring mortgage approval 7.Negotiate better Q. What advice would you give to real estate agents to improve the process or the level of service?
California Housing Market Outlook Source: CALIFORNIA ASSOCIATION OF REALTORS® Forecast Date: May 2011
Real Estate: Its Time To Buy Again Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing. SOURCE: Real estate: Its time to buy again Fortune Magazines 3/28/11 article written by Shawn Tully
8 in 10 Americans Agree Buying a Home is the Best Investment One Can Make SOURCE: Pew Research Centers Home Sweet Home. Still. Five Years After the Bubble Burst
8 in 10 Renters Would Like to Buy in the Future …renters are hardly immune to the allure of homeownership, even in the face of the five- year decline in prices. Asked if they rent out of choice or because they cannot afford to buy a home, just 24% say they rent out of choice. SOURCE: Pew Research Centers Home Sweet Home. Still. Five Years After the Bubble Burst