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Housing Market Outlook Silicon Valley Association of REALTORS® April 1, 2008 Robert A. Kleinhenz, Ph.D. Deputy Chief Economist California Association of.

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Presentation on theme: "Housing Market Outlook Silicon Valley Association of REALTORS® April 1, 2008 Robert A. Kleinhenz, Ph.D. Deputy Chief Economist California Association of."— Presentation transcript:

1 Housing Market Outlook Silicon Valley Association of REALTORS® April 1, 2008 Robert A. Kleinhenz, Ph.D. Deputy Chief Economist California Association of REALTORS®

2 Economic Outlook

3 Gross Domestic Product Year 2007: +2.5%; 2007 Q4: +0.6% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $ ANNUALQTRLY

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

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

6 Year-to-Year % Change in Jobs % Change California K jobs SOURCE: CA EDD, LAEDC Forecast

7 Consumer Price Index February 2008: All Items 4.1% Y-T-Y; Core 2.3% Y-T-Y PERCENT CHANGE FROM A YEAR AGO, 100=

8 Historically Low Inflation In Past 20 Yrs Year 2007 Inflation: 2.4% PERCENT CHANGE FROM A YEAR AGO, 100=

9 U.S. Economic Forecast SOURCE: California Association of REALTORS®

10 California Economic Forecast SOURCE: California Association of REALTORS®

11 Economy through 2008 GDP Growth below par: ~1 to 2% First half of year weak, stronger in last half Weak but positive job growth for US, CA, and its regions Unemployment rate up slightly Inflation a concern but in check Uncertainty about economy, credit crunch, and housing market

12 California Housing Market Outlook

13 INDEXUNITS Sales of Existing Detached Homes & Pacific West Consumer Confidence California, February 2008 Sales: Down 29.1% Y-T-D, Down 28.5% Y-T-Y SOURCE: California Association of REALTORS®; The Conference Board

14 Median Price of Existing Detached Homes California, February 2008: $409,240, Down 26.2% Y-T-Y SOURCE: California Association of REALTORS® -32%

15 Lower Price Ranges Hit Hardest, but… Percentage Change in Sales YTY SOURCE: California Association of REALTORS® …Credit Crunch slammed high end in September

16 Before Credit Crunch-Peak vs Current Price

17 Peak vs Current Price-February 2008

18 Unsold Inventory Index California, February 2008: 14.3 Months SOURCE: California Association of REALTORS® MONTHS

19 Listings by Month, Selected Years California ( Average=100) SOURCE: California Association of REALTORS® Record High: March May Record Low: Feb

20 Credit Crunch ≠ Tighter Underwriting Tighter Underwriting Standards Subprime and other less-qualified borrowers initially. Later spread to well-qualified borrowers. Credit or Liquidity Crunch Investors who normally provide funds to Lenders on sidelines. Source for jumbo loans. $$$ in safe havens (Treasuries) because of risk elsewhere. Fewer $$$ available, even for well-qualified borrowers in recent months.

21 SOURCE: Federal Home Loan Mortgage Corporation Mortgage Rates

22 SOURCE: Federal Home Loan Mortgage Corporation – 30-yr FRM Federal Reserve Board – 10-Year T-Bond 30-Year FRM vs. 10-Year T-Bond Average. Risk Premium: 1.6%

23 Mortgage Foreclosure & Delinquency Rates California SOURCE: Mortgage Bankers Association Delinquencies: Long Run Average: 3.9% Foreclosure Rate: Long Run Average: 0.81%

24 Framing the Sub-Prime* Situation Right $$$ House & Right Mortgage Not in trouble - no fix necessary Right $$$ House but Wrong Mortgage Can refinance out of problem Wrong $$$ House and Wrong Mortgage Defaults, workouts, foreclosures, etc. Troublesome Categories * Really should be “Non-Prime” Situation

25 % OF HOUSEHOLDS THAT CAN BUY First-time Buyer Housing Affordability Index California Vs. U.S SOURCE: California Association of REALTORS®

26 Local Outlook

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

28 SOURCE: California Association of REALTORS®; The Conference Board INDEXUNITS Sales of Existing Detached Homes and Pacific West Consumer Confidence Bay Area, February 2008: 1,532 Units, Down 36.4% Y-T-D, Down 32.5% Y-T-Y 2007 Sales Down 44% from Peak Year 2004

29 Sales of Existing Detached Homes Bay Area Counties SOURCE: California Association of REALTORS®

30 Median Price of Existing Detached Homes Bay Area, February 2008: $706,880, Down 5.0% Y-T-Y SOURCE: California Association of REALTORS®

31 Median Price of Existing Detached Homes Bay Area Counties SOURCE: California Association of REALTORS®

32 UNITS Sales of Existing Detached Homes Santa Clara County Sales, 2007: -22.5% YTY, 2008: -40.1% YTD ANNUAL MONTHLY

33 SOURCE: California Association of REALTORS® Median Price of Existing Detached Homes Santa Clara County, February 2008: $780,000, Down 1.3% Y-T-Y

34 Median Home Sales Price Santa Clara County SOURCE: C.A.R.; DataQuick Information Systems. The price statistics are derived from all types of home sales -- new and existing, condos and single-family.

35 Sales of Existing Detached Homes SOURCE: California Association of REALTORS® San Mateo County Sales, 2007: -16.0% YTY, 2008: -31.8% YTD UNITS ANNUAL MONTHLY

36 Median Price of Existing Detached Homes SOURCE: California Association of REALTORS® San Mateo County, February 2008: $910,950, Up 4.7% Y-T-Y

37 Median Home Sales Price San Mateo County SOURCE: C.A.R.; DataQuick Information Systems. The price statistics are derived from all types of home sales -- new and existing, condos and single-family.

38 Notices of Default – Bay Area Houses and Condos SOURCE: Data Quick Information Systems

39 Median Household Income SOURCE: American Community Survey (Census Bureau), Compiled by California Association of REALTORS® Santa Clara, San Mateo, and California

40 California Forecast

41 California Housing Market Forecast SOURCE: California Association of REALTORS®

42 Sales More Volatile Than Prices UNITS/MEDIAN PRICE $ SOURCE: California Association of REALTORS® California Sales of Existing Homes and Median Price -61% -25% -47%

43 Summary Existing Home Sales: 2007: -26%, 2008: -6% Statewide Median Price: Continuing decrease (15-25%) Low end weak…Payment resets, Foreclosures High end weak…Credit/Liquidity Crunch Tighter Underwriting Standards…maybe too tight Affordability to remain low, THEREFORE… Stabilizing sales, no significant recovery in next 6-12 months

44 The Bottom Line for Households Homeowners are generally in a positive equity position if bought before 2005, so don’t panic! Sell if you must, hold if you can. If you must sell, then price home to sell and not to sit. Buyers should not expect bargains in all markets. Must do homework and consult with a REALTOR® Find a home that meets needs and fits budget…buy it! Opportunities for investors, but must do homework. Thank You!


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