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HOUSING AFFORDABILITY IN CALIFORNIA
November 12,2015San Jose Hearing
Oscar Wei, Senior Economist
HOUSING AFFORDABILITY PEAKED Q1 2012PRICES V. LOW RATES AND INCOME GROWTH
California vs. U.S. – 1984-2015% OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME
SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
0%
10%
20%
30%
40%
50%
60%
70%
80%
56%
30%
71%
57%
CA USAnnual Quarterly
MEDIAN MONTHLY MORTGAGE PAYMENT - CA
What Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$2,800
$1,636$1,743
$1,853 $1,966$2,083
$2,203$2,327
$2,453Q2-2015 Median Price $485,100
20% Downpayment
INTEREST RATE
MONTHLY MORTGAGE
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
MINIMUM QUALIFYING INCOME - CA
What Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$87,761$92,021
$96,425$100,968$105,646
$110,454$115,384$120,432
Q2-2015 Median Price $485,100
20% Downpayment
INTEREST RATE
Minimum Qualifying Income
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
HOUSING AFFORDABILITY INDEX - CA What Will Happen When Mortgage Rates Increase?
3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%0%
10%
20%
30%
40%
50%
34%32%
30%28% 26% 25%
23%21%
Q2-2015 Median Price $485,100
20% Downpayment
INTEREST RATE
% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
HOUSING AFFORDABILITY IN CA: BY COUNTY
Kings
USA
San B
ernar
dino
Mer
ced
Tulare
Fres
no
Mad
era
Sacra
men
to
Solan
o
Plac
er
Stanisl
aus
River
side
San Jo
aquin CA
Los Angel
es
San Luis
Obispo
Mon
tere
y
Sonom
a
Ventu
ra
San D
iego
Napa
Orange
Santa
Cru
z
Santa
Clara
Alam
eda
Contra
-Cos
ta
Mar
in
Santa
Bar
bara
San M
ateo
San F
rancis
co0
10
20
30
40
50
60
7062
57 56 55 5450 50
47 46 4441 40
37
30 30 28 27 25 25 25 23 21 20 19 18 18 17 1613
10
2015 Q2
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
% able to purchase median priced home
Retail Sales-
persons
Chefs and Head
Cooks
Elemen-tary
School Teachers
Fire-fighters
Police and
Sherriff's Patrol Of-
ficers
Com-puter Pro-
grammers
Regis-tered
Nurses
Software Devel-opers
(Applica-tions)
Min. Inc Required to Buy a
Med. Home
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$27,010
$45,340
$69,990$71,630
$87,520$89,250
$98,400
$119,970
$95,978
HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME
SOURCE: Bureau of Labor Statistics, C.A.R.
2014 Annual Mean Wage
California
Retail Sales-
persons
Auto. Mechan-
ics
Chefs and Head Cooks
Elemen-tary
School Teachers
Fire-fighters
Computer Pro-
gram-mers
Regis-tered
Nurses
Software Develop-ers (Ap-
plications)
Min. Inc Required to Buy a
Med. Home
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$30,340
$52,690$49,230
$70,680$88,390
$97,570
$124,980$118,690
$267,783
HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME
SOURCE: Bureau of Labor Statistics, C.A.R.
2014 Annual Mean Wage
San Francisco
Retail Sales-
persons
Auto. Mechan-
ics
Chefs and Head Cooks
Elemen-tary
School Teachers
Fire-fighters
Computer Pro-
gram-mers
Regis-tered
Nurses
Software Develop-ers (Ap-
plications)
Min. Inc Required to Buy a
Med. Home
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$26,870
$42,610$44,330
$72,720
$82,830$86,840
$93,180
$103,790
$88,082
HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME
SOURCE: Bureau of Labor Statistics, C.A.R.
2014 Annual Mean Wage
Los Angeles
Retail Sales-
persons
Auto. Mechan-
ics
Chefs and Head Cooks
Elemen-tary
School Teachers
Fire-fighters
Computer Pro-
gram-mers
Regis-tered
Nurses
Software Develop-ers (Ap-
plications)
Min. Inc Required to Buy a
Med. Home
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$26,610
$46,790$50,730
$67,300
$58,520
$75,980
$105,390$103,730
$57,581
HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME
SOURCE: Bureau of Labor Statistics, C.A.R.
2014 Annual Mean Wage
Sacramento
County Median Price*Price that Median-Income Households
Can AffordDifference in $ Difference in %
San Francisco $1,247,570 $383,670 $863,900 225.2%
San Mateo $1,075,390 $452,020 $623,370 137.9%
Santa Clara $884,030 $474,230 $409,800 86.4%
Los Angeles $436,010 $275,530 $160,480 58.2%
San Bernardino $222,310 $255,970 -$33,660 -13.1%
San Diego $475,230 $312,180 $163,050 52.2%
Fresno $216,160 $216,910 -$750 -0.3%
Merced $203,930 $230,350 -$26,420 -11.5%
Sacramento $282,770 $272,310 $10,460 3.8%
California $446,980 $304,490 $142,490 46.8%
HOW MUCH HOME CAN A TYPICAL HOUSEHOLD AFFORD
2015 – Q2
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
*Includes existing single-family homes, condos, and townhomes
CALIFORNIA HOUSING MARKET OUTLOOK
2010 2011 2012 2013 20142015p2016f
SFH Resales (000s) 416.5 422.6 439.8 414.9 383.3 407.5 433.0
% Change -12.3% 1.4% 4.1% -5.9% -7.6% 6.3% 6.3%
Median Price ($000s) $305.0 $286.0 $319.3 $407.2 $447.0 $476.3 $491.3
% Change 10.9% -6.2% 11.6% 27.5% 9.8% 6.5% 3.2%Housing Affordability Index 48% 53% 51% 36% 30% 31% 27%
30-Yr FRM 4.7% 4.5% 3.7% 4.0% 4.2% 3.9% 4.5%
SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
VERY SLOW REAL INCOME GROWTH
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
$0.00
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
$60,000.00
$70,000.00
U.S. CAIn 2013 Dollars
SERIES: Median Household IncomeSOURCE: US Census Bureau, Current Population Survey
2013 gap = $5600
INVENTORY CONTINUED TO DECLINE FROM LAST YEAR
Sep 2014: 4.2 Months; Sep 2015: 3.7 Months
Note: “Unsold Inventory Index” represents the number of months it would take to sell the remaining inventory for the month in question. The remaining inventory for the month is defined as the number of properties that were “Active”, “Pending”, and “Contingent” (when available) and divide the sum by the number of “Sold” properties for the month in question.
0
2
4
6
8
10
12
14
16
18
SERIES: Unsold Inventory Index of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
AFFORDABLE INVENTORY AVAILABLE TO MEDIAN-INCOME HOUSEHOLDS
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
0%
10%
20%
30%
40%
50%
60%
70%
80%
67.2%
28.5%
2015 Q2
CA PERMITS UP BUT MORE UNITS NEEDED
2014: 85,065 Units, Up 3.4% from 20132015f: 89,318 Units
SERIES: New Housing PermitsSOURCE: Construction Industry Research Board
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
20122014
0
50000
100000
150000
200000
250000
300000
350000 Single Family Multi-Family
Household Growth: 165,000/yr
• Housing supply constrained in long-run– New construction recovery is very slow– Production has fallen short of housing needs – Short on new units since 2005
• Inhibited by– Fiscal interests of local government– Residents who disdain further development,
especially multi-family– Unfavorable legal/business environment for
development in general & multi-family in particular
INADEQUATE HOUSING SUPPLY ISSUE
SHARE OF FIRST-TIME BUYERS REMAINS BELOW LONG-RUN AVERAGE
0%
10%
20%
30%
40%
50%
29.5%
% First-Time Home BuyersLong Run Average
Long Run Average = 38%
SERIES: 2015 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
20002001200220032004200520062007200820092010201120122013201420150%
10%
20%
30%
40%
50%
11.3%
6.4%
6.9%3.7%
All Hombuyers First-Time Buyers Repeat Buyers
Down Payment
PERCENT OF BUYERS WITH ZERO DOWN PAYMENT
SERIES: 2015 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Q. Please indicate the type of mortgage.
WHILE THE SHARE OF FHA INCREASED FROM THE RECENT LOW, IT WAS STILL MUCH LOWER
THAN 2009
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150%
10%
20%
30%
40%
16%19%
7%5%
FHA VA
SERIES: 2015 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
HOUSING AFFORDABILITY GAP
• Affordability crisis goes beyond low income households– Lack of affordable housing for low
income service workers is apparent– Less obvious problem: moderate
income households who cannot afford homes in/near communities where they work
– In general, there are programs to assist the first group, but not the second group
REASONS FOR RENTING INSTEAD OF BUYING
Can't afford to buy
Poor credit / Can't qualify
Renting is easier
Young/Starting out/Not ready
Flexibility/Freedom if renting
Cost/Upkeep/Responsibility
Plan to / Saving for down
Never considered it/No interest
Disabled/On disability
44%
9%
6%
6%
6%
5%
5%
3%
2%
SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
REASONS FOR CHANGING COUNTY ALL BUYERS (2014 VS. 2015)
Housing affordability
Quality of life
Second home
Shorter commute to work/school
Job change
Closer to family/relative
Quality of school
Retired
Quality of community services
Other
0% 5% 10% 15% 20% 25%
14%
16%
5%
10%
9%
13%
8%
3%
3%
18%
23%
14%
10%
10%
10%
8%
7%
5%
0%
14%
2015 2014
SERIES: 2015 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
HOW DID WE GET HERE?
Why the Production Shortfall?• Shortage of Land:
– Production shortfall greatest in cities where need is most critical
• High Costs of Development– Fees in most California communities are higher than
elsewhere in US– Infill development costs higher than suburban
development costs– Environmental policies, etc increase costs– Lengthy permitting process increases cost per unit
produced and favors deep pockets
• General Desire for Low Density Land Use– Preference for detached single family homes– Disdain for multifamily developments
• Cost of service to cities higher than other land uses
• NIMBYism: – Desire to preserve existing character of community– Dislike for multifamily, higher density development
by residents and officials– Quality of life concerns– Fear of crime and other negative aspects associated
with density
HOW DID WE GET HERE?
SOLUTIONS
• Production Gap is Primary Source of CA’s Housing Problems
• Solutions must include:– Increase in Production– Revitalization of Neighborhoods– Change Incentive Structure Facing Cities
• Fiscal• Housing & Zoning Requirements
• Improve Business & Legal Climate for Developers• Attitude Shift is Essential to Moving Toward
Solutions and an Attitude Shift Requires Education and Heightened Awareness of Problems, Implications, and Solutions!
THANK YOU!
www.car.org/[email protected]
This presentation can be found on www.car.org/marketdata
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