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8/9/2019 Housing Affordability Analysis, 2014-Q3
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HOUSING
AFFORDABILITYC.A.R. Research & Economics
www.car.org/marketdata
8/9/2019 Housing Affordability Analysis, 2014-Q3
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REAL ENEMY OF THE FUTURE OF CALIFORNIA?
Housing Affordability The Achilles Heel of the California Economy
What happens when housing costs are too high?
Impact on jobs and economic growth
Impact on neighborhoods and family stability
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HOUSING AFFORDABILITY DOWN SHARPLYSINCE Q1 2012
California vs. U.S. 1984-2014% OF HOUSEHOLDSTHAT CAN BUYA MEDIAN-PRICED HOME
SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
0%
10%
20%
30%
40%
50%
60%
70%
80% CA USAnnual Quarterly
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HOUSING AFFORDABILITY
Bay Area 3rd Quarter 2014
0 10 20 30 40 50 60
United States
California
S.F. Bay Area
Alameda
Contra-Costa (Central County)
Marin
Napa
San Francisco
San Mateo
Santa Clara
Solano
Sonoma
Q3/2014 Q3/2013
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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HOUSING AFFORDABILITY
Southern California 3rd Quarter 2014
0 10 20 30 40 50 60 70
United States
California
Los Angeles Metro
Inland Empire
Los Angeles
Orange County
Riverside County
San Bernardino
San Diego
Ventura
Santa Barbara
Q3/14 Q3/13
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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MEDIAN CA HOUSE PAYMENTWELL BELOW PEAK
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 2009 Q1
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
PITI/Month
Peak: $3,668/mo (2007Q2)
Latest: $2,374/mo (2014 Q3)
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MINIMUM QUALIFYING INCOMEBELOW PEAK
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
Jan-80Jan-82Jan-84Jan-86Jan-88Jan-90Jan-92Jan-94Jan-96Jan-98Jan-00Jan-02Jan-04 2006Q1
2012Q1
Min. Income
Peak: $146,701/yr (2007Q2)
Latest: $94,965/yr (2014Q3)
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
HOUSE PAYMENT (INFLATION ADJUSTED)IS AT LATE 1970S LEVEL
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
PITI/Month(ADJUSTED FOR INFLATION)
Peak: $928/mo (2006)
Latest: $458/mo (2013)
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$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
MINIMUM QUALIFYING INCOME IS THESAME AS 35YEARS AGO
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
Min. Income(Adjusted for Inflation) Peak: $37,122 (2006)
Latest: $18,337 (2013)
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MEDIAN MONTHLY MORTGAGE PAYMENT
What Will Happen When Mortgage Rates Increase?
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
$1,577$1,680
$1,786 $1,896$2,009
$2,124$2,243
$2,365
INTEREST RATE
MONTHLY MORTGAGE
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
Q3-2014 Median Price $467,700
20% Down payment
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MINIMUM QUALIFYING INCOME
What Will Happen When Mortgage Rates Increase?
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
$84,613$88,720
$92,966 $97,347$101,857
$106,492$111,245
$116,112
INTEREST RATE
Minimum Qualifying Income
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
Q3-2014 Median Price $467,700
20% Down payment
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HOUSING AFFORDABILITY INDEX
What Will Happen When Mortgage Rates Increase?
0%
5%
10%
15%
20%
25%
30%35%
40%
45%
50%
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
35%33%
30% 29%26% 25%
23%21%
Q3-2014 Median Price $467,700
20% Down payment
INTEREST RATE
% OF HOUSEHOLDSTHAT CANBUY, ALL ELSECONSTANT
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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INCOME REQUIRED TO BUY A MEDIAN-PRICEDHOME IN CA: (PEAK VS. CURRENT)
$56,324
$93,593
$0
$20,000
$40,000
$60,000
$80,000
$100,000
2012 Q1 2014 Q2
Change in minimum required income:
$37,269
Increase in income attributed to
interest rate increase:
$836 (2.2% of total change)
Increase in income attributed to price
increase :
$36,433 (97.8% of total change)
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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WHY DO WE CARE ABOUT LOW LEVEL OF FIRST-TIME BUYER?
It signals a constrained flow of new households in the
housing market
Trade-up market cannot be replenished in the long
run
First-time buyers represent the main impulse that
drives the states homeownership rate
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FIRST-TIME BUYER HOUSING AFFORDABILITYINDEX
California Vs. U.S. 2000-2014
0%
10%
20%
30%
40%
50%
60%
70%
80%
90% California US
% OF HOUSEHOLDSTHAT CAN BUY
SERIES: FirstTime Buyer Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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MONTHLY PITI AS A SHARE OF HOUSEHOLDINCOME
California Vs. U.S. 2000-2014
0%
10%
20%
30%
40%
50%
60%
70%
80% California USA
SERIES: FirstTime Buyer Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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ENTRY-LEVEL MONTHLY HOUSE PAYMENT AND
PAYMENT AS SHARE OF MEDIAN HOUSEHOLD INCOME
0%
10%
20%
30%
40%
50%
60%
70%
80%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500 PITI Payment as Share of Income
Peak 2007-Q2: $3,190/moLatest 2012-Q2: $1,306/mo
PITI/MONTH % CHANGE
SERIES: FirstTime Buyer Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
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REASONS FOR RENTING INSTEAD OF BUYING
44%
9%
6%
6%
6%5%
5%
3%
2%
Can't afford to buy
Poor credit / Can't qualify
Renting is easier
Young/Starting out/Not ready
Flexibility/Freedom if rentingCost/Upkeep/Responsibility
Plan to / Saving for down
Never considered it/No interest
Disabled/On disability
SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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STUDENT LOAN DEBT AN ISSUE FOR 25% OFRENTERS
Yes, 23%
No, 75%
Refused, 2%
Student Loan Debt
SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATIONOF REALTORS
78%
8%
6%
3%
2%
2%
$100K
Refused
Amount of Debt
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STUDENT DEBT: DRAGS ON HOME SALES
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HOMEOWNERSHIP RATE LOWER IN CA
California Vs. U.S.
40%
45%
50%
55%
60%
65%
70%
75% CA US
SERIES: Homeownership RatesSOURCE: U.S.Census Bureau
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HOMEOWNERSHIP RATE BY AGE OFHOUSEHOLDER
SOURCE: Census Bureau
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MILLENNIAL HOMEOWNERSHIP FALLING
SOURCE: Census Bureau
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CALIFORNIAS HOUSING DILEMMA
Even with everything (or at least most things) going
right, our homeownership market is in trouble
The rental market, even with the conversion of
500,000 SFHs, is still exhibiting inadequate supply
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HOW TO MAKE IT MORE AFFORDABLE?ONE WORD: SUPPLY
CA Housing Needs = Minimally 165,000 Units
Annually
Regulatory Problem
Impact Fees
Public Attitudes
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CA PERMITS UP BUT MORE UNITS NEEDED
2013: 57,496 Units, Up 43.0% from 2012
SERIES: New Housing PermitsSOURCE: Construction Industry Research Board
0
50000
100000
150000
200000
250000
300000
350000 Single Family Multi-Family
HouseholdGrowth: 220,000-250,000/yr
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