california economic update

Transcription

CALIFORNIA ECONOMIC UPDATE
ISSUE 42
JULY 2015
A NNUAL SUBSCRIPTION
Summer 2015 Update
Here we are in the summer of 2015 and California enjoys an interest rate
around 4%, affordability at 34% and inventory levels around 3.5 months
and declining. In the past, this combination typically means an escalation of
price, an acceleration of sales, and a boom market mentality begins to take
hold. Let’s take a look at various counties to see if that is occurring in any
major county we follow.
Orange County
Year over year, Orange County has had a less than a 3% price increase
and stands at a median price of $727,850. Prices actually declined from
September 2014 through January 2015. Since the beginning of 2015, prices
have had gradual, steady gains.
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To put that price in perspective, the peak price for Orange County during
the 2005-2007 boom was $775,424. I have always discounted that peak
number believing it was only reached on the backs of extremely lax lending
policies. We used the price Orange County was at when the state of
California reached 17% affordability and calculated that should have been
the peak price. That price was $697,798.
FEATURES
In our latest report, 2015: Proceed with Caution, we used a formula driven more
by monthly payment to arrive at a peak price during the cycle we are in now.
It takes into consideration the possibility of aggressive lending hikes.
Los Angeles...................... 10
Orange ................................ 1
Riverside ............................. 3
Sacramento ......................... 5
San Diego .......................... 9
Santa Clara ....................... 12
San Francisco ................... 13
Affordability Update ..... 14
Upcoming Events.............17
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TNG CALIFORNIA INVESTOR QUARTERLY – JULY 2015
1. Median Price – Orange County
Median Price of Existing Single-Family Homes
$740,000
YTY% Change in Sales
Median Price of Existing Single-Family Homes
30.0%
YTY% Change in Sales
$720,000
20.0%
$700,000
10.0%
$680,000
0.0%
$660,000
-10.0%
$640,000
-20.0%
$620,000
-30.0%
May-13
Nov-13
May-14
Nov-14
May-15
Source: California Association of Realtors.
2. Orange County Potential Price Increases
Assume median income at peak in 2005
Peak price was $775,424 due to aggressive lending, assume $697,798 max price
Goal max payment $3,299
Price
80% loan
Mortgage Payment (PI)
Peak
Jan 2015
Current
$697,798
$558,000
$3,299 (4/05)
$692,390
$553,888
$2,644.30
$727,850
$582,280
$2,779.89
Median Price
80% of Median Price
Potential Upside if Interest Rates
Remain at Interest Rate Listed
4%
5%
6%
$862,937
$691,000
$3,299
$768,125
$614,500
$3,299
$688,000
$550,400
$3,299
25%
11%
-1%
Source: The Norris Group.
For each 1% interest hike your median price peak goes down by 10-11%
■
Inventory levels in Orange County are on par with the state of California. The month’s supply chart has
gradually come off of the January high of over 5 months to its current 3.5 months’ supply.
3. Unsold Inventory – Orange County
(In months)
Unsold Inventory Index & Median Time of Market
80
Median Time On Market
6
Unsold Inventory Index (right axis)
5
4
3
40
2
20
Months
Number of Days
60
1
0
0
May-13
Nov-13
May-14
Nov-14
May-15
© The Norris Group 2015 (951) 780-5856
www.thenorrisgroup.com
2
Sales of homes have gone up 4.9% year over year can be seen in Chart 3.
4. Single-Family Housing Permits – Orange County
Single-family home construction has been unable to gain any consistency for the last two years. The chart
above shows both multi-family and single-family construction, with the only burst in growth coming from
the apartment construction business.
Riverside County
5. Median Price – Riverside County
Year over year, Riverside County has also had a less than inspiring 2.7% change in price and the median
price stands at $332,490. If you divide this chart from 2013-2014 and 2014-2015, most of the price increases
came in the first year. After that, price increases have been difficult to come by.
To put that price in perspective, the peak price for Riverside County during the 2005-2007 boom was
$431,713. When calculating trends, I have always discounted that peak number believing it was only reached
on the backs of extremely realxed lending policies. I use the price Riverside County reached when the state
of California reached 17% affordability. That price was $389,406.
In Proceed with Caution, we used a formula driven more by monthly payment to arrive at an expected peak
price during the current cycle. It takes into consideration the possibility of aggressive lending hikes.
© The Norris Group 2015 (951) 780-5856
3
6. Riverside County Potential Price Increases
Price
80% loan
Median Price
80% of Median Price
Peak
Jan 2015
Current
$389,406
$311,525
$1,842 (4/05)
$322,700
$258,160
$1,232.50
$332,490
$265,992
$1,269.89
4%
5%
6%
$482,500
$386,000
$1,842
$428,750
$343,000
$1,842
$384,125
$307,300
$1,842
49.5%
33%
19%
7. Unsold Inventory – Riverside County
(In months)
According to this chart, inventory levels stood at 4.3 months, about a 1% higher level than the state of
California. This report differs from another inventory chart I’ve seen recently that shows Riverside’s
inventory levels at below 3 months. The latest report on CAR’s website shows 4.3 in May, down from 4.5
months in April. It’s been our recent experience in Riverside that inventory is pretty tight with a declining
number of available homes.
Sales in Riverside County have increased by 7.8% year over year as seen in Chart 5.
8. Single-Family Housing Permits – Riverside County
© The Norris Group 2015 (951) 780-5856
4
Construction in Riverside County is slowly improving but very far off anything resembling a construction
boom. Riverside County built 423 new single-family homes versus only 30 units.
Since Riverside’s construction employment is so important, I’ve enclosed a chart showing the creation of
building lots.
9. Subdivisions – Riverside County
500
400
375
399
298
300
212
200
100
54
19
2009
11
25
20
2010
2011
2012
43
72
10
0
2004
2005
2006
2007
2008
2013
2014
2015Q1
Source: Real Estate Research Council of Southern California, Construction Industry Research Board.
Although this chart shows some improvement, it shows hesitancy on the part of the developers to go “all
in.” This is very different behavior from anything we’ve experienced before, especially given the high
affordability and low interest rate environment.
Sacramento County
Year over year, Sacramento County has enjoyed a healthier price increase of 7.2% and stands at a median price
of $293,480. This chart shows a pretty consistent plodding of prices moving gradually upwards.
10. Median Price – Sacramento County
To put that price in perspective, the peak price for Sacramento County during the 2005-2007 boom was
$394,450. Once again, I have always discounted that peak number believing it was only reached on the backs
of extremely lax lending policies. We used the price Sacramento County was at when the state of California
reached 17% affordability and calculated that should have been the peak price. That price was $369,765.
In 2015: Proceed with Caution, we used the formula driven by monthly payment to arrive at a peak price during
the cycle we are in now to take into account possibilities in interest rate hikes.
© The Norris Group 2015 (951) 780-5856
5
11. Sacramento County Potential Price Increases
Price
80% loan
Median Price
80% of Median Price
Peak
Jan 2015
Current
$369,765
$296,000
$1,750 (4/05)
$270,150
$216,120
$1,031.80
$293,480
$234,784
$1,120.89
4%
5%
6%
$458,125
$366,500
$1,750
$407,500
$326,000
$1,750
$365,000
$292,000
$1,750
70%
51%
35%
Inventory levels stood at 2.9 months. That’s roughly 0.5% lower than the state of California.
12. Unsold Inventory – Sacramento County
(In months)
Sales in Sacramento County have increased by 4.9% year over year.
13. Single-Family Housing Permits – Sacramento County
Construction in Sacramento County is slowly improving but also very far off anything resembling a
construction boom. Sacramento built 204 homes to zero apartment units.
© The Norris Group 2015 (951) 780-5856
6
San Bernardino County
14. Median Price – San Bernardino County
Year over year, San Bernardino County prices gained only 3% and stands at a median price of $220,890.
This chart also shows a pretty consistent plodding of prices moving gradually upwards.
To put that price in perspective, the peak price for San Bernardino County during the 2005-2007 boom
was $350,288. In the following, we use the price San Bernardino County was at when the state of California
reached 17% affordability and calculated that as the peak price. That price was $301,799.
Using our formula driven by monthly payment, we arrive at a peak price during the cycle we are in now. It
takes into consideration the possibility of aggressive lending hikes.
15. San Bernardino County Potential Price Increases
Price
80% loan
Median Price
80% of Median Price
Peak
Jan 2015
Current
$301,799
$241,439
$1,431 (4/05)
$208,080
$166,464
$794.70
$220,890
$176,712
$843.65
4%
5%
6%
$374,991
$300,000
$1,432
$333,437
$266,750
$1,432
$300,750
$240,600
$1,432
80%
60%
44%
© The Norris Group 2015 (951) 780-5856
7
16. Unsold Inventory – San Bernardino County
(In months)
Inventory levels stood at 4.4 months, about a 1% higher level than the state of California.
Sales in San Bernardino County have increased a very healthy 12.7% year over year.
17. Single-Family Housing Permits – San Bernardino County
Construction in San Bernardino County is slowly improving but very far off anything resembling a
construction boom. San Bernardino County had 252 new homes built versus 45 apartments.
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San Diego County
18. Median Price – San Diego County
Year over year, San Diego County has had a healthy 8.2% price increase and stands at a median price of
$538,660. Prices have been more volatile in San Diego than in some of the other more boring counties.
To put that price in perspective, the peak price for San Diego County during the 2005-2007 boom was
$622,378. Discounting that peak number to when the State of California reached 17% affordability, we use
the price of $593,601 for calculations.
19. San Diego County Potential Price Increases
Price
80% loan
Median Price
80% of Median Price
Peak
Jan 2015
Current
$593,601
$475,000
$2,808 (4/05)
$493,000
$394,400
$1,882.90
$538,660
$430,928
$2,057.32
4%
5%
6%
$735,000
$588,000
$2,808
$653,750
$523,000
$2,808
$585,625
$468,500
$2,808
49%
33%
19%
20. Unsold Inventory – San Diego County
(In months)
© The Norris Group 2015 (951) 780-5856
9
Inventory levels in San Diego County are about on par with the state of California. The month’s supply chart
has gradually come off of the January high of over 5 months to its current 3.3 months’ supply.
Sales of homes have gone up 6.5% year over year.
21. Single-Family Housing Permits – San Diego County
Single-family home construction has been unable to gain any consistency for the last two years. This chart
shows both multi-family and single-family construction, with the only burst in growth coming from the
apartment construction business. San Diego County built only 244 homes but 716 apartment units.
Los Angeles County
22. Median Price – Los Angeles County
The median price in Los Angeles County went up 5.1% year over year; from $411,640 to $432,570.
The peak price for Los Angeles County during the 2005-2007 boom was $625,812. Discounting that peak
number for our calculations to the point where the state of California reached 17% affordability, we get the
price of $451,503. That seems unreasonably low, so we settled on a $500,000 maximum price level to do our
calculations.
© The Norris Group 2015 (951) 780-5856
10
23. Los Angeles County Potential Price Increases
Peak price was $625,812 due to aggressive lending. Going to use $500,000 as max price
Price
80% loan
Median Price
80% of Median Price
Peak
Jan 2015
Current
$500,000
$400,000
$2,365 (4/05)
$477,600
$382,080
$1,824.10
$432,570
$346,056
$1,652.12
4%
5%
6%
$619,375
$495,500
$2,365
$550,625
$440,500
$2,365
$493,125
$394,500
$2,365
30%
15%
3%
24. Unsold Inventory – Los Angeles County
(In months)
Inventory levels in Los Angeles County are about on par with the state of California. The months’ supply
chart has gradually come off of the February high of over 5 months to its current 3.6 months’ supply.
Sales of homes have gone up 2.2% year over year.
© The Norris Group 2015 (951) 780-5856
11
25. Single-Family Housing Permits – Los Angeles County
This chart shows both multi-family and single-family construction, with the majority of the activity coming
from the apartment construction business. Los Angeles County built only 374 homes but 1,032 apartment
units.
Santa Clara County
26. Median Price – Santa Clara County
Year over year, Santa Clara County has had a very healthy price gain of 13.1%, one of the highest in the state.
Price gains have been very consistent for the past two years. The current median price of $993,000 is far
above the highs reached in 2007 at $865,000.
27. Unsold Inventory – Santa Clara County
(In months)
Inventory levels in Santa Clara County are at a miniscule 1.8 months’ supply, about half of the California 3.5
months’ supply. This is one of the lowest inventories in the state.
© The Norris Group 2015 (951) 780-5856
12
However, sales in Santa Clara County have only gone up 2.0 % year over year, much less than the 8.9% for
the state of California.
28. Single-Family Housing Permits – Santa Clara County
Construction in Santa Clara County is pretty evenly divided between single-family and apartment construction.
Construction of single-family homes represents much less of a priority for employment in this area. That role
is supplied by the tech industry. In the entire county, only 86 homes were built and 93 apartment units.
San Francisco County
29. Median Price – San Francisco County
San Francisco County enjoyed a powerful increase of 22.8% to get to a median price of $1,375,000. That is
almost triple the median price of California. The peak price reached in our last boom was $932,352.
30. Unsold Inventory – San Francisco County
(In months)
© The Norris Group 2015 (951) 780-5856
13
Inventory levels in San Francisco County stands at only 1.8 months. Like Santa Clara, it’s about half the state
inventory level of 3.5 months.
Despite the rapid acceleration of price, the volume of sales in the area went down by about 13% year over year.
31. Single-Family Housing Permits – San Francisco County
Single-family construction in San Francisco County was virtually non-existent with seven new homes under
construction. All of the residential construction was for multi-family units at 213.
Affordability
32. California Affordability
60%
50%
40%
30%
20%
10%
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
0%
California affordability stands at a healthy 34%. Historically, that leaves us with plenty of room for prices to
run.
The local picture varies considerably. Here’s how each area compares with its past history of affordability.
© The Norris Group 2015 (951) 780-5856
14
Riverside County:
San Diego County:
■
Current affordability: 42%
■
■
Past low affordability: 14% in 2005
■
■
High affordability: 68% in 2010
■
■
Last time reached current affordability: 42%
in 2002
■
in 2001
San Bernardino County:
Sacramento County:
■
■
■
■
■
■
■
in 1999
■
in 2002
Orange County:
Santa Clara County:
■
■
■
■
■
■
■
in 2004
■
in 2004
Los Angeles County:
San Francisco County:
■
■
■
■
■
High Affordability: 51% in 2012
■
■
in 2003
■
in 2004
With the exception of San Francisco and Santa Clara counties, California seems to be at a safe price range.
I don’t see anything that causes immediate concern about needing to sell because a price peak is being
approached. My attitude on that would change when interest rates rise and begin to eat away affordability
without price increases. That will get my attention.
Inventory levels are pretty low in most areas and the mix of inventory continues to be about 90% equity sellers
and 10% being a combination of REOs and short sales. This percentage should continue to improve through
the next 18 months.
© The Norris Group 2015 (951) 780-5856
15
Since the lending world is still very restricted, it’s hard to imagine a circumstance that will change their
policies overnight. This restriction does two main things: 1) It prevents a lot of sales volume that would
otherwise occur, 2) It also prevents faulty loans from being created.
Without a big volume of sales coming from the buyers who usually stretch the truth about their ability to
pay, it would be hard to have a major downturn. Most people have loans that start with a 3% interest rate
and I would bet they will hang in there and make that payment unless we go into a major recession and job
losses occur.
I found the following chart surprising. I don’t know why, but I had it in my head that most people in
California moved about every five years or so. That doesn’t turn out to be true!
33. Tenure of Homeowners
(Years)
30
25
18.9
20
Long Run Average = 15.9
15
10
5
0
CA
Long Run Average
SERIES: Percent of existing single-family homes being sold
SOURCE: Census Bureau, American Community Survey, Moody’s Analytics, C.A.R.
This charts shows the tenure of home ownership for California. I really couldn’t believe the long run
average is almost 16 years! That really surprised me and its hard for a chart to do that at this point.
Perhaps even more importantly is the recent increase in length of ownership. Some of that was because of
people being trapped under water with a mortgage balance greater than their house value. But I would bet
some people are staying longer because they are not sure if they would actually qualify for a new loan.
I can see this charts actually reflecting an owner even staying longer as interest rates rise. Why would you
give up a 3% mortgage rate to move to your next house? I’m sure that may well restrict inventory in the
future.
© The Norris Group 2015 (951) 780-5856
16
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© The Norris Group 2015 (951) 780-5856
17
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california economic update

Transcription

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