Housing Affordability Analysis, 2014-Q3

8/9/2019 Housing Affordability Analysis, 2014-Q3

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HOUSING

AFFORDABILITYC.A.R. Research & Economics

www.car.org/marketdata


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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



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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


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)



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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


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


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


Q3-2014 Median Price $467,700

20% Down payment


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MINIMUM QUALIFYING INCOME


$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



20% Down payment


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HOUSING AFFORDABILITY INDEX


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%


20% Down payment

INTEREST RATE

% OF HOUSEHOLDSTHAT CANBUY, ALL ELSECONSTANT



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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)



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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



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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



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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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Documents

Housing Affordability Analysis, 2014-Q3