Housing Affordability Analysis, 2014-Q3

HOUSING
AFFORDABILITY
C.A.R. Research & Economics
www.car.org/marketdata

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

HOUSING AFFORDABILITY DOWN SHARPLY
SINCE Q1 2012
• California vs. U.S. – 1984-2014
% OF HOUSEHOLDS THAT CAN BUY
A MEDIAN-PRICED HOME
80%

CA

70%
60%
50%
40%
30%
20%
10%
0%

SERIES: Housing Affordability Index of Traditional Buyers
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

US

Annual

Quarterly

HOUSING AFFORDABILITY
Bay Area – 3rd Quarter 2014
Q3/2014

Q3/2013

United States
California
S.F. Bay Area
Alameda
Contra-Costa (Central County)
Marin
Napa
San Francisco
San Mateo
Santa Clara
Solano
Sonoma
0

10

SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

20

30

40

50

60

HOUSING AFFORDABILITY
• Central Valley – 3rd Quarter 2014
Q3/2014

Q3/2013

United States
California
Fresno
(Bakersfield) Kern
Kings County
Madera
Merced
Placer County
Sacramento
Tulare
0

10

20

SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

30

40

50

60

70

HOUSING AFFORDABILITY
Southern California – 3rd Quarter 2014
Q3/14

Q3/13

United States
California
Los Angeles Metro
Inland Empire
Los Angeles
Orange County
Riverside County
San Bernardino
San Diego
Ventura
Santa Barbara
0

10

20

SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

30

40

50

60

70

MEDIAN CA HOUSE PAYMENT
WELL BELOW PEAK
PITI/Month
$4,000

Peak: $3,668/mo (2007 Q2)

$3,500
$3,000

Latest: $2,374/mo (2014 Q3)

$2,500
$2,000
$1,500
$1,000
$500
$Jan-80

Jan-83

Jan-86

Jan-89

Jan-92

SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Jan-95

Jan-98

Jan-01

Jan-04

2009 Q1

… MINIMUM QUALIFYING INCOME
BELOW PEAK
Min. Income
$160,000

Peak: $146,701/yr (2007 Q2)

$140,000
$120,000

Latest: $94,965/yr (2014 Q3)

$100,000
$80,000
$60,000
$40,000
$20,000
$Jan-80Jan-82Jan-84Jan-86Jan-88Jan-90Jan-92Jan-94Jan-96Jan-98Jan-00Jan-02Jan-04 2006 2012
Q1
Q1
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

HOUSE PAYMENT (INFLATION ADJUSTED)
IS AT LATE 1970’S LEVEL
PITI/Month
(ADJUSTED FOR INFLATION)

$1,000

Peak: $928/mo (2006)

$900
$800

Latest: $458/mo (2013)

$700
$600
$500
$400
$300
$200
$100
$1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MINIMUM QUALIFYING INCOME IS THE
SAME AS 35YEARS AGO
Min. Income
(Adjusted for Inflation)

$40,000

Peak: $37,122 (2006)
Latest: $18,337 (2013)

$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MEDIAN MONTHLY MORTGAGE PAYMENT
What Will Happen When Mortgage Rates Increase?
Q3-2014 Median Price $467,700
MONTHLY MORTGAGE

20% Down payment

$2,400
$2,000

$1,577

$1,680

$1,786

$1,896

$2,009

$2,124

$2,243

$2,365

$1,600
$1,200
$800
$400
$0
3.0%

3.5%

4.0%

4.5%

5.0%

INTEREST RATE
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

5.5%

6.0%

6.5%

MINIMUM QUALIFYING INCOME
What Will Happen When Mortgage Rates Increase?
Q3-2014 Median Price $467,700
Minimum Qualifying Income

20% Down payment

$120,000
$100,000

$84,613

$88,720

$92,966

$97,347

$101,857

$106,492

$111,245

$116,112

$80,000
$60,000
$40,000
$20,000
$0
3.0%

3.5%

4.0%

4.5%

5.0%

INTEREST RATE
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

5.5%

6.0%

6.5%

HOUSING AFFORDABILITY INDEX
What Will Happen When Mortgage Rates Increase?
% OF HOUSEHOLDS THAT CAN
BUY, ALL ELSE CONSTANT

Q3-2014 Median Price $467,700
20% Down payment

50%
45%
40%

35%

33%

35%

30%

29%

26%

30%

25%

23%

25%

21%

20%
15%
10%
5%
0%
3.0%

3.5%

4.0%

4.5%

5.0%

INTEREST RATE
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

5.5%

6.0%

6.5%

INCOME REQUIRED TO BUY A MEDIAN-PRICED
HOME IN CA: (PEAK VS. CURRENT)
$100,000

$93,593

$80,000
$60,000

• Change in minimum required income:
$37,269
• Increase in income attributed to
interest rate increase:
$836 (2.2% of total change)

$56,324

$40,000

• Increase in income attributed to price
increase :
$36,433 (97.8% of total change)

$20,000
$0
2012 Q1

2014 Q2

SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

WHY DO WE CARE ABOUT LOW LEVEL OF FIRSTTIME 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 state’s homeownership rate

FIRST-TIME BUYER HOUSING AFFORDABILITY
INDEX
• California Vs. U.S. 2000-2014
% OF HOUSEHOLDS THAT CAN BUY
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

SERIES: First Time Buyer Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California

US

MONTHLY PITI AS A SHARE OF HOUSEHOLD
INCOME
• California Vs. U.S. 2000-2014
80%
70%
60%
50%
40%
30%
20%
10%
0%

SERIES: First Time Buyer Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California

USA

ENTRY-LEVEL MONTHLY HOUSE PAYMENT AND
PAYMENT AS SHARE OF MEDIAN HOUSEHOLD INCOME
PITI/MONTH
$3,500

PITI

Payment as Share of Income

70%

$3,000
$2,500
$2,000

% CHANGE
80%

60%
Peak 2007-Q2: $3,190/mo
Latest 2012-Q2: $1,306/mo

50%
40%

$1,500
$1,000

30%
20%

$500

10%

$-

0%

SERIES: First Time Buyer Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

REASONS FOR RENTING INSTEAD OF BUYING
Can't afford to buy

44%
9%

Poor credit / Can't qualify
Renting is easier

6%

Young/Starting out/Not ready

6%

Flexibility/Freedom if renting

6%

Cost/Upkeep/Responsibility

5%

Plan to / Saving for down

5%
3%

Never considered it/No interest
Disabled/On disability

2%

SERIES: 2013 Renter Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

STUDENT LOAN DEBT AN ISSUE FOR 25% OF
RENTERS
Amount of Debt
Student Loan Debt

<$10,000
Refused, 2%

78%

$10-$20K

8%

$20-$50K

6%

No, 75%
Yes, 23%

SERIES: 2013 Renter Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

$50-$100K

3%

> $100K

2%

Refused

2%

STUDENT DEBT: DRAGS ON HOME SALES

HOMEOWNERSHIP RATE LOWER IN CA
• California Vs. U.S.
75%
70%
65%
60%
55%
50%
45%
40%

SERIES: Homeownership Rates
SOURCE: U.S. Census Bureau

CA

US

HOMEOWNERSHIP RATE BY AGE OF
HOUSEHOLDER

SOURCE: Census Bureau

MILLENNIAL HOMEOWNERSHIP FALLING

SOURCE: Census Bureau

CALIFORNIA’S 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 SFH’s, is still exhibiting inadequate supply

HOW TO MAKE IT MORE AFFORDABLE?
ONE WORD: SUPPLY
• CA Housing Needs = Minimally 165,000 Units
Annually
– Regulatory Problem
– Impact Fees
– Public Attitudes

CA PERMITS UP BUT MORE UNITS NEEDED
2013: 57,496 Units, Up 43.0% from 2012
350000

Single Family

Multi-Family

300000
250000
200000
150000
100000
50000
0

SERIES: New Housing Permits
SOURCE: Construction Industry Research Board

Household Growth: 220,000-250,000/yr

STAY CONNECTED WITH RESEARCH
CARResearchGroup
CARResearchInfo
On.car.org/CARResearch
Housingmatters.car.org