Robert A. Kleinhenz, Ph.D.

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Economic and Housing Market Forecast Real Estate
Education Center February 27, 2004
Robert A. Kleinhenz, Ph.D. Deputy Chief Economist
California Association of REALTORS?
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Overview

• U.S. Economy Housing Market
• California Its Regions
• Market Opportunities in 2004
• 2004 Economic and Housing Outlook

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Key Questions

• Q How will economic expansion affect the housing
  market in 2004?
• Q What will interest rates and the housing
  market look like in 2004?
• Q What is the long-term outlook for the housing
  market?

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National Economy
California Association of REALTORS?
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Gross Domestic Product

• Year 2003 3.1 2003 Q4 4.0

ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000)
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Components of GDP

• Percent Change

SOURCE US Dept of Commerce, Bureau of
Economic Analysis
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National Economic Signals Improving

• GDP
• Overall Economy
• 8.2 growth in Q3
• 4.0 growth in Q4
• Individual Sectors
• Consumer spending up
• Business investment spending up-KEY
• Government defense spending up

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Consumer Price Index

• Inflation January 2004 2.0 Y-T-Y

PERCENT CHANGE FROM A YEAR AGO, 1001982-1984
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Consumer Confidence Index

• February 2004 87.3

INDEX, 1001985
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Dow Jones Stock Price

• 30 Industrial Index 2000-2004

MONTHLY AVERAGE
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U.S Economy At A Glance

• Inflation in Check
• Unemployment Rate just below 6 and falling
• Excess Capacity in Economy
• Stock Market on the rise with improving economic
  conditions

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Existing Single-Family Home Sales

ANNUAL RATE
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Mortgage Rates

• 2000-2004

SOURCE Federal Home Loan Mortgage Corp.
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Housing Market Strong

• US Sales and Median Price
• 2003 record year for sales median
• 2004 near-record sales new record median
• Mortgage Rates
• Rapid increase in June and July, down since
  August
• Slight increase expected in 2004

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CaliforniaEconomy and Housing Market
California Association of REALTORS?
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Unemployment Rate

• California Vs. United States

SOURCE CA Employment Development Division
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Employment Growth, California vs. U.S.

• California Vs. U.S.

YEAR TO YEAR CHANGE
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Nonfarm Employment By Region

SOURCE CA Employment Development Division
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Sales of Detached Homes, California

• 2003 601,770 units, 5.1. 2004 Forecast -2.0.

UNITS
SOURCE California Association of REALTORS
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Sales of Detached Homes and Pacific West Consumer
Confidence

• California, January 2004 615,660 Units Up 5.3
  Y-T-D Up 5.3 Y-T-Y

INDEX
UNITS
SOURCE California Association of REALTORS
The Conference Board
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Median Home Price

• California, January 2004 405,720, Up 20.7
  Y-T-Y

SOURCE California Association of REALTORS
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Californias Million-Dollar Home Sales

Year
Number of Homes
Source DataQuick Information Systems
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Why are Prices Rising?

• Strong Demand
• Low Mortgage Rates
• Demographics overall and age group
• Flight from alternative investment choices
• Restricted Supply
• Constraints on new construction
• Low inventory of homes for sale

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Unsold Inventory Index

• California, January 2004 2.0 Months

MONTHS
Average Since 1/88 7 months
SOURCE California Association of REALTORS
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Unsold Inventory By Price Range

• California - Existing Homes January 2004 vs.
  January 2003

SOURCE California Association of REALTORS
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Median Time on the Market

• California Single-Family Homes, January 2004
  27.2 days

DAYS ON MARKET
SOURCE California Association of REALTORS
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Why are Prices Rising?

• Restricted Supply
• Constraints on new construction
• Low inventory of homes for sale
• Strong Demand
• Low Mortgage Rates
• Demographics overall and age group
• Flight from alternative investment choices

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New Housing Permits

• California, 1988-2003

Household Growth 220,000-250,000/yr
SOURCE Construction Industry Research Board
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Sources of Population Growth

• California (1981-2002)

THOUSANDS
SOURCE CA Dept. of Finance
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Population Percent Changes

• California (1971 - 2002)

SOURCE U.S. Census Bureau California
Department of Finance California Association
of REALTORS
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California vs U.S. Median Prices

• 1970 - 2003

SOURCE California Association of REALTORS
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California vs U.S. Household Income

• 1980 - 2001

Current Dollars
SOURCE U.S. Census Bureau, CA Dept of Finance
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Regional Outlook
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Bay Area

• Economic Profile

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Nonfarm Employment

• Bay Area Region

SOURCE California Economic Development Dept.
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Sales of Detached Homes and Pacific West Consumer
Confidence

• Bay Area, January 2004 2,781 Units, Up 0.5
  Y-T-D, Up 0.5 Y-T-Y

INDEX
UNITS
SOURCE California Association of REALTORS The
Conference Board
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Median Home Price

• Bay Area, January 2004 573,710, Up 16.7 Y-T-Y

SOURCE California Association of REALTORS
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Median Home Price in Bay Area Counties

SOURCE California Association of REALTORS
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Housing Affordability

• December 2003

SOURCE California Association of REALTORS
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Central Valley Region

• Economic Profile

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Nonfarm Employment

• Central Valley Region

SOURCE California Economic Development Dept.
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Sales of Detached Homes and Pacific West Consumer
Confidence

• Central Valley, January 2004 2,839 Units, Up
  1.1 Y-T-D, Up 1.1 Y-T-Y

INDEX
UNITS
SOURCE California Association of REALTORS The
Conference Board
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Median Home Price

• Central Valley, January 2004 234,650, Up 15.5
  Y-T-Y

SOURCE California Association of REALTORS
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Median Home Price in Central Valley Regions

SOURCE California Association of REALTORS
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Housing Affordability

• December 2003

SOURCE California Association of REALTORS
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Southern California Region

• Economic Profile

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Nonfarm Employment

• Southern California

SOURCE California Economic Development Dept.
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Sales of Detached Homes and Pacific West Consumer
Confidence

• Southern California January 2004 Sales 11,419
  Units, Up 5.1 Y-T-D, Up 5.1 Y-T-Y

INDEX
UNITS
SOURCE California Association of REALTORS The
Conference Board
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Median Home Price

• Southern California, January 2004 386,300, Up
  22.9 Y-T-Y

SOURCE California Association of REALTORS
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Median Home Price

• Southern California Regions

SOURCE California Association of REALTORS
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Housing Affordability

• December 2003

SOURCE California Association of REALTORS
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Market Opportunities in 2004
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Market Opportunities in 2004

• Repeat Homebuyers
• Largest share of market
• Boomer generation
• Tradeups
• Second Homes
• First-time Homebuyers
• More challenging
• Need to buy ASAP in current market
• Significant ethnic presence

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Proportion of First-Time Homebuyers

• California

SOURCE California Association of REALTORS
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Population Growth by Age Group

• California (2000-2010)

SOURCE California Department of Finance
California Association of REALTORS
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Net Immigration Vs. Domestic Migration

• California

THOUSANDS
SOURCE CA Dept. of Finance
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Household Growth by Ethnic Mix

• California (1990 Census vs. 2000 Census)

SOURCE U.S. Census Bureau
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Population by Ethnicity

• California (1995-2025)

MILLIONS
SOURCE U.S. Census Bureau
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2004 Internet vs. Traditional Home Buyer Study
California Association of REALTORS?
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Internet Buyers As A Percentage Of All Homebuyers
Q Did you use the Internet as an important part
of your home-buying and selection process?
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Web Sites Visited For Home Buying Process
Selected listing of response categories.
Q What Internet sites did you visit as part of
your home buying process?
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Mean Number Of Weeks SpentOn Selected Activities
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About How Often Did You Receive Communications
From Your Real Estate Agent?
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Did your real estate agent meet your expectations
on response time?
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Satisfaction WithThe Real Estate Agent You Used
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Reasons For Satisfaction With The Real Estate
Agent You Used?
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Key Questions

• Q How will economic expansion affect the housing
  market in 2004?
• Q What will interest rates and the housing
  market look like in 2004?
• Q What is the long-term outlook for the housing
  market?

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Key Questions

• Q How will economic expansion affect the housing
  market in 2004?
• A Economic growth
• Leads to increases in jobs,
• Which leads to income growth, improving
  households ability to make monthly payments and
  come up with downpayments.

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Key Questions

• Q What will interest rates and the housing
  market look like in 2004?

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Treasury Yield Curve

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30-Year FRM vs. 10-Year T-Bond

SOURCE Federal Home Loan Mortgage Corporation
30-yr FRM Federal Reserve Board 10-Year T-Bond
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Key Questions

• Q What is the long-term outlook for the housing
  market?

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Housing Affordability Index

• California Vs. U.S. 2000-2003

OF HOUSEHOLDS THAT CAN BUY
SOURCE California Association of REALTORS
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Housing Affordability Index

• What Will Happen When MORTGAGE RATES Increase?

OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT
SOURCE C.A.R. - August 2003 Median Home Price
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2004Forecast
California Association of REALTORS?
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2004 U.S. Economic Forecast
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2004 U.S. Housing Market Forecast
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2004 California Economic Forecast
UCLA
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2004 California HousingMarket Forecast
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Thank You
www.car.org robertk_at_car.org