Economic Housing Report from the Association of Realtors (first 6 months 2015)

Economic Report

First Half of 2015

California Association of Realtors

Nationally:

-GDP is up for the 2^nd quarter of 2015. Anticipate end of 2015 to be up by 2.5% and up in 2016 by 2.8%

-Consumer spending in May and June is positive

-The labor market continues to grow

-The June unemployment was 5.3% which is the lowest it has been in 7 years. Anticipate that it will be 5.1% in 2016.

-Consumer confidence continues to move upward. The upward trend dipped last month because of the following:

            -The default in Greece

-Default in Greece affected the stock market which trends hand in hand with consumer confidence.

-Weakness in the Chinese economy negatively impacted consumer confidence.

-Interest rates are anticipated to go up, likely starting in October. Expect the average 30 year fixed will average 4.1% in 2015 and 4.5% in 2016.

California:

-GDP: 2015: 2.4% and 2016 2.3%

--CA unemployment is still higher than the nation but is also at a 7 year low and down considerably from 2008 when it was 13%

-2016 Unemployment will drop to below 6%

-6.1% increase in the median priced home from 2014 to 2015

-11% increase in the number of sales from 2014 to 2015

-Second half of 2015 interest rates will go up to 4.25%. Won’t have a significant impact on housing sales.

Distressed Market (California):

-In 2009 70% of the sales were short sales and foreclosures

-In 2015 only 7% of the sales are distressed sales

-In 2009 only 30% of the sales were equity sales (the sellers walked away with money)

-In 2015 92% of sales are now equity sales

Housing Market:

-There was a dip in pending sales in June from May but pending sales are up by 13.5% from a year ago

-Expect sales to increase 7-9% in July, August and September from the previous year

-In June the median priced home was $489,560. This is an increase from a year ago by 7%

-We are still not at the peak. The median priced home in May of 2007 was $594,000 which is still 15% above where we are now.

-The bottom of the market was in February of 2009 when the median priced home was only $245,230. Prices have almost doubled since the trough in 2009.

-From 2012 to 2014 we have experienced double digit percentage increases in home prices. This is not healthy for an extended period of time because it indicates that the market is overheated and affordability goes down.

-Prices are increasing because of restricted inventory

-The unsold inventory index is now 3.1 months (month’s inventory)

-The unsold inventory index was 3.6 months in June of 2014

-6.5 to 7 months is normal

-We will have tight inventory through the rest of the year:

-Mortgage lock in effect. People now have historic low interest rates on their present house. Buying a new house today will mean a higher rate and a higher payment even if the buyers make a lateral move. This is keeping potential sellers from selling.

-People don’t know where they are going to move. People are hesitant to put their house on the market because they know that the inventory for their new home is low

-There is a lack of new construction

-We average 165,000 new house formations every year but we are not building enough housing to keep up with the demand

-In 2014 85,000 units were built

-In 2015 91,750 units will be built

-Housing affordability is decreasing. In 2012 52% of households could afford the median priced home. In 2014 it was only 30%

-First time buyers make up 30.5% of sales. The long run average is 38%

Forecast:

-The number of sales will increase by 4.4% in 2015 over 2014. They will go up another 6% in 2016.

-The median priced home will go up by 5.3% in 2015 and another 4.4% in 2016

-Housing affordability will go from 31% in 2015 to 27% in 2016. Housing affordability is the percentage of households that can afford the median priced home.