2014 Fresno Housing Market Symposium - 10/17/14

Gazarian Real Estate Center on the campus of California State University, Fresno

Selma Hepp, Senior Economist, California Association of Realtors

NATIONAL HOUSING FUNADAMENTALS ARE POSITIVE

•  Low mortgage rates, lending loosening, affordability still good in our area
• Distressed sales less than 10% of market
• Investors leaving creating more opportunity for buyers needing financing
• Overall home ownership rate has stabilized
• International demand for housing in CA is strong from Chinese
• Construction is up

NATIONAL ECONOMIC FUNDAMENTALS ARE BETTER

• Economic growth is accelerating
• unemployment rate 5.9%
• Constructions jobs up in last 12 months
• 248,000 new jobs in Sept

BUT... DEMOGRAPHICS AS DESTINY?

• affordability is worsening
• home ownership rate for 18 to 34 yrs old still falling
• household formation is VERY slow
• US has become a Rental Nation
• Millenials delaying "adulthood" and staying put longer, student loans, dim job prospects
• Baby boomers delaying retirement, not selling and staying longer
• Inventory low

AND FIRST TIME HOME BUYERS FACE MANY OBSTACLES

• lots of competition for existing housing stock
• affordability constraints
• lack of down payment
• lack of information about the home buying process
• fear of financing
• unemployment fears

ECONOMY GAINING MOMENTUM

• 2013 1.9%, GDP
• 2014 4.5% GDP growth
• Consumer spending has not recovered.  Big ticket items not  being purchased yet
• Possible lack of spending in government spending
• Unemployment in California has dropped more than any other state
• labor participation rates dropping more than most states
• we have more retirees retiring at a faster rate
• younger people not working and staying home and not participating
• largest % of people lost jobs in 2007 more than since 1948
• we've recovered all the job loss of 8.9M jobs
• it does not cover all the new people coming into the job force
• most job recovery in Cali was in Bay area and technology jobs

JOB TRENDS BY CALIFORNIA METRO AREA

• Fresno is 4th in job growth in the state due to tech jobs
• Fresno ranks 2nd in high job growth at 9.2% from 2010 v YOY at 4%
• Types of Jobs
• NR/Mining 31%
• Admin Support 11%
• State Gov 10%
• Transportation, Warehouse 7.4%
• In California, San Francisco #1 and San Jose #2 for retail jobs and e-commerce
• Job growth in the order as follows for growth in the state
• Construction
• Admin & Support & Waste Services
• Professional, Scientific & Technical Services
• Information
• Ed Services
• Leisure & Hospitality
• Real Estate Rental & Leasing
• Retail Trade
• Wholesale Trade
• Health Care & Social Assistance
• Durable Goods
• Consumer confidence Uncertain

WHAT ABOUT THE DROUGHT

• $47.3 Billion total value of ag crops
• employment is record high
• $2.2 Billlion cost of drought
• Ag income has been growing

US ECONOMIC FORECAST for 2015

• GDP 3% growth
• Nonfarm Job growth 2.2%
• Unemployment Rate 5.8%
• Consumer Price Index 2.2%
• Real Disposable Income % Change 2.6%

CALIF ECONOMIC FORECAST for 2015

• Nonfarm Job Growth 2.4%
• Unemployment rate 6.7%
• Population Growth .9%
• Real disposable income 3.8%

# OF HOUSEHOLDS LOST SINCE GREAT RECESSION OF 2009

• 2009 TO 2012
• young adults living with parents increased dramatically 23% are 18 to 24 and 19% are 25 to 34
• average assets recovery
• under 40 has not recovered
• 40 to 61 somewhat recovered
• 62 + has recovered
• income had decreased for each age group
• 15 to 24 -8.9%
• 25 to 34 -12.3%
• Boomers are good and up
• Plans to buy a home are decreasing since summer of 2013
• Residential mobility rates are on the decline even before recession
• millennial especially
• 35 to 44 next group
• 45 to 60 next group
• Real Estate still considered the BEST Long Term Investment
• Real Estate
• Gold
• Bonds
• Sales in California are slightly sagging below 400,000 which is the benchmark

RECOVERY PRICES

• 55.5% recovery in home prices in Fresno only
• Equity Sales are at 90.6%
• Short Sales are at 4.9%
• REO at 4.1%

DISTRESSED SALES FOR CENTRAL VALLEY

• Fresno 15%
• Glenn 19%
• Kern 10%
• Madera 19%
• Merced 14%
• Sacramento 12%
• Tulare 19%
• Stanislaus 12%

PRICE STAGNATION AHEAD

• Price appreciation growing at a much slower rate allowing first time home buyers to compete

WHY IS INVENTORY SO SLOW/LOW?
Demand Side

• housing affordability was at historic highs
• lot of investor purchases
• low rates hurt investment alternatives
• international buyers

Supply Side

• little new construction for last 5 yrs
• underwater people stuck
• mortgage lock in effect
• no inventory to move up
• foreclosure pipeline drying up
• investors renting instead of flipping 80%
• off-market (aka "pocket listings") listings

UNDERWATER MORTGAGES

• 11% in California total = 275,000 homes
• 2.2% near negative equity share

MORTGAGE AND FINANCING

Forecasts of 30 year Agencies

• FNMA 4.4%
• FDMC 4.7%
• Mortgage Banker Association 5%
• NAR 5.1%
• CAR 4.5%

FICO scores are trending downward at 625 score

HOUSING AFFORDABILITY
is the Achilles heel of the economy for California due to too high costs and especially impact on jobs, neighborhood growth, neighborhood stability and economic growth,
Down 30% in California and 57% in the US.  Most people moving to Texas.  More high paying jobs and people are coming to California.  For each percentage point equates to 25,000 homes.

Income required to buy a median priced home in CA (Peak v Current)
$93,593 for min income average which is up approx. $38,000 pushing people out of the market.

HOME OWNERSHIP RATE DROPPED BY AGE OF HOUSEHOLDER
Under 35 dropped the most significantly

Fresno at 54%
Kings 64%
Madera 55%

First time buyers went from 38% to 30%

FRESNO COUNTY
median price home for Fresno $204,000, up 10.8%
median time on market 28 days
residential home sales up YTY .7% and down .9% MTM.

CITY OF FRESNO
Sales down annually and monthly, $205k median priced home, up 8% in pricing
City of Clovis Sales up $280,000

CAR is looking at a 5.2% increase in price change over the next 12 months

____________________________________________________________________________

PANEL:
John Bonadelle, Bonadelle Neighborhoods
Jared Martin, Keller Williams
Rob Melfe, VP, Appraisal Manager, Rabobank
John Shore, Community Housing Council of Fresno
Selma Happ, Sr Economist, CAR


John Bonadelle, Bonadelle Homes - seeing a larger family home and lower rates are allowing them to purchase larger home.  He's having a hard time with land available to build.  Permitting still take a month or more and sometimes longer.

Unrealistic land prices are causing issues with building.  Cities are not widening their boundaries causing the dirt to increase in price.

Sanger and Madera growth occurring as a result of Fresno;'s non expansion.  Lack of skilled labor is slowing production and causing people to move out of the industry which is causing a slow down in production.

Builders are going to have to expand to new markets to survive.  Competition is going to be vicious.  Southwest Fresno will be noticed now.  Products and lots will become smaller due to the economic growth and the lack of affordable land and space.

Rob Melfe, Appraisal Manager, Rabobank

The median price range has to be compiled by a lot of information rather than one segment.  The most popular method of tracking is the median price.

There is NOT one price fits all.  The median value when used to measure trending is a mathematical distortion. 

The median price is a statistical point which fails to work in the analysis of any one price tier analysis of properties, much less an individual property.

1004 MC - worst form created!  Used as the precipitous of the appraisal.

A median price is nothing more than a line bisecting the total of all sales prices, one half above and one half below.  It NEVER represents the price movement of Any One Property.

John Shore, Community Housing Council -
Subprime ruined the market and HUD did not raise their loan limits at the time when the market was moving fast.  Congress could not enact quick enough to keep up with the market.

 The Role of the Housing Counseling Agency - Homeownership is the platform for a Quality of Life!

• 1968 HUD founded Housing Counseling Agency
• 1972 HUD approved Housing Counseling Agencies
• Pre purchase education and counseling
• Preventing mortgage default
• Non-delinquency post purchase
• HECM (Reverse Mortgage) Mandatory Counseling
• Locating, Securing & Maintenance Rental Housing
• Shelter or Services for the Homeless
• Help to find loans

1. 2012 HUD establishes the Office and Housing Counseling as part of Dodd-Frank Act
2. 2013 HUD mandated to establish certification requirements for counselors (Dodd Frank)
1. Financial Management
2. Property Maintenance
3. Response
4. Fair Housing Laws
5. Housing Affordability
6. Mortgage and Rental Default
3. Benefits
1. Not all lenders have or know about all programs
2. Not all realtors are aware of all programs
3. A Non-profit provides a trusted advisor
4. HUD Agencies provide mandatory education classes
1. HECM- Reverse Mortgage Counseling
2. FHA - Back to Work Program
3. FHA - HAWK Program - Homeowners Armed With Knowledge
4. Most Bank CRA Proprietary loan programs (Community Reinvestment Act)
5. Most City, County and State
4. Where are we Headed?
1. 2004 Homeownership 69%
2. Zillow study shows March 2014 65%
3. 80% of renters believe homeownership is a good financial decision
4. 68% of renters believe its a good time to buy
5. Affordability in Fresno 54% and 33% Statewide
5. Barriers
1. Credit Issues
2. Lack of Down Payment
3. Unsure of the Future
4. Fear of Process
5. Lender Regulations - CFPB
6. Single Biggest Mistake
1. I don't qualify
2. Be prequalified by 3 lenders
3. Get mortgage ready today
1. enroll in a financial management class
2. follow an action plan