3rd Qtr California Housing Affordability

California housing affordability holds steady in third quarter as rising wages and lower interest rates failed to improve purchasing power for home buyers

• Thirty-one percent of California households could afford to purchase the $515,940 median-priced home in the third quarter, unchanged from second-quarter 2016 and up from 29 percent in third-quarter 2015.

• A minimum annual income of $100,290 was needed to make monthly payments of $2,510, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.76 percent interest rate.

• Forty percent of home buyers were able to purchase the $418,230 median-priced condo or townhome. An annual income of $81,290 was required to make a monthly payment of $2,030.

LOS ANGELES (Nov. 9) – Rising wages and slightly lower interest rates did little to improve California’s housing affordability, which remained flat compared to the previous quarter, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in third-quarter 2016 remained at 31 percent, unchanged from the second quarter of 2016 but was up from 29 percent in third-quarter 2015, according to C.A.R.’s Traditional Housing Affordability Index (HAI). This is the 14th consecutive quarter that the index has been below 40 percent and is near the mid-2008 low level of 29 percent. California’s housing affordability index hit a peak of 56 percent in the second quarter of 2012.

C.A.R.’s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The Index is considered the most fundamental measure of housing well-being for home buyers in the state.

Home buyers needed to earn a minimum annual income of $100,290 to qualify for the purchase of a $515,940 statewide median-priced, existing single-family home in the third quarter of 2016.  The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $2,510, assuming a 20 percent down payment and an effective composite interest rate of 3.76 percent. The effective composite interest rate in second-quarter 2016 was 3.85 percent and 4.15 percent in the third quarter of 2015. 

Homes were slightly more affordable in third-quarter 2016 compared to third-quarter 2015, when the affordability index stood at 29 and the median home price was $487,420. An annual income of $98,350 was needed to make monthly payments of $2,460. 

The affordability of condominiums and townhomes also were flat compare to the previous quarter. Forty percent of California households earned the minimum income to qualify for the purchase of a $418,230 median-priced condominium or townhome in the third quarter of 2016, and an annual income of $81,290 was required to make monthly payments of $2,030.

Key points from the third-quarter 2016 Housing Affordability report include:

• Compared to affordability in second-quarter 2016, 13 of 29 counties tracked saw an improvement in housing affordability (Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara, Sonoma, Orange County, Riverside County, Ventura, Santa Cruz, Kern, and Kings), seven experienced a decline (Los Angeles, San Bernardino, San Luis Obispo, Madera, Merced, San Joaquin, and Tulare), and nine were unchanged (Napa, Solano, San Diego, Monterey, Santa Barbara, Fresno, Placer, Sacramento, and Stanislaus).

• Seven of nine Bay Area counties recorded higher affordability numbers than the previous quarter, while affordability results in Southern California and Central Valley regions were mixed.

• During the third quarter of 2016, the most affordable counties in California were Kings (57 percent); Kern (56 percent); San Bernardino (55 percent); and Fresno and Merced, both at 50 percent.

• San Francisco (14 percent), San Mateo (15 percent), and Marin (19 percent) counties were the least affordable areas in the state.  

Housing Affordability slides (click link to open)

Affordability peak versus current
Annual required income peak vs. current
PITI peak versus current
CA housing affordability by quarter (2006-2016)

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Leading the way…® in California real estate for more than 110 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with more than185,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

CALIFORNIA ASSOCIATION OF REALTORS®
Traditional Housing Affordability Index
Third quarter 2016

C.A.R. Region	Housing Affordability Index	Median Home Price	Monthly Payment Including Taxes & Insurance	Minimum Qualifying Income
CA SFH	31	$           515,940	$               2,510	$           100,290
CA Condo/Townhomes	40	$           418,230	$               2,030	$             81,290
Los Angeles Metropolitan Area	34	$           468,600	$               2,280	$             91,090
Inland Empire	46	$           318,960	$               1,550	$             62,000
S.F. Bay Area	25	$           785,980	$               3,820	$           152,780
US	57	$           240,900	$               1,170	$             46,830
S.F. Bay Area
Alameda	22	$           795,400	$               3,870	$           154,610
Contra-Costa	35	$           601,510	$               2,920	$           116,920
Marin	19	$       1,185,000	$               5,760	$           230,340
Napa	25	$           639,000	$               3,110	$           124,210
San Francisco	14	$       1,298,000	$               6,310	$           252,300
San Mateo	15	$       1,300,000	$               6,320	$           252,690
Santa Clara	22	$       1,000,000	$               4,860	$           194,380
Solano	45	$           393,000	$               1,910	$             76,390
Sonoma	27	$           580,500	$               2,820	$           112,840
Southern California
Los Angeles	26	$           536,720	$               2,610	$           104,330
Orange County	23	$           740,070	$               3,600	$           143,850
Riverside County	42	$           358,510	$               1,740	$             69,690
San Bernardino	55	$           248,280	$               1,210	$             48,260
San Diego	26	$           589,260	$               2,860	$           114,540
Ventura	30	$           642,740	$               3,120	$           124,930
Central Coast
Monterey	25	$           539,000	$               2,620	$           104,770
San Luis Obispo	25	$           574,930	$               2,790	$           111,750
Santa Barbara	20	$           717,460	$               3,490	$           139,460
Santa Cruz	18	$           793,000	$               3,850	$           154,140
Central Valley
Fresno	50	$           238,260	$               1,160	$             46,310
Kern (Bakersfield)	56	$           224,670	$               1,090	$             43,670
Kings County	57	$           210,140	$               1,020	$             40,850
Madera	47	$           238,160	$               1,160	$             46,290
Merced	50	$           219,950	$               1,070	$             42,750
Placer County	46	$           439,500	$               2,140	$             85,430
Sacramento	45	$           327,040	$               1,590	$             63,570
San Joaquin	44	$           321,250	$               1,560	$             62,440
Stanislaus	48	$           273,550	$               1,330	$             53,170
Tulare	49	$           212,570	$               1,030	$             41,320

r = revised

CALIFORNIA ASSOCIATION OF REALTORS®
Traditional Housing Affordability Index
Third quarter 2016

STATE/REGION/COUNTY	Q3 2016	Q2 2016		Q3 2015
CA SFH	31	31		29
CA Condo/Townhomes	40	40		39
Los Angeles Metropolitan Area	34	33		31
Inland Empire	46	46		45
S.F. Bay Area	25	23		23
US	57	57		57
S.F. Bay Area
Alameda	22	20		20
Contra-Costa	35	32		34
Marin	19	18		19
Napa	25	25		23
San Francisco	14	13		11
San Mateo	15	14		13
Santa Clara	22	19		19
Solano	45	45		45
Sonoma	27	26		26
Southern California
Los Angeles	26	30		24
Orange County	23	22		20
Riverside County	42	41		39
San Bernardino	55	56		54
San Diego	26	26		24
Ventura	30	29		25
Central Coast
Monterey	25	25		27
San Luis Obispo	25	27		27
Santa Barbara	20	20		17
Santa Cruz	18	17		19
Central Valley
Fresno	50	50		49
Kern (Bakersfield)	56	54		53
Kings County	57	56		60
Madera	47	50		49
Merced	50	52		55
Placer County	46	46		44
Sacramento	45	45		47
San Joaquin	44	45		36
Stanislaus	48	48		40
Tulare	49	50		53

r = revised

9 Global Trends That May Affect Your Market

Sometimes it's obvious how global shifts can rock the real estate industry world-wide, such as when the Brexit vote caused British investors to pull back due to a falling pound this summer and fall. Other signs are subtler. And as Carla Rayman, CIPS, e-PRO, GRI, told attendees at a session analyzing shifts in the global real estate market at the 2016 REALTORS® Conference & Expo in Orlando, Fla. on Saturday, some are even quite sweet.

Full Coverage of the Conference

See REALTOR® Magazine's complete coverage of the REALTORS® Conference & Expo in Orlando atrealtorm.ag/orlando.

“Look for the macaroons and market to the French,” she advised. She explained that one of the ways French citizens find to emigrate is by opening shops featuring the delicious pastries their country is known for. “That’s one of the franchises they use to move.”

Her business partner and co-presenter, Patricia Tan CIPS, GRI, added that many of the macaroon shops we’re seeing pop up in the United States may be traceable to the left-wing policies driving up income taxes in France.

“It doesn’t necessarily have to be radical, violent change” that influences immigration and foreign investment, she told attendees. “You need to watch for those little changes.”

Rayman and Tan presented noteworthy trends in politics, tourism, and the economy that make an impact on global real estate movements. Here are nine that might help you predict movement in your local market.

1. Violence and other security issues are causing those in Ukraine, Turkey, and the Middle East to look outside of the region for a new home.
2. Softer shifts, mostly due to political changes, are driving real estate investment out of the Philippines, Venezuela, Brazil, and Argentina.
3. Vancouver is expecting a 10 percent drop in real estate sales next year due to a new 15 percent sales tax on foreign buyers.
4. High unemployment was a major motivation for young people in Spain to look abroad, and now the same phenomenon is happening with young Greeks.
5. The strength of the dollar means many Canadians might be looking to cash out on their vacation homes in the United States. The idea is that they’ll rent for the next few years and come back to buy again when the loonie is more competitive with its southern neighbor.
6. One of the best ways to predict which countries are going to contribute most to your pool of foreign buyers is to see where tourists are coming from and take note when airlines add new direct flights from other countries to your area.
7. Eco-tourism was a big driver for foreign visitors, but it’s waning. Next up might be “marijuana tourism” for U.S. states that have legalized the drug.
8. Blackstone Group is selling a big portion of its investments in hotels and getting back into multifamily. You’ll see more hotel deals in 2017, but due to all the building happening now, an oversupply might lead to a cooling in 2018.
9. Foreign investment focus may soon shift from New York and Los Angeles to smaller cities and towns that boast attractive events such as large wine, art, and film festivals.

—Meg White, REALTOR® Magazine

Commercial Sectors to Eke Out Modest Growth

Multifamily and industrial properties will continue to lead growth among commercial real estate sectors as the economy makes moderate gains through the end of the year and into 2017, NAR Chief Economist Lawrence Yun said at the 2016 REALTORS® Conference & Expo in Orlando on Friday.

A crowd gathers to hear NAR Chief Economist Lawrence Yun deliver his outlook for commercial real estate sectors at the REALTORS® Conference & Expo in Orlando, Fla., on Friday.

Speaking at a commercial economic forum, Yun said he expects rental rates in the multifamily sector to rise a modest 3 percent a year through 2018, fueled by young households who see solid job growth but aren’t yet ready to buy. Industrial properties — already one of the strongest sectors — are expected to see solid 4 percent growth in rental rates and little change in vacancies over the next two years.

Retail and office space, which are battling online commerce and telecommuting trends, will see slower growth in rental rates of about 2 percent to 2.5 percent.

Full Coverage of the Conference

See REALTOR® Magazine's complete coverage of the REALTORS® Conference & Expo in Orlando atrealtorm.ag/orlando.

Yun said the country is likely to maintain positive economic growth over the next two years, although it is likely to be sluggish: barely more than 2 percent in 2017, and maybe a little higher than that in 2018. Tepid business spending is mainly what’s holding back growth, Yun added, because other types of spending, including consumer and government spending, are still strong.

Inflation will largely stay in check, thanks to low gas prices, but expect it to rise from 1.2 percent this year to 2.5 percent over the next two years because gas prices will continue to drop. That means the inflation rate will no longer offset rising medical costs, rents, and college tuition.

Look for the Federal Reserve to raise its short-term interest rate in December 2016 — and then possibly twice more in 2017.

K.C. Conway, senior vice president of SunTrust Bank, who also spoke at the forum, is more pessimistic about the country’s economic growth prospects. He said growth is already starting to slow and could dip into recession at the end of the year. If so, the United States would join other big economies, such as the European Union, in seeing negative growth. Even China, which says its growth is at 6 percent, could see it slow to as low as 3 percent based on indicators that aren’t included in the country’s official figures, Conway said.

Because of weakness in the U.S. economy, Conway said, the Fed might raise its short-term rate only once (in December) and then not at all in 2017 because increases could hurt the two sectors of the economy that are still doing well: home sales and personal consumption.

Both Yun and Conway said the economy is hurt by the lack of new housing construction, which is keeping prices high and forcing young households to delay home purchases. At the core of the inventory problem are regulations that make it hard for banks to increase their construction lending to builders. Easing those restrictions for community banks, Yun said, would help unleash badly needed financing for builders without putting the banking system at risk, since large, systemically important financial institutions would still be subject to stringent capital rules.

—By Robert Freedman, REALTOR® Magazine

Glass Wine Cellars Steal the Spotlight in Decor

Glass-enclosed wine cellars are growing in popularity as home owners’ wine collection takes center stage in a home. The trend is most notably catching on in new homes in Southern California.

“You are seeing them in more homes, especially as designers are realizing they can be a real showpiece,” says Brahm Callahan, beverage director for Boston’s Himmel Hospitality Group.

Realtor.com® notes the popularity of wine storage in general in homes: Of the nearly 2.6 million homes currently for sale at its site, about 10,000 tout wine cellars.

Most private wine cellars are located in a home’s lower level or basement to ensure proper storage. But some cellars are moving up inside a home. The new glass wall cellars are not being made for long-term storage but more serving as artwork for walls. Joey Kleinhans, managing director at the Sommelier Company of Austin, Texas, recommends a glass cellar only be used for wines that will be consumed within two years.

“Wine as a design element has surged over the past two decades,” says Joseph Spellman, master sommelier for Landmark Vineyards in Sonoma, Calif. “Homebuilders are following the fashions of certain showy restaurants that like to display their rare bottles and huge collections.”

View some photos of glass wine cellars at realtor.com®.

Source: “See the Light: Glass Wine Cellars Are Having a Moment,” realtor.com® (Nov. 2, 2016)

Home Owners Should Feel Twice as Rich

Thanks to rising home prices, home owners are getting richer, a new study says. The amount of homeowner equity has doubled in the last five years, according to CoreLogic’s latest Home Price Index and HPI Forecast for September 2016.

"Home equity wealth has doubled during the last five years to $13 trillion, largely because of the recovery in home prices," says Frank Nothaft, chief economist for CoreLogic. "Nationwide during the past year, the average gain in housing wealth was about $11,000 per home owner, but with wide geographic variation."

Home owners in several markets across California, Washington, Oregon, Colorado, and Utah are seeing some of the most growth, with double-digit home price gains.

Home owners nationwide likely are to see even more equity in the coming months, too.

“Home-price growth creates wealth for owners with home equity,” says Anand Nallathambi, president and CEO of CoreLogic. “A 5 percent rise in home values over the next year would create another $1 trillion in home equity wealth for home owners.”

Source: CoreLogic and “Home Owners Twice as House Rich as Five Years Ago,” CNBC (Nov. 1, 2016)

Most Millennials Compromise for Housing

DAILY REAL ESTATE NEWS | TUESDAY, NOVEMBER 01, 2016

A majority of millennials say they’ve had to make compromises in order to find affordable housing. For 43 percent, that means they have put off saving for the future and 41 percent say they’re living with a roommate to curb costs. Thirty-six percent say they have had to move further away from school or work in order to find something affordable, according to a new survey of 1,000 Americans aged 18 to 34 conducted by the NHP Foundation, a not-for-profit provider of affordable housing.

Read more: Builders to Millennials: We Need You

“This group mirrors much of society, which is also frustrated by the lack of affordable housing and seeking rental options,” says Richard Burns, CEO of the NHP Foundation.

Sixty-nine percent of millennials are considered “cost-burdened,” which means housing costs eat up more than 30 percent of their income. That said, 67 percent of “cost-burdened” millennials say they are saving for the future purchase of a home, 20 percent are delaying getting married or having children, and 17 percent say they also are putting off paying for preventative healthcare.

Not surprising, therefore, 63 percent of millennials say that affordable housing is “very important” to them, the survey showed.

Source: “76% of Millennials Make Housing Compromises,” BUILDER (Oct. 27, 2016)