Housing Market Update
May 24, 2011
Wayne Yamano, Vice President
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Who is John Burns Real Estate Consulting?
 Independent research and consulting firm focused on the housing
 We help Investors, Builders/Developers, Lenders, and Building
Product Manufacturers make smart decisions
 We analyze 80 Metros each month, in 10 major regions.
Our research clients receive:
 Monthly reports
 Survey Results
 Insight from the Experts
 Webinars
 White Papers
 Introductions
 And much more…
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Today’s Agenda
1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments
3
Prices heading down
•
•
•
Builders dropped prices in 7 of 9 regions in 1Q11
CA showed the most severe declines
Prices have been under more pressure in 2Q11
Average Change In Net Prices
In 1st Quarter 2011
Northeast
0.6%
Texas
0.2%
Southeast
-1.0%
Florida
-1.2%
Nation
-1.4%
Midwest
-1.7%
Northwest
-1.9%
Southwest
-2.1%
S. California
N. California
-5.0%
-3.6%
-4.2%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
Source: John Burns Real Estate Consulting independent survey. NSA April 2011
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All builders hurting
New Home Price Decline in Builders' Markets*
BZH
-0.7%
NVR
RYL
-0.7%
HOV
TOL
-0.8%
PHM
-0.9%
MTH
DHI
-0.9%
LEN
MHO
KBH
MDC
SPF
(Last 3 Months)
-0.9%
-1.1%
-1.2%
-0.2%
Builder Wtd. Avg. = -0.9%
-1.9%
-1.5%
-1.4%
-1.0%
-1.6%
% Price Change
-0.5%
-0.6%
0.0%
-2.0%
* Average new home price declines weighted by builders' geographic exposure.
Source: John Burns Real Estate Consulting, April 2011
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Spring selling season disappointing
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Today’s Agenda
1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments
7
Excess Vacancy = 3.1 million units (2.4%)
From 2000 to 2010:
•
Total housing stock grew by 15.8 million
•
Households only grew by 11.2 million
•
Vacancy increased from 9.0% to 11.4%
Excess Vacancy
3,500,000
3.5%
Excess Vacancy (Left Axis)
3,000,000
3.0%
Excess Vacancy Rate (Right Axis)
0
0.0%
2010
0.5%
2009
500,000
2008
1.0%
2007
1,000,000
2006
1.5%
2005
1,500,000
2004
2.0%
2003
2,000,000
2002
2.5%
2001
2,500,000
2000
•
Source: John Burns Real Estate Consulting, May 2011
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CA not so bad
CA
Excess
Vacancy
= 2.2%
Oak: 3.3%
Sac: 2.7%
SD: 2.3%
OC: 1.8%
LA: 1.7%
SF: 1.5%
Riv-SB: 0.7%
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U.S. back to equilibrium in 2015
Construction averaging 1.03MM/yr through 2015
Household growth averaging 1.46MM/yr through 2015
Excess Vacancy
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2013P
2012P
2011P
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
-500,000
OC: 2012
LA: 2014
SF: 2014
SD: 2014
Riv-SB: 2015
Oak: 2015
Sac: 2016
2015P
3,000,000
2014P
3,500,000
2000
•
•
Source: John Burns Real Estate Consulting, May 2011
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Pent-up household growth = 3.4MM
•
•
HH growth slowed to 1.0%/yr in 2000s, after 2 decades of
1.4%/yr growth
HH growth should have averaged 1.3%/yr in 2000s, based on
demographics and normal headship rates
Annual HH Growth rate
3.0%
2.4%
2.5%
2.0%
1.8%
1.4%
1.5%
1.4%
1.3%
1.0%
Expected
Theoretical
Household
Growth Rate
1.0%
0.5%
0.0%
1970
1980
1990
2000
2010
2010(Th)
Source: John Burns Real Estate Consulting, Census
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More young adults living with parents
1.5 million more young adults living with their
parents today than in 2000
25 to 34 Year Olds Living with their Parents
Millions
•
6.0
Number (Left Axis)
16%
5.5
Percentage (Right Axis)
14%
5.0
12%
4.5
10%
4.0
8%
3.5
6%
3.0
4%
2.5
2%
2.0
0%
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Sources: US Census Bureau, JBREC
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Today’s Agenda
1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments
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Is the worst behind us?
Based on our forecasts:
• 50% of the Foreclosure Notices have been filed
• Only 30% of the distressed homes have been sold
Millions
Foreclosure Starts & Distressed Sales
3.5
2.5
Foreclosure Starts
2.9
3.0
2.6
2.3
1.8
2.0
1.5
1.5
1.0
Distressed Sales
2.5
2.0 1.9
1.3
2.0
1.7
1.3
0.9
1.1
1.3
0.9
0.9 1.0
0.5
0.0
2008
2009
2010
2011P
2012P
2013P
2014P
2015P
2016P
Source: John Burns Real Estate Consulting, April 2011
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U.S. Shadow Inventory = 10 months
•
•
Central CA markets have most shadow
Coastal Bay area has least shadow
Metro
Bakersfield, CA
Fresno, CA
Los Angeles, CA (MDiv)
Merced, CA
Modesto, CA
Monterey, CA
Oakland, CA (MDiv)
Orange County, CA (MDiv)
Riverside-San Bernardino, CA
Sacramento, CA
San Diego, CA
San Francisco, CA (MDiv)
San Jose, CA
Santa Barbara, CA
Santa Rosa, CA
Stockton, CA
Vallejo-Fairfield, CA
Ventura, CA
Visalia-Porterville, CA
CA Metros: Shadow Inventory
Shadow
Resale
Shadow
Estimated
Inventory
Sales
Months of
Metro
3,6
(10-yr Avg) Supply Delinquency %2
(base case)
16,932
12,020
17
19.9%
14,968
10,588
17
16.9%
114,741
98,127
14
12.4%
6,094
3,476
21
26.1%
12,957
7,885
20
22.1%
5,164
4,253
15
14.1%
43,896
38,804
14
12.7%
33,302
38,739
10
9.0%
95,058
73,585
16
20.7%
47,704
36,329
16
16.5%
41,011
40,628
12
11.9%
13,307
18,542
9
6.5%
17,503
24,188
9
7.9%
4,626
4,262
13
11.4%
6,782
7,467
11
10.7%
16,213
10,341
19
21.4%
10,253
7,643
16
18.3%
10,852
12,008
11
10.3%
6,660
4,389
18
16.0%
Current
Median
Price
$115,000
$145,000
$340,000
$113,000
$137,000
$223,500
$321,000
$470,000
$175,500
$195,000
$362,000
$651,000
$515,000
$331,500
$325,000
$156,500
$195,000
$410,000
$122,000
JBREC
Affordability
Index™
0.0
0.0
1.2
0.7
0.2
0.7
0.9
4.4
1.2
0.4
2.9
1.0
1.9
0.3
1.0
0.5
0.2
4.0
0.4
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Distressed sales to take larger share
Distressed sales:
• 27% of sales in 2010
• Forecasted to be 36%-37% of sales in 2011-2013
• Typically 6%-7% of sales
Resale Sales Volume
8
Distressed
7
6
Millions
•
5
0.41
0.30 0.37
0.42
0.44
0.44
0.42
Non-Distressed
0.58
4
3
2
6.34 6.64 6.05
5.76
5.08
4.87 4.96 5.22
"Normal" Non-Distressed Sales
1.67 1.29 0.95
0.87 1.50 1.33 1.80 1.91 1.96
4.05 3.66 3.58
3.86 4.15
3.20 3.29 3.44 3.63
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011P 2012P 2013P 2014P 2015P 2016P
Source: John Burns Real Estate Consulting, April 2011
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Today’s Agenda
1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments
17
Scale tipping towards rental demand
For-Sale
Rental
18
Apartment fundamentals surging
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Rents rising as prices falling
Apartments rents have been rising since beginning of 2010
For-sale housing has never been this cheap compared to
apartment rents
After-Tax Housing Costs vs Asking Rents
(Annual Averages of All Markets Represented)
$1,600
AVG After-Tax Cost of Homeownership
$1,500
AVG Asking Rent
$1,400
$1,300
$1,200
$1,100
$1,000
$900
2013P
2012P
2011P
Current
2010
2009
2008
2007
2006
2005
2004
2003
2002
$800
2001
•
•
Source: JBREC Market Monitor; RealFacts, Reis (2010Q4) 81 markets (Current through 2010Q4)
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Rents rising as prices falling
San Francisco
Oakland
San Jose
Sacramento
Los Angeles
Orange County
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…so why is the for-sale market so weak?
•
Prospective buyer pool is lousy!
• FICO scores too low
• No $ for down payment
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Construction will return as: 1) we add jobs, 2) vacancy is filled, and 3)
builders can find ways to make $$$.
U.S. Residential Permits
2,500,000
2,218,900
2,155,300
2,000,000
1,769,400
YoY SA: -20.5%
1,500,000
1,279,000
2010 to 2015
MF: +173%
SF: +72%
1,000,000
1991: 948,800
500,000
1981: 985,500
2011P: 626,500
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Current
2011P
2012P
2013P
2014P
2015P
0
Single Family
Multifamily
Recession Years
Sources: John Burns R.E. Consulting, Census Bureau for history and JBREC for forecast (Pub: Apr/11),NSA, Current=SA,(Data: Feb/11)
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• High Demand: Census Bureau says population will grow by 3.2
million per year and they will need to live somewhere.
Recovery Timeline
Job
Growth
Housing
Vacancies
Filled
Demand
Exceeds
Supply
Rents and
Home prices
Rise
Construction
Returns to
Normal
• Recovery is Underway: Rents and home prices have stabilized in
many of the best middle class neighborhoods today.
• Full Construction Recovery Will Take 6+ Years: It will take years
to reach 1.7 million+ construction starts due to land locations
and feasibility
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Make great decisions with great analysis
Wayne Yamano
wyamano@realestateconsulting.com
(949) 870-1200
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