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Today’s Real Estate: Drivers and the Road Ahead

Today’s Real Estate: Drivers and the Road Ahead. Jon Haveman Principal, Haveman Economic Consulting April, 2013. Outline: Drivers. General Economy Government Policy Fiscal Policy Monetary Policy Bank Lending Standards Venture Capital. Background statistics.

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Today’s Real Estate: Drivers and the Road Ahead

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  1. Today’s Real Estate: Drivers and the Road Ahead Jon Haveman Principal, Haveman Economic Consulting April, 2013

  2. Outline: Drivers • General Economy • Government Policy • Fiscal Policy • Monetary Policy • Bank Lending Standards • Venture Capital

  3. Background statistics

  4. Median Home PricesThrough Q3-2012 • Price Declines – Peak to Current • Bay Area: -31% • Solano: -50% • Contra Costa: -38% • Napa: -36% • Alameda: -28% • Sonoma: -26% • Santa Clara: -19% • Marin: -18% • San Francisco: -15% • San Mateo: -14% Source: DataQuick

  5. ForeclosuresThrough Q3-2012 • Current Rates • Bay Area: 1.4 • Solano: 4.0 • Contra Costa: 2.3 • Napa: 2.0 • Sonoma 1.8 • Alameda: 1.3 • San Mateo:0.6 • Marin: 0.5 • Santa Clara:0.6 • San Francisco: 0.5 Source: DataQuick

  6. High Housing Prices(Median Home Values Over Time) Bay Area LA & SD United States

  7. Apartment Rents Bay Area: rapidly rising Silicon Valley: most expensive place to rent Santa Clara County: 29% increase over 4 years Source: Realfacts/bizjournals.com

  8. General economy

  9. US GDP Growth Remains Sluggish Source: UCLA Anderson Forecast

  10. Unemployment Remains Too High Source: UCLA Anderson Forecast

  11. Inflation Stays off the Radar Price Deflator for Personal Consumption Expenditures Source: UCLA Anderson Forecast

  12. Housing Set to Rebound Housing Starts, Annual Data Source: UCLA Anderson Forecast

  13. Investment in Business Structures Uneven Source: UCLA Anderson Forecast

  14. Threats to U.S. Recovery and Long Run Prosperity • Abroad: • Europe • Asia • At home: • Austerity push • Income inequality • Infrastructure

  15. Bay Strengths Relative to CA & US(12 month % growth to Dec.)

  16. Bay Area Share of Selected U.S. Tech Jobs in 2010

  17. Forecast Growth in Total Jobs Source: Center for Continuing Study of the California Economy

  18. Bay Area Population Growth (thousands) Source: Center for Continuing Study of the California Economy

  19. Government Policy

  20. The Fiscal Austerity Issue • Austerity: • US – cutting spending • EU – Greek prescription driving renewed recession • Continue stimulus until strong growth prevails • Plenty of time later for austerity • Remember 1937

  21. Interest Rates: Zero Rate Policy to Continue Through Late 2014 Source: UCLA Anderson Forecast

  22. Income Inequality

  23. Facts on Income Inequality • Top 1%: • Collect 24% of all income • Own 40% of all wealth • Hold 50% of all stocks, bonds, and mutual funds • Received 63% of all income gains in recent years • Problem for residential real estate: • Hollowing out of the middle creates a bifurcated residential market. Softening at the bottom and tightening at the top.

  24. Bank Lending Standards

  25. Lending Standards: Prime Mtgs.(Through Q4-2012) Loosening | Tightening Source: Federal Reserve

  26. Lending Standards: C&I(Through Q4-2012) Loosening | Tightening Source: Federal Reserve

  27. Cash Purchases • Residential • 32.4% of all California home sales in 2012 • Double the average of 15.6% since 1991 • Cash-only purchases > $500k up 35% compared to 2011 • Why? • Can’t get a mortgage • Want to prevail in hot markets

  28. Venture capital

  29. Venture Capital Source: PriceWaterhouseCoopers MoneyTree

  30. Summary • Economy may be slow – current activity may be short lived • Government policy: push-me pull-you • Austerity vs. Easy money vs. Uncertainty • Income inequality will influence markets • Lending standards are an impediment • How long will cash drive markets? • Bay area • Demographics will play a major role going forward • VC will likely continue, but is facing problems • Tech likely to be a driver for some time, but no guarantees

  31. Haveman Economic Consulting • Regional Analysis • Business & Market Analysis • Ports & Infrastructure Analysis • Economic Impact Analysis • Public Policy Analysis Jon@HavemanEcon.com 415-336-5705

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