Appraisal Issues


 

10 YR Treasury 2.027 (time of CMG Rate Sheet Release)
Open is about 4 tix worse from yesterday. Approximately 0.174 worse in rebate on rate sheet.

Growing concern that Greece’s leaders are divided as to how to handle their current financial crisis has lead most US stocks to go down. The Netherlands and Germany are leading a drive to include more private-sector involvement in the next austerity package for Greece. “Europe is the issue that is first and foremost in everyone’s mind, so any news that comes out on that does have a strong impact on the market,” Peter Jankovskis, of Oakbrook Investments in Lisle, Illinois. “Any weakness there is going to be a drag worldwide.”

As a further sign that consumer spending has taken a turn for the worst, the world’s largest consumer electronics chain, Best Buy, is planning on slashing its holiday hiring by about half of what it was last year. This is a poor indicator both for the economy and is real bad news for the unemployed. Best Buy hired 29,000 seasonal employees last year, and anticipates hiring only 15,000 this year. “Our plan isn’t built or predicated upon a meaningful move in the economic environment,” said Brian Dunn, CEO of Best Buy, “The consumer is being really careful about where he or she is spending the dollars, and I think that will continue through the holidays.”

US home mortgage applications rose last week, showing that refinance demand is going up as rates are going down. Refi applications, according to the Mortgage Bankers Association’s seasonally adjusted index, went up 11.2 percent and purchase applications rose 2.6 percent. “Mortgage rates declined last week, at least partially in response to the Fed’s announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.

Market Summary

At 12:32 PM ET: Although the major indexes are mixed in trading today, most stocks are lower on the NYSE where declining issues lead advancing issues by 2.0 to 1. Among individual stocks, the top percentage gainers in the S.&P. 500 are Jabil Circuit, Inc. and Amazon.com Inc. http://markets.on.nytimes.com/research/markets/usmarkets/usmarkets.asp

Will the S&P Downgrade Affect Interest Rates?

Daily Real Estate News | Monday, August 08, 2011

 

Standard & Poor downgraded the U.S.’s credit rating on Friday, despite Congress reaching a deal in the final hours on the debt ceiling crisis last week. And now many of your customers may be asking: What does this mean for interest rates?“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

Watch this video with NAR Chief Economist Lawrence Yun for more information.

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

Source: “5 Ways the Downgrade in the U.S. Credit Rating Affects You,” The Washington Post (Aug. 8, 2011); Questions and Answers on Standard & Poor’s Downgrading of U.S. Federal Debt,” Associated Press (Aug. 6, 2011); and S&P Downgrade Will Shake Consumer and Business Confidence at a Fragile Time, Economists Say,” Associated Press (Aug. 6, 2011)

Read More

Real Estate OK in Debt Deal But Risks Remain

Young Generation Hit Hard by Recession

Daily Real Estate News | Monday, August 08, 2011

 

The recession has hit the younger generation hard and is forcing them to delay many major life changes and purchases, according to a new survey. About 44 percent of Millennials — people aged 18 to 29 — say they will have to delay buying a home due to economic factors, according to a survey conducted by The Polling Co. Inc./WomanTrend.

About 75 percent say they have or will delay a major life change or purchase due to economic factors, and 30 percent say the bad economy has prompted them to delay changing jobs or cities. What’s more, nearly 25 percent say they will delay starting a family, and 18 percent say they will delay getting married.

Such delays by the younger generation has started to affect household formation. Many young professionals are moving back in with their parents to curb costs, which has caused household to grow in recent years after facing decades of declines.

“The impact of the poor economy, in human terms, has been devastating. This is especially true for young Americans, whose lives have been interrupted and dreams put on hold due to the lack of economic opportunity,” says Paul T. Conway, president of Generation Opportunity.

Source: “Young Americans Waylaid by Recession, Study Shows,” Los Angeles Times (Aug. 5, 2011)

Read more:

What Does Gen Y Want?

Commodity prices

Good news bears

Aug 8th 2011, 13:39 by The Economist online

A fall in commodity prices offers some cheer among the market gloom

THE equity markets may be suffering again as investors worry about sovereign debts and a slowing global economy. But the sell-off has also extended into the commodity market, particularly in oil: West Texas intermediate is trading at around $84 a barrel. This is a bearish story that is good news for western consumers. High raw-materials prices acted as a tax rise in the first half of the year; now they are falling the effect will be akin to a tax cut. There is just one caveat. The working assumption is that the recent sharp fall in the oil prices is caused by concerns about a slowing US economy; if it is really due to a sharp slowdown in emerging markets as well, equity markets will really have cause to worry.

Readers’ comments

The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.

 

Welcome back to Earth !

BRL, you better find a parachute for you…

Deflation, your time has finally come, after 2.5 years of delay

We called it:
http://seekingalpha.com/article/285619-the-debt-downgrade-and-the-summer…

We’re outperforming today as we did all of last week.

I remember in 2008 petroleum peaked in May for their highest price in history. The cause was never explained.

This price exceeded 2004 levels when the Gulf refineries were smashed by a series of Hurricanes notable Katrina and Rita. The prices exceeded the outbreaks of Gulf War 1 and 2 with Iraq and even the 9/11 attacks. The price of oil exceeded Supertankers being attacked by terrorist teams, Iran mining the critical choke point of the Strait of Hormuz where 40% of World travels, Putin’s energy cut offs, or raging piracy off the Somalian coasts.

I want to propose an actor and a plot. Follow the Money. Who has the Wealth and Power and the Means and Motive? The world’s largest exporter of oil is Saudi Arabia.

And in 2008 they saw an opportunity to influence the election of the most powerful office in the world. The Saudis grew tired of Bush and the Republicans. And the Republican Presidential Candidate McCain seem to want to open up a third war front on Iran. The other candidate was named Hussein and may prove to be a tribal brother.

And when your only tool is a hammer, every thing looks like a nail. By reducing oil imports by 5%, the Saudis can affect oil prices world wide instantly and to astonishing effect. The Saudis used their control over oil supply to jigger a shortage, which lead to price spikes 6 months before the election and precipitated the American Great Recession of 2008. John McCain argued their was no recession under Republican leadership and was soundly trounced in the election.

But this Recession snowballed into the Nov 2008 banking crisis, Lehman Bros downfall, the mortgage crisis, AIG insurance crisis, Automaker bankruptcy and the unemployment morass. All because of oil spikes.

An incumbent President’s greatest opponent is the state of the economy in an election year. And the Saudis are again using their hammer this time to LOWER the price of oil to brighten the American economy and re-elect President Obama. We are puppets on a string.

Unfortunately, the law of unintended consequence, the Recession they brought on in 2008 is still around and may be into a double dip. The Saudis are at it again doing their best to suppress the price of oil to promote a recovery.

Surprise, Money is Power! And Economic issues can influence Politics. Strange things happen in election years. Yes, even foreign actors can also pull some stringshmTzic3YT/

Your assertion that the Saudis influenced oil price to rout the Republicans in American presidential election is clever, but simply UNTRUE. The Saudis, or more accurately King Abdullah and the House of Saud, most likely WANTED warmongering hawks in the White House again, so that the US could wipe Iran and its nuclear programmes off the map. Wikileaks showed that King Abdullah, while posturing as an Islamic patriot who wanted the US to moderate its Mideast policies, privately encouraged GWB to attack Iran. This explains the confusion and the disorderliness with which the Saudi diplomatic corps to Washington D.C. have been conducting themselves vis-a-vis the Iranian issue.

And in this day and age, it is unwise to assume that the power to set the price of oil is centralized in Riyadh, Caracas or whatever. Thousands of traders tinker with the price of crude, and other governments can simply flood the market with their strategic oil reserves to drive the price down.

On this blog we publish a new chart or map every working day, highlight our interactive-data features and provide links to interesting sources of data around the we

 

Will Property Tax Increases Stifle Housing?

Daily Real Estate News | Monday, August 01, 2011

 

Despite property depreciation and high foreclosure rates, more county governments nationwide are either planning or have already approved property tax hikes this year.

U.S. markets moving in this direction include Atlanta, Boston, Chicago, and Tucson, along with 35 different municipalities in Utah. Higher tax payments for cash-strapped homeowners, in turn, may generate more foreclosures, while steeper purchase costs could reduce the pool of qualified buyers.

Source: “Will Property Tax Increases Stifle Housing Further?” RealtyBizNews, Donna Robinson (July 31, 2011)

© Copyright 2011 Information Inc.

Read more:

Time to Appeal That Tax Bill?

Hands-on efforts to raise a neighborhood’s value

Property owners take more active roles

The Atlanta Journal-Constitution

With metro Atlanta home values plunging by about one-third in five years, some owners are finding ways to add value to their neighborhoods.

In the Ashview Heights neighborhood of Atlanta, residents have worked to improve the appearance of properties to attract prospective home buyers. Gideon Ben Israel cuts down overgrown bushes earlier this month.

Johnny Crawford jcrawford@ajc.com In the Ashview Heights neighborhood of Atlanta, residents have worked to improve the appearance of properties to attract prospective home buyers. Gideon Ben Israel cuts down overgrown bushes earlier this month.

 
Ashview Heights residents trim vegetation in empty lots during a neighborhood cleanup on Camilla Street earlier this month.

Johnny Crawford jcrawford@ajc.com Ashview Heights residents trim vegetation in empty lots during a neighborhood cleanup on Camilla Street earlier this month.

 

Larry Carter took the prerogative to turn around the downtown Atlanta community he bought into by getting neighbors to help clean up dilapidated properties and help real estate agents with open houses so values would not keep dropping.

Warren Jolly, a developer as the CEO of the Providence Group, had a similar idea for his newer Sterling of Dunwoody condo neighborhood, where prices begin in the mid-$100,000 range.

When the real estate crash brought construction to a halt, he was left with a bare concrete pad among the four other buildings containing more than 150 units. He began to think and negotiate creatively with his financiers about finding a use for that land, and this month workers jackhammered the $500,000 pad into pieces, hauled it away and are turning the former eyesore into a neighborhood park with trees, a grilling area and an herb garden.

“It’s good to see something come to completion,” Jolly said, adding that it stabilizes the value in the community.

Don Wrenn, an owner in Sterling of Dunwoody, said seeing an empty pad would make potential buyers think the neighborhood was stalled. Turning it into a park sends a message that the neighborhood is finished, he said.

“And we as the homeowners are just absolutely thrilled,” he said.

Dan Forsman, the CEO of Prudential Georgia Realty, said homeowner associations are maintaining foreclosed houses.

In other places, neighbors are mowing grass of foreclosed homes next door.

“Quite frankly, they are doing it often out of necessity,” he said. “They have an investment in their community. They have some pride and want to see their community soar.”

A key to the idea is to get owners rather than renters into neighboring houses or condos, Forsman said.

“Owners will do that. Renters will not,” he said.

Jolly put it this way: “The only way to get value in a project today is to be able to sell in it.”

And homes sell easier in neighborhoods where it seems good things are happening, he said.

Carter believes the same thing for his Ashview Heights neighborhood along the city’s Beltline. Against relatives’ advice, he bought a fixer-upper on Fair Street near Morehouse College two years ago.

“It was a transient neighborhood. Not that many homeowners were living there,” he said. “I was looking for a house I could pay cash for.”

He bought one for about $10,000 and put another $10,000 and a lot of sweat into the renovation.

Some of the neighboring 1925-era homes were boarded up, attracting trash and growing weeds. Others had been caught up in mortgage fraud schemes, with prices bid up, then the houses abandoned when the market crashed.

About 200 houses are in the neighborhood; Carter said many are bank-owned, while others are by absentee landlords.

This summer, Carter re-energized the neighborhood association, got several real estate agents involved and started holding monthly neighborhood cleanups, including mowing lawns, hauling trash and painting house fronts to make them look better.

The morning cleanups are followed by afternoon open houses that neighbors publicize by handing out fliers, talking to friends and discussing on social media. They even have a Wells Fargo agent to qualify interested buyers, who can tour Carter’s five-bedroom house and others’ renovated homes to see the possibilities before looking at the houses available for sale. Many of the fixer-uppers remain in the $10,000 to $25,000 range, Carter said.

Shayla Hamilton, a Smyrna real estate agent working with the neighborhood, said the two open houses have attracted lookers from nearby colleges and urban pioneers. Two houses in the neighborhood are under contract, thanks to the open houses.

Carter said, “This is the only way we will see the growth in families and stabilizing our community.”

For Jolly, it was more of a bottom line than an emotional decision.

“We were looking for closure,” he said. “This is the best way to sell the units, and it’s the best for everybody. In today’s market and time, this is the best answer.”

New-Home Market Shows Signs of Stabilizing

Daily Real Estate News | Tuesday, July 26, 2011
New-home sales dropped in June, but a sharp increase in prices and declining inventories may be signs the sluggish new-home market is finally showing signs of rebounding, the Commerce Department reported Tuesday.

Sales of new homes dropped 1 percent in June, reaching an annual rate of 312,000 — less than half the 700,000 rate that most economists consider healthy for the new-home sector. New-home sales fell to record lows in the Northeast and were also particularly sluggish in the West.

The Commerce Department reported 164,000 new homes for sale in June, which is a record low. Taking into account June’s sales pace, the supply of new homes on the market dropped to a 6.3-month supply, the lowest since April 2010.

However, builders are starting to build more. Last week, the Commerce Department released a report that showed a rebound in June for new building permits — an indication for future building. Also, builders broke ground on more homes in June, with housing starts soaring 14.6 percent last month, marking a six-month high in housing starts.

Meanwhile, the median price of a new home increased to $235,200 in June, up 5.8 percent from May. Compared to June last year, the median price rose 7.2 percent. However, new-homes continue to be considerably higher than previously owned homes. The median price on existing-homes averaged $184,300 in June.

Source: “U.S. New Home Sales Fall in June, Prices Rise,” Reuters News (July 26, 2011)

Many Home Owners in Denial About Price

Daily Real Estate News | Wednesday, July 20, 2011

 

 

More home owners — particularly those who bought their homes in 2007 or later — are overpricing their properties when trying to sell them, according to a new analysis from Zillow.Home owners who purchased their home in 2007 or later are overpricing their homes by an average of 14 percent, according to Zillow.

While sellers who purchased their home prior to the housing bubble also overprice their homes, they don’t overprice by as much, the study finds. For example, home sellers who bought their home prior to 2002 are pricing their homes on average about 11.6 percent above market value; those who bought between 2002 and 2006 are pricing their homes 9.3 percent over market value.

“Post-bubble buyers seem to believe they escaped the worst of the housing recession, as evidenced by how they price their homes today,” says Stan Humphries, Zillow’s chief economist. “But 2006 was just the beginning of the housing recession, and it is continuing in earnest to this day. That means that even people who bought after the bubble burst need to break out the pencil and paper and do serious research into what has happened in their market since they first bought their home, whether it was four years ago or six months ago.”

In its analysis, Zillow compared the asking price of 1 million homes for sale to the home’s previous purchase price and factored in the home’s estimated current value.

Source: “Sellers Who Bought Post-Bubble Guilty of Overpricing Homes; More Likely to Base Asking Price on Original Price, Rather Than Current Market Conditions,” Zillow (July 14, 2011)

30-Year Mortgage Rates Drop to 4.51%

Mortgage rates fell this week from last, amid a weakening job report and an increase in the unemployment rate, Freddie Mac stated in its weekly mortgage market survey.

Here’s a closer look at mortgage rates for the week:

30-year fixed-rate mortgage: averaged 4.51 percent, downfrom last week when it averaged 4.60 percent. Last year at this time, the 30-year rate averaged 4.57 percent.

15-year fixed-rate mortgage: averaged 3.65 percent, downfrom last week when it averaged 3.75 percent.A year ago at this time, the 15-year rate averaged 4.06 percent.

5-year adjustable-rate mortgage: averaged 3.29 percent this week, down from last week when it averaged 3.30 percent. A year ago, the 5-year ARM averaged 3.85 percent.

1-year ARM: averaged 2.95 percent this week, downfrom last week when it averaged 3.01 percent. At this time last year, the 1-year ARM averaged 3.74 percent.

Source: “Mortgage Rates Fall After Weak Job Report,” Freddie Mac (July 14, 2011

One long, grueling summer for California’s recovery

By Tara Tran • Jun 20th, 2011 • Category: Feature Articles, Journal Articles, June 2011 Journal

This article reviews indicators in the market which signal the long-awaited national housing recovery and evaluates the California real estate market’s progress towards recovery.

The worst is (almost) over

Meditating on the landscape of American housing doesn’t bring much peace of mind, yet economists claim a nugget of hope is wedged somewhere beneath the muck of this real estate bust, even for the more deeply entrenched California.

2011 has thus far failed to yield an economic recovery of leaps and bounds and thrust us beyond the Great Recession. Low interest rates (courtesy of the Fed and generous government housing subsidies) triggered an artificial leveling of home prices nationwide going into 2010, but were insufficient in duration and intensity (or reception) to bridge the recession gap.

Many economists predict an additional 25% decline is not out of reach for reasons now known to all involved.

Prices nationally in the first quarter of this year hit a new low – 5% lower than one year ago, according to the S&P Case-Shiller Index. Thus, the nation’s home prices have returned to mid-2002 levels. Many economists predict an additional 25% decline is not out of reach for reasons now known to all involved. [For more information on tracking the market with the most recent data from the S&P, see the first tuesday Market Chart, S&P 500: Stock Pricing vs. % Earnings (P/E Ratio.]

A look at other circumstances in the national real estate market lead some to believe this is the worst of the storm and a sustained recovery is now on its way, in spite of current price adjustments.

Hints of a national recovery

Positive signs – nationally – thus far include:

  • advantageous home purchasing conditions due to low decade-old prices and very low mortgage rates, both slipping downwards at the same time;
  • gross rent multipliers (GRMs) such as home prices and home price-to-rent ratios of between 9-11 times the annual rental value which mirror the stable long-term trend of pre-bubble years [For more information about the GRM, see the June 2010 first tuesday article, Renting vs. buying: the GRM.];
  • lower apartment vacancies and higher rents, which typically help bolster home prices;
  • an 18% decrease in new foreclosures from the previous quarter and improved household delinquency rates for a fifth consecutive quarter as more borrowers catch up with their mortgage payments versus those who fall behind; and
  • 200,000 new jobs added to the economy in each of the past three months and 1.2 million jobs in the past year (more jobs mean a lot of positive things, but it is a particularly good sign for the construction industry which, if given a leg up, may consequently boost home prices). [For more information on positive indicators in the nation’s housing market, see the Economist article, The darkest hour: Signs of hope among the gloom.]

A gauge for California’s recovery

That’s national, and this is California, the seventh largest economy in the world. But is recovery in California feasible, or just a far-fetched fantasy?

Here we evaluate the Golden State for the same (positive) signs and provide a forecast most Californians will likely have to live with:

  • Are home purchasing conditions advantageous? Yes, you can bet on that. Rarely do we get low prices, low interest rates and low down payment financing at the same moment in time. All that is needed is the will to buy, which in part requires brokers and agents to get the word out that mortgages are available at 4.5% if you apply.

Prices fell 2% in Los Angeles, 4% in San Diego and 5% San Francisco for the year ending with the first quarter of 2011, and further drops are forecasted for the rest of the year. Buyers have this information and what it is telling them is to wait until prices bottom to make offers. Agents have their work cut out to convince buyers that a further drop is likely but the present pricing will look most proper in three or four years, and will make no financial difference in ten years.

Interest rates have also been and are on a continuous decline. The average rate for a 30-year fixed-rate mortgage (FRM) in the U.S. Western region dropped to 4.45% the second week of June. The 15-year FRM also dropped in the same week to 3.63%. However, even with these deals and steals on the market, people are just not buying. The agent’s advice is that rates cannot move much lower, if at all, and they can and will rise in the future as the recovery gains steam – as will prices.

Home sales volume in California has dropped since the first quarter of 2010. 35,202 total homes sold in April 2011, trending consistently down from 37,908 in April 2010. [For more information on home sales volume in the current market, see the first tuesday Market Chart, Home sales volume and price peaks.]

  • Are prices stabilizing? Yes. The lingering drop in home prices across California in all tiers of housing is not a momentary dip from which they will fast rise akin to the fabled V-shaped recovery. Today’s home prices represent a resetting of the artificially high prices of the bubble years (which commenced in 1997) to their more stable levels consistent with historic trends. The end of 2011 may just likely see that reaction to low interest rates and a better informed and more confident public. However, that annual rise is more likely to reflect the consumer price index (CPI) rate of inflation rather than the 5 to 10% annual rate buyers are now thinking they will experience.

Except for those negative equity homeowners imprisoned and burdened by insolvency due to the steep price plunge, price stabilization is good news for California’s housing market in the long run. [For more information on historic home prices in California, see the first tuesday Market Chart, California tiered home pricing.]

  • Are rents higher? Yes. While home prices fall steadily, rents in California continue to rise, 4% for the year ending April 2011, according to the Spring 2011 Housing Report by HotPads.com. (Although landlords in the bedroom cities of the state’s inland and central valley will beg to disagree.)

Rent prices are indicators of which way home prices will go since they are the primary fundamental used to set property values. However, any rise in home prices beyond the rate of consumer inflation will take several years. [For more information on rentals in California, see the first tuesday Market Chart, Rentals: The Future of Real Estate in CA?]

  • Are household delinquency rates better? Sort of. Compared to the 18% nationwide drop in foreclosures, California foreclosure numbers are loitering near stagnancy. 8% more homes were foreclosed upon in California’s high-tier areas in the first quarter of 2011 from a year earlier. An even higher 23% more homes in low-tier areas were foreclosed upon in the same period.

Foreclosures in both housing tiers dropped only 2% over the year ending April 2011. Mortgage delinquency in the state is improving at an equally slow pace. 9% of mortgage payments were seriously delinquent in the first quarter of 2011, a slight but steady decline from 11% a year earlier. Thus we have an inventory problem called excess supply (the REOs), and until the buyers enter and start to cut into that supply, the prices will remain low, market momentum will be negative and competitive buyers for a property will be rare.

California foreclosures and delinquency rates, like other sand states, are higher than the rest of the nation but are improving at a faster rate. So when the market shifts to positive volume and pricing, some buyers will be surprised. [For more information on first quarter 2011 California defaults and foreclosures, see the April 2011 first tuesday article, 1Q 2011 defaults and foreclosure data.]

  • Do we have more jobs? Yes, but not enough and not fast enough. As of April 2011, California has yet to replace 1,298,700 of the jobs lost since the peak of California employment in December 2007. 363,100 jobs have been added since the beginning of the recovery in January 2010 and employment numbers have gradually made small ticks upward since then.

Employment needed to rent or buy a home was up by 148,100 jobs annually in April 2011. But what we need is around 400,000 jobs annually to get back to the pace experienced in the late 1990s. Jobs are slowly returning but will not reach pre-recession employment levels until 2016. [For more information on the effect of statewide employment on real estate, see the first tuesday Market Chart, Jobs Move Real Estate.]

Slow and steady to the end

Now back to the first question: Will California get to the finish line of its recovery? Yes. But if we’re to have a robust and sustained economy, keep in mind, the recovery will – and must – be gradual.

We just need two more ingredients to add to the mix: more jobs and more consumer confidence.

Although California is definitely a step behind the nation heading for recovery (just as it was a step ahead of the nation in growth during the Millennium Boom a few years ago), the conditions for a housing recovery are not completely absent in the state. We just need two more ingredients to add to the mix: more jobs and more consumer confidence.

Brokers and agents can do nothing about jobs. What they can do is give prospective buyers great detail about a property and extensive justification for its value, and then escort them through the loan pre-approval process with a couple of lenders. These simple gestures of due diligence will get the confidence of buyers up immediately. They merely need someone they feel they can depend on for advice.

Without an adequately employed population both poised (read: ready and free of their negative equity homes) and willing to buy, California will continue to march across the rocky plateau of its flat-line recovery. [For more information on building public confidence in a depressed real estate market, see the June 2011 first tuesday Market Chart, A bounty of loan deals, a dearth of willing buyers.]

– ftCopyright © 2011 by the first tuesday Journal Online – firsttuesdayjournal.com;
P.O. Box 20069, Riverside, CA 92516

Readers are encouraged to reproduce and/or distribute this article.

Golden state population trends

By Bradley Markano • Jun 24th, 2011 • Category: Feature Articles, Journal Articles, June 2011 Journal

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This article reviews the shifts in California’s population during the past decade, and examines the potential impact of current migration trends on residential rentals and sales.


Chart last updated 6/24/11

  2011 2010 2009
CA Population
37,510,766
37,266,600
36,887,615

Chart last updated 6/24/11

  Los Angeles
San Diego Orange Riverside San Bernardino
2000
9,519,338
2,813,833
2,846,289
1,545,387
1,709,434
2010
9,818,605
3,095,313
3,010,232
2,189,641
2,035,210

Chart last updated 6/24/11

  Santa Clara
Alameda Sacramento Contra Costa Fresno
2000
1,682,585
1,443,741
1,223,499
948,816
799,407
2010
1,781,642
1,510,271
1,418,788
1,049,025
930,450

Population change: the last thirty years

The first of the above charts tracks the annual change in California’s total population since 1980, based on data about births, deaths and immigration as revealed on the decennial U.S. Census.

The following two charts track population change in California’s ten largest counties. Coincidentally, the five largest are all located in Southern California, and the following five are all in Northern California.

State population growth is essential for a stable housing market. Brokers and agents who know which demographics are likely to move to and from California’s diverse counties will be better positioned to accommodate the needs of those groups when they arrive. To that end, both state and federal governments provide extensive information about California’s changing population.

California’s rate of population growth varies wildly from year to year as seen on the first of the above charts, but it has always increased over time. A year without growth in California is almost unheard of: according to the California Department of Finance (DOF), only three counties statewide (Plumas, Sierra and Alpine) saw their populations diminish in the first decade of the new millennium.

Editor’s Note: Even with all population fluctuations taken into account, California’s population growth rate since 1990 has been slightly lower than that of the nation as a whole. [For a comparison between California’s population growth and national population growth, see the first tuesday Market Chart, Rate of Population Growth.]

The average population growth rate in California during the 1990s was 1.3%, ranging from 1.8% in 1990 to 0.7% in 1994 and 1995, the first years of job recovery after the 1990 recession. Growth in the 1990s and 2000s was far below the glory years of the 1980s, when California’s population grew by an average annual rate of 2.4%, and rose by as much as 3.4% in 1989.

The low growth rates of 1994 and 1995 appeared to be nothing more than a passing abnormality brought on by the 1990 recession. However, high housing prices carried over from the real estate boom of the 1980s and the economic crisis of the 1990s combined to make the mid-1990s growth figures the new norm.

Population growth in the modern age

For the first decade of the new millennium, the average rate of population growth was 1%. The greatest increase in population occurred in 2000, the year before a recession, with a one-year growth rate of 1.48%. A similar jump took place in 1989, just before the 1990s recession, when California’s population rose by a full 3.4%. The smallest increase took place in 2006, at the height of the Millennium Boom, when the population’s decelerating growth rate slipped to 0.5%: the lowest rate since WWII.

While numerous temporary factors influence the rise and fall of California’s population, including birth and death rates, migration, cultural trends and environmental factors, the most important influences by far are economic. When jobs are plentiful, and housing is available at reasonable prices without the need for significant new construction, people feel empowered to realize the dream of residency in the fabled cities on the Pacific West Coast.

A strong economy is an incentive for both interstate and international immigration. A weak economy (like that produced by the Great Recession) discourages the optimistic and causes people to stay where they are. Indeed, a state without jobs can even lose people, as they leave for more employment-friendly environments in other states.

Historical population trends are thus a valuable contextualizing tool for economic recessions (marked by gray bars on the chart above). The recession of the early 1990s, for example, corresponded with a dramatic decrease in the rate of population growth; the year-over year increase in state population has never since risen back to its height at the end of the 1980s, when the plentiful Baby Boomer population formed households across the state. [For more information on the continuing influence of the Boomer generation, see the first tuesday Market Chart, Boomers retire, and California trembles.]

However, the Great Recession of 2007 had no comparable decelerating effect on the rate of California’s population growth. In fact, California’s population has increased at a greater rate since the start of the recession than at any time since 2003. This is likely because the recession of 2007, unlike the 1990s and early 1980s recessions, was accompanied by a tremendous drop in housing prices. This drop returned prices to their historic trend of slow but dependable increases, correcting for the distorted pricing that drove the population away from California in 2000-2006.

Suddenly, California real estate was once again available at prices comparable to real estate in the rest of the nation. Those who had been waiting to move west had begun to take advantage of the opportunity, and more will doubtless come when jobs become more prevalent, as they are beginning to do in 2011. [For historical real estate pricing in California, see the first tuesday Market Chart, California Tiered Home Pricing.]

Immigration

Immigration, both legal and illegal, is a crucial driver of population growth on the West Coast. This includes migration to California from other states and other nations. The largest proportion of international immigrants to California, by far, come north from Mexico. According to the U.S. Census Bureau, 37% of California’s population in 2010 was Hispanic, and this proportion has increased annually for the last twenty years. For reference, the homeownership rate among Hispanics in California is 46% compared to the statewide average of 57% (and dropping).

The vast majority of immigrants (both interstate and international) go to Los Angeles County, with an average of just over 76,000 people migrating legally to Los Angeles every year since 1984. Orange County, Santa Clara and San Diego are also attractive destinations: each has an annual average of over 14,000 (legal) immigrants.

The number of legal immigrants tends to fluctuate at approximately the same rate as the total population. Although the state’s birth rate and statewide emigration are both crucial factors influencing state population, immigration has made up an average 58% of the yearly increase in state population for the last twenty five years.

Illegal immigrants, who are legally able to buy property, borrow mortgage funds and pay property taxes by use of an Individual Taxpayer Identification Number (ITIN), are of equal importance to the state’s housing market. The Pew Hispanic Research Center estimated that an additional 11.2 million illegal immigrants lived in the United States in March 2010, virtually unchanged from 2009. This is down from the peak illegal immigrant population of an estimated 12 million in 2007. The decline is the first significant drop in the number of illegal immigrants in the United States since the 1980s, and was precipitated by the Great Recession and the corresponding decrease in job availability.

Illegal immigrants make up an estimated 3.7% of the national population. California has the highest portion of the nation’s illegal immigrants, with an estimated 2,550,000 illegal immigrants in March 2010.

California’s high rate of immigration, including the unauthorized immigration which results from its proximity to Mexico, is a largely positive economic force that continues to improve the standard of living and employment situation for many California natives. In a recent report, the San Francisco Federal Reserve determined that competition for employment between legal workers and illegal immigrants is far less prevalent a problem than is generally believed. The (generally) less educated migrant laborers, who tend to have less knowledge of the English language, tend to take jobs in different sectors than their English-speaking neighbors. [For more on the beneficial effects of immigration on the state’s housing market, see the January 2011 first tuesday article, Immigration’s impact on the housing market.]

The result is increased wealth across the state. Reports of competition with the native-born population are often exaggerated to become myths.

Just as importantly, every new arrival on California soil needs some form of shelter to live in. Again, in spite of popular opinion to the contrary, immigrants often have a positive effect in the housing market—they have the power to buy and sell property, pay taxes and contribute to all forms of economic activity. As brokers and their agents develop their businesses to meet the new real estate paradigm, immigrants will remain a crucial part of the puzzle, despite often being neglected by trade union brokers. This will be especially true in the suburban areas, as the Boomers retire and sell their property, and are replaced by immigrant homebuyers.

Intrastate migration and age

In 2003, the California DOF released a detailed report tracking migration patterns (people entering and leaving the state) among homeowners statewide. Although population trends have changed since then, the DOF’s reportstill provides a useful snapshot of the moving habits of California residents in times of relative fiscal stability. [For the full DOF report, see The Current Population Survey: 2001-2003.]

64% of relocating Californians remained in the same county as their former residence in 2000-2003. 21% remained in California, but moved to a different county. Only 10% moved to a different state; the remaining 5% left the country entirely.

In this three-year period, 5,378,322 Californians moved from one residence to another (one sixth of the total state population). The vast majority of these movers were under the age of 50. 41% of them were between the ages of 18 and 34. Keep in mind that a large portion of this age group continues to rent rather than buying a home, muting, but not negating, their influence on the single family residence (SFR) housing market.

In 2010, the homeownership rate among those aged 30-34 in the Western Census Region (which includes California) was 44%, and for ages 25-29 was 31%. Renters are far more likely to relocate than homeowners: the annual rates of relocation were 26% for renters, and 9% for owners. Negative equities will continue to drive the owner relocation percentage even lower well into this decade, to the dismay of multiple listing service (MLS) agents and builders. [For more on homeownership rates by age, see the first tuesday Market Chart, Homeownership Rate: Western Census Region.]

Although first tuesday anticipates more and more senior citizens will change their residences in the upcoming years as the Baby Boomer generation retires, DOF data indicates the greatest number of new homes tends to be purchased by the young. In the researched time period, the moving rate among those aged 65 and over was only 5% annually. [For more information on the Boomer generation, see the first tuesday Market Chart, Boomers Retire, and California Trembles.]

Demographics of interstate migration

Aside from age, other demographic factors played a smaller role in determining mover status. Intuitively, men were very slightly more likely to relocate than women, singles were more likely to move than couples and those with more education (a bachelor’s degree or higher) were more likely to relocate than those with less. These profiles will drive Generation Y (Gen Y) coming of homeownership age this decade into rentals, often in urban cultural centers. [For more on the current and anticipated habits of Gen Y, see the May 2011 first tuesday article, Gen Y continues to shy away from homeownership.]

As usual, employment is an essential factor. The unemployed were considerably more likely to move than the employed (the rate of relocation among the unemployed was 24%, as compared to a rate of 17% among the employed). Those with incomes of $50,000 a year or over (often members of the older population) were significantly less likely to move than those with lower incomes. [For information on California income and employment, see the first tuesday Market Chart, Jobs Move Real Estate.]

From March 2000-March 2003, the DOF also tracked movers’ reasons for relocating. By far the largest proportion of those who moved in this time period (53%) relocated for housing-related reasons. The next two most popular motives for moving were family-related reasons (25%) and employment-related reasons (17%).

Interestingly, this did not hold true for those who came to California from another state or another country. Out-of-state immigrants overwhelmingly tended to come to California for reasons related to employment. [For more on California’s business-friendly environment, see the October 2009 first tuesday article, Let my people go! The myth of the vanishing California population.]

Location is everything, when moving

In collaboration with the U.S. Census Bureau, the DOF monitors and forecasts both interstate immigration and intrastate migrations. They present a clear view of which parts of the state are growing or shrinking fastest. While some county populations have remained stable over the last ten years, others have seen their populations explode. By far the most notable increase occurred in Riverside County, which gained 644,254 people during the 2000s; an increase of 41.7%. San Bernardino County was a distant second, growing 19%. Other notable increases took place in Los Angeles, Sacramento, San Diego and Orange Counties. [For a visual display of DOF Population change by numeric increase, see the DOF’s [Map of Population Change (Numerical)]; for a map of counties tracking percent increase, see the DOF’s Map of Population Change (Percent).]

The enormous popularity of Riverside County during the decade is easily explained: as the DOF data indicates, it’s all about housing. For much of the last decade, housing prices in Riverside county grew at a steady rate (one which forecasters erroneously predicted would last forever) while still remaining far more affordable than the coastal cities of nearby Los Angeles, Anaheim/Santa Ana and San Diego.

What’s more, Riverside is close to the jobs and cultural opportunities of those cities, and shares in the fair weather and romantic mystique of southern California. Nearby San Bernardino also benefited from the same combination of advantageous factors. [For a snapshot of some California housing prices in three major cities, see the first tuesday Market Chart, California Tiered Home Pricing.]

It should be noted, however, that Riverside’s population boom was not without its disadvantages. While the county saw new prosperity and expansion in the years leading up to 2007, it was also ravaged by some of the worst job losses (still being experienced in mid-2011), unemployment and negative equity problems of the Great Recession.

Areas which saw less dramatic growth, like San Francisco and parts of Los Angeles, suffered far less and began to recover more quickly than Riverside (although no part of California was wholly spared the ripple effects of the recession’s wrath). In upcoming years, first-time homebuyers may be more hesitant to move to locations like Riverside, which once appeared to be suburban success stories.

The new appeal of urban living

Instead of a continuation of the suburban lifestyle, first tuesday anticipates an increase in centralized urban populations, which will be especially reflected by a boom in rental property and condo sales in urban centers. Urban locations offer access to a world of social and cultural activities which are unavailable in strip-malled suburbia.

More importantly, the Great Recession has exposed the folly of the U.S. Government’s former policy of “universal homeownership.” New buyers will be far more likely to think twice before they invest their life’s savings subordinated to the risk of a long-term mortgage. [For more on the new appeal of rental property, see the February 2011 first tuesday article, Rentals: The future of Real Estate in CA?]

The shift to rentals, and to cities, will only be accelerated by the impending retirement of California’s most powerful demographic: the aging Boomers. Upon retirement, numerous Boomers can be expected to sell their homes and move to new locations, often closer to the coast or closer to their grandchildren. The Boomers are overwhelmingly, a generation of homeowners, and most will continue to be in the future, regardless of where they relocate. The majority will remain in their current communities.

Others, however, will elect to rent in more convenient locations or to move in with family members in the increasingly available casitas or granny flats (which were recently made legal statewide). The first-time homebuyers who will take their place (Gen Y), will be less numerous and less eager to buy homes (much less in suburbia) than their parents. [For more on the Boomers and Gen Y, see the October 2010 first tuesday article, The demographics forging California’s real estate market.]

As the West’s largest city, Los Angeles will undoubtedly remain the population center for the foreseeable future. Los Angeles is forecast to have a population of 11,214,237 by 2020, and will exceed 13 million by 2050. For comparison, the DOF predicts California’s second and third largest counties in 2050 to be Riverside and San Diego, both with anticipated populations of just over 4 million. Orange County is predicted to fall behind, and has already shown signs of being hindered by its governmental and private restrictions on land use and development opportunities. [For more on the pivotal role of urban centers, see the May 2010 first tuesday article, The plight of California to be solved by… cities?]

Although nothing is certain when predicting the future, one thing does seem highly probable: California will continue to grow, and to flourish. DOF forecasts expect the entire population of California to increase by approximately five million people every decade through 2050, and some cities are likely to double in size if they alter land use and height restrictions and allow for population density to increase per square mile.

While an increased population will pose new challenges in water management, energy and housing sectors, it will also be a source of new talent and new opportunities. No other state in the nation has the wealth, resources, entrepreneurial spirit and innovative history that enables California to maintain its distinctive appeal to the rest of the nation. As time passes, and more come to share in that success, the Golden State’s appeal can only be expected to grow.

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P.O. Box 20069, Riverside, CA 92516

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