CITE THIS READING MATERIAL AS: Realty Publications, Inc. Real Estate Economics: Realty Almanac 2019-2021 Cutoff Dates: All economic data cited in this book have been researched and brought current as of May 2019. Copyright © 2019 by Realty Publications, Inc. P.O. Box 5707, Riverside, CA 92517 All rights reserved. No part of this publication may be reproduced or transmit- ted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage or retrieval system, without permission in writing from the publisher. Printed in the United States of America Editorial Staff Legal Editor: Fred Crane Project Editor: Carrie B. Reyes Senior Editors: Giang Hoang-Burdette Connor P. Wallmark Contributing Editors: Oscar M. Alvarez Benjamin J. Smith Graphic Designer: Mary LaRochelle Comments or suggestions to: Realty Publications, Inc., P.O. Box 5707, Riverside, CA 92517 [email protected] Table of Contents i For weekly, monthly or quarterly updates of all charts and data sets contained in this book, visit www.realtypublications.com/charts. Table of Contents Table of market charts .................................................................................................vii California’s Economic Recovery Timeline ......................................................xii Chapter 1.1 Employment: a prerequisite to renting or owning Income for the necessities of life ...........................1 Factor 1 Chapter 1.2 Jobs move real estate Jobs Jobs’ impact on real estate .....................................5 Chapter 2.1 Long- and short-term rates Financing for ownership of real estate goes long .......... 9 Factor 2 Chapter 2.2 30 years of summer followed by 30 years of winter Interest rates Bond market cycles ........................................13 Chapter 2.3 The yield spread foretells recessions and recoveries To know how your market will evolve .....................17 Chapter 2.4 How to time the market To buy or sell in 2020? .........................................24 Chapter 2.5 Buyer purchasing power determines home prices The driving force of real estate pricing .....................32 Chapter 2.6 The influence of Federal Reserve policies The discount rate at work . .40 Chapter 2.7 Assorted market rates 91-day Treasury Bill — Average Auction Rate ..............46 Chapter 3.1 The great gamble: real estate speculators decoded Why the spectacle? ...........................................51 Factor 3 Chapter 3.2 Agreements for the flip of a property When you need to flip, do it right ............................ 58 Real estate speculation ii Realty Almanac 2019-2021 Chapter 4.1 Homeownership as a savings plan Factor 4 Implicit rental income offsets owner’s risk of loss ........ 65 Homeownership Chapter 4.2 Negative equity and foreclosure A crisis squandered by an inactive government ........... 69 Chapter 4.3 A balance sheet reality check Underwater property: the family’s black-hole asset ....... 72 Factor 5 Home sale Chapter 5.1 Home sales volume and price peaks A long recovery for sales volume. 77 volumes Chapter 6.1 Rent: the requisite to property value Factor 6 Rent determines a property’s fair market value ...........83 Renting: the Chapter 6.2 Renting and owning across counties alternative to Are rentals the future of California real estate? ............ 88 homeownership Chapter 6.3 Renting versus buying: the GRM as a measure A comparison of expenditures to rent or own an SFR ..... 95 Chapter 7.1 The ARM vs. the FRM Factor 7 The real estate mortgage ....................................105 Mortgages Chapter 7.2 The merits of the ARM in 2019-2020 ARM savings in 2019-2020 ...................................111 Chapter 7.3 A lesson from the housing bubble Securitization and subprime lending . .115 Factor 8 Chapter 8.1 Back to basics: inflation 101 Fluctuation in the price level of goods and services . .119 Inflation Chapter 8.2 Beyond the basics: & CPI asset price inflation in the real estate market Asset inflation: where does real estate fit in?. .125 Factor 9 Chapter 9.1 The 20% solution: personal savings and homeownership Savings Mortgages: QRM versus QM. 133 Chapter 9.2 Income inequality harms California’s housing market California’s household demographics. .140 Table of Contents iii Chapter 10.1 Single family residential (SFR) and multi-family construction Factor 10 The trend in California construction starts. .147 Construction Chapter 10.2 Blueprints for future construction The need for government action . 153 Chapter 11.1 California’s vacant residential properties Factor 11 More housing than people, but diminishing . 161 Inventory Chapter 12.1 California tiered home pricing Price tier fluctuations . 169 Factor 12 Chapter 12.2 A realty black hole Belief in ever-rising prices brings implosion . 178 Pricing Chapter 12.3 Appraisals solely to qualify property as security Justifying the buyer’s price is another matter . 183 Chapter 12.4 The mean price trendline: the home price anchor The intersection of price illusion and reality . 187 Chapter 12.5 Home price bumps congressionally fed A distorted demand with each new subsidy . 194 Chapter 13.1 S&P 500 as a complement to real estate As a percent of earnings . .199 Factor 13 Chapter 13.2 REIT investments as stocks Stock market Playing the real estate game from the sidelines . .204 Chapter 13.3 Investing: stocks or real estate? Stocks: the more volatile choice. .212 Chapter 13.4 Oil’s influence on mortgage rates The effect of cheap oil. 218 Chapter 14.1 Boomers retire and California trembles Retirees will move real estate, lots of it. 221 Factor 14 Chapter 14.2 Downsizing and relocating: the traditional retiree pastime Retirees Where will retiring Boomers go?. 226 Chapter 14.3 Boomers bust open doors to the real estate investment era Risk-averse retirees change the investment playing field. 230 iv Realty Almanac 2019-2021 Chapter 15.1 Household formations and trends in sales volume Factor 15 California new housing and population aged 25-34 . 237 First-time Chapter 15.2 The nomadic generation forges California’s real estate market homebuyers Trends with opportunities for everyone . .241 Chapter 15.3 Homeownership declines among the young Restless, relocating with job opportunities . .246 Chapter 15.4 Generation Y incomes and the implications for home prices Lower incomes for Gen Y . 254 Factor 16 Chapter 16.1 The U.S. Treasury, the Federal Reserve and owners Fiscal spending When the financial levies broke . 259 Factor 17 Chapter 17.1 The lender of last resort Monetary policy The policies and functions of the Federal Reserve . .265 Chapter 18.1 Rentiers and debtors: why can’t they get along? Factor 18 The world of passive entitlement . .273 Politics Chapter 18.2 Wall Street steps into the mortgage market America’s common enemy . 281 Factor 19 Chapter 19.1 The global economy’s effect on local real estate Wealth from Global forces make themselves at home. 289 other nations Chapter 19.2 Fixed mortgage rates respond to the global economy The Fed increases short-term rates. 294 Chapter 20.1 A nation’s housing policy as tax loopholes Factor 20 Tax credit subsidies in action . 301 Taxation Chapter 20.2 The home mortgage tax deduction: pros and cons Housing subsidies encourage indebtedness and turnover, not homeownership. .305 Chapter 20.3 2018 tax changes Changes to itemized, standard deductions. 310 Table of Contents v Chapter 21.1 Golden State population trends Population change: the last thirty years . 317 Factor 21 Chapter 21.2 Migration and California’s housing market Population Bye-bye, California. Hello, Texas!. 325 growth Chapter 21.3 Immigration’s impact on the housing market The old role of immigrants in the new real estate paradigm . 329 Chapter 21.4 Population growth exceeds new housing; rents rapidly rise More households than housing. .332 Chapter 22.1 The distribution of California’s human resources Your gain from local demographic information . .337 Factor 22 Chapter 22.2 Age and education in the Golden State Demographic Age and propensity to own. 343 change Chapter 23.1 Preventing the next real estate bubble Factor 23 Harness market momentum excitement . .351 Regulation Chapter 24.1 Energy efficiency 101: for California real estate agents Energy efficiency: what’s the big deal?. 359 Factor 24 Chapter 24.2 A property’s energy demands: Energy an evolving factor in marketing The greener future is at hand . 365 consumption Chapter 25.1 Los Angeles County housing indicators Home sales volume remains low. 373 Factor 25 Chapter 25.2 Orange County housing indicators Regional Home sales volume remains weak. 382 housing Chapter 25.3 Riverside County housing indicators indicators Home sales volume remains down. .389 Chapter 25.4 Sacramento County housing indicators Home sales volume flat. 396 Chapter 25.5 San Diego County housing indicators Homes sales volume slows. .403 vi Realty Almanac 2019-2021 Chapter 25.6 San Francisco County housing indicators Volatile home sales volume . .410 Chapter 25.7 Santa Clara County housing indicators Homes sales volume still low. 417 Glossary Defines key terms and supplies page references for further study. 423 Quizzes . .433 Quizzes Quizzes Answer Key. 445 Future updates and recent developments are available online for further Updates & research at realtypublications.com/charts. benefits For a full-size, fillable copy of any form cited in this book, plus our entire library of 400+ free legal forms, go to realtypublications.com/forms. Table of Contents vii Chart Title Page 3-month Treasury