CAR Update: Economic Forecast and the Impact of the Millennials

Good day MAR members!

It’s great to be back in Marin after a week across the street from the Happiest Place on Earth.  We could see Disneyland from our C.A.R. hotel and the Anaheim Convention Center, but things were so busy that looking from a distance was all we could do.  Perhaps that’s not so bad, after seeing all the bleary-eyed parents looking like the walking wounded returning from the park with their kids.

And:  LET’S GO GIANTS!!  Pretty huge cheers went up whenever one of the speakers said that at the meetings…which is surprising because there are way more people in SoCal…and our SoCal friends were licking their wounds after the Dodgers and Angels were dispatched from the playoffs last week.  There sure was a lot of Angels gear for sale in the gift shop of our hotel, but after observing for five days I didn’t see a single item leave the store.

SAFETY SAFETY SAFETY

By now, many of you probably saw the “Alert – Marin Agent Safety” we sent out last Saturday.  If you didn’t see it, you can check it out HERE.  The net is that there is allegedly a person posing as a REALTOR® going around to open houses looking for prescription drugs.  Police have advised members that unless he is actually caught stealing something there is nothing they can do.

One thing you can do is get a “Pill Pod” from the MAR store.  The Pill Pod is essentially a $20 plastic “safe” to store medication.  It’s not an indestructible device, but it is big enough that medication can’t be put in a pocket and walked out with.  It’s an inexpensive, effective deterrent.  For more info, you can just drop by the MAR store and check it out.

In the wake of the Beverly Carter murder in Arkansas, we need to keep a very watchful eye out for “copycat” assaults on agents.  This past Saturday, a 55-year-old female agent in Orange County was punched in the face at one of her listings: ARTICLE

This Wednesday morning at the Novato Tour Meeting, Officers Conrad and Doyle from the Novato Police Department will be attending to discuss agent safety and how the police can be of help.  They would also like feedback from the agent community.  The safety meeting starts at 9:00 and is held at the Novato Youth Center at 680 Wilson in Novato.

Be careful out there!

CAR FALL BUSINESS MEETINGS

As I mentioned, MAR’s CAR Director delegation spent last week in Anaheim at the Expo and Fall Business Meetings.  I’ll do my best to distill the most important info out of my 23 pages of notes I took…it will likely take me a couple of weeks to get through all of it.

Let me first get to the two numbers you need to know for your clients and prospects:  at the 2015 Economic Forecast by CAR Chief Economist Leslie Appleton-Young, she reported that CAR expects that California unit sales will go up by 5.8% in 2015, and that the median price will increase by 5.2%.  Keep those two numbers in mind, and you will be armed with the freshest data next time someone asks you about the market outlook.

Ahhh, but digging into those numbers is what will make you sound even smarter.  The most startling overall sentiment in Anaheim is how there is a perception of a market slowdown throughout California.  CAR was way off on its 2014 market projections.  Earlier this year, I reported that CAR was expecting total unit sales to INCREASE by 6%.  CAR now expects unit sales to DECREASE by 8.2% in 2014.  That’s quite a miss.  Also, they expected the median price to also go up by 6%, and they now expect that number to increase by 11.8%.

What’s also startling about this is that the 2014 unit and price projections were calculated with an expectation that interest rates would have materially risen with the end of QE, and they expected the rates to be well over 5% by now.  As we know the interest rates have been pretty flat for most of the year.

THE MILLENNIALS, OUR SLOWLY-EMERGING FIRST-TIME-BUYER GENERATION

This disconnect came up at a number of meetings I attended.  The finger kept getting pointed to our new first-time-buyers…the “Millennials”…or “Generation Y”.  More commonly known as “your kids”, and also identified as the largest generation in American history.  With the oldest of them in their early 30s, they’re not buying houses as quickly as previous generations.

Over the past year, starting at last October’s CAR meetings in Long Beach, much of the collective efforts  of CAR can be described as a psychology and sociology study of this generation.  Here are some interesting tidbits, in no particular order.

-Millennials are delaying getting married.  Marriage rates are plummeting.  Less marriages = less homes purchased.

-They’re still living at home.  And I kept hearing that they like their parents much more than we did.  That’s slowing these young adults from “growing up”.  I kept hearing that “90% of Gen Ys have a good relationship with their parents.”  And sit down for this one:  2/3 of adult children living with their parents are “satisfied with the arrangement.”  And you thought it was just you…  They didn’t share whether the parents felt the same way about this arrangement.

-People are simply moving less.  Why?  Kids like their parents better.

-Regarding the plummeting marriage rate, one interesting anecdote was shared by Richard Thornberg, one of CAR’s top economists:  In previous generations, more men went to college, and more men had degrees than women.  Today it’s just the opposite:  More women are going to college than men, and more women have degrees than men.  So what?  Mr. Thornberg offered the following demographic comment:  Better educated men are ok being in a relationship with less educated women, but better educated women are NOT ok being in a relationship with less educated men.  This is a demographic conundrum that won’t go away soon.

-Or, more simply put, Mr. Thornburg asked for the single women in the audience to raise their hands if they’re ok going on a date with an adult man living with his parents.  Not many hands went up.

-Our population in California is becoming more Latino and more Asian.  Latinos and Asians historically live with their parents longer.

-Given our recent housing debate in Marin, how about this:  78% of Millennials would prefer to not own a car and rather would like to walk to everything.

-Millennials want walkability.  Millennials actually ARE buying in downtown LA and downtown Oakland.  Walkability, nightlife and activity in general were cited as the reasons for this.  They don’t care about quality of schools, because none of them are having kids yet.

-As for the decrease in units, investors are not in the market as heavily, and “investors need to be replaced by first-time-buyers” and it’s not happening.

THE PUBLIC POLICY DEBATE ON HOUSING

On several occasions, CAR CEO Joel Singer described housing as “the Achilles Heel of California.”  We’re just not building enough new housing, as he said.  California has 13% of the population in the US, and only generates 8% of the building permits.  The population is still growing, but nothing is being built for them.  The need for reform of CEQA came up over and over again.  CEQA is the California Environment Quality Act, and it makes building difficult.

Plus, it seems that everywhere other than Marin, density is preferred and increasing.  That’s where the Millennials want to live.  So Sacramento is focusing on affordable rentals, not affordable housing for purchase.  Joel Singer said that in a recent conversation with the Speaker of the California Assembly Toni Atkins (who hails from Coastal San Diego County), when asked about housing affordability, she started talking about rental affordability.  She told Joel, “just wait until we’re a 50% renter society.”

So that’s where the public policy debate in Sacramento is focused:  rental affordability.

As for the affordability of housing for purchase, it’s become increasingly unaffordable in California.  At the height of the recession, Joel Singer described it as a “once in a generation buying opportunity”.  Those days are long gone.  The ability to purchase a median-priced home in California has fallen to 36% this year, compared to 60% for the US.  Joel called this “self-inflicted pain” because we’re not building.

I’ll leave it there for now.  There is so much more to report, I’ll pick it up next week.

I wish you a safe and prosperous week.

Blaine Morris

2014 MAR President