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Real Estate Investing ...
... making use of some of the data
© 2019 Gary R. Evans. This slide set by Gary R. Evans is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Lego, encouraged by Tesla, announces a new pickup
Summary of data that are revealing ...
1. Median prices
2. Days inventory
3. Housing starts
4. Owner-equivalent rent
5. Affordability indexes
(regional)
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018
Tho
usa
nd
s
Average
Median
The Median and Average Prices for New Homes, U.S.
all regions, 1963-2018
Even if not leveraged, this is a
strong investment return, except
for the dips. If leveraged ...
5.0% compounded annual
percentage growth rate
(median) unleveraged!
The terrible real estate
crash ... $$$ lost here!
.. but national averages don’t mean
much. What about local?
Source: U.S. Census Bureau, 2019 Historical Times Series Data.
-0.100
-0.050
0.000
0.050
0.100
0.150
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Annual Continuous Growth Rates Median Pricesthrough the heated years and the collapse: 1995 - 2018
Note that these are national
averages - regional growth rates
were far, far above this,
especially in California.
Yr Med % CGR
2001 241,426
2002 271,942 11.9
2003 305,605 11.7
2004 368,609 18.7
2005 466,355 23.5
2006 473,473 1.5
Miami
Clear through here
that this was getting
out of hand ...
The painful
collapse ...
Source: United States Census, Median
and Average Sale Prices of Homes Sold
in the United States, December 2019
... but regional data matters moreSource: National Association of Realtors,
https://www.nar.realtor/research-and-statistics/housing-statistics/county-
median-home-prices-and-monthly-mortgage-payment
... and city data matters even more
http://www.jparsons.net/housingbubble/miami.html
Seattle
New YorkMiami
Los Angeles
(Historical maps based on data from
National Association of Realtors)
Another Key Statistic to monitor:
Owner-Equivalent Rent
Source: JP’s Real Estate Charts (online), in 2017, http://www.jparsons.net/housingbubble/
This matters a great deal
regionally and was
brought to my attention by
a Mudd alumnus, Singer
Ma ‘11 seeking to buy a
home in the Santa Cruz
after graduation. He cited
this statistic as high for his
area and also made an
estimate of his Price-to-
Rent ratio of 35, which he
felt was very high. He also
gave me a link the a
Kiplinger article that
included the slide on the
next page. How is the
OER calculated?: See
http://www.bls.gov/cpi/cpifacnewrent.pdf
More relevant at the local
level, as Ma understood.
Important stat: The price-rent ratio
Thanks to Singer Ma, 2011
This is not normally published and must be
calculated like Singer did it, taking median
home price divided by median annual rent.
Anything above 25 is stretching it, but sea-
gull country is going to be high!!
See Smartasset, Where to Buy: Price-to-Rent Ratio in 84 U.S. Cities, Nick Wallace, March 4, 2019
https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities
First-time affordability and general
affordabilityNorth?
or East?
You can’t have floating pyramids in real estate !!
Entry level – first time
2nd tier
Much of the up-scale $500K+
market is bought by people
who use equity from their
older $250K home to
move up, and they in turn bought that
home with equity
from their starter
home.
Therefore, if this entry level becomes unaffordable for 80% of first-time home
buyers, the entire structure is threatened!!
0%
10%
20%
30%
40%
50%
60%
70%
80%
The California Housing Affordability
Index: First-Time Buyer
C.A.R.'s First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of
households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time
buyer indexes for regions and select counties within the state. The Index is the most fundamental
measure of housing well-being for first-time buyers in the state.
See California Association of Realtors, http://www.car.org/marketdata/data/ftbhai/
This calculation depends upon
entry level price, 1-year ARM
mortgage rates, and assumes a
40% income qualifying ratio.
Higher is better ...
2019 Q3 %
California 48
Los Angeles 50
S.F. Bay Area 46
Inland Empire 60
This measures the percentage of
households in any region that can
afford and entry-level home in the
area.
Source: California Association of Realtors: https://www.car.org/marketdata/data/ftbhai/
Recovery indicators
(how to know when it is over)
0
2
4
6
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16N
ov
19
85
No
v 1
98
6
No
v 1
98
7
No
v 1
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8
No
v 1
98
9
No
v 1
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0
No
v 1
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1
No
v 1
99
2
No
v 1
99
3
No
v 1
99
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No
v 1
99
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No
v 1
99
6
No
v 1
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No
v 1
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No
v 1
99
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No
v 2
00
0
No
v 2
00
1
No
v 2
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No
v 2
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No
v 2
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No
v 2
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v 2
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No
v 2
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No
v 2
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No
v 2
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No
v 2
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No
v 2
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No
v 2
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2
No
v 2
01
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No
v 2
01
4
No
v 2
01
5
No
v 2
01
6
No
v 2
01
7
No
v 2
01
8
National Days Inventory – 11/85 to 10/19A condition that must return to normal before a recovery
Source: U.S. Census Bureau, Houses for Sale by Region and Month’s Supply at Current Sales Rate
Trend line is 12-month
moving average
Average: 6.1
months
Looking much
better since 2011!
Housing glut...
0
100
200
300
400
500
600Ja
n 1
988
Jan
198
9
Jan
199
0
Jan
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Jan
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9
New Housing Permits - single units, SA, Western Region
Jan 1988 - Oct 2019
... and this is now improving with price stability, days inventory lower, and
low mortgage rates, but still a little low.
It has recovered
some, but still ...
https://www.census.gov/construction/bps/uspermits.html
You do not see a
restoration of strength
in housing
Could anyone see trouble in 2005?: Richard J. DeKaser, Chief Economist of National City
DeKaser and assistant John G.
Charamonde compared housing-
price-to-income ratios for 299
metropolitan areas for the period
from 1985 to 2005, under the
assumption that the numerator
(housing prices) couldn't drift very
far away from the denominator
(income, the primary means of
servicing mortgages) for any length
of time. They discovered that in
many cities the relationship was
stable ...
Richard J. DeKayser and John G. Charamonde, "House
Prices in America - Valuation Methodology & Findings,"
National City, July 2005
... but not everywhere ...
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