This
is from a presentation by Gary Watts a Real Estate Economist. I have taken out
and presented here data that directly impacts our
market. Bob
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So Why Do You Feel So Bad? . . .
Could It Be The Media?
Newspapers
are losing subscribers and television is losing viewers. Viewers’ reactions to
media presentations of
past events have shown the media that if
they want to hold their viewers’ or readers’ attention,
they can do so by
portraying fearful “impending
events” and instilling anxiety in their audiences!
They
present information in a way that creates this anxiety or fearfulness. In so
doing, it is important to be
factual but not
necessarily accurate! They use bold headlines to
grab the viewers’ attention, but the content
often misleads or tells another story. Here
are some very good examples:
♦
Remember all the fuss over Y2K?
♦
How about Killer Bees, West Nile Virus and the Mad
Cow disease?
♦
What happened with 2005’s “serious” lack
of vaccines for one of the “worst” flu seasons?
♦
Where did SARS and the Bird Flu. . . fly to?
What They Do With Real Estate:
♦
Housing Prices Continue to Decline!
Only
the rate of appreciation is declining; home prices are still rising. The median
profit earned
for Orange
County was $291,000
for 4 years of ownership!
♦
Supply of Unsold Homes Rises to 6 Months!
In
the
average has been 3 to 4 months and today’s
present inventory, is a 4.2 month supply..
♦
Home Sales Decline By ____22___%!
They
are measuring against 2005’s almost record year. Since 1996, the yearly average
of all sales in
♦
Foreclosure Activity Rises!
They
have to be up after hitting a record low! The truth is that 99%
of all loans in the
foreclosure. The remaining 1%
that were foreclosed upon had the
following breakdown:
*
80% were classified by federal lenders as Professional Thieves and
were turned over to the FBI.
*
20% were classified by lenders as Fraud for Property that
resulted in unethical lending practices.
*
Ca. Defaults: Historical 32,762
- Low:
12,145- 3Q’04 High:
59,987 – 1Q’96 Current: 26,705
*
In the 1st half of
‘06, foreclosures accounted for only .05%
of all
reselling those homes at an average discount of
only 3.8%!
♦
Affordability Index at Record Low – So Few Can Afford to Buy!
Home
ownership is at a record high of 70%, while the baby boomers ownership
percentage is 80%! This
index is archaic and does not account for
how dramatically the world changed in 1979.
Source: American Bankers
Association, Mortgage Bankers Association, Freddie Mac, Fannie Mae
-3-
This is what is driving our market and
what the developers are betting big money on. Bob
Why The World Changed in 1979!
Baby Boomers Impact
From
1945 to 1979, incomes increased at the same rate for all tax brackets. By 1979,
the early baby boomers
had been in the workplace for over 10
years. They were the most educated generation to enter the work force,
and they had the skills for our changing
world. With both spouses working, dual incomes would have a
tremendous effect upon future wealth. Since 1979,
a larger percentage of our population is becoming more and
more affluent! From 1980 to 2004, the median
income rose by 18% but . . .
♦
the top 20% of
incomes grew by 59%,
while the bottom 20% of
incomes grew by a measly 7%!
♦
the top 1% of
incomes grew by 200% - earning
more than the entire bottom 50% of
wage earners!
♦
today, the top 10% of
wage earners receives 45% of
all household income.
♦
the top 85% of
the nation’s wealth resides with the richest 15%
of Americans; the bottom 50%
holds
only 2.5%
of the nation’s wealth. Just 1%
of investors hold 53% of
all shares in the stock market!
Over
the next decade, there will be a 25% increase
in the population over 50 years of age. They have more
money than any preceding generation, due to
having dual incomes, equity growth, and record inheritances
(60%
goes to the top 40%)!
This age group is spending $2 trillion dollars
annually! Last year, 2.1 million
boomers turned 60,
with 25% planning
on not retiring. They found a way to mix leisure with work and are not
ready to fully retire – they have money
and income and they are still investing in real estate.
They
are part of a major buying wave, as 75% plan
on moving to either the west or the south for warmth.
Already,
80% own their own home with 25%
of those owning additional property. This helps to explain
why,
in 2005, 27.7%
of all sales were for investment purchases
and 12.2% of
all sales were for 2nd homes!
They
or their parents are also in the process of transferring their wealth
to their children and grandchildren.
These
newest home buyers make up the largest group
of the 3 buying waves. They are presently 23 to 33 years
of age, and will total 1.2
million new households per year for the next
decade! They are purchasing at a median
age of 26, yet those purchasing under 25
years of age now represent 14% of the first time home
buyers market.
And
let us not forget the wave of buyers that represent the normal buying
market. This group is projected to
grow at a rate of 1.17
million per year for the next 7 years. They
include 1st time home
buyers (median age 29)
and those purchasing upscale homes (median
age 45).
Add
to this the immigrants purchasing real estate and you can see that the
strong. In the past 12 months, the
million
more people living in the
ranks of middle-income earners, and they are
purchasing housing.
♦
Immigrant children who arrived with their parents in the ‘80’s and ‘90’s, are now buying homes.
♦
These 2nd generation Americans,
if history repeats itself, will out-earn their parents.
♦
As 1st time
buyers, they represent 35% of the 1st time resale market.
Source: 2004/2005 Census, Federal
Reserve, Internal Revenue Service, NAR
-4-
This explains why the units at the Ritz sold and lakefronts
are having such a great run. I always get the question, who are these people
buying these high end properties? Bob
More on Wealth
There
are now 2.9 million millionaires in
billionaires holding
$1.1 trillion and
The
Federal Reserve reports that consumers have $5 trillion dollars in
liquid cash sitting in banks and savings
and loans. Through June of last year,
homeowners had $53.83 trillion dollars of
household net worth! Other
assets held by individuals include: $3.2
trillion in bonds and credit instruments, $1.1
trillion in insurance
reserves,