CALIFORNIA HOME MARKET SAME AS MID 1990'S IN SALES VOLUME - BUT WITH 100,000 MORE REALTORS ACTIVE IN THE MARKET Good start in 2017 to the housing market (with particular reference to California).  Growth of around 4-6% in home prices in the beginning of the year, which is good, but only around 420,000 sales in the volume terms which is the same as it has been over the last 7-8 years – and indeed about the same as during the 1990’s when the economy was much smaller and with far fewer jobs than there are today.  This speaks to the difficulties consumers have in finding a home (more consumers, less transactional volume relative to the number of people looking), and also to the challenges real estate agents face in competing in the open marketplace.  [n.b. there are over 100,000 more licensed RE agents/brokers in California today than there were in the mid-1990’s, yet they are handling the same transactional volume]. UNDERSUPPLIED MARKET This issue is one of limited supply in California.  Economically the state has outperformed the overall economy for over 6 years, in terms of new jobs and income growth.  Inventory is the issue.  So you are seeing considerable demand for housing, but little supply and so prices are being driven up relentlessly to the point that they become unaffordable.  This forces people to choose between being a homeowner or buying far away from jobs and having a two hour commute each way to their places of work.  Remarkably, the number of homes available for sale on the MLS state wide is 16% lower than it was last year, and yet sales growth is up 2.6% [presumably meaning that what is on the market is selling very quickly relative to last year – another indicator of very strong demand relative to supply].  This may be partially as a result of consumer concerns about rising interest rates, with buyers moving rapidly to purchase what is on the market quickly to avoid being caught with higher rates.  So this begs the question whether or not the pace of sales growth can be sustained as rates start to rise as people feel the urgency to buy ahead of rate hikes diminishes. LACK OF INVENTORY, AND HIGH DEMAND DRIVING PRICES UP Another indicator of the lack of inventory is the amount as measured by months of supply.  This is a metric used that projects the amount of time it would take for all existing homes on the market to be sold out if no other homes were put on the market.  As of syndication of this episode (April 2017), supply is around 4 months where historically it is more common to see 7-8 months i.e. supply is running at half what it would be excepted to be.  This is a particularly acute problem at the bottom of the market.  If you break that out by price levels, you see that below $500,000 price level, supply is at 3-3.5 months, whereas for properties selling at above $1MM, supply is much higher at around 11 months.  What this means is that at the lower, entry level end of the market, the demand is extremely high, and supply very low.  Sales in the below $500,000 level are down over 20% and over since last year – simply because the supply is not there. DEMOGRAPHIC FACTORS RESTRICTING SUPPLY Demographics is a huge part of the problem.  Historically, we have seen turnover at around 8% i.e. of the total housing stock, 8% will sell in any given year, but that is currently around 4.2% - half what it used to be.  Demographics play a huge role in that with a lot of long term homeowners, with over 70% of all homeowners 55 years old and above having not moved this century.  For the first time in 30 years of conducting research on how long people own a home before selling, C.A.R. discovered that the average time homeowners stay in a home is over 10 years – instead of the 5 years as it used to be.  Probably demographics drive this with baby-boomers not wanting to move on even though they are living in homes that are too large for them.  But there are some policies and structural challeng