News and Information to Keep You a Step Ahead!


The strong connection between housing policy and housing availability is one reason that REALTORS need to take the lead on this issue.

By Tony Capitelli

I often speak of the nexus between public policies that affect real estate practitioners and those that affect everyone else. Perhaps, there is no better example of this nexus than our current affordable housing crisis. While REALTORS® have trouble finding listings, other people have trouble finding homes. The strength of this connection is the reason that REALTORS® need to take the lead on this issue. 

We often hear the phrase “disposable income”; however, this “income” is about as “disposable” as a soldier’s water canteen. It is our lifeblood when we face times of crisis and enables us to absorb what life throws at us. But this term is no longer in the vocabulary of many Orange County residents because housing costs consume so much of their income. According to the California Association of REALTORS®, only 22 percent of Orange County’s population can afford to purchase a median-priced home. To qualify, a household would need to make $92,571 a year, and this does not include saving for a down payment. 

I am sure you can think of someone who has been affected by this crisis—perhaps you, yourself. Are you a young adult trying to find your path in life? Do you have a young family and need space for your kids? Are you recently divorced and needing to find a new place to live? Are you paying for your children’s college tuition? If you are married and in your twilight years, you’re probably okay; but at this rate, you’ll soon be part of the only group left to enjoy home ownership in this beautiful county.  

The good news is that there are solutions. The question is whether we can come to grips with those solutions before we lose an entire generation of home owners. 

So, what are those solutions? 

  1. More Housing

    Ultimately, this crisis is a matter of supply and demand. California is running short about 65,000 housing units a year. During 2016, Orange County added 162,740 new jobs but built only 44,923 new housing units. This kind of deficit leads inevitably to higher prices. If the Orange County housing market cannot accommodate growth, neither can the Orange County economy. Higher density is difficult for communities to embrace; but with a little creativity, it can actually improve local quality of life. 

  2. Less Regulation

    According to the California Legislative Analyst’s Office, because of labor costs, construction costs, environmental regulations, and local development fees, it is $50,000 to $70,000 more expensive to build a home in California than it is to build elsewhere in the country. These higher costs are passed directly from home builders to home buyers and from landlords to renters. 

  3. More Entry-Level Ownership Options

    While we are still far behind the necessary pace of development, we are all witness to the recent development boom. Unfortunately, most of the new housing units being built are either rental apartments or expensive single-family homes. For many, including me, townhomes and condos are the only avenues into the housing market. Cities need to work with developers to encourage construction of more of these entry-level ownership options. If they don’t, younger renters will not stay. 

  4. Better Transit

    If home owners are to absorb higher housing costs, they need to save money elsewhere. Average car loan payments are about $506 a month, and this figure does not include insurance, maintenance, and fuel. Home buyers are looking to live closer to work and cut down on long commutes. Light rail, automated vehicles, and the location of housing—all need to be in the minds of policy makers.  

  5. Low-Level Assistance Programs

    Homelessness isn’t limited to the chronically homeless. This category also includes families on the verge of being evicted or living in temporary housing. Assistance programs like rapid re-housing are effective in providing a necessary safety net. 

    Down payment assistance is often essential for first-time home buyers. Without it, the U.S. homeownership rate might look more like that of Germany, where the rate is around 50 percent. And the negative connotation of FHA loans needs to be corrected. As it is, only 10 percent of townhome and condo communities are willing to accept these loans.  

As a REALTOR®, you are in a unique position because the future of your community affects both your home and your livelihood. I encourage you to embrace that role and become a community advocate. Help influence your local policy makers regarding the importance of making housing more available, more accessible, and more affordable.

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In Memoriam

 Esther Mae (Sherman) Goff


Esther Mae (Sherman) Goff was born in Los Angeles, on March 6, 1938, but later moved with her family to Temple City, California. In 1968, while living in Berea, Kentucky, she helped stage health fairs for the Council of the Southern Mountains, a nonprofit organization concerned with education and community development in southern Appalachia. This experience inspired Esther to become a nurse.   

Later, Esther turned from health care to real estate, becoming a salesperson in 1978 and a broker in 1982. For many years, she served as a director of the Saddleback Valley Board of REALTORS®, a predecessor organization of the Orange County REALTORS®, and as a director for the California Association of REALTORS®. Well respected among her colleagues in the real estate industry, Esther was elected president of Saddleback Valley Board of REALTORS® in 1991 and then honored as REALTOR® of the Year in 1993.    

Early on the morning of Tuesday, February 28, 2017, Esther Goff lost her battle with breast cancer. Those who knew her well will remember her as a caring person who always found meaningful ways to make a difference. She and Joe, her husband of sixty years, were residents of Forest Gardens in Lake Forest, where family members and friends will gather to celebrate Esther’s life in the clubhouse on Saturday, April 8, from 1:00 to 4:00 p.m.   


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Familiarity with these ten factors will help you answer your clients’ questions about the real estate market and where real estate values may be headed.

By David Girling
Girling Real Estate Investment Group

The first article titled “Dave’s Top 10 Economic Factors Realtors® Should Be Following Today” appeared on pages 38–45 in the May/June 2016 issue of OC Realtor. Much has transpired since that article was published. We have a new President, the Federal Reserve has raised interest rates, the Dow Jones Industrial Average is at an all-time high, but housing inventories are still constrained. 

Headlines convey different messages about real estate. Some are optimistic while others are pessimistic and still others fall somewhere in between. It is important that we, as REALTORS®, be able to read past the headlines and make sense of the news for our clients. The goal of Dave’s Top 10 is to give you some tools to answer the questions your clients may be inspired to ask by the news stories they read. 

10. The Trump Effect

Since the election, mortgage rates have climbed anywhere from 0.50 to 0.625 percent, and I think we can expect this trend to continue. President Trump’s policies on trade, infrastructure, tax rates, and immigration will lead to bigger deficits and higher inflation, which translates to higher interest rates. The Federal Reserve is signaling that it will raise the Fed Funds rate in 2017. And the administration has made statements that it will attempt to dismantle many of the regulatory safeguards (e.g., Dodd-Frank) that have been put in place since the 2007 recession. 

In addition, Ben Carson, the new secretary of the Department of Housing and Urban Development (HUD), has indicated that he is in favor of privatizing the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), which may affect loan liquidity and the availability of thirty-year fixed-rate loans. The reversal of the Obama administration’s reduction of the mortgage insurance premium also put a damper on optimism that previous policies had been created. All in all, the news thus far has created a great deal of uncertainty about the ultimate effect that the Trump presidency will have on housing. 

9. Interest Rates

For the past three or four years, mortgage rates have been at historic lows because the Federal Reserve has employed a monetary policy that has kept rates low (see Figure 1). Since the presidential election, rates have climbed, but they are still near historic lows. The impact of these low rates may be positive in the short term. Home sales may increase because buyers want to take advantage of today’s lower rates before mortgage rates climb higher. 


Figure 1. For the past three or four years, the Federal Reserve’s monetary policy has kept mortgage interest rates at historic lows; however, rates have been increased since the presidential election. 

One effect of increasing mortgage rates is a loss of purchasing power. The rule of thumb is that a 1 percent change in rates equals a 10 percent loss or gain in purchasing power. As REALTORS®, we should be able to convey to our clients exactly how this may impact them financially. Figure 2 shows how a 1 percent increase in interest rate affects the actual cost of a $745,000 home. Assuming a borrower cannot afford a higher mortgage payment, the buyer loses $82,444 of purchasing power if the rate increases from 4 to 5 percent. This sort of information supplied to clients might be all that is needed to turn a renter into a buyer.


Figure 2.  Assuming the would-be purchaser of a $745,000 median-priced home can afford to make a monthly payment of no more than $2,845, a 1 percent increase in interest rate from 4 percent to 5 percent would equate to a loss of $82,444 in purchasing power, or the ability to afford a home priced no higher than $662,556, rather than $745.000 originally contemplated. 

8. Housing Inventories

Low housing inventories have added support to home values, and I believe that inventory levels will not improve significantly for the reasons listed below. 

  • Some homeowners still have negative equity and cannot sell.
  • The property taxes may be higher for someone selling one property and buying another or simply downsizing.
  • Capital gains taxes could be significant.
  • Some homeowners may be reluctant to give up their current low mortgage rates.
  • New construction is not meeting demand, and homebuilders are underperforming.
  • Some homeowners are afraid that they will not be able to find an adequate replacement because of low supply and/or high rents.
  • Some homeowners are still affected by the 2007 crisis and are unwilling to sell.
  • Many single-family homes that might be listing candidates are now part of the rental pool because so many were purchased by investors during the past few years. 

I have been compiling this list since it became clear that inventory levels were becoming a key driver of real estate values and activity. Low supplies and high demand will continue to support home prices for the foreseeable future.

7. Housing Affordability

Lawrence Yun, the chief economist for the National Association of REALTORS® (NAR), states that “we have a mismatch with home values rising too fast in relation to incomes” and that “wages really need to come back alive to sustain the housing market recovery.”  Affordability is certainly one factor about which most economists are concerned. According to the California Association of REALTORS® (C.A.R.) Housing Affordability Index (HAI), the percentage of home buyers who could afford to purchase a median-priced, existing, single-family home in California as of the third quarter of 2016 was 31 percent. That number was even lower for Orange County at 23 percent.


Figure 3.  Housing affordability is one factor about which economists are concerned. According to the C.A.R. Housing Affordability Index for the third quarter of 2016, the percentage of home buyers who could afford to purchase a median-priced, existing, single-family home in California was 31 percent. For Orange County, the number was 23 percent. 

The Housing Affordability Index peaked at 56 percent at the beginning of 2012 and has dropped steadily since. In February 2009, when home prices started to appreciate, the median price for a home in California doubled and the median price for a home in Orange County rose over 60 percent. Ironically, higher interest rates reduced affordability levels before the mortgage “meltdown”; however, affordability was not an issue because low teaser rates, no money down, and negative amortization loans made credit easy to obtain.

6. U.S. Homeownership Rate

According to the Wall Street Journal (February 3, 2017), “The U.S. homeownership rate fell in the fourth quarter, frustrating the efforts of policy makers trying to embolden more Americans to buy their own homes as the economy strengthens.” This is a great example of why it is important to read past the headlines. While the rate did fall year over year, it  actually rose over the past two quarters (see Figure 4). 

Either way, this is an opportunity for REALTORS® because many of the homeowners who became renters during the housing crisis will become homeowners again. Across the United States, the homeownership rate currently stands at 63.7 percent. This rate peaked at 69.2 percent in 2004 and reached its lowest level of 62.9 percent in the second quarter of 2016. Sadly, California ranks forty-ninth in homeownership according to C.A.R.


Figure 4Although the U.S. homeownership rate fell in the fourth quarter, it actually rose over the past two quarters. Across the United States, the homeownership rate, which peaked at 69.2 percent in 2004 and reached its lowest level of 62.9 percent in the second quarter of 2016, currently stands at 63.7 percent.

5. Dow Jones Industrial Average

The low rates created by the Fed’s monetary policy forced investors to look elsewhere for yield, and both real estate and stocks benefitted. However, the increase in rates since the election may cause investors to look more closely at fixed-income investments as an alternative. This may have an impact on real estate values going forward. 

While real estate prices have leveled off, the Dow Jones Industrial Average continues to soar and has surpassed 20,000. Unlike stock prices however, not all home price levels have reached 2007 peak levels (see Figure 5). And some analysts suggest that both real estate values and equity prices may be overinflated. REALTORS® should continue to monitor the relationship between the stock market and real estate prices.


Figure 5. REALTORS® need to monitor the relationship between the Dow Jones Industrial Average and local real estate values, as measured by the Orange County median home price. Data show what has happened to these numbers from late 2008, when the Federal Reserve began its quantitative easing program, until December 31, 2016.

4. Foreign Investment

While the housing market has been fueled primarily by low interest rates and foreign investment during the past few years, the strong dollar has caused foreign investment to pause because U.S. real estate is now viewed as being more expensive. The Chinese, who have overtaken the Canadians as the number one investors in U.S. real estate, are an exception because they view the United States as a safe haven and continue to invest at a steady pace, despite the strong dollar. Foreign investment is important for the continued strength of the real estate market because it supports prices. In NAR’s Profile of International Activity in US Residential Real Estate, the following are highlights for the period from April 2015 through March of 2016: 

  • The top five countries to invest in U.S. residential real estate accounting for 51.3 percent of total volume were China (26.7 percent), Canada (8.7 percent), India (6.0 percent), the UK (5.3 percent), and Mexico (4.6 percent).
  • Some 1.7 percent of existing home sales went to foreign buyers (214,900), while 8 percent (102.6B) of total volume was attributed to foreign buyers.
  • The average price for a home purchased by a foreign buyer was $477,000 versus $267,000 for the average home purchased by a U.S. buyer.
  • Florida, California, Texas, Arizona, and New York accounted for 51 percent of the total volume by foreign buyers

3. Home Prices (includes fourth quarter results for the Orange County Home Price Index)

Price appreciation for the California and Orange County median home as measured by the year-over-year change for each month has leveled off during the past few years. Since 2014, the rate has remained in the range of approximately 3 to 6 percent (see Figure 6). Supporting these numbers, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index shows that prices increased 5.6 percent annually in November. The index maintained by the Federal Housing Finance Agency saw home prices rise 6.1 percent in November. And this trend is projected to continue into 2017.


Figure 6.  Price appreciation for the California and the Orange County median home as measured by the year-over-year change for each month has leveled off during the past few years and has remained in the range of approximately 3 to 6 percent since 2014. 

According to C.A.R., the December median prices for California and Orange County (see Figure 7) were as follows:

California:  $509,060 (up 4 percent year over year)

Orange County:  $745,000 (up 4.8 percent year over year) 


Figure 7. According to C.A.R., the Orange County median home price was $745,000 in Decmeber, up 4.7 percent from the previous year. 

The Orange County Home Price Index (OCHPI), which was first introduced on pages 50–51 in the July/August 2016 issue of the OC Realtor, enables REALTORS® to look at the relative values in a given area, such as Orange County. In the fourth quarter of 2016, the OCHPI resulted in an index value of $699,000 for a standard home (i.e., a single-family detached home measuring between 1,800 and 2,200 square feet and containing three bedrooms and two baths) in Orange County (see Figure 8).  


Figure 8.  In the fourth quarter of 2016, the OCHPI resulted in an index value of $699,000 for a standard home in Orange County. 

As a reminder, the OCHPI includes median prices for standard homes sold since January 1, 2006, in the following ten select Orange County cities: Anaheim, Costa Mesa, Fullerton, Huntington Beach, Irvine, Mission Viejo, Newport Beach, Orange, Santa Ana, and Tustin.  Figure 9 may help REALTORS® use this index to compare relative home values in individual neighborhoods with the median prices in these Orange County cities. 


Figure 9.  In the fourth quarter of 2016, the OCHPI resulted in an index value of $699,000 for a “standard” (single-family detached, three-bedroom, two-bath, 1,800 to 2,200-square-foot) home in Orange County (see Figure 8). This table shows how Orange County Home Price Index values for each of the ten select cities compare with this OCHPI value. 

2. 2007 Peak versus 2017

Low interest rates, reduced inventory levels, foreign investment, and an improving economy have all contributed to a strong housing market over the past few years.  As a result, prices in some areas of California are approaching peak levels and, in other areas, have surpassed peak levels. For December, the California median home price was 14.4 percent below peak levels, while the Orange County median home price was 3.9 percent from its peak level. The OCHPI was 8.2 percent from its peak level. 

It is instructive to compare real estate prices today with the price levels at the peak in 2007. Because it is also helpful to compare the levels for other economic factors today with their peak levels, I created the chart shown in Figure 10. Other than home prices, the factors I found especially interesting were the following: 

  • Interest rates. As stated before, foreign investment along with low interest rates fueled the housing recovery. Imagine where the recovery would be if rates were still around 6 percent, as they were in 2007.
  • Housing affordability. In 2007, affordability was even lower than it is today, but the easy credit conditions (low teaser rates, no money down, negative amortization loans) in 2007 offset the implications of the low affordability.
  • National debt. The most ominous of these factors continues to be the level of national debt, which has increased from $9.2 trillion to just under $20 trillion. 


Figure 10. It may be instructive to compare the levels of several measures of economic activity in January 2007 with the levels of these same measures ten years later, in January 2017. Perhaps most interesting in this comparison are the numbers given for interest rates, housing affordability, oil and gasoline prices, and the national debt. 

And the Number One economic factor (a repeat from the previous Top 10) REALTORS® should be following today is—  

1. Is There a Real Estate Bubble?

The preceding nine factors will be used to address this question; however, with all of the safeguards that have been put in place since the mortgage meltdown, it is my opinion that we will not experience anything like that again. I believe the more appropriate question is the following: How much will prices and sales volume correct in this environment? 

Below is a summary of how I might expect some of the previous nine factors to affect real estate values and activity. 

  • The effect of a Trump presidency on the real estate market is uncertain and will require REALTORS® to closely follow developments over the course of the next few months.
  • When interest rates go up significantly, there will be an impact on real estate values; however, we may see some increased volume in the short term from people who are trying to take advantage of the current interest rates before they go up even further.
  • Housing affordability is a major concern, and it will be addressed through easier credit conditions (e.g., lower down payments), lower prices, and higher wages or some combination of all three factors.
  • As prices approach peak levels, some may suggest that we are approaching a level where buyers may want to step back and assess.
  • Despite the strong dollar, foreign investment will continue to support prices, especially through Chinese purchasers who view the US as a safe haven.
  • For the reasons outlined previously, housing inventory levels will remain low, and as a result, prices will be supported.
  • As long as buying is still seen as a viable alternative to renting, prices will remain strong.
  • The homeownership rate has declined; however, renters who once were homeowners may come back into the market as buyers, and millennials may choose to become first-time buyers, providing additional support for home prices. 

In summary, these are ten factors that REALTORS® need to monitor today. Many of these factors will continue to support real estate values and buying activity. Share this knowledge with your clients. They will appreciate you for it. 



David Girling completed his undergraduate work at the University of Southern California and earned the degree of Master of Business Administration from the Anderson Graduate School of Management at the University of California, Los Angeles. In 2008, he formed Girling Real Estate Investment Group (Girling REIG) with his father, Bing, and has more than thirty years of experience in the financial services industry.


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In Memoriam

 Pat Paulk


We were saddened to learn in early January that long-time REALTOR® Pat Paulk had passed away. Pat was well respected by her colleagues in the real estate industry, who—in 1993—elected her president of the Huntington Beach/Fountain Valley Board of REALTORS®, a predecessor organization of the Orange County REALTORS®. She served as a Director of the California Association of REALTORS® and was honored by the Huntington Beach/Fountain Valley Board of REALTORS® as its 1995 REALTOR® of the Year. Pat and her husband Jim, who were once active members of the Huntington Harbour Anglers Club, had been living in Georgia for some time before her passing.

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