Nsdcar 7-18-13

State of the California Housing MarketRecovery or ….?

Discussion Points

• National Economic Picture• California Market Update• Recovery, Yes, But…?• Expectations Next Six to Twelve

Months

Mortgage Interest Rates

Mortgage Interest Rates

1.0

2.0

3.0

4.0

5.0

6.0

7.0

10-Year Treasury Note Yields and 30-Year Mortgage Interest RateJuly 2007 through July 1, 2013

10-Year Treasury Yields30-Year Mortgage Interest Rates

Inte

rest

Rat

es

Source: Federal Reserve, Freddie Mac, Wells Fargo Mort-gage

June 19, 2013 Bernanke comments cause mortgage in-terest rates to spike

53 basis points.

2003-01-01

2003-07-01

2004-01-01

2004-07-01

2005-01-01

2005-07-01

2006-01-01

2006-07-01

2007-01-01

2007-07-01

2008-01-01

2008-07-01

2009-01-01

2009-07-01

2010-01-01

2010-07-01

2011-01-01

2011-07-01

2012-01-01

2012-07-01

2013-01-01

2013-07-01 $500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

Federal Reserve, Total Assets (Millions of $)January 2003 through July 1, 2013

Fede

ral R

eser

ve B

ank

Ass

ets

As a result of QEs, Federal Reserve Bank Assets have

mushroomed from $800 bil-lion to $3.5 trillion

Mortgage Interest Rates

Federal Reserve Policy

Bernanke Has Your Back…

Q & A: Members of House Financial Services Committee, July 18, 2013

Where are we in this housing recovery cycle?

Where are we in this housing recovery cycle?

Where are we in this housing recovery cycle?

May-9

9

Nov-99

May-0

0

Nov-00

May-0

1

Nov-01

May-0

2

Nov-02

May-0

3

Nov-03

May-0

4

Nov-04

May-0

5

Nov-05

May-0

6

Nov-06

May-0

7

Nov-07

May-0

8

Nov-08

May-0

9

Nov-09

May-1

0

Nov-10

May-1

1

Nov-11

May-1

2

Nov-12

May-1

3 3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

6,500,000

7,000,000

7,500,000

8,000,000

8,500,000

9,000,000

Total New and Existing Home Sales - May 1999 through May 2013

Uni

ts S

old

Median Prices up sharply in 2012 and YTD 2013

Jun-01

Dec-01Jun-02

Dec-02Jun-03

Dec-03Jun-04

Dec-04Jun-05

Dec-05Jun-06

Dec-06Jun-07

Dec-07Jun-08

Dec-08Jun-09

Dec-09Jun-10

Dec-10Jun-11

Dec-11Jun-12

Dec-12Jun-13

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

$550,000

$600,000

California Median Prices - Single Family HomeJune 2001 through June 2013

Calif

orni

a M

edia

n H

ome

Pric

e ($

)

Source: PropertyRadar.com

Inventory at or near record lows

Source: California Association of Realtors – CAR.org

Jan-90

May-9

1

Sep-92

Jan-94

May-9

5

Sep-96

Jan-98

May-9

9

Sep-00

Jan-02

May-0

3

Sep-04

Jan-06

May-0

7

Sep-08

Jan-10

May-1

1

Sep-12

0

2

4

6

8

10

12

14

16

18

20

California Unsold Inventory Index (Months of Available In-ventory) January 1990 to May 2013

Mon

ths

of U

nsol

d In

vent

ory

Source: ForeclosureRadar – www.foreclosureradar.com

Foreclosure activity slowing…

May-0

7

Sep-07

Jan-08

May-0

8

Sep-08

Jan-09

May-0

9

Sep-09

Jan-10

May-1

0

Sep-10

Jan-11

May-1

1

Sep-11

Jan-12

May-1

2

Sep-12

Jan-13

May-1

30

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Foreclosure ActivityMay 2007 through May 2013

Notice of DefaultNotice of Trustee SaleForeclosure Sales

Fore

clos

ure

Noti

ces

or S

ales

Time to foreclose lengthening

Average Time to Foreclose300+ Days

Government intervention

California home building permits on the rise

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

10,000

20,000

30,000

40,000

50,000

60,000

70,000

California Total Single Family Home Construction Permits January through May, 2000 through 2013

Num

ber o

f Per

mit

s

Housing Market Recovery?

Housing Recovery Dependent on Jobs and Income

Rising Employment

Rising Incomes

California employment on the rise

1990-01-01

1990-10-01

1991-07-01

1992-04-01

1993-01-01

1993-10-01

1994-07-01

1995-04-01

1996-01-01

1996-10-01

1997-07-01

1998-04-01

1999-01-01

1999-10-01

2000-07-01

2001-04-01

2002-01-01

2002-10-01

2003-07-01

2004-04-01

2005-01-01

2005-10-01

2006-07-01

2007-04-01

2008-01-01

2008-10-01

2009-07-01

2010-04-01

2011-01-01

2011-10-01

2012-07-01

2013-04-01 11,500

12,000

12,500

13,000

13,500

14,000

14,500

15,000

15,500

Monthly California Employment Trends (thousands of employees)January 1990 to May 2013

Num

ber o

f Em

ploy

ees

San Diego employment rising at a faster clip

May 2

003

May 2

004

May 2

005

May 2

006

May 2

007

May 2

008

May 2

009

May 2

010

May 2

011

May 2

012

May 2

0131,320,000

1,340,000

1,360,000

1,380,000

1,400,000

1,420,000

1,440,000

1,460,000

1,480,000

1,500,000

Employment Trends - San Diego - Carlsbad - San Marcos Metro Area2003 to 2013

Num

ber o

f Em

ploy

ees

Source: BLS.gov

California personal income gaining ground

1999-01-01

2000-01-01

2001-01-01

2002-01-01

2003-01-01

2004-01-01

2005-01-01

2006-01-01

2007-01-01

2008-01-01

2009-01-01

2010-01-01

2011-01-01

2012-01-01

2013-01-01 $900,000

$1,000,000

$1,100,000

$1,200,000

$1,300,000

$1,400,000

$1,500,000

$1,600,000

$1,700,000

$1,800,000

California Total Personal Income (Mllions of $)Q1 1999 through Q1 2013

Pers

onal

Inco

me

(Mill

ions

of $

)

What should a housing recovery look like?

Rising Prices

Increase in Market Activity

Increase in Building Activity

Market Activity Slows…

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Jun-11

Oct-11

Feb-12

Jun-12

Oct-12

Feb-13

Jun-130

10,000

20,000

30,000

40,000

50,000

60,000

Monthly Trend of California Real Estate SalesDistressed vs. Non-Distressed Sales

February 2006 to June 2013

Distressed SalesNon-Distressed Sales

Sale

s Vo

lum

e

Source: PropertyRadar.-com

Sales volume down 5.9% in June

Jan-Jun 2005

Jan-Jun 2006

Jan-Jun 2007

Jan-Jun 2008

Jan-Jun 2009

Jan-Jun 2010

Jan-Jun 2011

Jan-Jun 2012

Jan-Jun 2013

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

California Total Single Family Home and Condominium SalesJanuary to June Year-to-Date Sales Comparisons

2005 through 2013

Distressed Sales

Non-Distressed Sales

Sale

s Vo

lum

e

Year-to-Date Jan-June sales nearly down

5.9 percent Y-o-Y

What about San Diego County……?

Source: PropertyRadar.com

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Jun-11

Oct-11

Feb-12

Jun-12

Oct-12

Feb-13

Jun-130

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Monthly Trend of San Diego Real Estate SalesDistressed vs. Non-Distressed Sales

February 2006 to June 2013

Distressed SalesNon-Distressed Sales

Sale

s Vo

lum

e

Source: PropertyRadar.-com

What about San Diego County……?

Source: PropertyRadar.com

Jan-Jun 2005

Jan-Jun 2006

Jan-Jun 2007

Jan-Jun 2008

Jan-Jun 2009

Jan-Jun 2010

Jan-Jun 2011

Jan-Jun 2012

Jan-Jun 2013

0

5,000

10,000

15,000

20,000

25,000

30,000

San Diego County Total Single Family Home and Condominium SalesJanuary to June Year-to-Date Sales Comparisons

2005 through 2013

Distressed SalesNon-Distressed Sales

Sale

s Vo

lum

e

Year-to-Date Jan-June sales up in San

Diego County

What a difference a year makes!

Source: PropertyRadar.com

Distressed Property Sales as a % of Total Sales

County Q2-11 Q2-12 Q2-13

San Diego 51.8% 47.2% 27.1%

Contra Costa 60.9% 54.5% 29.8%

Riverside 62.8% 55.7% 37.2%

Sacramento 68.1% 61.7% 38.2%

San Bernardino 68.7% 61.5% 42.1%

Negative Equity on the Decline

Homeowner equity criticalto housing recovery

Negative equity on the decline

Source: CoreLogic – www.corelogic.com

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 201224%

28%

32%

36%

California Negative Equity (%)Q4 2009 to Q4 2012

Neg

ative

Equ

ity

Shar

e (%

)

Negative Equity - California

Negative Equity - California

5% 10% 15% 20% 25%0

200

400

600

800

1,000

1,200

Number of California Homeowners that Exit Negative Equity Positions

Increase In California Home Prices

Num

ber o

f Cal

iforn

ia H

omeo

wne

rs (i

n Th

ousa

nds)

Approximately 500,000 California homeowners

exit their negative equity positions if home prices

go up 10%

Approximately 900,000 Cali-fornia homeowners exit

their negative equity posi-tions if home prices go up

20%

Source: PropertyRadar.com

Negative Equity – San Diego

The Answer to the California Housing Market Recovery

Question?Yes, but….

Recovery?

Recovery? Yes, but…

ExpectationsNext 6 to 12 Months

Demand will remain strong

• Despite jawboning by the Fed, QE 3 will likely continue at current levels well into 2014

• In many parts of CA rents higher than house payments

• Many early foreclosure “victims” now qualify for a mortgage and are choosing to buy

Supply will remain tight

• Government intervention will continue to slow foreclosures, ie. CA Homeowner’s Bill of Rights

• Many homeowners with equity waiting for higher prices

• Nearly 2 million underwater homeowners can’t buy or sell (except short)

• New home supply lagging demand• Lack of REO inventory• Short sales CA hampered by legislative

uncertainty

Home prices will rise

• Lack of supply, and continued demand will put upward pressure on prices

• But increases will be constrained:– Interest rate volatility– By credit terms– By appraisals– By affordability and ROI

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Negative equity in Escondido, CA

…..compared to Carlsbad

View “Ownership” heat map, Escondido,CA

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View “Debt” heat map, Escondido, CA

Find properties in foreclosure with “Foreclosures” heat map,Escondido, CA

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$550,000

Find owner via linked in or…?

$550,000

View transaction history

$550,000

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