2015 California Economic & Market Forecast

8/10/2019 2015 California Economic & Market Forecast

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2015 CALIFORNIA

ECONOMIC & MARKETFORECASTOctober 9,2014

EXPO - Anaheim Convention Center

Leslie Appleton-Young,Vice President & Chief Economist


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AS I WAS SAYING


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FORECAST REPORT CARD

NOTE: Average FICO score for 2014 is based on data from January 2014 through August 2014Forecast Date:October 2014 vs. October 2013SERIES: CA Housing Market Outlook

SOURCE: CALIFORNIA ASSOCIATIONOF REALTORS, Ellie Mae

SFH Resales (000s)

% Change

Median Price ($000s)

% Change

30-Yr FRM

Housing Affordability Index

FICO Score

U.S. Gross Domestic Product

2013Actual

414.3

-5.8%

$407.2

27.5%

4.0%

36.0%

738

1.9%

2014Forecast

444.0

3.2%

$432.8

6.0%

5.3%

28.2%

--

2.8%

2014Projected

380.5

-8.2%

$455.0

11.8%

4.3%

30.0%

726*

2.2%


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ECONOMIC FUNDAMENTALS ARE BETTER

Economic growth is accelerating

Unemployment rate 5.9% - lowest since ?

248,000 new jobs in Sept

Construction jobs +230,000 in last 12 months


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BUT...DEMOGRAPHICS AS DESTINY?

Affordability is worsening Homeownership rate for 18-34 - year-olds still falling Household formation is VERY slow Census: US added 476,000 HH v. 1.3 m HH prior 2 years Majority of new households rent: Renter Nation Millennials delaying adulthood: Getting married later

or not at all; Student loans; dim job prospects Baby boomers delaying retirement and staying put

longer; they will love their loans when rates do rise Inventory is better but still well below normal.


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AND FIRST TIME BUYERS FACE MANY

OBSTACLES

Lots of competition for existing housing stock

Affordability constraints

Lack of a down-payment Lack of information about the home-buying

process

Fear of financing: I cant qualify

Job prospects/security still dim for many Many who have jobs are under-employed


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#1 TRANSACTIONS


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CA HOME SALES: 1995 2014

-5.8%

-8.2%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Sales Percent Change

SERIES: Sales of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

Units YOY % Chg


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WEVE COME A LONG WAY:EQUITY SALES NOW 9 OUT OF 10 TRANSACTIONS

90.6%

4.9%

4.1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Equity Sales Short Sale REO

SERIES: Distressed Sales, Not Seasonally AdjustedSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS


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DISTRESSED SALES: NORTHERN CA

Percent of Total Sales

0%

10%

20%

30%

40%

50%

60%

70%

6.9% 10%

28%

14% 18%

4.2% 8.1% 6.2%

13%

28% 26%

65%

42%

31% 32% 36%

Aug-14 Aug-12



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DISTRESSED SALES: BAY AREA


0%

10%

20%

30%

40%50%

60%

Alameda Contra Costa Marin Napa Solano Sonoma

2.5% 2.9% 1.8% 4.5%

13%

4.2%

23% 22% 25%

36%

60%

32%

Aug-14 Aug-12



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DISTRESSED SALES: CENTRAL VALLEY


0%

10%

20%

30%

40%50%

60%

70%

15% 19%

10% 15% 19% 14%

7% 12%

7%14% 12%

19%

47%

64%

47%

51%

49%

59%

43%

52%60% 56% 57%

47%

Aug-14 Aug-12



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DISTRESSED SALES: CENTRAL COAST


0%

5%

10%

15%

20%

25%

30%35%

40%

45%

Monterey San Luis Obispo Santa Cruz

10%7.9% 7.0%

44%

30% 28%

Aug-14 Aug-12



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DISTRESSED SALES: SOUTHERN CA


0%

10%

20%

30%

40%

50%

60%

Los Angeles Orange Riverside San Bernardino San Diego

7.6%4.9%

11% 14%

6.2%

36%

27%

52%49%

17%

Aug-14 Aug-12



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CHANGE IN SALES BY PRICE RANGE

(Year-to-Year)

-28%

-0.2%

-6.5%-8.7%

-1.5%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%30%

40%

50%

60%

70%

$0 - $200k $500k+ $200 - $300k $300 - $400k $400 - $500k



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INVENTORY IMPROVING FROM LASTYEAR

August 2013: 3.0 Months; August 2014: 4.0 Months

Note: Unsold Inventory Index represents the number of months it would take to sell the remaining inventory for the month in question. Theremaining inventory for the month is defined as the number of properties that were Active, Pending, and Contingent (when available) and

divide the sum by the number of Sold properties for the month in question.

0

2

4

6

8

10

12

14

16

18

SERIES: Unsold Inventory Index of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS


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INVENTORY HIGHER AT UPPER PRICE

RANGES

Note: Unsold Inventory Index represents the number of months it would take to sell the remaining inventory for the month in question. The

remaining inventory for the month is defined as the number of properties that were Active, Pending, and Contingent (when available) anddivide the sum by the number of Sold properties for the month in question.

Price Range (Thousand) Aug-14 Jul-14 Aug-13

$1,000K+ 5.0 4.7 4.6

$750-1000K 3.9 3.9 3.2

$500-750K 3.8 3.7 2.9

$300-500K 3.9 3.6 2.9

$0-300K 4.0 3.5 2.8

SERIES: Unsold Inventory Index of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS


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#2 HOUSING PRICES


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$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000 California US

CALIFORNIA VS. U.S. MEDIAN PRICES

1970-2014

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS


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CA HOME MEDIAN PRICE: 1995 2014

27.5%

11.8%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Median Price Percent Change


Median Price YOY % Chg


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PRICE PLATEAU AHEAD; ANNUAL GAINS

SLOWING

California, Aug 2014: $480,280, Up 8.9%YTY

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

Aug-14:$480,280Aug-13:

$441,010


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TROUGH VS. CURRENT PRICE

By Counties, August 2014

SERIES: Median Price of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

Region Trough

Month

Trough

Price

Aug-14

Median

%Chg Fr

Trough

Santa Barbara Mar-09 $296,590 $806,030 171.8%

Monterey May-09 $203,500 $492,500 142.0%

Alameda Jan-09 $346,236 $732,220 111.5%

Lake Jun-11 $85,620 $178,330 108.3%

California Feb-09 $245,230 $480,280 95.8%

Santa Clara Feb-09 $445,000 $865,000 94.4%

Merced Jan-10 $96,670 $186,670 93.1%

Los Angeles May-10 $248,850 $474,640 90.7%

Tehama Feb-11 $83,330 $156,000 87.2%

Riverside Apr-09 $171,480 $318,640 85.8%


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Region Trough

Month

Trough

Price

Aug-14

Median

%Chg Fr

Trough

Ventura Feb-09 $359,630 $602,060 67.4%

Tulare Apr-11 $111,600 $184,440 65.3%

Mendocino Jun-11 $181,430 $291,670 60.8%

San Francisco Jan-12 $561,270 $900,910 60.5%

Kings Jul-11 $114,290 $183,330 60.4%

Orange Jan-09 $442,170 $699,430 58.2%

Contra Costa Jan-12 $476,470 $750,000 57.4%

San Diego Mar-09 $326,830 $510,860 56.3%

Fresno Jan-12 $131,070 $203,760 55.5%


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Region Trough

Month

Trough

Price

Aug-14

Median

%Chg Fr

Trough

Sonoma Feb-09 $312,340 $484,640 55.2%

Placer Feb-12 $251,450 $388,720 54.6%

Marin Feb-11 $632,580 $977,460 54.5%

Siskiyou May-11 $85,000 $127,500 50.5%

Shasta Feb-12 $141,900 $212,500 49.5%

Tuolumne Jan-12 $147,140 $214,710 45.9%

San Luis O bispo Feb-11 $328,750 $475,000 44.5%

Butte Feb-12 $177,860 $255,000 43.4%

Humboldt Aug-12 $218,750 $255,260 16.7%


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#3 MORTGAGE RATES &

HOUSING FINANCE


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FORECASTS OF 30-YR FRM

2013Projected

2013Actual

2014Forecast

2014Projected

2015Forecast

Fannie Mae 4.1% 4.0% 5.1% 4.2% 4.4%

Freddie Mac 4.1% 4.0% 5.0% 4.3% 4.7%

Mortgage BankerAssociation

4.1% 4.0% 4.9% 4.3% 5.0%

National Association of

REALTORS 4.2% 4.0% 5.3% 4.3% 5.1%

California Association ofREALTORS 4.1% 4.0% 5.3% 4.3% 4.5%

SOURCE: Fannie Mae, Freddie Mac, MBAA, NAR, Wells Fargo, CALIFORNIA ASSOCIATION OF REALTORS


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FORECASTERS HAVE BEEN EXPECTING

RATES TO RISE

Percent

0

1

2

3

4

5

6

0

1

2

3

4

5

6

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Actual 10-year Treasury yield (solid black line)

Predictions out to five quarters ahead of professional forecasters (hatched lines)

Percent

SERIES: Loan Officer SurveySOURCE: Philadelphia Federal Reserve Survey of Professional Forecasters, Bloomberg


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MORTGAGE RATES + 1% SPRING 2013

ACTUAL TAPERING NO IMPACT

0%

1%

2%

3%

4%

5%

6%

7%

8% FRM ARM Federal Funds

SERIES: 30Yr FRM, 1Yr ARM, Federal FundsSOURCE: Federal Home Loan Mortgage Corporation


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U.S. DEPOSITORY INSTITUTIONS:

HIGH LEVEL OF EXCESS RESERVES

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

SERIES: Excess Reserves of Depository InstitutionsSOURCE: Federal Reserve Bank of Saint Louis

$ BILLIONS


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0%

1%

2%

3%

4%

5%

6%

2009/01

2009/04

2009/07

2009/10

2010/01

2010/04

2010/07

2010/10

2011/01

2011/04

2011/07

2011/10

2012/01

2012/04

2012/07

2012/10

2013/01

2013/04

2013/07

2013/10

2014/01

2014/04

2014/07

8.2

8.14

9.1

8.14

FRM

ARM

MORTGAGE RATES

January 2009 August 2014

MONTHLY WEEKLY

SERIES: 30Yr FRM, 1Yr ARMSOURCE: Federal Home Loan Mortgage Corporation


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LOAN OFFICERS SURVEY SAY LENDING

STANDARDS ARE EASING

-80

-60

-40

-20

0

20

40

60

80

100

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

2010Q4

2011Q1

2011Q2

2011Q3

2011Q4

2012Q1

2012Q2

2012Q3

2012Q4

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

tightening standards for prime mortgage loans

stronger demand for prime mortgage loans

Net Percentage

SERIES: Loan Officer SurveySOURCE: US Board of Governors of the Federal Reserve System


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LOOSENED CREDIT REQUIREMENTS:

FICO Scores Trending Down Since 2012

SERIES: Average FICO Score on Closed LoansSOURCE: Ellie Mae

710

720

730

740

750

760


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SAY WHAT?


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#4 HOUSING

AFFORDABILITY


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REAL ENEMY OF THE FUTURE OF

CALIFORNIA?

Housing Affordability

The Achilles Heel of the California Economy

What happens when housing costs are too high?

Impact on jobs and economic growth Impact on neighborhoods and family stability


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HOUSING AFFORDABILITY DOWNSHARPLY SINCE Q1 2012

30%

57%

0%

10%

20%

30%

40%

50%

60%

70%

80% CA US

% OF HOUSEHOLDS THAT CAN BUY

SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS


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HOMEOWNERSHIP RATES

California Vs. U.S.

0%

10%

20%

30%

40%

50%

60%

70%

80% CA US

SERIES: Homeownership RatesSOURCE: U.S. Census Bureau


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HOMEOWNERSHIP RATE BY AGE OFHOUSEHOLDER

SOURCE: Census Bureau


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INCOME REQUIRED TO BUY A MEDIAN-

PRICED HOME IN CA: (PEAK VS. CURRENT)

$56,324

$93,593

$0

$20,000

$40,000

$60,000

$80,000

$100,000

2012 Q1 2014 Q2

Change in minimum required income:

$37,269

Increase in income attributed to

interest rate increase:

$836 (2.2% of total change)

Increase in income attributed to price

increase :

$36,433 (97.8% of total change)

SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS


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HOUSING AFFORDABILITY:BAY AREA

0 10 20 30 40 50 60 70 80 90

S.F. Bay Area

Alameda

Contra-Costa (Central County)

Marin

Napa

San Francisco

San Mateo

Santa Clara

Solano

Sonoma

Q1/2012 Q2/2014



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HOUSING AFFORDABILITY: CENTRAL VALLEY

0 10 20 30 40 50 60 70 80 90

Fresno

Kings

Madera

Merced

Placer

Sacramento

Tulare

Q1/2012 Q2/2014



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HOUSING AFFORDABILITY: SO CAL

0 10 20 30 40 50 60 70 80 90

Los Angeles Metro

Inland Empire

Los Angeles

Orange

Riverside

San Bernardino

San Diego

Ventura

Santa Barbara

Q1/2012 Q2/14



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MEDIAN MONTHLY MORTGAGE PAYMENT

What Will Happen When Mortgage RatesIncrease?

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

$1,542

$1,642$1,746 $1,853

$1,963$2,076

$2,193 $2,312

INTEREST RATE

MONTHLY MORTGAGE


Q2-2014 Median Price $457,140

20% Down payment


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MINIMUM QUALIFYING INCOME

What Will Happen When Mortgage RatesIncrease?

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

$82,703$86,717

$90,867 $95,149$99,557

$104,087$108,734

$113,490

INTEREST RATE

MONTHLY MORTGAGE


Q2-2014 Median Price $457,140

20% Down payment


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MEDIAN CA HOUSE PAYMENT

WELL BELOW PEAK

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 2009 Q1


PITI/Month

Peak: $3,668/mo (2007Q2)

Latest: $2,340/mo (2014Q2)


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MINIMUM QUALIFYING INCOME

BELOW PEAK

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

Jan-

80

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

2006

Q1

2012

Q1

Min. IncomePeak: $146,701/yr (2007Q2)

Latest: $93,593/yr (2014Q2)


SHARE OF FIRST TIME BUYERS UP


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SHARE OF FIRST-TIME BUYERS UP

BUT STILL BELOW LONG-RUN AVERAGE

28.1%30.5%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% First-Time Home Buyers Long Run Average

Long Run Average = 38%

QUESTION:Was the buyer a first-time buyer?SERIES: 2014 Housing MarketSurvey

SOURCE: CALIFORNIA ASSOCIATIONOF REALTORS


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FIRST-TIME BUYERS GETTING OLDER

43

35

47

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

All Buyers First-Time Buyers Repeat Buyers

SERIES: 2014 C.A.R.Annual Housing MarketSurveySOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

Years


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#5 2014 CA HOUSING

MARKET SURVEY

MULTIPLE OFFERS DECLINE WITH LESS


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MULTIPLE OFFERS DECLINE WITH LESS

INTENSE MARKET COMPETITION IN 2014

AFTER PEAKING IN 2013

72%

53%5.7

4.3

0

1

2

3

4

5

6

7

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% with Multiple Offers # ofMultiple offers (Average)

SERIES: 2013 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

FEWER HOMES SOLD ABOVE THE ASKING PRICE AS


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50%

33%

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% of Sales above Asking Price

Long Run Average = 19%

FEWER HOMES SOLD ABOVE THE ASKING PRICE ASMARKET COMPETITION COOLED IN 2014

0

2

4

6

8

10

12

14

16

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Med. Price Discount

Med. Weeks on MLS

0%, 2.1

weeks

Median Price Discount & Weeks on Market

QUESTION:What was the original list sales priceof the property? What was the final sales price of the property? How manyweeks did the property remain on the MLS?SERIES: 2014 Housing MarketSurvey



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IN 2009 OVER 2/3 SOLD BELOW ASKING PRICE


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IN 2009 OVER 2/3 SOLD BELOW ASKING PRICE

24%

23%

23%

30%

0% 10% 20% 30% 40%

20% or more

10% to 19.99%

5% to 9.99%

Less than 5%

Amt. of Price Reduction

69%

8%

23%

Sale Price to Asking Price

Below Asking Price AtAsking Price Above AskingPrice


Median Reduction = 9.1% of List Price

SHARE OF CASH BUYERS IS THE LOWEST


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SHARE OF CASH BUYERS IS THE LOWEST

SINCE 2009

27%

22%

0%

5%

10%

15%

20%

25%

30%

35%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% ofAll Cash Sales

SERIES: 2014 Housing MarketSurveySOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

SHARE OF FHA STILL SIGNIFICANTLY HIGHER


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SHARE OF FHA STILL SIGNIFICANTLY HIGHERTHAN 2007, BUT WAS THE LOWEST IN 7YEARS

(FIRST MORTGAGE)

16%

7%

0%

10%

20%

30%

40%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

FHA VA

QUESTION: Please indicate the type of mortgage.SERIES: 2013 Housing Market Survey


INVESTMENT HOMES : 15% MARKET


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INVESTMENT HOMES : 15% MARKET

SHARE

19%

15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Long Run Average: 12 %


BUYING TO RENT V FLIP; CHANGE IN


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BUYING TO RENT V. FLIP; CHANGE IN

PREFERRED INVESTMENT STRATEGY

Investment to Flip

Rental Property

SERIES: 2014 Housing MarketSurveySOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

SHARE OF INTERNATIONAL BUYERS OFF FROM 2013


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SHARE OF INTERNATIONAL BUYERS OFF FROM 2013,

2ND HIGHEST IN THE LAST 6YEARS

8%

6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2008 2009 2010 2011 2012 2013 2014

QUESTION:Was the buyer an international buyer a person who was a citizen of another country who wished to purchaseresidential real estate in theU.S.?SERIES: 2014 Housing Market Survey



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CA PERMITS UP BUT MORE UNITS NEEDED


66/128

0

50,000

100,000

150,000

200,000

250,000

300,000 Single Family Multi-Family

CA PERMITS UP BUT MORE UNITS NEEDED

2013: 57,496 Units, Up 43.0% from 2012

Household Growth: 220,000-250,000/yr

SERIES: New Housing PermitsSOURCE: Construction Industry Research Board


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#6 REGIONAL HOUSING

MARKETS

2014 CA SALESYTD


68/128

2014 CA SALESYTD

SERIES:Year to Date Sales of Existing Detached Homes



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NORTHERN CA PRICES


71/128

NORTHERN CA PRICES

SERIES:Year toYear Median Price of Existing Detached Homes


NORTHERN WINE SALES


72/128

NORTHERN WINE SALES



NORTHERN WINE PRICES


73/128

NORTHERN WINE PRICES




74/128

BAY AREA PRICES


75/128



CENTRAL VALLEY SALES


76/128



CENTRAL VALLEY PRICES


77/128




78/128

CENTRAL COAST PRICES


79/128



SOUTHERN CA SALES


80/128



SOUTHERN CA PRICES


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#7 THE MILLENNIALS &THE FUTURE OF

HOMEOWNERSHIP

HOMEOWNERSHIP RATES BY AGE


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California (2010 Census)

12%

28%

49%

62%

70%74% 74%

66%

0%

10%

20%

30%

40%

50%

60%

70%

80%

15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

SERIES: Homeownership RatesSOURCE: U.S. Census Bureau

HOMEOWNERSHIP RATE BY AGE OFHOUSEHOLDER


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HOUSEHOLDER

SOURCE: Census Bureau


85/128

YOUNGER BUYERS CONTINUE TO DECLINE


86/128

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Refused

65+

55-64

45-54

35-44

25-34

Under 25

Question:What is your age?SERIES: 2014 C.A.R. Home BuyersSurvey


MILLENNIALS NOT MARRIED


87/128

SOURCE: C.A.R. 2014 Millennial Survey

Q: What is your marital status

Married 26%

Single 50%

In a committed

relationship

23%

Other 2%

CA MILLENNIAL ETHNICITY


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Q: What is your ethnicity?

0%

5%

10%

15%

20%

25%

30%

35%

40%

African

American

Asian Caucasian/

White

Hispanic/ Latino Other

7%

18%

38%

35%

4%

YOUNGER MILLENNIALS GREATER DIVERSITY


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Q: What is your ethnicity?

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

African

American

Asian Caucasian/

White

Hispanic/

Latino

Other

18-26

27-34

All

CA

# OF HOUSEHOLDS LOST SINCE THE GREAT

RECESSION


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-5,485

165,105223,058

575,156

957,834

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2009 2010 2011 2012 2009 - 2012

Households not formed

SOURCE: California Dept. of Finance; compiled byC.A.R.

SHARE OFYOUNG ADULTS LIVING WITH

PARENTS


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SERIES: Share ofYoungAdultsLiving ParentsSOURCE: U.S,Census, PUMS,ACS, NAHB Estimates.

STUDENT LOAN DEBT: OVER-RATED & REAL


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Yes, 23%

No, 75%

Refused, 2%

Student Loan Debt

78%

8%

6%

3%

2%

2%

$100K

Refused

Amount of Debt

Question: Do you have any outstanding debt from student loans? How much is the outstanding student loan debt?SERIES: 2014 C.A.R. Home BuyersSurvey


BUYERS: MANY DID NOT BUY SOONER BECAUSEOF LACK OF URGENCY & UNCERTAINTY


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Q: Why didnt you buy sooner?

5%

7%

8%

26%

26%

27%

32%

33%

0% 5% 10% 15% 20% 25% 30% 35%

Other

Difficulty qualifying for mortgage

Needed to sell existing home first

Not many good housing options

Waited until finances improved

Needed to save for downpayment

Waited to seewhen prices would stabilize

No buying urgency

RENTERS: MAJORITY RENT BECAUSE THEYCANT AFFORDTO BUY


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Q: Why do you rent instead of own?

2%

4%

7%9%

10%

15%

16%

17%

20%

24%

37%

67%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Believe housing market will decline in the near future

No interest in buying

Don't want the responsibility of owning

Don't have a job

Enjoy the flexibility/freedom of renting

Too costly to maintain property as owner

Can't qualify for a mortgage

Don't havea down payment

It's easier to rent

Notready to buy

Can't afford to buy

FORMER OWNERS: MANY SOLD HOMEBECAUSE OF FINANCIAL DISTRESS


95/128


Q: Why did you sell your previous home?

0% 5% 10% 15% 20% 25% 30% 35% 40%

Other

Believe housing market is going down

Recent rise in home values

Opted to become a renter

Needed to move for work

Needed to move for family reasons

Financial distress

12%

2%

7%

10%

22%

24%

39%

MOST UNCERTAIN/DOUBTFUL THAT THEYCOULD OBTAIN A MORTGAGE


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NOW?AMILLENNIAL ETHNICITY


Q: Could you obtain a mortgage if you applied now ?

Yes 22%

No 33%

Don't know

45%

PEOPLE WOULD PREFER THE FOLLOWING OVERGOING THROUGH THE HOME MORTGAGE PROCESSAGAIN


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AGAIN:

SOURCE:Guaranteed Rate Mortgage Survey of 1,000 adults 25 and older USA Today April 2014

ATTITUDE TOWARD THE HOME BUYING PROCESS MIXED RESULTS


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SOURCE:How would you describe your attitude towards the home buying process?

C.A.R. 2014 Millennial Survey

0%

10%

20%

30%

40%

50%

60%

Positive Negative Neutral N/A Other

50%

34%

8%4%

4%


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#8 MACRO ECONOMIC

ENVIRONMENT

ECONOMY GAINING MOMENTUM 2014 2.0%


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-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014P

Q2-10

Q3-10

Q4-10

Q1-11

Q2-11

Q3-11

Q4-11

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

Q3-13

Q4-13

Q1-14

Q2-14

2013: 1.9%; 2014 Q2: 4.5%ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $

ANNUALLY QUARTERLY

2009 Largest Annual Drop since 1938 (-3.4%)

SERIES: GDPSOURCE: US Dept. of Commerce, Bureau of Economic Analysis

US UNEMPLOYMENT RATE BELOW 6%


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CA - 7.4% (Aug. 2014) vs. US - 5.9% (Sep. 2014)

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14% US-CA CA US

SERIES: Unemployment RateSOURCE: US Bureau of Labor Statistics,CA Employment Development Division

PERCENT JOB LOSSES PRIOR RECESSIONS

RECENT CYCLE WORST BY FAR


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JOB TRENDS BY CALIFORNIA METRO AREA


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1.2%

1.2%

1.3%

1.3%

2.0%

2.2%

2.2%

2.2%

2.4%

2.6%

3.2%

3.3%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Orange County

Stockton MSA

Modesto

Ventura

Sacramento

Oakland

Bakersfield

Los Angeles

Fresno MSA

San Diego

San Jose

San Francisco

SERIES: Total Nonfarm EmploymentSOURCE: CA Employment Development Division

ANNUAL PERCENT CHANGEAugust 2014: CA +1.7%, +291,700

CALIFORNIA JOB CHANGES BY INDUSTRY


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SERIES: Total Nonfarm Employment By IndustrySOURCE: US Bureau of Labor Statistics,CA Employment Development Division

August 2014: CA +1.7%, +291,700ANNUAL PERCENT CHANGE

-2.2%-1.8%

-1.7%

-0.2%

0.7%

0.8%

1.1%

1.1%

1.3%

2.7%

3.3%

3.9%

3.9%

4.0%

5.2%

-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%

Finance & InsuranceTransportation, Warehousing & Utilities

Nondurable Goods

Government

Durable Goods

Health Care & Social Assistance

Wholesale Trade

Retail Trade

Real Estate & Rental & Leasing

Leisure & Hospitality

Educational Services

Information

Professional, Scientific & Technical Services

Admistrative & Support & Waste Services

Construction

METRO COMMERCIAL SPACE VACANCY

RATES


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2014 Q2

SERIES: CommercialVacancy RateSOURCE: National Association of REALTORS

MSA Office Industrial Retail Multi-Family

Los Angeles 15.3% 3.8% 5.8% 3.1%

Oakland-East Bay 18.0% 9.3% 6.2% 2.7%

Orange County 16.8% 3.5% 5.3% 2.5%

Sacramento 20.7% 11.8% 11.6% 2.6%

San Bernardino/Riverside 23.6% 6.9% 10.1% 2.5%

San Diego 16.2% 6.7% 6.3% 2.6%

San Francisco 12.6% 10.9% 3.5% 3.0%

San Jose 18.1% 16.6% 4.5% 2.4%

Ventura 18.9% - 8.9% 2.8%

CONSUMER PRICE INDEX


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August 2014: All Items +1.7%YTY; Core +1.7%YTY

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6% All Items Core

ANNUAL PERCENT CHANGE

SERIES: Consumer Price IndexSOURCE: US Bureau of Labor Statistics

CONSUMER CONFIDENCE: UNCERTAINTY


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September 2013: 79.7INDEX, 100=1985

SERIES: Consumer ConfidenceSOURCE: The Conference Board

0

20

40

60

80

100

120

U.S. ECONOMIC FORECAST


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SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

Gross Domestic Product

Nonfarm Job Growth

Unemployment Rate

Consumer Price Index

Real Disposable Income,

% Change

2011

1.8%

1.2%

8.9%

3.1%

1.3%

2012

2.8%

1.7%

8.1%

2.1%

1.5%

2013

1.9%

1.7%

7.4%

1.5%

0.7%

2014 P

2.2%

1.8%

6.2%

2.0%

2.6%

2015 F

3.0%

2.2%

5.8%

2.2%

2.6%

CALIFORNIA ECONOMIC FORECAST


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SERIES:CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATIONOF REALTORS

Nonfarm Job Growth

Unemployment Rate

Population Growth

Real Disposable Income,% Change

2011

1.1%

11.8%

0.7%

1.9%

2012

2.4%

10.4%

0.7%

1.1%

2013

3.0%

8.9%

0.9%

0.9%

2014 P

2.2%

7.5%

0.9%

3.0%

2015 F

2.4%

6.7%

0.9%

3.8%


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#9 PUBLIC POLICY

LEGISLATIVE & REGULATORY PRESSURES

ABOUND AT ALL LEVELS OF GOVERNMENT


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Local: Point of Sale

Business License Tax

Transfer Taxes

State: Affordable Housing, not Homeownership

Attacks on Ellis Act., Costa-Hawkins

Fiscal andTaxation Threats

Anti-speculation Tax (SF)

LEGISLATIVE & REGULATORY PRESSURES

ABOUND AT ALL LEVELS OF GOVERNMENT


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Federal: GSEs: Future of Fannie & Freddie

FHA

Fees & Loan Limits

Mortgage Interest Deduction

Flood Insurance

Taxation

FANNIE & FREDDIE ARE THE MARKET


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Source: LPS


115/128

#10 WILD CARDS

REALITY: WORLD OF UNCERTAINTY


116/128

Stock market volatility

Slower growth: China & Europe

Geo-political tensions

TerrorismBio-terrorism

Natural Disasters

2014 mid-term elections


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2015 FORECAST


118/128

CALIFORNIA HOUSING MARKET FORECAST


119/128


SFH Resales (000s)

% Change

Median Price ($000s)

% Change

Housing Affordability Index

30-Yr FRM

2011

422.6

1.4%

$286.0

-6.2%

53%

4.5%

2012

439.8

4.1%

$319.3

11.6%

51%

3.7%

2013

413.3

-5.8%

$407.2

27.5%

36%

4.0%

2014 P

380.5

-8.2%

$455.0

11.8%

30%

4.3%

2015 F

402.5

5.8%

$478.7

5.2%

27%

4.5%

CALIFORNIA HOUSING MARKET OUTLOOK

Sales Down for 2014 but will Improve in 2015;


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Price Gains Slowing

Units(Thousand)

380403

0

100

200

300

400

500

600

700

2005 2007 2009 2011 2013 2015f

Sales of Existing Detached Homes

$455

$479

$0

$100

$200

$300

$400

$500

$600

2005 2007 2009 2011 2013 2015f

Median PricePrice

(Thousand)


CA: DOLLAR VOLUME UP FOR 4TH YEAR

Up 2.7% in 2014, Up 11.3% in 2015


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$301

$244

$164

$133 $131 $127 $121$140

$169 $173$193

-40%

-30%

-20%

-10%

0%

10%

20%

30%

$0

$50

$100

$150

$200

$250

$300

$350

$400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014p 2015f

$ Volume of S ales Percent Change

% Change$ in Billion

-60%



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MARKET

OPPORTUNITIES 2015

OPPORTUNITIES TO EXPANDYOUR BUSINES

Connect with the IPO crowd Twitter IPO


123/128

Connect with the IPO crowd Twitter IPOcreated 1400 millionaires

Educate Under-informed Potential Buyers

Begin conversations with Millennials

Connect with Boomerang Buyers Connect with International buyers

Support local and state efforts to build!

Dress up and get out there!

MOMRTGAGE RESOURCE DIRECTORYKNOWYOURTOOLS!MORTGAGE.CAR.ORG

OUTLOOK


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mortgage.car.org

OUTLOOK

THETRUTH


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There will be

enough transactions

in 2 15 for you to

have a great year


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Documents

2015 California Economic & Market Forecast