THE RESIDENTIAL ECONOMIC REPORT - Metrostudy information for the residential economic report ... 10.4% $395,408 $358,091 $339,313 1,647sf 1,623sf 1,664sf $243.73 $222.62 $207.55 $

THE RESIDENTIAL ECONOMIC REPORTState of California 4TH Quarter 2015

I N T R O D U C T I O N

www.RealEstateEconomics.com

Real Estate Economics is dedicated to providing reports that help you make accurate and effective judgments regarding theopportunities and risks associated with residential real estate. A clear understanding of market trends and forecasts arepresented,as well as the economic, socio-economic and demographic underpinnings that create those trends and forecasts.

This report will enable you to quickly understand the direction of a given housing market and will give you insight to future priceappreciation, competitive levels, housing over/under supply patterns and special opportunities relative to lending, investingand/or developing residential real estate.

Sincerely,REAL ESTATE ECONOMICS

Mark [email protected]/Owner

EXECUTIVE SUMMARY

STATEWIDE HOUSING MARKET SUMMARYSTATEWIDE TRANSACTIONS MAPSSTATEWIDE HOUSING MARKET TRENDSTRUE MEASURES OF PRICE APPRECIATION

STATEWIDE ECONOMIC AND HOUSING CONSTRUCTION TRENDS AND FORECASTSSTATEWIDE EMPLOYMENT TRENDS AND FORECASTSSTATEWIDE EMPLOYMENT BY INDUSTRYHOUSING CONSTRUCTION TRENDS & FORECASTSMORTGAGE RATE TRENDS & FORECASTSHOUSING PRICE TRENDS & FORECASTSHOUSEHOLD INCOME TRENDS & FORECASTSPOPULATION TRENDS & FORECASTSFOREIGN DEMAND

STATEWIDE HOUSING SUPPLY / DEMAND AND OVER / UNDER VALUATION PATTERNS AND FORECASTS

HOUSING SUPPLY AND DEMAND TRENDS AND FORECASTSHOUSING VALUE AND AFFORDABILITY TRENDS AND FORECASTSRESIDENTIAL MARKET OPPORTUNITY/RISK INDEX

ORDER INFORMATION FOR THE RESIDENTIAL ECONOMIC REPORT

T A B L E O F C O N T E N T S

THE RESIDENTIAL ECONOMIC REPORTState of California 4TH Quarter 2015

www.RealEstateEconomics.com

E X E C U T I V E S U M M A R Y

OPPORTUNITIES• A measured 5.6% YOY price appreciation rate has been

accompanied by increases in YOY sales volume – healthy signs for expanding market strength which will be enhanced during Year 2016 by continued low gas prices.

• With over 418,000 jobs being created during the past 12 months, the economic expansion will continue to fuel strong demand for new housing. Job growth is forecast to remain strong through Year 2016, weakening thereafter, but remaining positive through Year 2020.

• A total of 5.7 jobs are being created for every house built in California. The current jobs-to-housing ratio is far higher than the long-term equilibrium level of 1.11 jobs-to-1.0 house. Housing demand is growing much faster than housing supply, resulting in continued rapid depletion of distressed housing and increasing ‘spillover’ demand to interior markets.

• All super sectors of the California economy grew during the past 12 months, with especially strong growth in Professional and Business services, Leisure & Hospitality, Trade, Educational and Health services, and Givernment. Construction jobs are beginning to grow rapidly, and Government jobs are now being added to what has been private sector-driven economic growth.

• By Year-end 2015, California’s housing market will be 2.3% underbuilt, with an under supply of 315,999 homes. By Year 2018, under supply will peak. Chronic under supply will keep prices at a high plateau.

• Despite strong price appreciation in most California markets during the past 24 months (mainly during Year 2013), under valuation of housing is still evident – being caused by a continuation of record low mortgage costs and increasing household incomes. Indeed, under valuation may remain evident through Year 2017 – mostly in inland markets.

CHALLENGES• California’s population is getting older and less mobile. An

older demographic translates to reduced mobility, which reduces existing home listings (supply), but also reduces demand via lower housing turnover.

• Select California coastal markets are increasingly gentrifying, resulting in a displacement or ‘pushing out’ of the younger demographic needed to fuel job growth in coastal markets. The result is greater congestion from commuters and higher wage pressures to draw in needed workers.

• With increasing CEQA legal actions, water (drought) issues, and infrastructure/congestion issues, land development opportunities will remain challenging in all areas of California.

• Under/Over valuation of housing is determined via an examination of current mortgage cost-to-household income ratios with the long-term norm. Based on these relationships, housing in California will become over valued by Year 2018, and may become dangerously over valued by or before Year 2019. Affordability relative to the economy will need to be monitored carefully – at least on a quarterly basis – to understand the best land buy/sell and development decisions.

CONCLUSIONBased upon most recent economic, socio-economic and demographic conditions and forecasts for the State of California, strong land purchase and housing development opportunities are widespread throughout the State. Caution begins to emerge by Year 2018. Careful quarterly monitoring of affordability issues will be crucial in planning and development of housing sites throughout the State.

STATEWIDE HOUSING MARKET SUMMARY

STATEWIDE TRANSACTIONS MAPS

September 2015

This map presents a comparison of all

transactions that have occurred in California by

type and magnitude.

STATEWIDE HOUSING MARKET TRENDS

Current One Yr. Two Yrs. Current One Yr. Two Yrs. Current One Yr. Two Yrs. Current One Yr. Two Yrs.Number % Number % Number % Period Ago Ago Period Ago Ago Period Ago Ago Period Ago Ago

ALL SALES TRANSACTIONS 39,292 100% 35,880 100% 37,084 100% $536,268 $519,931 $481,171 1,731sf 1,772sf 1,780sf $315.15 $297.30 $272.34 $407,733 $394,457 $370,8409.5% -3.2% - 3.1% 8.1% - -2.3% -0.5% - 6.0% 9.2% - 3.4% 6.4% -

Resale (Owner-to-Owner) 33,397 80.0% 29,966 77.8% 29,977 73.7% $544,777 $533,790 $498,047 1,733sf 1,755sf 1,762sf $320.64 $308.02 $283.83 $410,414 $401,297 $379,001New (Builder-to-Owner) 3,054 7.3% 2,560 6.6% 2,898 7.1% $569,133 $557,047 $499,595 2,035sf 2,307sf 2,239sf $336.64 $250.57 $234.05 $423,253 $408,154 $382,719Foreclosure (Owner-to-Bank) 2,468 5.9% 2,630 6.8% 3,579 8.8% $353,901 $344,843 $320,650 1,660sf 1,633sf 1,618sf $214.61 $214.68 $199.88 - - - Foreclosure Sale (Bank-to-Owner) 2,841 6.8% 3,354 8.7% 4,209 10.4% $395,408 $358,091 $339,313 1,647sf 1,623sf 1,664sf $243.73 $222.62 $207.55 $351,140 $312,181 $296,262

31,789 80.9% 29,069 81.0% 29,966 80.8% $547,691 $533,225 $492,870 1,834sf 1,874sf 1,887sf $301.41 $285.02 $259.84 $414,961 $402,414 $378,4277,503 19.1% 6,811 19.0% 7,118 19.2% $488,245 $464,132 $432,602 1,329sf 1,349sf 1,345sf $368.63 $347.26 $322.78 $373,127 $355,621 $333,645

750sf 1,000sf 1,250sf 1,500sf 1,750sf 2,000sf 2,250sf 2,500sf 2,750sf 3,000sf 3,250sf 3,500sf 3,750sf 4,000sf 4,250sf 4,500sf 4,750sf 5,000sfSfd Price Line $175,000 $262,000 $348,000 $434,000 $520,000 $606,000 $692,000 $778,000 $864,000 $950,000 $1,036,000 $1,122,000 $1,209,000 $1,295,000 $1,381,000 $1,467,000 $1,553,000 $1,639,000Sfd $/Sq.Ft. $233.33 $262.00 $278.40 $289.33 $297.14 $303.00 $307.56 $311.20 $314.18 $316.67 $318.77 $320.57 $322.40 $323.75 $324.94 $326.00 $326.95 $327.80Condominium Price Line $292,000 $374,000 $455,000 $537,000 $619,000 $701,000 $783,000Condominium $/Sq.Ft. $389.33 $374.00 $364.00 $358.00 $353.71 $350.50 $348.00

Source: Real Estate Economics; RealtyTrac; County Recorders Office; Various Private Entities www.realestateeconomics.com© 2003-2015 Real Estate Economics

SUMMARY OF AREA TRANSACTIONS

Total Number Of Home Sales Average Unit Size Average $/Sq. Ft.One Year AgoCATEGORY

Foreclosure transactions are for information only, numbers are not included in any calculations.

Average Mortgage Amount

Sep '2015 STATE OF CALIFORNIA

Two Years Ago

MKT PRICE LINES

CondominiumSingle Family

BY TRANSACTION TYPE

% Change from Prev. Period

Current Period

BY TYPE OF PRODUCT

Average Sold Price

$481

,171

$519

,931

$536

,268

$272.34

$297.30

$315.15

$250

$260

$270

$280

$290

$300

$310

$320

$450,000

$460,000

$470,000

$480,000

$490,000

$500,000

$510,000

$520,000

$530,000

$540,000

$550,000

Sep '2013 Sep '2014 Sep '2015

Average Price and Price/Sq.Ft.

29,966 29,069 31,789

7,118 6,811 7,503

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Sep '2013 Sep '2014 Sep '2015

Housing Transaction Volume

SFD Condo

$370

,840

$394

,457

$407

,733

76% 77% 78%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

$350,000

$360,000

$370,000

$380,000

$390,000

$400,000

$410,000

$420,000

Sep '2013 Sep '2014 Sep '2015

Mortgage Amount and Loan-to-Value

0

1000

2000

3000

4000

5000

6000

7000

8000

< $100k �$100k-$200k

�$200k-$300k

�$300k-$400k

�$400k-$500k

�$500k-$600k

�$600k-$800k

�$800k-$1.0m

$1.0m+

Housing Transactions By Price Range

Two Years Ago One Year Ago Current Period

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

500 2500 4500 6500 8500 10500

Market Price Line

Resale New Sale Foreclosure Foreclosure Sale General Price Line

29977 2996633397

2898 2560 30543579 2630 24684209 3354 2841

0

5000

10000

15000

20000

25000

30000

35000

40000

Sep '2013 Sep '2014 Sep '2015

Housing Transaction Volume By Type

Resale New Foreclosure Fore. Sale

STATE OF CALIFORNIATRUE PRICE APPRECIATION MEASURES BY

1,000sf

1,500sf

2,000sf

2,500sf

3,000sf

3,500sf

4,000sf

HomeSalesSeptember2014 $299,70 $435,70 $571,70 $707,60 $843,60 $979,60 $1,115,HomeSalesSeptember2015 $316,70 $460,20 $603,70 $747,20 $890,60 $1,034, $1,177,%Appreciation 5.7% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6%

4%

6%

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

YOY%PRICEAPPRECIATIO

N

Source:RealEstateEconomics;RealtyTrac;CountyRecorder

SOLD

PRICEOFH

OME

TRUE MEASURES OF PRICE APPRECIATION

Year-over-year price appreciation or depreciation is never one number. Price change should be examined alongthe entire spectrum of unit size. Price change may be far different for entry level homes than for luxury homes.The above table and chart help in the examination and understanding of these shifts in price throughout the unitsize spectrum.

YEAR-OVER-YEAR PRICE LINE COMPARISONSSTATE OF CALIFORNIA

Home Home Sales % AppreciationSize September 2014September 2015 $$$ %

Based on Median Home Size1,547 sf $448,500 $473,700 $25,200 5.6%

Based on Range of Home Size1,000 sf $299,700 $316,700 $17,000 5.7%1,500 sf $435,700 $460,200 $24,500 5.6%2,000 sf $571,700 $603,700 $32,000 5.6%2,500 sf $707,600 $747,200 $39,600 5.6%3,000 sf $843,600 $890,600 $47,000 5.6%3,500 sf $979,600 $1,034,100 $54,500 5.6%4,000 sf $1,115,600 $1,177,600 $62,000 5.6%

Source: Real Estate Economics; RealtyTrac; County Recorder

TRUE PRICE APPRECIATION MEASURES BY

ECONOMIC ANDHOUSING CONSTRUCTION

TRENDS AND FORECASTS

STATEWIDE EMPLOYMENT TRENDS AND FORECASTS

These charts and tables present trends in jobs and unemployment since Year 1990, and a 5-year forecast in annual

job change.

CALIFORNIANOVEMBER 2015

Civilian Labor Force Civilian Employment Civilian Total Non-FarmYear Total Total Jobs 12 Month Change Jobless Rate Total Jobs

1990 14,824,351 - - 13,976,309 - - 5.7% 12,302,467 - - 1991 14,806,091 -18,260 -0.1% 13,671,931 -304,378 -2.2% 7.7% 12,183,275 -119,192 -1.0%1992 14,972,034 165,943 1.1% 13,587,866 -84,065 -0.6% 9.2% 11,925,575 -257,700 -2.1%1993 14,925,263 -46,771 -0.3% 13,521,116 -66,750 -0.5% 9.4% 11,815,450 -110,125 -0.9%1994 14,917,959 -7,304 0.0% 13,642,325 121,208 0.9% 8.6% 11,872,458 57,008 0.5%1995 14,909,345 -8,614 -0.1% 13,747,024 104,699 0.8% 7.8% 12,114,700 242,242 2.0%1996 15,084,434 175,088 1.2% 13,995,611 248,588 1.8% 7.2% 12,399,125 284,425 2.3%1997 15,450,944 366,510 2.4% 14,476,301 480,690 3.4% 6.3% 12,811,383 412,258 3.3%1998 15,805,041 354,098 2.3% 14,874,345 398,044 2.7% 5.9% 13,246,133 434,750 3.4%1999 16,078,439 273,397 1.7% 15,241,224 366,879 2.5% 5.2% 13,626,750 380,617 2.9%2000 16,508,839 430,400 2.7% 15,696,342 455,119 3.0% 4.9% 14,049,375 422,625 3.1%2001 16,760,311 251,472 1.5% 15,852,781 156,439 1.0% 5.4% 14,178,408 129,033 0.9%2002 16,880,438 120,127 0.7% 15,758,642 -94,139 -0.6% 6.6% 14,032,692 -145,717 -1.0%2003 16,900,388 19,950 0.1% 15,753,776 -4,866 0.0% 6.8% 14,012,433 -20,258 -0.1%2004 17,006,560 106,172 0.6% 15,954,040 200,264 1.3% 6.2% 14,179,292 166,858 1.2%2005 17,151,705 145,145 0.9% 16,229,460 275,420 1.7% 5.4% 14,443,850 264,558 1.9%2006 17,278,308 126,602 0.7% 16,436,770 207,310 1.3% 4.9% 14,742,317 298,467 2.1%2007 17,515,968 237,660 1.4% 16,579,470 142,700 0.9% 5.3% 14,858,975 116,658 0.8%2008 17,797,059 281,091 1.6% 16,505,246 -74,224 -0.4% 7.3% 14,685,717 -173,258 -1.2%2009 17,828,459 31,400 0.2% 15,842,503 -662,743 -4.0% 11.1% 13,850,708 -835,008 -5.7%2010 17,950,456 121,997 0.7% 15,758,143 -84,359 -0.5% 12.2% 13,652,675 -198,033 -1.4%2011 18,037,504 87,048 0.5% 15,928,564 170,420 1.1% 11.7% 13,763,642 110,967 0.8%2012 18,177,930 140,426 0.8% 16,298,474 369,910 2.3% 10.3% 14,149,492 385,850 2.8%2013 18,299,877 121,947 0.7% 16,668,770 370,296 2.3% 8.9% 14,624,408 474,917 3.4%2014 18,441,186 141,309 0.8% 17,058,304 389,534 2.3% 7.5% 15,055,717 431,308 2.9%

2015est 18,667,684 226,498 1.2% 17,533,455 475,151 2.8% 6.1% 15,503,125 447,408 3.0%2016prj 18,896,167 228,483 1.2% 18,044,858 511,403 2.9% 5.6% 15,964,058 460,933 3.0%2017prj 19,028,577 132,410 0.7% 18,408,367 363,508 2.0% 5.2% 16,285,642 321,583 2.0%2018prj 19,248,548 219,971 1.2% 18,651,942 243,575 1.3% 4.9% 16,501,142 215,500 1.3%2019prj 19,439,553 191,005 1.0% 18,809,050 157,108 0.8% 4.8% 16,640,133 138,992 0.8%2020prj 19,551,749 112,196 0.6% 18,888,567 79,517 0.4% 4.9% 16,710,483 70,350 0.4%

Source: Bureau of Labor Statistics; Real Estate Economics

12 Month Change12 Month Change

TOTAL NONFARM JOBS

CALIFORNIATotal Non-Farm

12,302

,467

12,183

,275

11,925

,575

11,815

,450

11,872

,458

12,114

,700

12,399

,125

12,811

,383

13,246

,133

13,626

,750

14,049

,375

14,178

,408

14,032

,692

14,012

,433

14,179

,292

14,443

,850

14,742

,317

14,858

,975

14,685

,717

13,850

,708

13,652

,675

13,763

,642

14,149

,492

14,624

,408

15,055

,717

15,503

,125

15,964

,058

16,285

,642

16,501

,142

16,640

,133

16,710

,483

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015est

2016prj

2017prj

2018prj

2019prj

2020prj

5-Year Forecast

CALIFORNIATotal Non-Farm 12-Month Change

-119

,192

-257

,700

-110

,125

57,008

242,24

228

4,42

541

2,25

843

4,75

038

0,61

742

2,62

512

9,03

3-145

,717

-20,25

816

6,85

826

4,55

829

8,46

711

6,65

8-173

,258

-835

,008

-198

,033

110,96

738

5,85

047

4,91

743

1,30

844

7,40

846

0,93

332

1,58

321

5,50

013

8,99

270

,350

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015est

2016prj

2017prj

2018prj

2019prj

2020prj

5-Year Forecast

STATEWIDE EMPLOYMENT BY INDUSTRY

The total job base by industry, and the 12-month job change in these industries are shown on these charts.

CALIFORNIATotal Employment by Super Sector

September 2015 Total NonFarm Jobs by Industry

© Copyright 2003-2014 Real Estate EconomicsSource: Bureau of Labor Statistics; Real Estate Economics

22,400665,100

1,282,1002,810,100

459,500754,200

2,396,6002,425,500

1,804,700537,900

2,335,700

0 1,000,000 2,000,000 3,000,000

NaturalResourcesandMiningConstruction

ManufacturingTrade,Transportation,andUtilities

InformationFinancialActivities

ProfessionalandBusinessServicesEducationalandHealthServices

LeisureandHospitalityOtherServicesGovernment

CALIFORNIAMSA 12-Month Employment Change by Super Sector

September 2015 Twelve Month Change

© Copyright 2003-2014 Real Estate EconomicsSource: Bureau of Labor Statistics; Real Estate Economics

-3,50031,800

16,90064,000

11,2003,600

102,20062,300

77,80010,000

39,600

-20,000 0 20,000 40,000 60,000 80,000 100,000 120,000

NaturalResourcesandMiningConstruction

ManufacturingTrade,Transportation,andUtilities

InformationFinancialActivities

ProfessionalandBusinessServicesEducationalandHealthServices

LeisureandHospitalityOtherServicesGovernment

Change in Jobs by IndustryCALIFORNIA

% ofIndustry # of Jobs Nonfarm Number %

Total Nonfarm 15,537,100 100.0% +418,400 2.8%Natural Resources and Mining 22,400 0.1% (3,500) -13.5%Construction 665,100 4.3% +31,800 5.0%Manufacturing 1,282,100 8.3% +16,900 1.3%Trade, Transportation, and Utilities 2,810,100 18.1% +64,000 2.3%Information 459,500 3.0% +11,200 2.5%Financial Activities 754,200 4.9% +3,600 0.5%Professional and Business Services 2,396,600 15.4% +102,200 4.5%Educational and Health Services 2,425,500 15.6% +62,300 2.6%Leisure and Hospitality 1,804,700 11.6% +77,800 4.5%Other Services 537,900 3.5% +10,000 1.9%Government 2,335,700 15.0% +39,600 1.7%

© 2015 Real Estate EconomicsSource: Bureau of Labor Statistics; Real Estate Economics

September 2015 September 2014 to September 2015

HOUSING CONSTRUCTION TRENDS & FORECASTS

Residential building permit levels reached all-time lows during recession years.

During recovery years, increasing permit activity has increased residential construction and supply levels, but the changes have been gradual.

Though housing supply will continue to gradually increase, legal actions, no-growth policies, drought conditions, higher costs and other factors have kept housing supply from increasing more rapidly.

ANNUAL RESIDENTIAL PERMIT ACTIVITYCALIFORNIA

NOVEMBER 2015

0

50,000

100,000

150,000

200,000

250,000

19901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015est2016prj2017prj2018prj2019prj2020prj

SingleFamily Multi-Family Total

5-Year Forecast

12-MONTH CHANGE IN TOTAL HOUSING SUPPLYCALIFORNIA

NOVEMBER 2015

180,52

412

3,76

710

8,57

497

,051

98

,761

94

,142

99

,187

11

2,20

913

2,00

813

9,79

413

9,44

814

0,45

615

2,13

117

9,20

919

3,45

619

0,04

014

6,90

210

2,32

362

,525

38

,639

35

,707

41

,025

53

,907

69

,916

78

,449

93

,869

10

9,20

811

9,38

412

6,86

713

1,00

3

0

50,000

100,000

150,000

200,000

250,000


5-Year Forecast

MORTGAGE RATE TRENDS & FORECASTS

Recent years have proven to be some of the lowest years in mortgage rates in history. Mortgage rates is likely to begin to rise slowly but erratically during Year 2015. Mortgage rates are expected to rise slowly as the Federal Reserve continues to effectively manage monetary policy, and as market forces are gradually allowed to more fully impact rates as the national economy continues to improve.

Lending practices remain overly restricted – especially for 3rd time buyers, but regulations are loosening. Regulations will likely remain in place that prevent the overly lax lending standards that contributed to the past housing bubble and subsequent recession.

30-YEAR FIXED RATE MORTGAGESFL NATIONAL AVERAGES

NOVEMBER 201510

.1%

9.2%

8.4%

7.3%

8.4%

8.0%

7.8%

7.6%

6.9%

7.4%

8.1%

7.0%

6.6%

5.8%

5.8%

5.9%

6.4%

6.3%

6.0%

5.0%

4.7%

4.4%

3.7%

4.0%

4.2%

3.9%

4.4%

4.9%

5.5%

6.0%

6.1%

0%

2%

4%

6%

8%

10%

12%


5-Year Forecast

TRENDS IN FIXED RATE AND ADJUSTIBLE RATE MORTGAGESFL NATIONAL AVERAGES

Source: Freddie MacSource: Freddie Mac; Real Estate Economics

3.98

3.203.032.65

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

Jan-10

Apr-1

0

Jul-1

0

Oct-10

Jan-11

Apr-1

1

Jul-1

1

Oct-11

Jan-12

Apr-1

2

Jul-1

2

Oct-12

Jan-13

Apr-1

3

Jul-1

3

Oct-13

Jan-14

Apr-1

4

Jul-1

4

Oct-14

Jan-15

Apr-1

5

Jul-1

5

Oct-15

Jan-16

30-YearFixed 15-YearFixed 5-YearARM 1-YearARM

(Percent)

HOUSING PRICE TRENDS & FORECASTS

These charts show trends, changesand forecasts in the median price ofhousing. Though not an exactmeasure of price appreciation, thechange in the median price is a strongproxy for price appreciation.

Though price appreciation will remainhealthy during Year 2015, strong priceappreciation that was evident duringthe first two years of market recoverywill not be repeated. This is not dueto worsening market conditions orreduced housing demand, but rather itis caused by reduced affordability. Asthe market reaches equilibrium interms housing costs relative toincomes, price appreciation must slow– at least in a normal economic cycle.The current economic cycle is likely toexhibit more normalcy than pastrecent cycles.

MEDIAN ANNUAL HOME PRICECALIFORNIA

NOVEMBER 2015

Source: National Association of Realtors; RealtyTrac; various county recorders off ices; Real Estate Economics

$189

,539

$1

92,617

$1

89,657

$1

83,648

$1

80,927

$1

77,842

$1

78,927

$1

88,987

$2

06,415

$2

29,777

$2

68,746

$2

89,516

$3

32,904

$3

81,280

$4

71,519

$5

33,022

$5

53,532

$5

47,072

$3

98,995

$3

39,807

$3

56,499

$3

39,683

$3

75,253

$4

34,804

$4

61,360

$4

85,450

$5

04,417

$5

16,900

$5

25,433

$5

32,433

$5

35,608

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000


5-Year Forecast

ANNUAL CHANGES IN MEDIAN HOME PRICESCALIFORNIA

NOVEMBER 2015

FORECAST PRICE APPRECIATIONCALIFORNIA

Source: National Association of Realtors; RealtyTrac; various county recorders off ices; Real Estate Economics

1.6%

-1.5% -3.2%

-1.5%

-1.7%

0.6%5.6% 9.

2% 11.3% 17

.0%

7.7%

15.0%

14.5%23

.7%

13.0%

3.8%

-1.2%

-27.1%

-14.8%

4.9%

-4.7%

10.5% 15.9%

6.1%

5.2%

3.9%

2.5%

1.7%

1.3%

0.6%

-30%

-20%

-10%

0%

10%

20%

30%


5-Year Forecast

HOUSEHOLD INCOME TRENDS & FORECASTSUpward pressures on household incomes will remain apparent as the unemployment rate continues to fall. CALIFORNIA

NOVEMBER 2015

Median Time Household 12-Month Change

Period Income # %

1990 $36,225 - -1991 $37,015 $789 2.2%1992 $37,948 $933 2.5%1993 $38,951 $1,003 2.6%1994 $39,989 $1,038 2.7%1995 $40,731 $742 1.9%1996 $42,086 $1,355 3.3%1997 $43,849 $1,763 4.2%1998 $45,377 $1,528 3.5%1999 $46,772 $1,395 3.1%2000 $48,285 $1,513 3.2%2001 $49,555 $1,271 2.6%2002 $50,854 $1,298 2.6%2003 $51,842 $988 1.9%2004 $53,025 $1,183 2.3%2005 $55,011 $1,986 3.7%2006 $58,159 $3,148 5.7%2007 $60,440 $2,281 3.9%2008 $60,063 ($377) -0.6%2009 $58,370 ($1,693) -2.8%2010 $57,515 ($855) -1.5%2011 $57,764 $249 0.4%2012 $59,181 $1,417 2.5%2013 $62,609 $3,427 5.8%2014 $64,200 $1,591 2.5%

2015est $66,900 $2,700 4.1%2016prj $69,300 $2,400 3.5%2017prj $72,200 $2,900 4.1%2018prj $75,200 $3,000 4.2%2019prj $78,400 $3,200 4.2%2020prj $81,600 $3,200 4.1%

Source: Census Bureau; American Facts; Bureau of Labor Statistics; Real Estate Economics

MEDIAN HOUSEHOLD INCOME

MEDIAN HOUSEHOLD INCOMECALIFORNIA

NOVEMBER 2015

$36,22

5$3

7,01

5$3

7,94

8$3

8,95

1$3

9,98

9$4

0,73

1$4

2,08

6$4

3,84

9$4

5,37

7$4

6,77

2$4

8,28

5$4

9,55

5$5

0,85

4$5

1,84

2$5

3,02

5$5

5,01

1$5

8,15

9$6

0,44

0$6

0,06

3$5

8,37

0$5

7,51

5$5

7,76

4$5

9,18

1$6

2,60

9$6

4,20

0$6

6,90

0$6

9,30

0$7

2,20

0$7

5,20

0$7

8,40

0$8

1,60

0

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000


5-Year Forecast

CALIFORNIA CALIFORNIA

Source: Real Estate Economics; EASI; Census Bureau; Bureau of Labor.

CHANGE IN HOUSEHOLDS BY INCOME RANGE

-25,000

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

<$50k $50k-$100k $100k-$150k $150k-$200k $200k+

Changein

Hou

seho

lds

2010-2015 2015-2020

POPULATION TRENDS & FORECASTS

Though most housing demand will continue to originate from the 25 to 54 year age ranges, the ‘baby boomer’ bulge in population will continue to greatly enhance opportunities for age qualified and age-targeted housing communities and/or age-targeted home designs.

Though mature market housing demand will continue at strong levels, it will not increase to the same degree as the population surge between the ages of 55 and 74 years due to lower household mobility rates associated with these older age groups.

CALIFORNIA


POPULATION SHARES

0%

2%

4%

6%

8%

10%

12%

14%

16%

0to5Years

6to11Years

12to17Years

18to24Years

25to34Years

35to44Years

45to54Years

55to64Years

65to74Years

75to84Years

85+Years

Popu

latio

nShares

Census2000 Census2010 Estimate2015e Forecast2020f

CALIFORNIA CALIFORNIA


AVERAGE ANNUAL POPULATION CHANGES 2015 TO 2020

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0to5Years

6to11Years

12to17Years

18to24Years

25to34Years

35to44Years

45to54Years

55to64Years

65to74Years

75to84Years

85+Years

Avg.Ann

ualPo

pulatio

nCh

ange

Foreign born households have significantlyincreased their representation for totalhouseholds as owners and renters ofresidential real estate. These householdsaccount for approximately 7% of all residentialpurchases for the 12 months ending March2014.

States attracting the majority of international buyers:

Florida CaliforniaTexasArizonaNew York

Median price of international sales - $396,180

Percentage of all cash sales – 60%

Intended use of property:Primary residence – 42%Rental / Investment – 19%Vacation home – 14%

International buyers strongly prefer single-family homes over townhomes or otherattached product.

STATEWIDE HOUSING SUPPLY/DEMAND AND

OVER/UNDER VALUATION PATTERNS AND FORECASTS

The patterns of housing oversupply and under supply arebased upon a comparisonbetween a given year’s ratio ofjobs and housing relative to thelong-term trend. Duringrecessionary years, employmentlosses produced a conditionwhereby the existing housingstock was too large in comparisonto the employment base,contributing to price degradation.

Employment gains since therecession have caused housingdemand to grow at a faster ratethan housing supply, recentlyovertaking supply and leading toshortages that will becomeincreasingly apparent as the cyclematures.

HOUSING SUPPLY AND DEMAND TRENDS AND FORECASTSCALIFORNIA

* Over/Under supply measures based on current jobs-to-housing relationship relative to long-term relationship betw een jobs and housing. Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics

HOUSING DEMAND AND SUPPLY PATTERNS

10,500,000

11,500,000

12,500,000

13,500,000

14,500,000

15,500,000

16,500,000

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16prj

Jan-17prj

Jan-18prj

Jan-19prj

Jan-20prj

Jan-21prj

UnitsDem

and/Su

pplied

TotalHousingSupply TotalHousingDemand

5-Year Forecast

CALIFORNIA

* Over/Under supply measures based on current jobs-to-housing relationship relative to long-term relationship betw een jobs and housing. Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics

OVE

R B

UIL

T

HOUSING (OVER)/UNDER SUPPLY PATTERNS

UN

DER

BU

ILT

(1,500,000)

(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

Jan-

90Ja

n-91

Jan-

92Ja

n-93

Jan-

94Ja

n-95

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Jan-

12Ja

n-13

Jan-

14Ja

n-15

Jan-

16Ja

n-17

Jan-

18Ja

n-19

Jan-

20Ja

n-21

5-Year Forecast

‘Supportable Median Home Price’ (shownby the green curve) is derived fromequilibrium housing costs based upon the40-year trend line between housing valuesand household incomes. ‘Historical/Forecast Median Home Price’ (shown bythe blue curve) is compared with supportablemedian prices to measure the degree ofover/under valuation.

Though some under valuation was evident inthe mid- to late 1990s, over valuationbecame increasingly apparent during the2003-2006 unsubstantiated run-up in pricescaused by extremely loose regulations andvery lax lending standards. The resultanteconomic and housing crisis causedartificially high housing prices to plummet,creating under valuation during recessionaryyears that was almost as significant as overvaluation during the peak of the previouscycle.

Currently, housing prices are not yet inflatedto a significantly ‘over valued’ status, buthousing over valuation is likely to appearsoon, albeit at much reduced levels relativeto the previous ‘bubble.’

HOUSING VALUE AND AFFORDABILITY TRENDS AND FORECASTSCALIFORNIA

Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics

HOUSING VALUATION PATTERNS

$150,000$175,000$200,000$225,000$250,000$275,000$300,000$325,000$350,000$375,000$400,000$425,000$450,000$475,000$500,000$525,000$550,000$575,000$600,000

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16prj

Jan-17prj

Jan-18prj

Jan-19prj

Jan-20prj

Jan-21prj

Med

ianHo

usingValue

Historical/ForecastHomePrice IncomeSupportedHomePrice

5-Year Forecast

HOUSING (OVER)/UNDER VALUATION PATTERNSCALIFORNIA

* Over/Under valuation based on value of housing (inclusive of mortgage rates) relative to long-term relationship betw een housing value & household incomes. Source: Bureau of Labor Statistics; Census Bureau; National Assoc. of Realtors; Real Estate Economics

OVE

R V

ALU

EDU

ND

ER V

ALU

ED

($250,000)

($200,000)

($150,000)

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

$200,000

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-21

5-Year Forecast

The above table arrays historical trends and a 5-year forecast of housing over/under supply patterns and housing over/undervaluation patterns. From these patterns, a composite ‘Opportunity/Risk’ index is created which effectively predicts marketconditions about 24 months from the index date. Thus, a very weak index of 92.0 at the peak of the 2005 ‘bubble’ was gave astrong and clear signal to sell land assets. The stable to strong indexes which have been apparent since Year 2008 implied thatYear 2010 (24+ months after the 2008 index) would be the ideal land purchasing window, despite the fact that full recovery wasnot yet evident in Year 2010. The most recent index offers a clear indication that land purchasing and development opportunitiescontinue, though some caution becomes evident in the latter years of the forecast.

RESIDENTIAL MARKET OPPORTUNITY/RISK INDEXRESIDENTIAL MARKET OPPORTUNITY/RISK INDEX

CALIFORNIANOVEMBER 2015

Housing Housing Market is Over/ Average Ann. Price Equilibrium 30-Yr. Median Market is Under/ O/R Index Mkt. Health Buy/SellYear Demand Supply (Under) Built Home Price Change Home Price Mtg. Rate HH Income (Over) Valued (100=Equil.) in ~ 24 Mos. Land

1990 11,548,354 11,155,596 392,757 3.5% Underbuilt $189,539 - $160,917 10.13% $36,225 ($28,622) (15.1%) Overvalued 97.9 Weak Sell1991 11,426,973 11,336,121 90,852 0.8% Underbuilt $192,617 1.6% $177,157 9.25% $37,015 ($15,460) (8.0%) Overvalued 98.2 Weak Sell1992 11,175,952 11,459,887 (283,936) (2.5%) Overbuilt $189,657 (1.5%) $195,711 8.40% $37,948 $6,054 3.2% Undervalued 99.2 Stable Buy/Sell1993 11,063,548 11,568,461 (504,913) (4.4%) Overbuilt $183,648 (3.2%) $222,194 7.33% $38,951 $38,545 21.0% Undervalued 103.2 Stable Buy/Sell1994 11,107,690 11,665,512 (557,821) (4.8%) Overbuilt $180,927 (1.5%) $206,774 8.36% $39,989 $25,847 14.3% Undervalued 100.9 Stable Buy/Sell1995 11,324,929 11,764,273 (439,344) (3.7%) Overbuilt $177,842 (1.7%) $218,251 7.96% $40,731 $40,409 22.7% Undervalued 104.2 Strong Buy1996 11,581,190 11,858,416 (277,225) (2.3%) Overbuilt $178,927 0.6% $227,969 7.81% $42,086 $49,042 27.4% Undervalued 106.6 Strong Buy1997 11,956,342 11,957,603 (1,261) (0.0%) Overbuilt $188,987 5.6% $241,932 7.60% $43,849 $52,945 28.0% Undervalued 108.4 Strong Buy1998 12,351,856 12,069,812 282,044 2.3% Underbuilt $206,415 9.2% $266,429 6.94% $45,377 $60,014 29.1% Undervalued 110.4 Very Strong Buy1999 12,696,281 12,201,819 494,462 4.1% Underbuilt $229,777 11.3% $261,371 7.43% $46,772 $31,594 13.7% Undervalued 107.0 Strong Buy2000 13,079,222 12,341,614 737,608 6.0% Underbuilt $268,746 17.0% $253,283 8.06% $48,285 ($15,463) (5.8%) Overvalued 102.5 Stable Buy/Sell2001 13,188,501 12,481,062 707,439 5.7% Underbuilt $289,516 7.7% $288,535 6.97% $49,555 ($982) (0.3%) Overvalued 103.9 Strong Buy2002 13,042,181 12,621,517 420,664 3.3% Underbuilt $332,904 15.0% $308,435 6.57% $50,854 ($24,469) (7.4%) Overvalued 100.1 Stable Buy/Sell2003 13,012,630 12,773,648 238,981 1.9% Underbuilt $381,280 14.5% $338,420 5.85% $51,842 ($42,860) (11.2%) Overvalued 97.9 Weak Sell2004 13,156,713 12,952,857 203,856 1.6% Underbuilt $471,519 23.7% $345,650 5.84% $53,025 ($125,869) (26.7%) Overvalued 93.1 Weak Sell2005 13,391,164 13,146,313 244,851 1.9% Underbuilt $533,022 13.0% $356,927 5.87% $55,011 ($176,095) (33.0%) Overvalued 91.4 Weak Sell2006 13,656,662 13,336,352 320,310 2.4% Underbuilt $553,532 3.8% $355,483 6.41% $58,159 ($198,050) (35.8%) Overvalued 90.9 Weak Sell2007 13,753,442 13,483,255 270,187 2.0% Underbuilt $547,072 (1.2%) $371,380 6.34% $60,440 ($175,692) (32.1%) Overvalued 91.8 Weak Sell2008 13,581,933 13,585,577 (3,644) (0.0%) Overbuilt $398,995 (27.1%) $380,507 6.04% $60,063 ($18,488) (4.6%) Overvalued 98.6 Stable Buy/Sell2009 12,799,203 13,648,102 (848,899) (6.2%) Overbuilt $339,807 (14.8%) $411,801 5.04% $58,370 $71,994 21.2% Undervalued 100.6 Stable Buy/Sell2010 12,605,819 13,686,741 (1,080,922) (7.9%) Overbuilt $356,499 4.9% $421,929 4.69% $57,515 $65,430 18.4% Undervalued 98.7 Stable Buy/Sell2011 12,697,867 13,722,448 (1,024,581) (7.5%) Overbuilt $339,683 (4.7%) $435,458 4.45% $57,764 $95,775 28.2% Undervalued 101.4 Stable Buy/Sell2012 13,043,022 13,763,473 (720,452) (5.2%) Overbuilt $375,253 10.5% $489,515 3.66% $59,181 $114,263 30.4% Undervalued 103.7 Strong Buy2013 13,472,699 13,817,380 (344,681) (2.5%) Overbuilt $434,804 15.9% $497,188 3.98% $62,609 $62,385 14.3% Undervalued 102.6 Stable Buy/Sell2014 13,869,584 13,887,297 (17,712) (0.1%) Overbuilt $461,360 6.1% $517,609 4.17% $66,707 $56,248 12.2% Undervalued 103.6 Strong Buy

2015est 14,281,745 13,965,746 315,999 2.3% Underbuilt $485,450 5.2% $557,654 3.87% $69,277 $72,204 14.9% Undervalued 106.0 Strong Buy2016prj 14,706,364 14,059,614 646,750 4.6% Underbuilt $504,417 3.9% $543,712 4.39% $71,925 $39,295 7.8% Undervalued 105.6 Strong Buy2017prj 15,002,612 14,168,822 833,790 5.9% Underbuilt $516,900 2.5% $533,647 4.90% $74,932 $16,747 3.2% Undervalued 105.1 Strong Buy2018prj 15,201,135 14,288,206 912,929 6.4% Underbuilt $525,433 1.7% $518,791 5.52% $78,096 ($6,642) (1.3%) Overvalued 104.1 Strong Buy2019prj 15,329,176 14,415,073 914,103 6.3% Underbuilt $532,433 1.3% $513,294 5.99% $81,348 ($19,140) (3.6%) Overvalued 103.4 Stable Buy/Sell2020prj 15,393,984 14,546,075 847,908 5.8% Underbuilt $535,608 0.6% $528,385 6.10% $84,679 ($7,223) (1.3%) Overvalued 103.7 Strong Buy

TheCompositeOpportunity/Risk(O/R) Index isdefinedasacompositeindexoftheJobs-to-HousingIndexandtheMortgageCost-to-IncomeIndex.ACompositeIndexof100.0=Equilibrium.Indexesabove100.0representstrongoverallmarketopportunity12to18monthsafter the100.0+indexoccurs.Indexesbelow100.0denotetheoppositecase.TheCompositeIndexleadsactualmarketchangesby12to18months.Forexample,theCompositeIndexforJuly'06describesconditionsinmidtolate'07,not July'06.

TheJobs-to-HousingIndex isdefinedasanindexofaratiobetweenthetotalmeasureofNonfarmjobsandthetotalmeasureofhousingofalltypesinagivenregionforagivenmonth,asitcomparestoREE'smeasureoflong-termequilibrium.Forexample,atotaljobs-to-totalhousingratioof1.2-to-1.0(1.2jobsforeveryhouseintheregion)wouldgenerateaJobs-to-HousingIndexof109.1ifthelong-termjobs-to-housingequilibriumpointwasdefinedas1.1-to-1.0(1.2dividedby1.1x100equalsanIndexof109.1).Indexesabove100.0defineperiodswherethereareexcess jobsrelativetohomes(strongdemand).Indexesbelow100.0denotetheopposite.

TheMortgageCost-to-HouseholdIncomeIndex isdefinedasanindexofaratiobetweenestimatedannualmortgagecostsandmedianhouseholdincomeforagivenregioninagivenmonth,asitcomparestoREE'smeasureoflong-termequilibrium.Forexample,atotalcost-to-incomeratioof$0.25-to-$1.0($0.25ofmortgagecostforeverydollarofincome)wouldgenerateaCost-to-IncomeIndexof112.0ifthelong-termcost-to-incomeequilibriumpointwasdefinedas$0.28-to-$1.0($0.28dividedby$0.25x100equalsanIndexof112.0).Indexesabove100.0defineperiodswheretherearehousingisunder valuedrelativetoincomes.Indexesbelow100.0denotetheopposite(overvaluation).

JobChange isdefinedasthechangeinNonfarmjobsmeasuredbytheUSDepartmentofLabor,with12-monthforecastsdefinedbyRealEstateEconomics.

HousingConstructionisdefinedasthechangeintotalhousingasmeasuredbytheUSBureauoftheCensus,withestimatesandforecastsdefinedbyRealEstateEconomics.

30-YearFixedMortgageInterestRateisdefinedasthecontractrateon30-year,fixedrateconventionalhomemortgagecommitmentsfromFHLMC,withforecastsdefinedbyRealEstateEconomics.

MedianPriceisdefinedasthemedianpriceofhousing,measuredbytheNationalAssociationofRealtors,withestimatesandforecastsdefinedbyRealEstateEconomics.

MedianHouseholdIncome isdefinedasthemedianhouseholdincomeforagivenregion,measuredbytheUSBureauoftheCensus,withestimatesandforecastsdefinedbyRealEstateEconomics.

RESIDENTIAL MARKET OPPORTUNITY/RISK INDEX REPORT

NOTES:

THE RESIDENTIAL ECONOMIC REPORT

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THE RESIDENTIAL ECONOMIC REPORT - Metrostudy information for the residential economic report ... 10.4% $395,408 $358,091 $339,313 1,647sf 1,623sf 1,664sf $243.73 $222.62 $207.55 $