2007 Real Estate Market Forecast · Homes Los Angeles Region 10.1% Riverside Region 18.2% Sacramento Region 16.6% San Diego Region 13.8% San Francisco Region 8.3% National Average

2007 Real Estate Market Forecast

October 18, 2006Leslie Appleton-Young

C.A.R. Vice President and Chief Economist

Overview

California Real Estate MarketWhat happened in 2006?Tipping Points/Market PsychologyEconomic Trends

Regional MarketsSouthern CaliforniaBay AreaCentral Valley

2007 Forecast2007 Market Opportunities

California Real Estate Market: 2006

THOUSANDS

0

100,000

200,000

300,000

400,000

500,000

600,000

700,00019

7019

7219

7419

7619

7819

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

06

0

50,000

100,000

150,000

200,000

250,000Home Sales Membership

California’s Housing Cycles and Membership1970-2007

California Market Stats: 2000-2005Four Year Housing Boom

2000 2001 2002 2003 2004 2005SFH Resales (thousands) 535.5 504.0 572.6 601.8 624.7 625.0

% Change -0.4% -5.9% 13.6% 5.1% 3.8% 0.04%Median Price ($ thousands) $241.4 $262.4 $316.1 $372.7 $450.8 $524.0

% Change 11.0% 8.7% 20.5% 17.9% 20.9% 16.2%

30 YR FRM 8.1% 7.0% 6.5% 5.8% 5.8% 5.9%

Rate of return 2.9% 1.7% 14.0% 12.1% 15.1% 10.3%

SOURCE: California Association of REALTORS®

This Time Last Year...

We talked about a soft landing for the CA housing market with a modest decline in home sales and slower price appreciation in 2006.

Demand would drop because of affordability constraints on first time buyers while more trade up buyers remained on the sidelines (equity, property taxes, low rate mortgage).

Inventories would increase as sellers sought to time the market peak while investors left the market.

We discredited the “bubble” scenario because the economy would be growing and mortgage rates would remain near all time lows . Historically, significant housing price declines are associated with economic downturns: job losses and/or high mortgage rates.

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Jan-

00A

pr-0

0Ju

l-00

Oct

-00

Jan-

01A

pr-0

1Ju

l-01

Oct

-01

Jan-

02A

pr-0

2Ju

l-02

Oct

-02

Jan-

03A

pr-0

3Ju

l-03

Oct

-03

Jan-

04A

pr-0

4Ju

l-04

Oct

-04

Jan-

05A

pr-0

5Ju

l-05

Oct

-05

Jan-

06A

pr-0

6Ju

l-06

0

20

40

60

80

100

120

140

160

Sales Consumer Confidence INDEXUNITS

California Sales of Existing Detached Homes:2000-2006August 2006 Sales: 422,150 Units, Down 23.4% Y-T-D, Down 30.1% Y-T-Y

SOURCE: California Association of REALTORS®; The Conference Board

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000Ja

n-00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

Median Price of Existing Detached HomesCalifornia, August 2006: $576,360, Up 1.6% Y-T-Y

May 2004: $463,320, Up 24.0% Y-T-Y


Median Price, Annual Percentage ChangeCalifornia vs. U.S.: 1970-2006

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

YEAR

California US

AN

NU

AL

PER

CEN

TAG

E C

HA

NG

E

Unsold Inventory Index

00.5

11.5

22.5

33.5

44.5

55.5

66.5

77.5

8

Jan-

00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

MONTHS

Average Since 1/88: 6.9 months

California, August 2006: 6.8 Months


Unsold Inventory Index vs. Price Changes

-6-4-202468

10121416182022

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

-p

% Change Annual Median Price Unsold Inv Index (months)Long Term Avg = 6.9 Months

California, 1982-2006


Listings by Month, Selected YearsCalifornia (1982-2005 Average=100)

0

20

40

60

80

100

120

140

160

180

200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

19831992200420052006


0

10

20

30

40

50

60

Jan-

00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

DAYS ON MARKET


Median Time on the MarketCalifornia Single-Family Homes, August 2006: 51.9 days

Delinquency and Foreclosure RatesCalifornia: 1974-2006

SOURCE: Mortgage Bankers Association

DELINQUENCY RATE

0%

1%

2%

3%

4%

5%

6%

7%

Q1/

74Q

1/75

Q1/

76Q

1/77

Q1/

78Q

1/79

Q1/

80Q

1/81

Q1/

82Q

1/83

Q1/

84Q

1/85

Q1/

86Q

1/87

Q1/

88Q

1/89

Q1/

90Q

1/91

Q1/

92Q

1/93

Q1/

94Q

1/95

Q1/

96Q

1/97

Q1/

98Q

1/99

Q1/

00Q

1/01

Q1/

02Q

1/03

Q1/

04Q

1/05

Q1/

06

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%Foreclosure Rate Delinquency Rate

FORECLOSURE RATE

Mortgage Type by Region

ARMS Sub-PrimeLos Angeles Region 63.0% 8.6%Riverside Region n/a 10.4%Sacramento Region 55.0% 6.8%San Diego Region 59.0% 4.8%San Francisco Region 72.0% 4.3%National Average 28.0% 10.1%

MSAShare of All Mortgages

Source: NAR 2006 Market-by-Market Home Price Analysis Reports

Share of Mortgages For Second Home Purchases

MSA Second Homes

Los Angeles Region 10.1%Riverside Region 18.2%Sacramento Region 16.6%San Diego Region 13.8%San Francisco Region 8.3%National Average 15.3%


66

68

70

72

74

76

78

80

82

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

FRMs ARMs

Loan-to-Value Ratio By Mortgage Type-FRMs vs ARMs-

Source: Federal Housing Finance Board

LTV

How Much Are Homeowners Spending on Housing?

Q1 2006Historical Average

Los Angeles Region 45.1% 33.3%Riverside Region 43.3% 29.1%Sacramento Region 31.7% 24.1%San Diego Region 45.0% 33.9%San Francisco Region 41.1% 35.4%National Average 22.0% 22.0%

Mortgage Debt Servicing Cost Ratio*MSA

* This ratio compares the monthly mortgage payment for a median-priced home financed at the prevailing mortgage rate to the median household income.


Housholds Earning…Annual Income

Monthly Income

Affordable PITI @ 30% Debt-Inc.

Ratio


Ratio


Ratio...200% of Median Income $108,300 $9,025 $2,707 $3,610 $4,512...150% of Median Income $81,200 $6,768 $2,031 $2,707 $3,384...125% of Median Income $67,700 $5,640 $1,692 $2,256 $2,820...Median Income $54,100 $4,512 $1,354 $1,805 $2,256...75% of Median Income $46,000 $3,835 $1,151 $1,534 $1,918

How Much of a Mortgage Payment Can Californians Afford?

$3,108

$4,142

$0

$1,000

$2,000

$3,000

$4,000

$5,00019

88

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

YTD

*

Monthly Mortgage PaymentsPrinciple, Interest, Taxes, & Insurance (PITI)

* Through August 2006

California vs U.S. Median Prices

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,00019

70

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

CaliforniaUS


2006 Housing Market Survey

0%

1%

2%

3%

4%

5%

6%

7%19

86

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

0

2

4

6

8

10

12

14

16Med. Price DiscountMed. Weeks on MLS

Median Price Discount And Weeks On Market

Q. What was the original list sales price of the property? What was the final sales price of the property? How many weeks did the property remain on the MLS?

2006: 2.7%, 6.4 weeks

73.5%

18.6%

0%10%20%30%40%50%60%70%80%90%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Single-Family Detached Condo/Townhome

Type of Residence

Note: Figures do not total 100% due to “other” types of homes sold.

Q. What type of residence was purchased?

Median DownpaymentSingle-Family Detached Vs. Condo/Town home

$78,500

$46,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


Q. What was the amount of downpayment?

$560,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

$550,000

$600,000

86 88 90 92 94 96 98 00 02 04 06

Median Sales Price Of Homes Sold In California

Q. What was the final sales price of the property?

$0$20,000$40,000

$60,000$80,000

$100,000$120,000

$140,000$160,000$180,000$200,000

$220,000$240,000

1989

1991

1993

1995

1997

1999

2001

2003

2005

Median Net Cash To Sellers

Q. What was the net cash gain or net loss to the seller as a result of this sale?

$202,000

70.1% 70.6% 74.0% 72.0%62.5%70.8%

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006

Percentage of Sellers Planning to Purchase Another Home

Q. Is the seller planning on purchasing another home?

Proportion of First-Time HomebuyersCalifornia: 1981 - 2006

27.1%

0%

10%

20%

30%

40%

50%

60%

81 83 85 87 89 91 93 95 97 99 01 03 05

Q. Was the buyer a first-time buyer?

Top Reasons For Buying HomeBy Region in California

Q. What was the single most important reason for selling/buying the property?

Southern California

Northern California

Rest Of California

Desired Larger Home 21% 26% 17%Investment/ Tax Consderations 19% 14% 22%Tired of Renting 18% 16% 17%Desired Better Location 14% 14% 21%Changed Jobs 7% 10% 4%Change in Family Status 7% 5% 1%Desired Smaller Home 3% 2% 2%Retirement/Move to Retirement Community 2% 2% 4%Other 10% 9% 11%Total 100% 100% 100%

Primary Reason for Buying: Investment/Tax Considerations

0%

5%

10%

15%

20%

25%19

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

06

• Source: CAR 2006 Housing Market Survey

18.3%

Median DownpaymentFirst-Time Homebuyers Vs. Repeat Homebuyers

$10,000

$100,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

First-Time Buyers Repeat Buyers

Q. What was the amount of downpayment?

Proportion of Transactions With Second Mortgages

43.4%

0%

10%

20%

30%

40%

50%

60%

81 83 85 87 89 91 93 95 97 99 01 03 05

Q. In addition to the first mortgage or assumption, was there a second mortgage?

Tipping Points

Key Factors

• Consumer Confidence• Mortgage rates• Rate of return• Prices• New construction

INDEX, 100=1985

40

50

60

70

80

90

100

110

120

130

140

150

Jan-

88

Jan-

89

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

Consumer Confidence IndexSeptember 2006: 104.5Aug ‘05 105.5 Sept ‘05 87.5

Unsold Inventory Index: 2000-2006

00.5

11.5

22.5

33.5

44.5

55.5

66.5

77.5

8

Jan-

00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

MONTHS

Average Since 1/88: 6.9 months

California, August 2006: 6.8 MonthsAug ‘05 2.6 m Sept ’05 3.4 m


Unsold Inventory Index:1988-2006California, August 2006: 6.8 Months

0

2

4

6

8

10

12

14

16

18

20

Jan-

88Ju

l-88

Jan-

89Ju

l-89

Jan-

90Ju

l-90

Jan-

91Ju

l-91

Jan-

92Ju

l-92

Jan-

93Ju

l-93

Jan-

94Ju

l-94

Jan-

95Ju

l-95

Jan-

96Ju

l-96

Jan-

97Ju

l-97

Jan-

98Ju

l-98

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06


MONTHS

Mortgage Rates and the Fed Funds Rate1991-2006

SOURCE: Federal Home Loan Mortgage Corporation

0%1%2%3%4%5%6%7%8%9%

10%

Jan-

91Ju

l-91

Jan-

92Ju

l-92

Jan-

93Ju

l-93

Jan-

94Ju

l-94

Jan-

95Ju

l-95

Jan-

96Ju

l-96

Jan-

97Ju

l-97

Jan-

98Ju

l-98

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

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Jan-

03Ju

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Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

FRM

ARM

5-Year Rate of Return on Median Price HomePurchased in Year Shown - Sold After 5 Years

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Annual Average: 11.3%

0

50,000

100,000

150,000

200,000

250,000

300,00019

88

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

*

Single Family Multi-Family

SOURCE: Construction Industry Research Board*2006 Projection from CBIA

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

New Housing PermitsCalifornia 1988-2006

Bay Area 9,293 11,712 13,706 13,432 15,327 14,201Central Valley 9,792 10,621 10,391 12,700 15,891 17,962Southern California 26,101 30,502 32,945 37,020 39,379 42,3163-RegionTotal 45,186 52,835 57,042 63,152 70,597 74,479

Bay Area 14,201 11,896 11,989 12,923 15,946 6,805Central Valley 17,962 20,881 23,493 26,692 27,154 10,399Southern California 42,316 50,029 51,551 61,682 64,762 32,9513-RegionTotal 82,806 87,033 101,297 107,862 116,653 50,155

20001999Region 1995 1996 1997 1998

2005 2006 YTD*Region 2001 2002 2003 2004

New Home SalesRegions

SOURCE: California Association of REALTORS®SOURCE: DataQuick Information Systems

* Thru Quarter 2 of 2006

Looking Ahead to 2007:

Positive Economic News

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

p

2007

f

2004: 4.2% 2005 3.5% 2006 3.4% 2007 2.9%ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $

Gross Domestic Product

YEAR TO YEAR % CHANGE

Employment GrowthCalifornia vs. U.S.

-2

-1

0

1

2

3

4

5

6

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

California US

Nonfarm Employment By Region

SOURCE: CA Employment Development Division

Nonfarm NonfarmEmployment Employment Percent

August-06 August-05 Change ChangeSouthern California 8,386.1 8,267.1 119 1.4%Bay Area 3,201.5 3,157.8 43.7 1.4%Central Valley 2,006.5 1,973.1 33.4 1.7%Central Coast 497.0 491.1 5.9 1.2%North Central 141.5 138.5 3 2.2%CALFORNIA 15,026.3 14,834.3 192 1.3%

(Thousands)

Share of Total Job GrowthSince 3rd Qtr of 2003

Housing23%

Retail and wholesale1

23%

Professional and business

services1

19%

Health care and social assistance

17%

Leisure and hospitality

16%

Other16%

Source: Moody’s Economy.comNote: 1Excluding housing

Dow Jones Stock Price30 Industrial Index: 1987-2006

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Jan-

87Ju

l-87

Jan-

88Ju

l-88

Jan-

89Ju

l-89

Jan-

90Ju

l-90

Jan-

91Ju

l-91

Jan-

92Ju

l-92

Jan-

93Ju

l-93

Jan-

94Ju

l-94

Jan-

95Ju

l-95

Jan-

96Ju

l-96

Jan-

97Ju

l-97

Jan-

98Ju

l-98

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Monthly Average

QUARTERLY PERCENT CHANGE

-3-2-1012345678

1Q-1

990

1Q-1

991

1Q-1

992

1Q-1

993

1Q-1

994

1Q-1

995

1Q-1

996

1Q-1

997

1Q-1

998

1Q-1

999

1Q-2

000

1Q-2

001

1Q-2

002

1Q-2

003

1Q-2

004

1Q-2

005

1Q-2

006

Personal Consumption2006 Q1: +5.5% 2006 Q2: +2.6%

Consumer Price Index: Energy Costs Falling

0%

2%

4%

6%

8%

10%

12%

14%

16%

Jan-

80Ja

n-81

Jan-

82Ja

n-83

Jan-

84Ja

n-85

Jan-

86Ja

n-87

Jan-

88Ja

n-89

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-

06

All ItemsCore

September 2006: All Items 2.1% YTY; Core 2.9% YTYPERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

Sept ‘06: Energy costs down 7.2%Sept ‘06: Gas prices down 13.5%

SOURCE: Federal Home Loan Mortgage Corporation –30-yr FRM, Federal Reserve Board – 10-Year T-Bond

30-Year FRM vs. 10-Year T-Bond

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Jan-

91Ju

l-91

Jan-

92Ju

l-92

Jan-

93Ju

l-93

Jan-

94Ju

l-94

Jan-

95Ju

l-95

Jan-

96Ju

l-96

Jan-

97Ju

l-97

Jan-

98Ju

l-98

Jan-

99Ju

l-99

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

FRM10-Year T-BondARM

Southern California Region

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Jan-

98A

pr-9

8Ju

l-98

Oct

-98

Jan-

99A

pr-9

9Ju

l-99

Oct

-99

Jan-

00A

pr-0

0Ju

l-00

Oct

-00

Jan-

01A

pr-0

1Ju

l-01

Oct

-01

Jan-

02A

pr-0

2Ju

l-02

Oct

-02

Jan-

03A

pr-0

3Ju

l-03

Oct

-03

Jan-

04A

pr-0

4Ju

l-04

Oct

-04

Jan-

05A

pr-0

5Ju

l-05

Oct

-05

Jan-

06A

pr-0

6Ju

l-06

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Sales Consumer Confidence INDEXUNITS

Sales of Existing Detached Homes and Pacific West Consumer Confidence

So Cal August 2006 Sales: 11,559 Units, Down 26.8% Y-T-Y, Down 20.9% Y-T-D


High Desert 1,095 1,011 1,452 8.3% -24.6% -13.4%Los Angeles 4,499 3,861 5,903 16.5% -23.8% -18.7%

1,578 1,500 2,336 5.2% -32.4% -29.1%Palm Springs 512 577 797 -11.3% -35.8% -10.4%

1,459 1,211 1,884 20.5% -22.6% -22.2%1,727 1,591 2,329 8.5% -25.8% -21.5%

196 155 243 26.5% -19.3% -26.8%493 491 845 0.4% -41.7% -30.1%

Y-t-DY-t-Y

San Diego

County Aug-06 Jul-06 Aug-05 M-t-M

Orange

Riverside/SB

VenturaSta. Barbara Area

Sales of Existing Detached Homes


Home Sales in Southern California Regions

0

1,000

2,000

3,000

4,000

5,000

6,000

HighDesert

LosAngeles

Orange PalmSprings

Rivers/SB SanDiego

SantaBarbara

Ventura

Aug-05Aug-06


$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000Ja

n-00

May

-00

Sep-

00

Jan-

01

May

-01

Sep-

01

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

Median Price of Existing Detached HomesSo Cal, August 2006: $549,990 Up 0.9% Y-T-Y


High Desert 332,897$ 333,333$ 305,702$ -0.1% 8.9%Los Angeles 589,736$ 581,145$ 564,341$ 1.5% 4.5%

698,084$ 710,915$ 716,305$ -1.8% -2.5%Palm Springs 355,327$ 357,715$ 371,025$ -0.7% -4.2%

407,403$ 409,091$ 385,263$ -0.4% 5.7%598,580$ 611,997$ 616,870$ -2.2% -3.0%

1,190,000$ 1,050,000$ 1,310,000$ 13.3% -9.2%Sta. Barbara-North Cnty. 453,488$ 455,101$ 462,878$ -0.4% -2.0%

710,906$ 705,257$ 688,146$ 0.8% 3.3%Ventura

Sta. Barbara-So. Coast

Y-t-Y

San Diego

County Aug-06 Jul-06 Aug-05 M-t-M

Orange

Riverside/SB

Median Price of Existing Detached HomesSouthern California Regions


Supply Indicators


96.3%

7.1 Mos.

44.3 Days

June2006

89.1%94.9%Median Sales Price-to-Median List Price Ratio

2.8 Mos.8.3 Mos.Unsold Inventory Index

25.5 Days47.1 DaysMedian Time on the Market

July2005

July2006

Southern California

Los Angeles 5,662 8,720 8,116 9,527 9,641 12,016 6,247Orange 7,629 8,531 6,372 6,712 5,666 5,287 2,681Riverside 9,986 13,198 16,916 20,959 22,623 27,550 12,715San Bernardino 5,611 5,194 5,847 8,282 9,102 10,239 4,806San Diego 9,901 10,993 11,121 13,242 15,554 15,981 5,399Santa Barbara 595 571 742 883 902 730 186Ventura 2,932 2,822 2,437 2,117 1,274 2,031 917So Cal Total 42,316 50,029 51,551 61,722 64,762 73,834 32,951

2006 YTD*20052004County 2000 2001 2002 2003

New Home SalesSouthern California Counties

SOURCE: California Association of REALTORS®SOURCE: DataQuick Information Systems


Los Angeles 13.4% 17.4% 15.7% 15.4% 14.9% 16.3% 19.0%Orange 18.0% 17.1% 12.4% 10.9% 8.7% 7.2% 8.1%Riverside 23.6% 26.4% 32.8% 34.0% 34.9% 37.3% 38.6%San Bernardino 13.3% 10.4% 11.3% 13.4% 14.1% 13.9% 14.6%San Diego 23.4% 22.0% 21.6% 21.5% 24.0% 21.6% 16.4%Santa Barbara 1.4% 1.1% 1.4% 1.4% 1.4% 1.0% 0.6%Ventura 6.9% 5.6% 4.7% 3.4% 2.0% 2.8% 2.8%So Cal Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

2006 YTD*20052004County 2000 2001 2002 2003

New Home SalesSouthern California Counties



SOURCE: DataQuick Information Systems

Non-Residential Permits, Valuations

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1000019

89

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Industrial BldgsRetail BldgsOffice BldgsOther(Gap to Non Res Total)

Millions of Dollars7 Southern California Counties (1989-2005)

SOURCE: Real Estate Research Councilof Southern California

Central Valley Region

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan-

98A

pr-9

8Ju

l-98

Oct

-98

Jan-

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pr-9

9Ju

l-99

Oct

-99

Jan-

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pr-0

0Ju

l-00

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-00

Jan-

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pr-0

1Ju

l-01

Oct

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Jan-

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pr-0

2Ju

l-02

Oct

-02

Jan-

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pr-0

3Ju

l-03

Oct

-03

Jan-

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pr-0

4Ju

l-04

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40

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100

120

140

160Sales Consumer ConfidenceINDEXUNITS

Sales of Existing Detached Homes and Pacific West Consumer ConfidenceCentral Valley, August 2006 Sales: 3,466 Units, - 32.6% Y-T-D, - 39.0% Y-T-Y


453 483 664 -6.2% -31.8% -19.6%630 576 856 9.4% -26.4% -22.8%47 38 90 23.7% -47.8% -41.5%

106 78 183 35.9% -42.1% -39.2%90 94 205 -4.3% -56.1% -41.3%

387 320 693 20.9% -44.2% -33.1%25 19 37 31.6% -32.4% -41.6%

1,186 1,094 2,052 8.4% -42.2% -36.3%320 248 555 29.0% -42.3% -38.1%137 98 216 39.8% -36.6% -34.3%85 49 149 73.5% -43.0% -39.8%

Lodi

Aug-06 Jul-06 Y-t-DY-t-YAug-05 M-t-M

BakersfieldFresno

County

TracyTurlock

Manteca

OakdaleSacramentoStockton

ModestoMerced

Sales of Existing Detached HomesCentral Valley Regions


0

500

1000

1500

2000

2500Bak

ersf

ield

Fres

no

Lodi

Mantec

a

Merce

d

Modes

to

Oakda

leSa

cram

ento

Stoc

kton

Trac

y

Turlo

ck

Aug-05Aug-06

Home Sales in Central Valley Region


$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000Ja

n-00

Apr

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0O

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Apr

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6

Median Price of Existing Detached HomesCentral Valley, August 2006: $349,890, -3.8% Y-T-Y


285,000$ 295,000$ 293,323$ -3.4% -2.8%292,856$ 297,841$ 307,522$ -1.7% -4.8%354,411$ 379,999$ 382,050$ -6.7% -7.2%424,324$ 433,333$ 437,719$ -2.1% -3.1%266,666$ 325,926$ 334,810$ -18.2% -20.4%357,631$ 358,394$ 350,000$ -0.2% 2.2%364,999$ 341,666$ 371,052$ 6.8% -1.6%378,177$ 378,587$ 394,450$ -0.1% -4.1%358,741$ 358,947$ 364,639$ -0.1% -1.6%556,818$ 556,034$ 554,000$ 0.1% 0.5%350,999$ 356,818$ 357,042$ -1.6% -1.7%

Y-t-Y

Merced

County

Lodi

Aug-06 Jul-06 Aug-05 M-t-M

BakersfieldFresno

TracyTurlock

Manteca

OakdaleSacramentoStockton

Modesto

Median Price of Existing Detached HomesCentral Valley Regions


El Dorado 793 902 1,128 1,178 1,014 342Fresno 2,292 2,751 3,226 3,652 4,435 2,299Placer 4,211 4,917 4,758 4,386 4,184 1,596Sacramento 7,164 8,475 10,088 9,196 8,799 2,954San Joaquin 3,836 3,817 5,014 5,363 4,701 1,800Stanislaus 2,585 2,631 2,478 3,379 3,803 1,408Central Valley Total 20,881 23,493 26,692 27,154 26,936 10,399

2006 YTD*20052004County 2001 2002 2003

New Home SalesCentral Valley Counties




El Dorado 3.8% 3.8% 4.2% 4.3% 3.8% 3.3%Fresno 11.0% 11.7% 12.1% 13.4% 16.5% 22.1%Placer 20.2% 20.9% 17.8% 16.2% 15.5% 15.3%Sacramento 34.3% 36.1% 37.8% 33.9% 32.7% 28.4%San Joaquin 18.4% 16.2% 18.8% 19.8% 17.5% 17.3%Stanislaus 12.4% 11.2% 9.3% 12.4% 14.1% 13.5%Central Valley Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

2006 YTD*20052004County 2001 2002 2003

New Home SalesCentral Valley Counties




0 10 20 30 40 50 60

United States

California

Sacramento

Fresno

Central Valley

Stanislaus

Merced

San Joaquin

First-time Buyer Housing Affordability2nd Quarter 2006


0

100

200

300

400

500

600

700

800

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005


Millions of Dollars

Non-Residential Permits ValuationsSacramento County (1989-2005)

SOURCE:U.S. Real Estate Research Councilof Northern California

Bay Area

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan-

98A

pr-9

8Ju

l-98

Oct

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Jan-

99A

pr-9

9Ju

l-99

Oct

-99

Jan-

00A

pr-0

0Ju

l-00

Oct

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Jan-

01A

pr-0

1Ju

l-01

Oct

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Jan-

02A

pr-0

2Ju

l-02

Oct

-02

Jan-

03A

pr-0

3Ju

l-03

Oct

-03

Jan-

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pr-0

4Ju

l-04

Oct

-04

Jan-

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pr-0

5Ju

l-05

Oct

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Jan-

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pr-0

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l-06

0

20

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60

80

100

120

140

160Sales Consumer Confidence


INDEXUNITS

Sales of Existing Detached Homes and Pacific West Consumer Confidence

Bay Area, August 2006: 3,681 Units, -19.0% Y-T-D, - 23.1% Y-T-Y

Alameda 830 721 1165 15.1% -28.8% -17.8%Contra Costa 367 330 464 11.2% -20.9% -16.5%Marin 241 178 250 35.4% -3.6% -15.9%San Francisco 332 326 405 1.8% -18.0% -8.2%San Mateo 464 476 592 -2.5% -21.6% -14.2%Santa Clara 1080 973 1404 11.0% -23.1% -22.8%Santa Cruz 185 147 228 25.9% -18.9% -16.0%Solano 365 286 505 27.6% -27.7% -28.0%Sonoma 432 338 544 27.8% -20.6% -25.0%

Y-t-DY-t-YCounty Aug-06 Jul-06 Aug-05 M-t-M

Sales of Existing Detached HomesBay Area Counties


Home Sales in Bay Area Counties

0

200

400

600

800

1000

1200

1400

1600

Alameda ContraCosta

Marin SanFrancisco

San Mateo SantaClara

SantaCruz

Solano Sonoma

Aug-06Aug-05


$300,000

$350,000

$400,000

$450,000

$500,000

$550,000

$600,000

$650,000

$700,000

$750,000

$800,000Ja

n-00

Apr

-00

Jul-0

0O

ct-0

0Ja

n-01

Apr

-01

Jul-0

1O

ct-0

1Ja

n-02

Apr

-02

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2O

ct-0

2Ja

n-03

Apr

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Jul-0

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ct-0

3Ja

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Apr

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6

Median Price of Existing Detached HomesBay Area, August 2006: $737,110, Up 0.9% Y-T-Y


Median Price of Existing Detached Homes

Alameda 671,874$ 673,329$ 674,674$ -0.2% -0.4%Contra Costa 692,441$ 694,148$ 694,237$ -0.2% -0.3%Marin 967,187$ 950,892$ 994,047$ 1.7% -2.7%San Francisco 851,190$ 858,695$ 842,060$ -0.9% 1.1%San Mateo 850,000$ 875,000$ 890,000$ -2.9% -4.5%Santa Clara 770,000$ 805,000$ 760,000$ -4.3% 1.3%Santa Cruz 765,000$ 775,000$ 783,000$ -1.3% -2.3%Solano 469,202$ 480,952$ 479,556$ -2.4% -2.2%Sonoma 612,222$ 633,426$ 648,026$ -3.3% -5.5%

Aug-05 M-t-M Y-t-YCounty Aug-06 Jul-06

Bay Area Counties


94.7%

3.7 Mos.

47.9 Days

July2006

104.5%94.2%Median Sales Price-to-Median List Price Ratio

1.6 Mos.3.2 Mos.Unsold Inventory Index

40.9 Days49.7 DaysMedian Time on the Market

August2005

August2006

Supply IndicatorsBay Area


Alameda 1,957 2,015 2,287 3,247 3,096 1,135Contra Costa 4,331 3,984 4,520 4,254 4,461 2,129Marin 133 98 239 445 531 180Napa 542 573 384 501 430 166San Francisco 244 724 1,065 1,549 1,042 448San Mateo 381 328 377 530 241 99Santa Clara 1,612 1,523 1,968 2,757 3,031 1,641Solano 1,718 1,852 1,452 2,000 2,378 590Sonoma 978 892 631 663 673 417Bay Area Total 11,896 11,989 12,923 15,946 15,883 6,805

2006 YTD*20052004County 2001 2002 2003

New Home SalesBay Area Counties




Alameda 16.5% 16.8% 17.7% 20.4% 19.5% 16.7%Contra Costa 36.4% 33.2% 35.0% 26.7% 28.1% 31.3%Marin 1.1% 0.8% 1.8% 2.8% 3.3% 2.6%Napa 4.6% 4.8% 3.0% 3.1% 2.7% 2.4%San Francisco 2.1% 6.0% 8.2% 9.7% 6.6% 6.6%San Mateo 3.2% 2.7% 2.9% 3.3% 1.5% 1.5%Santa Clara 13.6% 12.7% 15.2% 17.3% 19.1% 24.1%Solano 14.4% 15.4% 11.2% 12.5% 15.0% 8.7%Sonoma 8.2% 7.4% 4.9% 4.2% 4.2% 6.1%Bay Area Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

2006 YTD*20052004County 2001 2002 2003

New Home SalesBay Area Counties




0 10 20 30 40 50 60

United States

Santa Clara

California

San Mateo

Bay Area

Alameda

Marin

Contra Costa

Monterey/Santa Cruz

San Francisco

Sonoma

First-time Buyer Housing Affordability2nd Quarter 2006


Non-Residential Permits Valuations

SOURCE:U.S. Real Estate Research Councilof Northern California

0500

10001500200025003000350040004500500055006000650070007500

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005


Millions of Dollars

9 Bay-Area Counties (1989-2005)

2006 Forecast

On Uncharted Terrain …

• Because of seeming disconnect between Housing Market and Economy– Housing Boom kicked off when Economy was in recession– Driven by reduction in interest rates, demographics &

wealth effect of repeat buyers, and superior returns on real estate compared to other assets

– Present decline in activity and slowdown in market despite economic growth – driven instead by the changing calculus of market, loan quality issues and affordability.

Forecast Risks: Some Questions

1. How will housing related job losses impact the overall economy?

2. How will flat housing prices impact the demand for housing?

3. How will the decline in cash-out refi’s impact consumer spending?

4. How will resets of risky mortgages impact the foreclosure rate?

5. How will real estate related office consolidations impact the commercial real estate market?

U.S. Economic Forecast

2002 2003 2004 2005 2006e 2007f

US GDP 1.6% 2.7% 4.2% 3.5% 3.3% 2.9%

Nonfarm Job Growth -1.1% -0.3% 1.1% 1.6% 1.3% 1.0%

Unemployment 5.8% 6.0% 5.5% 5.1% 4.7% 4.9%

CPI 1.6% 2.3% 2.7% 3.4% 3.4% 2.5%

Real Disposable Income 3.1% 2.4% 3.4% 1.4% 3.4% 3.6%


California Economic Forecast

2002 2003 2004 2005 2006e 2007f

Nonfarm Job Growth -0.7% -0.3% 1.1% 1.5% 1.5% 1.1%

Unemployment Rate 6.7% 6.8% 6.2% 5.4% 4.9% 5.1%

Population Growth 1.8% 1.7% 1.4% 1.4% 1.2% 1.1%

Real Disposable Personal Income, % Change

3.0% 2.0% 3.7% 2.9% 2.6% 2.5%


California Housing Market Forecast

2002 2003 2004 2005 2006f 2007fSFH Resales (thousands) 572.6 601.8 624.7 625.0 481.2 447.5

% Change 13.6% 5.1% 3.8% 0.04% -23.0% -7.0%Median Price ($ thousands) $316.1 $372.7 $450.8 $524.0 $560.7 $550.0

% Change 20.5% 17.9% 20.9% 16.2% 7.0% -2.0%

30-Yr FRM 6.5% 5.8% 5.8% 5.9% 6.5% 6.7% 1-Yr ARM 4.6% 3.8% 3.9% 4.5% 5.6% 5.6%


2007 Market Opportunities

24.1%

41.3%

0%10%20%30%40%50%60%70%80%90%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


Proportion of First-Time Homebuyers(Single-Family Detached vs. Condo/Town home)

Q. Was the buyer a first-time buyer?

Ethnicity of head of Household (Buyer)First-Time Buyer vs. Repeat Buyer

Q. What was the race/ethnicity of the head of household buying the property?

58.2%

42.5%

64.9%

3.7% 5.5% 2.8%

19.6%

30.5%

14.8%12.7% 14.0% 12.2%5.9% 7.5% 5.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

All Property Types First-Time Buyers Repeat Buyers

White/ Non-HispanicAfrican-American

Hispanic/LatinAmericanAsian

Other

Buyers Household Type

27%

19%

50%

38%

46%

12%

21% 22% 21%

13% 13%17%

1% 1% 0%0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

All Properties Single-Family Detached Condo/Townhome

Single Married w/dependents Married w/o dependentsTwo or more individuals Other

Q. What type of parties were involved?

Rent VS. Buy-Income Tax Advantages of Buying-

Scenario of Two Households: Buy RentEarning Same Income $102,400 $102,400

Standard IRS Deduction* n/a ($10,000)Mortgage Interest Deduction ($29,500) n/aProperty Tax Deduction ($4,900) n/a

Total Tax Deduction ($34,400) ($10,000)Taxable Income $68,000 $92,400

Total Taxes Paid ($10,330) ($16,430)Annual Tax Savings (In Year 1) $6,100 $0

*Schedule Y-1 For Married Filing JointlyMtg. & prop. tax deductions are based on the entry-level priced home of $490,000, 85% of Aug 06 Median

FSBO’s: It Ain’t Easy

How to Become Agent for Life-Advice From Sellers-

“Ask me my future goals and dreams, and provide me with opportunities to get there”

“Check in with me every six months…email me properties”

“Stay in touch…cards, articles and other helpful information”

Thank You

Documents

2007 Real Estate Market Forecast · Homes Los Angeles Region 10.1% Riverside Region 18.2% Sacramento Region 16.6% San Diego Region 13.8% San Francisco Region 8.3% National Average