2016 California Economic & Market Forecast

10/9/2015

1

2016 CALIFORNIA ECONOMIC & MARKET FORECAST

October 8, 2015

EXPO – San Jose Convention Center

Leslie Appleton‐Young, Vice President & Chief Economist

HOW DID I DO?LAST OCTOBER I TOLD YOU …

10/9/2015

2

2015 FORECAST REPORT CARD

Forecast Date: October 2015 vs. October 2014

SERIES: CA Housing Market Outlook

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SFH Resales (000s)

% Change

Median Price ($000s)

% Change

30‐Yr FRM

HousingAffordability Index

U.S.Gross Domestic Product

2014 Actual

383.3

‐7.6%

$447.0

9.8%

4.2%

30%

2.4%

2015 Forecast

402.5

5.8%

$478.7

5.2%

4.5%

27%

3.0%

2015 Projected

407.5

6.3%

$476.3

6.5%

3.9%

31%

2.4%

ECONOMIC OUTLOOK

10/9/2015

3

‐4%

‐3%

‐2%

‐1%

0%

1%

2%

3%

4%

5%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015P

2016

F

Q1‐12

Q2‐12

Q3‐12

Q4‐12

Q1‐13

Q2‐13

Q3‐13

Q4‐13

Q1‐14

Q2‐14

Q3‐14

Q4‐14

Q1‐15

Q2‐15

ECONOMY HAS BEEN GROWING FOR 68 MONTHS

2014: 2.4%; 2015: 2.4%; 2016: 2.6%

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

3.9%

KEY SECTORS OF MACRO‐ECONOMY

Consumer Sector

Business Sector

Government

International Trade

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4

EMPLOYMENT STALLED IN SEPT:142K

3.0%

2.0%

‐8

‐6

‐4

‐2

0

2

4

6

Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

California USANNUAL PERCENT CHANGE

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

Change Growth

UnitedStates 2,752,000 2.0%

California 470,000 3.0%

New York 130,500 1.4%

Texas 217,700 1.9%

198K/mo 2014 avg260K/mo 2015 avg

UNEMPLOYMENT RATE HOLDS STEADY

September 2015: US 5.1% & August 2015:CA 6.1%

‐4%

‐2%

0%

2%

4%

6%

8%

10%

12%

14%

Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

US‐CA CA US

SERIES: Unemployment Rate The U-6 rate covers the unemployed, underemployed and those who are not looking but who want a jobSOURCE: US Bureau of Labor Statistics, CA Employment Development Division

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5

UNEMPLOYMENT RATES (U6 VS. U3)

September 2015 = U3: 5.1%, U6: 10.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

U3 U6

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

PARTICIPATION DOWN: AGING POP & SLOW JOB GROWTH & HIGH LONG TERM UNEMPLOYMENTCA‐ 62.5% (Dec. 2014) vs. USA‐ 62.7% (Dec. 2014)

60%

62%

64%

66%

68%

70%US CA

Labor Force Rate

SERIES: Labor Force Participation RateSOURCE: BLS, Data Buffet

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6

JOB TRENDS BY CALIFORNIA METRO AREA

‐0.2%

0.9%

1.0%

1.8%

1.9%

2.0%

2.6%

2.8%

3.0%

3.1%

3.2%

4.6%

5.5%

‐1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Bakersfield

Ventura

Modesto

Los Angeles

Oakland

Stockton MSA

Fresno MSA

Sacramento

Inland Empire

San Diego

Orange County

San Francisco

San Jose

SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

ANNUAL PERCENT CHANGE

August 2015: CA +3.0%, +470,000

CALIFORNIA JOB CHANGES BY INDUSTRY

‐1.0%

0.4%

0.5%

1.3%

2.0%

2.0%

2.6%

2.7%

3.0%

3.5%

3.5%

3.6%

4.3%

6.4%

6.8%

‐2% ‐1% 0% 1% 2% 3% 4% 5% 6% 7% 8%

Nondurable GoodsFinance & Insurance

Durable GoodsGovernmentRetail Trade

Educational ServicesInformation

Health Care & Social AssistanceWholesale Trade

Real Estate & Rental & LeasingAdmistrative & Support & Waste ServicesTransportation, Warehousing & Utilities

Leisure & HospitalityConstruction

Professional, Scientific & Technical Services

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

August 2015: CA +3.0%, +470,000ANNUAL PERCENT CHANGE

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NONFARM EMPLOYMENT BY REGION

Aug 2015 Aug 2014 Change % Change

Southern California 8,834.4 8,626.3 208.1 2.4%

Bay Area 4,289.3 4,213.0 76.3 1.8%

Central Valley 1,540.9 1,492.4 48.5 3.2%

Central Coast 1,318.4 1,280.0 38.4 3.0%

North Central 1,391.4 1,349.0 42.4 3.1%

CALIFORNIA 294.4 291.9 2.5 0.9%

Nonfarm Employment (Thousands)

SERIES: Total Nonfarm EmploymentSOURCE: CA Employment Development Division

JOB LOSSES IN PRIOR RECESSIONS ‐RECENT CYCLE WORST BY FAR

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CONSUMER CONFIDENCE INDEX

September 2015: 103.0

0

20

40

60

80

100

120

Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

INDEX, 100=1985

SERIES: Consumer ConfidenceSOURCE: The Conference Board

CONSUMER PRICE INDEX

August 2015: All Items 0.2% YTY; Core +1.8% YTY

‐3%

‐2%

‐1%

0%

1%

2%

3%

4%

5%

6%

Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

All Items Core

ANNUAL PERCENT CHANGE

SERIES: Consumer Price IndexSOURCE: US Bureau of Labor Statistics

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9

IS IT TIME? AH… LET’S WAIT A LITTLE LONGER

MORTGAGE RATES

January 2009 –October 2015

0%

1%

2%

3%

4%

5%

6%

FRM

ARM

MONTHLY WEEKLY

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

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10

RATE HIKE POSTPONED, BUT NOT CANCELLED

Factors for the delay

‐ Global economic slowdown/Strong dollar• Emerging markets vulnerable to rising rate environment

‐ Heighten stock market volatility• Negative wealth effect could lead to slowdown in economic growth

‐ Avoid a repeat of Taper Tantrum• Fed had not articulated enough on all the moving parts and did not

want to give any surprises

WHERE ARE WE HEADED?

‐ Fed will likely begin normalization in December (maybe) and rates will gradually increase in 2016 and 2017. Action will be “data determined”

‐ Risk of rates increasing too fast: bringing economic growth to a halt

‐ Risk of rates increasing too slow: zero leverage when next downturn hits

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11

MARKET DOWN SHARPLY FROM THE PEAK

1,944.4

1650

1700

1750

1800

1850

1900

1950

2000

2050

2100

2150

Jan‐14

Mar‐14

May‐14

Jul‐14

Sep‐14

Nov‐14

Jan‐15

Mar‐15

May‐15

Jul‐15

Sep‐15

S & P 500 Composite

MONTHLY AVERAGE

Causes of the financial market turmoil

‐ Highly valued asset markets

‐ Economic slowdown in China

‐ U.S. monetary policy normalization

‐ Collapse in energy and other commodity prices

CROSS CURRENTS NET OUT

$50 bbl Lower Oil Prices

50 bps Lower Mortgage Rates

15% $ Appreciation

5% Lower Stock Prices

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12

U.S. HOME SALES UP IN 2015

U.S., Aug 2015 Sales: 4,690,000 Units, +8.1% YTD, +6.1% YTY

4,690,000

‐

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

*Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family HomesSOURCE: NATIONAL ASSOCIATION OF REALTORS®

U.S. HOME PRICE GAINS MODERATING

U.S., Aug 2015: $230,200, ‐1.4% MTM, +5.1% YTY

$230,200

$‐

$50,000

$100,000

$150,000

$200,000

$250,000

Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

SERIES: Median Price of Existing Single Family HomesSOURCE: NATIONAL ASSOCIATION OF REALTORS®

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13

U.S. COMMERCIAL VACANCY RATES

SOURCE: NATIONAL ASSOCIATION OF REALTORS®

Commercial R.E. Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 2014 2015 2016

Office 15.1% 15.9% 15.8% 15.5% 15.3% 15.1% 14.9% 14.8% 16.0% 15.6% 15.0%

Industrial 11.3% 10.8% 10.3% 9.8% 9.4% 9.0% 8.5% 8.4% 12.0% 11.7% 8.8%

Retail 13.7% 13.2% 13.0% 12.7% 12.3% 12.1% 11.9% 11.6% 13.8% 13.2% 12.0%

Multifamily 8.4% 6.6% 6.7% 6.6% 6.6% 6.6% 6.6% 6.7% 6.6% 7.1% 7.1%

CA METRO COMMERCIAL VACANCY RATES

2015 Q2

SOURCE: National Association of REALTORS®

MSA Office Industrial Retail Multi‐Family

Los Angeles 14.8% 3.6% 5.7% 3.5%

Oakland‐East Bay 17.1% 8.2% 6.0% 2.8%

Orange County 16.3% 3.4% 4.6% 3.3%

Sacramento 20.3% 11.1% 10.0% 2.6%

San Bernardino/Riverside 22.4% 7.2% 9.1% 2.5%

San Diego 14.7% 6.4% 6.1% 2.8%

San Francisco 10.6% 10.4% 3.0% 3.8%

San Jose 16.3% 16.2% 4.6% 3.4%

Ventura 16.4% ‐ 8.5% 2.9%

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HOUSEHOLD GROWTH AFFECTED BY DEMOGRAPHIC AND ECONOMIC FACTORS

HOUSEHOLD FORMATION ACCELERATES IN 2015

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15

U.S. ECONOMIC OUTLOOK

2010 2011 2012 2013 2014 2015p 2016f

US GDP 2.4% 1.8% 2.3% 2.2% 2.4% 2.4% 2.7%

Nonfarm Job Growth ‐0.7% 1.2% 1.7% 1.7% 1.9% 2.1% 1.8%

Unemployment 9.6% 8.9% 8.1% 7.4% 6.2% 5.3% 5.0%

CPI 1.6% 3.1% 2.1% 1.5% 1.6% 0.2% 2.1%

Real Disposable

Income, % Change 1.0% 2.5% 3.0% ‐0.2% 2.5% 3.3% 2.7%

30‐Yr FRM 4.7% 4.5% 3.7% 4.0% 4.2% 3.9% 4.5%

SERIES: U.S. Economic OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

U.S. HOUSING MARKET OUTLOOK

2010 2011 2012 2013 2014 2015p 2016f

Existing Home Sales (000s) 4,190 4,260 4,660 5,090 4,940 5,292 5,471

% Change ‐3.5% 1.7% 9.4% 9.2% ‐2.9% 7.1% 3.4%

Median Price ($000s) $172.9 $166.1 $176.8 $197.1 $208.3 $221.4 $231.0

% Change 0.2% ‐3.9% 6.4% 11.5% 5.7% 6.3% 4.3%

SERIES: U.S. Existing home sales of single‐family homes and condo/coopsSOURCE: NATIONAL ASSOCIATION OF REALTORS®

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CALIFORNIA ECONOMIC OUTLOOK

2010 2011 2012 2013 2014 2015p 2016f

Nonfarm Job Growth ‐1.1% 1.1% 2.4% 3.0% 2.2% 2.8% 2.3%

Unemployment Rate 12.3% 11.8% 10.4% 8.9% 7.5% 6.3% 5.5%

Population Growth 0.7% 0.7% 0.7% 0.9% 0.9% 0.9% 0.9%

Real Disposable

Income, % Change 0.9% 3.4% 4.7% 0.2% 3.0% 4.3% 4.5%

SERIES: CA Economic OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

CALIFORNIA HOUSING MARKET OUTLOOK

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17

MEMBERSHIP FOLLOWS SALES WITH 1‐2 YEAR LAG

2015p: 181,000

2016f: 183,000

0

50,000

100,000

150,000

200,000

250,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,00019

71

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015p

Home Sales MembershipUnits of Home Sold # of Members

2015 SALES DID NOT DISAPPOINT

California, Aug 2015 Sales: 431,800 Units, +7.4% YTD, +9.3% YTY

‐

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

*Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Aug‐15: 431,800

Aug‐14: 395,080

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18

CA SALES RE‐GAINED MOMENTUM IN 2015

SERIES: Sales of Existing Single Family Homes, Seasonally Adjusted SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%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

Oct‐14

Jan‐15

Apr‐15

Jul‐15

Year‐over‐Year % Chg 6 per. Mov. Avg. (Year‐over‐Year % Chg)

HOME PRICE GAINS HAVE SLOWED

California, Aug 2015: $493,420, 1.0% MTM, +2.5% YTY

$‐

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

Jan‐05

Jul‐05

Jan‐06

Jul‐06

Jan‐07

Jul‐07

Jan‐08

Jul‐08

Jan‐09

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

P: May‐07$594,530

T: Feb‐09$245,230‐59% frompeak

SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Aug‐15: $493,420

Aug‐14: $481,250

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19

‐20%

‐10%

0%

10%

20%

30%

40%

50%

Jan‐10 Jul‐10 Jan‐11 Jul‐11 Jan‐12 Jul‐12 Jan‐13 Jul‐13 Jan‐14 Jul‐14 Jan‐15 Jul‐15

Condo Single‐Family Homes

HOME PRICE APPRECIATIONS HAVE MODERATED SINCE MID 2013

SERIES: Sales of SFH and Condo UnitsSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

YTY% Chg. in Price

CALIFORNIA VS. U.S. MEDIAN PRICES

1970‐2015


$‐

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

California US CA Price Trend


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20

• Housing market has recovered –Welcome to the new normal – Low mortgage rates

– Job & Income growth are positive

• And yet…– Supply well below long‐run average

– Share of first‐time buyers LOW

– Affordability key concern for everyone

• It’s not an easy market/transaction for anyone .

2015 ‐WHERE ARE WE ?

UNDERWATER MORTGAGESRISING PRICES HAVE REVERSED EQUITY LOSSES

7.3%

1.7%

0%

5%

10%

15%

20%

25%

30%

35%

40% Negative Equity Share in CA Near Negative Equity Share in CA

SERIES: Underwater MortgagesSOURCE: CoreLogic

10/9/2015

21

INVENTORY CONTINUED TO DECLINE FROM LAST YEAR

Aug 2014: 4.0 Months; Aug 2015: 3.6 Months

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) 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

Jan‐05

Jul‐05

Jan‐…

Jul‐06

Jan‐07

Jul‐07

Jan‐…

Jul‐08

Jan‐…

Jul‐09

Jan‐10

Jul‐10

Jan‐11

Jul‐11

Jan‐12

Jul‐12

Jan‐13

Jul‐13

Jan‐14

Jul‐14

Jan‐15

Jul‐15

SERIES: Unsold Inventory Index of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

WHERE IS THE INVENTORY?

– Affordability challenge for repeat buyers• Low rate on current mortgage • Low property taxes• Why list when there is nowhere to go I can afford?• Could not qualify for a mortgage today

– Foreclosure pipeline is dry – Investors renting instead of flipping– New construction recovering but LOW– Measurement error? Off‐MLS (aka “pocket’) listings not being counted in listing stats

– Demographics: Trade‐up buyer pool is smaller

10/9/2015

22

FEWER MIDDLE‐AGE ADULTS IN RECENT YEARS

Source: Harvard Joint Center of Housing Studies, Census Bureau

DROP IN HOMEOWNERSHIP


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23

DECLINE IN # OF TRADE UP BUYERS DUE TO POPULATION LOSS & DROP IN HOMEOWNERSHIP RATE


REGIONAL HOUSING MARKETS

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24

CA AUG. 2015 MEDIAN PRICES YTY

SERIES: Median Price of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

CA 2015 YTD SALES

SERIES: Year to Date Sales of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

10/9/2015

25

$346,1805% YTY

www.car.org/marketdata

12% YTD8% YTY

4.6 32.7 95.8%NAUII

Months Days

MTM Price

Per Sq Ft

Sales

To List Ratio

Median PriceSales

NORTHERN CALIFORNIA AUG 2015

NORTHERN CALIFORNIA AUG. 2015 MEDIAN PRICES


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26

NORTHERN CALIFORNIA 2015 YTD SALES


$550,12015% YTY

6% YTD14% YTY

3.6 46.1 NANAUII

Months Days

MTM Price

Per Sq Ft

Sales

To List Ratio


Median PriceSales

NORTHERN WINE AUG 2015

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27

NORTHERN WINEAUG. 2015 MEDIAN PRICES


NORTHERN WINE2015 YTD SALES


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28

$804,19010% YTY

5% YTD0.2% YTY

2.3 22.3 103.4%$509UII

Months Days

MTM Price

Per Sq Ft

Sales

To List Ratio


Median PriceSales

BAY AREA AUG 2015

BAY AREAAUG. 2015 MEDIAN PRICES


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29

BAY AREA2015 YTD SALES


$276,9007% YTY

10% YTD12% YTY

3.6 24.4 97.3%NAUII

Months Days

MTM Price

Per Sq Ft

Sales

To List Ratio


Median PriceSales

CENTRAL VALLEY AUG 2015

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30

CENTRAL VALLEYAUG. 2015 MEDIAN PRICES


CENTRAL VALLEY2015 YTD SALES


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31

$520,8304% YTY


11% YTD6% YTY

3.9 29.1 97.7%NAUII

Months Days

MTM Price

Per Sq Ft

Sales

To List Ratio

Median PriceSales

CENTRAL COAST AUG 2015

CENTRAL COASTAUG. 2015 MEDIAN PRICES


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CENTRAL COAST2015 YTD SALES


$464,4003% YTY


9% YTD7% YTY

3.9 41.9 98.6%NAUII

Months Days

MTM Price

Per Sq Ft

Sales

To List Ratio

Median PriceSales

SOUTHERN CALIFORNIA AUG 2015

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33

SOUTHERN CALIFORNIAAUG. 2015 MEDIAN PRICES


SOUTHERN CALIFORNIA2015 YTD SALES


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34

ANNUAL HOUSING MARKET SURVEY:

2015 FINDINGS

SHARE OF SECOND/ VACATION HOMES HIGHERAFTER TWO YEARS’ OF DECLINE

SERIES: 2015 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

5.3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% to Total Sales

10/9/2015

35

SHARE OF INVESTMENT PROPERTIES DROPS TO THE LOWEST LEVEL SINCE 2009


13.1%

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 2015

% to Total Sales

FIRST‐TIME BUYERS FINDING IT HARD TO BUY

29.5%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% First‐Time Home Buyers Long Run Average

Long Run Average = 38%


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36

SHARE OF CASH BUYERSLOWEST SINCE 2009

21%

0%

5%

10%

15%

20%

25%

30%

35%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% of All Cash Sales

• Almost one‐fourth of buyers paid with all cash

• The share of all cash buyers is the lowest in the last 6 years


THE SHARE OF INTERNATIONAL BUYERS LOWEST IN 8 YEARS

4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2008 2009 2010 2011 2012 2013 2014 2015

Q. Was the buyer an international buyer – a person who was a citizen of another country who wished to purchase residential real estate in the U.S.?


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37

71%

14%

6% 4% 2% 4%

72%

12%6%

3% 2%5%

77%

9%5%

3% 1%4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0 1 2 3 4 5 or more

2013

2014

2015

# of Properties Sold to International Buyers in the Last 12 Months

% Who Sold to International Buyers

Q. How many properties have you sold to an international buyer in the last 12 months? SERIES: 2015 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

23% OF CA REALTORS® WORKED WITH AN INTERNATIONAL BUYER IN THE PAST 12 MONTHS

43%

8% 8%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

China Mexico South Korea

COUNTRY OF INTERNATIONAL BUYER


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38

THE MEDIAN DOWN PAYMENT INCHED UP FROM 2014

$74,500

20%

0%

5%

10%

15%

20%

25%

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Median Down Payment % of Down Payment to Price


Q. What was the amount of downpayment?

MARKET COMPETITION COOLS DOWN AFTER PEAKING IN 2013

53% 53%

4.34.0

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 2015

% with Multiple Offers # of Multiple offers (Average)


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39

YEARS OWNED HOME BEFORE SELLING

10

0

2

4

6

8

10

12 All Sellers


NET CASH GAIN TO SELLERS HIGHEST SINCE 2007

$120,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015


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

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40

HOUSING AFFORDABILITY:CRISIS BREWING

CALIFORNIA PRICES MORE VOLATILE AND MUCH HIGHER THAN THE NATION

1970‐2015


$‐

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000 California US

The difference between California’s prices and national home prices increasedfrom $10K in 1970 to $255K today


2015 Dollar Value

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41

HOUSING AFFORDABILITY PEAKED Q1 2012PRICES V. LOW RATES AND INCOME GROWTH

California vs. U.S. – 1984‐2015% OF HOUSEHOLDS THAT CAN BUY A MEDIAN‐PRICED HOME

SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

56%

30%

71%

57%

0%

10%

20%

30%

40%

50%

60%

70%

80% CA USAnnual Quarterly

HOUSING AFFORDABILITY IN CA: BY COUNTY

62

57 56 55 5450 50

47 4644

41 4037

30 3028 27

25 25 2523

21 20 19 18 18 17 1613

10

0

10

20

30

40

50

60

70 2015 Q2

SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

% able to purchase median priced home

10/9/2015

42

AFFORDABLE INVENTORY AVAILABLE TO MEDIAN‐INCOME HOUSEHOLDS


67.2%

28.5%

2.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015 Q2

$27,010

$45,340

$69,990 $71,630

$87,520 $89,250

$98,400

$119,970

$95,978

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

RetailSalespersons

Chefs andHead Cooks

ElementarySchool

Teachers

Firefighters Police andSherriff'sPatrolOfficers

ComputerProgrammers

RegisteredNurses

SoftwareDevelopers

(Applications)

Min. IncRequired toBuy a Med.

Home

HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME

SOURCE: Bureau of Labor Statistics, C.A.R.

2014 Annual Mean Wage

California

10/9/2015

43

$30,340

$52,690 $49,230

$70,680$88,390

$97,570

$124,980 $118,690

$267,783

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

RetailSalespersons

Auto.Mechanics

Chefs andHead Cooks

ElementarySchool

Teachers

Firefighters ComputerProgrammers

RegisteredNurses

SoftwareDevelopers

(Applications)


Home




San Francisco

$26,610

$46,790$50,730

$67,300

$58,520

$75,980

$105,390 $103,730

$57,581

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

RetailSalespersons

Auto.Mechanics

Chefs andHead Cooks

ElementarySchool

Teachers


RegisteredNurses

SoftwareDevelopers

(Applications)


Home




Sacramento

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44

$26,870

$42,610 $44,330

$72,720

$82,830$86,840

$93,180

$103,790

$88,082

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

RetailSalespersons

Auto.Mechanics

Chefs andHead Cooks

ElementarySchool

Teachers


RegisteredNurses

SoftwareDevelopers

(Applications)


Home




Los Angeles

CALIFORNIA’S MAJOR METROS ARE LESS AFFORDABLE THAN THE AVERAGE U.S. METRO

SOURCE: Legislative Analyst’s Office

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45

SHARE OF FIRST‐TIME BUYERS REMAINS BELOW LONG‐RUN AVERAGE

29.5%

0%

10%

20%

30%

40%

50%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% First‐Time Home Buyers Long Run Average

Long Run Average = 38%


HOMEOWNERSHIP RATES

California Vs. U.S.

53.7%

Peak: 60.2%

54.9%

64.5%

Peak: 69.0%

64.8%

40%

45%

50%

55%

60%

65%

70%

75% CA US

SERIES: Homeownership RatesSOURCE: U.S. Census Bureau

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46

“MISSING” 100,000 UNITS ANNUALLY, AT LEAST

2015p: 98,500 (42,190 sf, 56,310 mf)

2016f: 124,600 total units

SERIES: New Housing PermitsSOURCE: Construction Industry Research Board

0

50000

100000

150000

200000

250000

300000

350000

Single Family Multi‐Family

Household Growth:

165,000/yr

THE BOOMERS AND THEIR NEXT MOVE

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47

THE BOOMERS AND THEIR NEXT MOVE

BOOMERS – BORN BETWEEN 1946‐1964

What is your age?

0%

1%

2%

3%

4%

5%

6%

7%

8%

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68

Age (Years)

SERIES: 2014 Baby Boomer SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Average: 59

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48

MAJORITY ARE MARRIED

What is your marital status?

Married 56%

Single 26%

Other 18%


BABY BOOMERS LESS DIVERSE THAN MILLENNIALS

What is your ethnic background?

0%

10%

20%

30%

40%

50%

60%

70%

80%

Caucasian/White

Asian AfricanAmerican/

Black

Hispanic/Latino

Other

79%

9%4%

4%4%

38%

18%

7%

35%

4%

Boomers Millennials


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49

3/4 BABY BOOMERS ARE HOME OWNERS

What is your current living situation?

Own 75%

Rent 22%

Other 3%


HOME OWNERSHIP RATE NEARLY 4 TIMES HIGHER AMONG BOOMERS

Baby Boomers

75%

22%

3%

Own

Rent

Other

Millennials

20%

41%

39%

Own

Rent

Other

What is your current living situation?


10/9/2015

50

MOST HAVE EQUITY IN THEIR HOME

Do you have equity in your home?

Yes, 92%

No, 8%


MOST DON’T PLAN TO USE HOME EQUITY FOR INCOME DURING RETIREMENT

Are you planning on using this equity for income during retirement?

Yes, 23%

No, 77%


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51

MAJORITY DO NOT PLAN TO SELL HOME WHEN THEY RETIRE

Do you plan to sell your current home when you retire?

Yes, 10%

No, 59%

Don't know/ unsure, 32%


MAJORITY WON’T SELL BECAUSE THEY LIKE THEIR HOME

Why do you not plan to sell your current home when you retire?

78%

10%

8%

5%

I like my home

I cannot afford to buy anotherretirement home

I plan to give the home to mychild(ren)

Another reason


10/9/2015

52

¼ POSTPONED RETIREMENT BECAUSE …

Did you have to postpone your date of retirement due to any of the following?

0% 2% 4% 6% 8% 10% 12% 14%

Death of significant other

Loss of pension

Medical bills

Loss of home

Loss of retirement income

Other

Loss of assets/ income due to 2008 economic recession

Loss of employment

Did not save enough money yet for retirement

1%

1%

2%

2%

3%

4%

7%

9%

14%


> ½ DO NOT FEEL THEY HAVE SAVED ENOUGH MONEY TO RETIRE COMFORTABLY

Do you feel you have saved enough money to retire comfortably?

Yes, 46%

No, 54%


10/9/2015

53

MAJORITY WORRY ABOUT CHILDRENS’ ABILITY TO BECOME HOME OWNERS

Do you worry about your children’s ability to become home owners in the future?

Yes, 55%

No, 45%


2/5 PLAN TO HELP CHILDREN WITH DOWN PAYMENT

Do you plan to help your children with their down payment to purchase a home?

Yes, 43%

No, 57%


10/9/2015

54

WHAT FINANCIAL DECISION WOULD BOOMERS CHANGE?

If you could change one financial decision that you made within the past 10 years, what would it be?

1%

2%

4%

5%

7%

8%

19%

22%

0% 5% 10% 15% 20% 25%

Moving to the wrong location

Cash out/ open IRA

Carry less debt/ poor credit

Retiring prematurely

Seek better job

Invest in real estate

Better investment decisions

Saving more/ spending less


WHAT KEEPS BOOMERS UP AT NIGHT?

What keeps you up at night?

1%

2%

2%

3%

3%

4%

4%

4%

4%

6%

13%

39%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Economy

World politics

TV/ internet

Health concerns

Insomnia

Ache/ pain

Job security

Work

Family issues

Stress/ anxiety

Bills/ finances

Nothing


10/9/2015

55

CRAFTSMAN BUNGALOW IS DREAM HOME FOR 1/3 HOME OWNERS

Q. Which of the following is your dream home?

32%

craftsman bungalow

19%

neo colonial

14%

dream mansion Frank Lloyd Wright

desert modernism art nouveau/art moderne modern townhome downtown loft

brick urban rowhome

8.5%

12%

5.7% 5.1% 2.6%

1.6%

2/3 HOME OWNERS PREFER A NIGHT IN WITH FAMILY/FRIENDS FOR FUN

Q. In which of the following activities would you like to participate? Select all that apply.

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

Burning Man

Woodstock in 1969

A "Hangover" weekend in Vegas

A week camping/fishing

A concert with your favorite artist

A fantastic movie

A trip to New York City

A trip to Paris

A quiet night in with friends/family

10%

16%

21%

37%

52%

53%

56%

57%

65%

10/9/2015

56

DIVERSITY IN HOMEOWNERSHIP

SHARE OF MINORITY HOME BUYERS HAS GROWN OVER TIME …

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

68.5%

5.0%

14.1%

7.5%

55.8%

4.2%

19.9%

12.5%

56.3%

3.6%

14.0%16.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

White/Non‐Hispanic African‐American Hispanic Asian

1995 2005 2015


10/9/2015

57

HOUSING DEMAND WILL INCREASE, LARGELY DRIVEN BY MINORITIES

SOURCE: Urban Institute

2.7 4.6 2.2 2.18.9 11.6

1.34.8 1.9 2.5

9.1 10.4

0

2

4

6

8

10

12

14

White Hispanic Black, Non‐Hispanic Other, Non‐Hispanic Total Minority Total

Projected household growth, 2010‐2010

Projected household growth, 2020‐2030

Net new households, millions

23%

46%39%

18%

12%

18%19%

100%

100%

88%77%

24%

2010‐2020

2010‐2020

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

West Midwest South Northeast

Source: Dowell Myers and John Pitkin, “Immigrant Contributions to the Housing Market…” RIHA, Mortgage Bankers Association, 2013

IMMIGRANT SHARE OF GROWTH IN HOME OWNERS

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58

2016 FORECAST

10/9/2015

59

CALIFORNIA HOUSING MARKET OUTLOOK

2010 2011 2012 2013 2014 2015p 2016f

SFH Resales (000s) 416.5 422.6 439.8 414.9 383.3 407.5 433.0

% Change ‐12.3% 1.4% 4.1% ‐5.9% ‐7.6% 6.3% 6.3%

Median Price ($000s) $305.0 $286.0 $319.3 $407.2 $447.0 $476.3 $491.3

% Change 10.9% ‐6.2% 11.6% 27.5% 9.8% 6.5% 3.2%

Housing Affordability

Index 48% 53% 51% 36% 30% 31% 27%

30‐Yr FRM 4.7% 4.5% 3.7% 4.0% 4.2% 3.9% 4.5%

SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SALES UP FOR 2015 AND CONTINUE TO IMPROVE IN 2015; PRICE WILL GROW STEADILY THIS YEAR AND NEXT

Units (Thousand)

407433

0

100

200

300

400

500

600

700

2005 2007 2009 2011 2013 2015p

Sales of Existing Detached Homes

$476 $491

$0

$100

$200

$300

$400

$500

$600

2005 2007 2009 2011 2013 2015p

Median Price

Price (Thousand)


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60

CA: DOLLAR VOLUME UP 13.3% IN 2015, UP 9.6% IN 2016

$301

$244

$164

$133 $131 $127 $121 $140

$169 $171 $194

$213

‐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 2014 2015p 2016f

$ Volume of Sales Percent Change

% Change$ in Billion

‐60%


WILD CARDS

– Stock market volatility

– Slower growth: China

– Further collapse in energy/commodity prices

– Geo‐political tensions

– Terrorism

– El Nino/Water Shortage

– 2016 Presidential election

10/9/2015

61

MARKET OPPORTUNITIES IN 2016

MARKET OPPORTUNITIES

– Millennials

• Turn renters into first‐time buyers

• First‐time buyers who bought with tax credit back in 2009 are ready to trade‐up

• Understand the differences in needs between Millennial first‐time buyers and Millennial trade‐up buyers

– Baby Boomers

• Ready to downsize

• Understand Boomers’ priorities: investment and retirement

• If we can’t keep them in CA, help them find a place out of state. Network with REALTORS® outside of CA

10/9/2015

62

MARKET OPPORTUNITIES

– Minorities

• Minorities have grown in homebuyer share over time

• Surge in the number of minority households will play a big role in the increase in housing demand in the next 10 years

• Develop programs and marketing material tailored towards minority home buyers of different ethnicity

– Investor sellers

• Investor buyers who purchased bargain properties a few years ago are ready to sell as home prices start leveling off

– Everyone else…

• Low interest rates will be here a little longer

MOST MILLENNIALS UNCERTAIN/DOUBTFUL THAT THEY COULD OBTAIN A MORTGAGE NOW?AMILLENNIAL ETHNICITY

SOURCE: C.A.R. 2014 Millennial SurveyQ: Could you obtain a mortgage if you applied now ?

Yes 22%

No 33%

Don't know 45%

10/9/2015

63

#TBTC.A.R.110

10/9/2015

64

#TBT…. SACRAMENTO 110 YEARS AGO

730 N Street

#TBT…. SAN FRANCISCO 110 YEARS AGO

500 block of Liberty Street

10/9/2015

65

#TBT…. FRESNO 110 YEARS AGO

Brix Mansion 2844 Fresno St

#TBT…. SUMMER OF LOVE

10/9/2015

66

THANK YOU!


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