2016 California Economic & Market Forecast

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  • 2016 CALIFORNIA ECONOMIC & MARKET FORECAST

    October 19, 2015Deasy /Penner & Partners

    Leslie Appleton-Young, Vice President & Chief Economist

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  • The Future

  • 2016 FORECAST

  • 2015 FORECAST REPORT CARD

    Forecast Date: October 2015 vs. October 2014SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS

    SFH Resales (000s)

    % Change

    Median Price ($000s)

    % Change

    30-Yr FRM

    Housing Affordability 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%

  • 2016 FORECAST

    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%DATE: September 2015 SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

  • ECONOMIC OUTLOOK

  • U.S. is under-performing Job-growth is slowing Q3 Earnings reports disappointing Consumers buying selectively Low oil prices help and hurt Strong dollar hurting exports

    Fed meets October 27-28 & December 15-16 Dont expect hike in rates until March 2016

    China is slowing: 6.9% growth in 3rd quarter Lowest since 2009

    LATEST ECONOMIC NEWS

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    Soul Cycle IPO Who will win: Leslie or Joel? aspirational lifestyle brand"

    TRENDING BOOMERS VS MILLENIALS

  • -5%

    -4%

    -3%

    -1%

    0%

    1%

    3%

    4%

    5%

    20052006200720082009201020112012201320142015P2016FQ1-12Q2-12Q3-12Q4-12Q1-13Q2-13Q3-13Q4-13Q1-14Q2-14Q3-14Q4-14Q1-15Q2-15

    ECONOMY HAS BEEN GROWING FOR 68 MONTHS

    2014: 2.4%; 2015: 2.4%; 2016: 2.7% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $

    ANNUALLY QUARTERLY

    2009 Largest Annual Drop since 1938 (-3.4%)

    SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

    3.9%

  • EMPLOYMENT STALLED IN SEPT:142K

    -7

    -5.25

    -3.5

    -1.75

    0

    1.75

    3.5

    5.25

    1/1/05 9/1/06 5/1/08 1/1/10 9/1/11 5/1/13 1/1/15

    California USANNUAL PERCENT CHANGE

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

    Change Growth

    United States 2,752,000 2.0%

    California 470,000 3.0%

    New York 130,500 1.4%

    Texas 217,700 1.9%

    198K/mo 2015 avg260K/mo 2014 avg

  • UNEMPLOYMENT RATE HOLDS STEADYSeptember 2015: US 5.1% & August 2015:CA 6.1%

    -8%

    0%

    8%

    15%

    23%

    30%

    1/1/059/1/065/1/081/1/109/1/115/1/131/1/15

    CA US US-CA

    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

  • JOB TRENDS BY CALIFORNIA METRO AREA

    San JoseSan Francisco

    Orange CountySan Diego

    Inland EmpireSacramentoFresno MSA

    Stockton MSAOakland

    Los AngelesModestoVentura

    Bakersfield

    -1.5% 0.0% 1.5% 3.0% 4.5% 6.0%

    -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%

    SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

    ANNUAL PERCENT CHANGE

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

  • CALIFORNIA JOB CHANGES BY INDUSTRY

    Professional, Scientific & Technical ServicesConstruction

    Leisure & HospitalityTransportation, Warehousing & Utilities

    Admistrative & Support & Waste ServicesReal Estate & Rental & Leasing

    Wholesale TradeHealth Care & Social Assistance

    InformationEducational Services

    Retail TradeGovernment

    Durable GoodsFinance & InsuranceNondurable Goods

    -2% 0% 2% 4% 5% 7%-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%

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

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

  • CA METRO COMMERCIAL VACANCY RATES 2015 Q2

    SOURCE: National Association of REALTORS

    MSA Office Industrial Retail Multi-FamilyLos 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%

  • 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 Employment SOURCE: CA Employment Development Division

  • CONSUMER PRICE INDEXAugust 2015: All Items 0.2% YTY; Core +1.8% YTY

    -3%

    -2%

    0%

    2%

    3%

    5%

    6%

    1/1/055/1/079/1/091/1/125/1/14

    All Items CoreANNUAL PERCENT CHANGE

    SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics

  • IS IT TIME? AH LETS WAIT A LITTLE LONGER

  • RE-CALCULATING

  • MORTGAGE RATES January 2009 October 2015

    0%

    2%

    3%

    5%

    6%

    2009/012009/052009/092010/012010/052010/092011/012011/052011/092012/012012/052012/092013/012013/052013/092014/012014/052014/092015/012015/0508.27.1509.24.15

    FRMARM

    MONTHLY WEEKLY

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

  • U.S. HOME SALES UP IN 2015U.S., Aug 2015 Sales: 4,690,000 Units, +8.1% YTD, +6.1% YTY

    00

    1,750,000

    3,500,000

    5,250,000

    7,000,000

    3835338384384123844338473385043853438565385963862638657386873871838749387773880838838388693889938930389613899139022390523908339114391423917339203392343926439295393263935639387394173944839479395083953939569396003963039661396923972239753397833981439845398733990439934399653999540026400574008740118401484017940210402384026940299403304036040391404224045240483405134054440575406034063440664406954072540756407874081740848408784090940940409694100041030410614109141122411534118341214412444127541306413344136541395414264145641487415184154841579416094164041671416994173041760417914182141852418834191341944419744200542036420644209542125421564218642217

    4,690,000

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

  • U.S. HOME PRICE GAINS MODERATINGU.S., Aug 2015: $230,200, -1.4% MTM, +5.1% YTY

    00

    $ 60,000

    $ 120,000

    $ 180,000

    $ 240,000

    Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

    SERIES: Median Price of Existing Single Family HomesSOURCE: NATIONAL 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/coops SOURCE: NATIONAL ASSOCIATION OF REALTORS

  • 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 Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

  • 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 Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

  • CALIFORNIA HOUSING MARKET OUTLOOK

  • C.A.R. MEMBERSHIP FOLLOWS SALES WITH 1-2 YEAR LAG

    55,000

    110,000

    165,000

    220,000

    0

    150,000

    300,000

    450,000

    600,000

    1971

    1973

    1975

    1977

    1979

    1981

    1983

    1985

    1987

    1989

    1991

    1993

    1995

    1997

    1999

    2001

    2003

    2005

    2007

    2009

    2011

    2013

    2015

    p

    Membership Home SalesUnits of Home Sold # of Members

  • SALES OF EXISTING DETACHED HOMESCalifornia, Sep 2015 Sales: 425,030 Units, +7