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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
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%
Source: NAR 2006 Market-by-Market Home Price Analysis Reports
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.
Source: NAR 2006 Market-by-Market Home Price Analysis Reports
Housholds Earning…Annual Income
Monthly Income
Affordable PITI @ 30% Debt-Inc.
Ratio
Affordable PITI @ 40% Debt-Inc.
Ratio
Affordable PITI @ 50% Debt-Inc.
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
SOURCE: California Association of REALTORS®
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
Single-Family Detached Condo/Townhome
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®; The Conference Board
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
$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: $549,990 Up 0.9% Y-T-Y
SOURCE: California Association of REALTORS®
High Desert 332,897$ 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
SOURCE: California Association of REALTORS®
Supply Indicators
SOURCE: California Association of REALTORS®
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
* Thru Quarter 2 of 2006
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: California Association of REALTORS®
* Thru Quarter 2 of 2006
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-
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
20
40
60
80
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
SOURCE: California Association of REALTORS®; The Conference Board
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000Ja
n-00
Apr
-00
Jul-0
0O
ct-0
0Ja
n-01
Apr
-01
Jul-0
1O
ct-0
1Ja
n-02
Apr
-02
Jul-0
2O
ct-0
2Ja
n-03
Apr
-03
Jul-0
3O
ct-0
3Ja
n-04
Apr
-04
Jul-0
4O
ct-0
4Ja
n-05
Apr
-05
Jul-0
5O
ct-0
5Ja
n-06
Apr
-06
Jul-0
6
Median Price of Existing Detached HomesCentral Valley, August 2006: $349,890, -3.8% Y-T-Y
SOURCE: California Association of REALTORS®
285,000$ 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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
* Thru Quarter 2 of 2006
SOURCE: DataQuick Information Systems
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
SOURCE: California Association of REALTORS®
* Thru Quarter 2 of 2006
SOURCE: DataQuick Information Systems
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
SOURCE: California Association of REALTORS®
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
Industrial BldgsRetail BldgsOffice BldgsOther(Gap to Non Res Total)
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
-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
20
40
60
80
100
120
140
160Sales Consumer Confidence
SOURCE: California Association of REALTORS®; The Conference Board
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
$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
Jul-0
2O
ct-0
2Ja
n-03
Apr
-03
Jul-0
3O
ct-0
3Ja
n-04
Apr
-04
Jul-0
4O
ct-0
4Ja
n-05
Apr
-05
Jul-0
5O
ct-0
5Ja
n-06
Apr
-06
Jul-0
6
Median Price of Existing Detached HomesBay Area, August 2006: $737,110, Up 0.9% Y-T-Y
SOURCE: California Association of REALTORS®
Median Price of Existing Detached Homes
Alameda 671,874$ 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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
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
SOURCE: California Association of REALTORS®
* Thru Quarter 2 of 2006
SOURCE: DataQuick Information Systems
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
SOURCE: California Association of REALTORS®
* Thru Quarter 2 of 2006
SOURCE: DataQuick Information Systems
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
SOURCE: California Association of REALTORS®
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
Industrial BldgsRetail BldgsOffice BldgsOther(Gap to Non Res Total)
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%
SOURCE: California Association of REALTORS®
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%
SOURCE: California Association of REALTORS®
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%
SOURCE: California Association of REALTORS®
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
Single-Family Detached Condo/Townhome
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