2016 California Economic & Market Forecast

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 TOLDYOU
2015 FORECAST REPORTCARD

2014
Actual
2015
Forecast
2015
Projected
SFH Resales (000s)
383.3
402.5
407.5
% Change
-7.6%
5.8%
6.3%
Median Price ($000s)
$447.0
$478.7
$476.3
% Change
9.8%
5.2%
6.5%
30-Yr FRM
4.2%
4.5%
3.9%
Housing Affordability Index
30%
27%
31%
U.S. Gross Domestic Product
2.4%
3.0%
2.4%
Forecast Date: October 2015 vs. October 2014

SERIES: CA Housing Market Outlook
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS
ECONOMIC OUTLOOK
ECONOMY HAS BEEN GROWING FOR 68 MONTHS

2014: 2.4%; 2015: 2.4%; 2016: 2.6%
ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $
ANNUALLY
5%
QUARTERLY
3.9%
4%
3%
2%
1%
0%
-1%
-2%
2009 Largest Annual Drop since 1938 (-3.4%)
-3%
SERIES: GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
Q2-15
Q1-15
Q4-14
Q3-14
Q2-14
Q1-14
Q4-13
Q3-13
Q2-13
Q1-13
Q4-12
Q3-12
Q2-12
Q1-12
2016F
2015P
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
-4%
KEY SECTORSOF MACRO-ECONOMY
Consumer Sector
Business Sector
Government
International Trade
EMPLOYMENT STALLED IN SEPT:142K

198K/mo 2014 avg
260K/mo 2015 avg
ANNUAL PERCENT CHANGE

6
4
California
US
3.0%
2.0%
0
-2
Change
Growth
2,752,000
2.0%
-4
United States
California
470,000
3.0%
-6
NewYork
130,500
1.4%
Texas
217,700
1.9%
SERIES: Total Nonfarm Employment

SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
-8
UNEMPLOYMENT RATE HOLDS STEADY

September 2015: US 5.1% & August 2015:CA 6.1%
14%
US-CA
CA
US
12%
10%
8%
6%
4%
2%
0%
-2%
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
-4%
SERIES: Unemployment Rate The U-6 rate covers the unemployed, underemployed and those who are not looking but who want a job
UNEMPLOYMENT RATES (U6 VS. U3)

September 2015 = U3: 5.1%, U6: 10.0%
U3
18%
U6
16%
14%
12%
10%
8%
6%
4%
2%
SERIES: Unemployment Rates

Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
0%
PARTICIPATION DOWN: AGING POP & SLOW JOB

GROWTH & HIGH LONG TERM UNEMPLOYMENT
CA- 62.5% (Dec. 2014) vs. USA- 62.7% (Dec. 2014)
Labor Force Rate
70%
68%
66%
64%
62%
60%
SERIES: Labor Force Participation Rate

SOURCE: BLS, Data Buffet
US
CA
JOB TRENDS BY CALIFORNIA METRO AREA

August 2015: CA +3.0%, +470,000
San Jose
San Francisco
Orange County
San Diego
Inland Empire
Sacramento
Fresno MSA
Stockton MSA
Oakland
Los Angeles
Modesto
Ventura
Bakersfield
-1.0%
5.5%
4.6%
3.2%
3.1%
3.0%
2.8%
2.6%
2.0%
1.9%
1.8%
1.0%
0.9%
-0.2%
0.0%
1.0%

SOURCE: CA Employment Development Division
2.0%
3.0%
4.0%
5.0%
6.0%
CALIFORNIA JOB CHANGES BY INDUSTRY

August 2015: CA +3.0%, +470,000
Professional, Scientific & Technical Services
Construction
Leisure & Hospitality
Transportation, Warehousing & Utilities
Admistrative & Support & Waste Services
Real Estate & Rental & Leasing
Wholesale Trade
Health Care & Social Assistance
Information
Educational Services
Retail Trade
Government
Durable Goods
Finance & Insurance
Nondurable Goods
6.8%
6.4%
4.3%
3.6%
3.5%
3.5%
3.0%
2.7%
2.6%
2.0%
2.0%
1.3%
0.5%
0.4%
-1.0%
-2% -1%
0%
1%
SERIES: Total Nonfarm Employment By Industry

2%
3%
4%
5%
6%
7%
8%
NONFARM EMPLOYMENT BY REGION

Nonfarm Employment (Thousands)
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%

SOURCE: CA Employment Development Division
JOB LOSSES IN PRIOR RECESSIONS RECENT CYCLE WORST BY FAR
SERIES: Consumer Confidence

SOURCE: The Conference Board
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
CONSUMER CONFIDENCE INDEX
September 2015: 103.0
INDEX, 100=1985
120
100
80
60
40
20
CONSUMER PRICE INDEX

August 2015: All Items 0.2%YTY; Core +1.8%YTY
6%
All Items
Core
5%
4%
3%
2%
1%
0%
-1%
-2%
SERIES: Consumer Price Index

SOURCE: US Bureau of Labor Statistics
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
-3%
IS ITTIME?AH LETSWAITA LITTLE LONGER
MORTGAGE RATES
January 2009 October 2015
6%
MONTHLY
5%
4%
3%
2%
FRM
ARM
1%
0%
SERIES: 30Yr FRM, 1Yr ARM

SOURCE: Federal Home Loan Mortgage Corporation
WEEKLY
RATE HIKE POSTPONED, BUT NOTCANCELLED

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
WHEREAREWE 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
MARKET DOWN SHARPLY FROM THE PEAK

MONTHLY AVERAGE
S & P 500 Composite
Causes of the financial market turmoil
2150
- Highly valued asset markets
2100
2050
- Economic slowdown in China
2000
1950
1,944.4
1900
- U.S. monetary policy normalization
1850
- Collapse in energy and other

commodity prices
1800
1750
1700
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
1650
CROSSCURRENTS NETOUT
$50 bbl Lower Oil Prices

50 bps Lower Mortgage Rates
15% $ Appreciation
5% Lower Stock Prices
U.S. HOME SALES UP IN 2015

U.S., Aug 2015 Sales: 4,690,000 Units, +8.1%YTD, +6.1%YTY
7,000,000
6,000,000
4,690,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
SERIES: Sales of Existing Single Family Homes

SOURCE: NATIONAL ASSOCIATION OF REALTORS
*Sales are seasonally adjusted and annualized
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
U.S. HOME PRICE GAINS MODERATING

U.S., Aug 2015: $230,200, -1.4% MTM, +5.1%YTY
$230,200
$250,000
$200,000
$150,000
$100,000
$50,000
SERIES: Median Price of Existing Single Family Homes

Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
$-
U.S. COMMERCIAL VACANCY RATES
Commercial R.E.
Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 2014
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%
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%
8.5%
2015
2016
8.4% 12.0% 11.7% 8.8%
6.6% 6.6% 6.6% 6.6% 6.7%
6.6%
7.1%
7.1%
CA METRO COMMERCIAL VACANCY RATES

2015 Q2
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%
SOURCE: National Association of REALTORS
HOUSEHOLD GROWTH AFFECTED BY

DEMOGRAPHIC AND ECONOMIC FACTORS
HOUSEHOLD FORMATION ACCELERATES IN 2015
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
Real Disposable
Income, % Change
1.6%
3.1%
2.1%
1.5%
1.6%
0.2%
2.1%
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

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%
$172.9 $166.1 $176.8 $197.1 $208.3
$221.4
$231.0
6.3%
4.3%
Median Price ($000s)

% Change
0.2% -3.9%
6.4% 11.5%
SERIES: U.S. Existing home sales of single-family homes and condo/coops

5.7%
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%
0.7%
0.7%
0.7%
0.9%
0.9%
0.9%
0.9%
0.9%
3.4%
4.7%
0.2%
3.0%
4.3%
4.5%
Population Growth
Real Disposable
Income, % Change
SERIES: CA Economic Outlook

CALIFORNIA HOUSING MARKET

OUTLOOK
MEMBERSHIP FOLLOWS SALES

WITH 1-2YEAR LAG
Home Sales
Units of Home Sold
Membership
# of Members
700,000
250,000
600,000
2015p: 181,000
2016f: 183,000
200,000
500,000
150,000
400,000
300,000
100,000
200,000
50,000
100,000
2015p
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
0
1971
2015 SALES DID NOT DISAPPOINT

California, Aug 2015 Sales: 431,800 Units, +7.4%YTD, +9.3%YTY
700,000
600,000
Aug-14: Aug-15:
395,080 431,800
500,000
400,000
300,000
200,000
100,000
SERIES: Sales of Existing Single Family Homes

*Sales are seasonally adjusted and annualized
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
CA SALES RE-GAINED MOMENTUM IN 2015

Year-over-Year % Chg
6 per. Mov. Avg. (Year-over-Year % Chg)
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
SERIES: Sales of Existing Single Family Homes, Seasonally Adjusted

Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
-25%
HOME PRICE GAINS HAVE SLOWED

California, Aug 2015: $493,420, 1.0% MTM, +2.5%YTY
P: May-07
$594,530
$700,000
$600,000
Aug-14:
$481,250
$500,000
Aug-15:
$493,420
T: Feb-09
$245,230
-59% from
peak
$400,000
$300,000
$200,000
$100,000

Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
$-
HOME PRICE APPRECIATIONS HAVE

MODERATED SINCE MID 2013
YTY% Chg. in Price
50%
Condo
Single-Family Homes
40%
30%
20%
10%
0%
-10%
-20%
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
SERIES: Sales of SFH and Condo Units

Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
CALIFORNIA VS. U.S. MEDIAN PRICES

1970-2015
$600,000
California
US
CA Price Trend
$500,000
$400,000
$300,000
$200,000
$100,000

SOURCE: CALIFORNIA
CALIFORNIA ASSOCIATION
OFOF
REALTORS
SOURCE:
ASSOCIATION
REALTORS
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
$-
2015 - WHERE ARE WE ?

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
Its not an easy market/transaction for

anyone .
UNDERWATER MORTGAGES
RISING PRICES HAVE REVERSED EQUITY LOSSES
40%
Negative Equity Share in CA
Near Negative Equity Share in CA
35%
30%
25%
20%
15%
10%
5%
0%
SERIES: Underwater Mortgages

SOURCE: CoreLogic
7.3%
1.7%
INVENTORY CONTINUED TO
DECLINE FROM LASTYEAR
Aug 2014: 4.0 Months; Aug 2015: 3.6 Months
18
16
14
12
10
8
6
4
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.
SERIES: Unsold Inventory Index of Existing Single Family Homes

Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-
Jul-08
Jan-
Jul-07
Jan-07
Jul-06
Jul-05
Jan-05
Jan-
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
FEWER MIDDLE-AGE ADULTS IN RECENTYEARS
Source: Harvard Joint Center of Housing Studies, Census Bureau
DROP IN HOMEOWNERSHIP
DECLINE IN # OF TRADE UP BUYERS DUE TO POPULATION LOSS &

DROP IN HOMEOWNERSHIP RATE
REGIONAL HOUSING MARKETS
CA AUG. 2015 MEDIAN PRICES

YTY
SERIES: Median Price of Existing Detached Homes

CA 2015YTD SALES
SERIES:Year to Date Sales of Existing Detached Homes

NORTHERN CALIFORNIA AUG 2015
Sales
Median Price
12% YTD
8% YTY
UII
4.6
Months
MTM
32.7
Days
$346,180
5% YTY
Price
NA
Per Sq Ft
Sales
95.8%
To List Ratio
www.car.org/marketdata
NORTHERN CALIFORNIA
AUG. 2015 MEDIAN PRICES

NORTHERN CALIFORNIA
2015YTD SALES

NORTHERN WINE AUG 2015
Sales
Median Price
6% YTD
14% YTY
UII
3.6
Months
MTM
46.1
Days
$550,120
15% YTY
Price
Sales
Per Sq Ft
To List Ratio
NA
NA
NORTHERN WINE

NORTHERN WINE
2015YTD SALES

BAY AREA AUG 2015
Sales
Median Price
5% YTD
0.2% YTY
UII
2.3
Months
MTM
22.3
Days
$804,190
10% YTY
Price
$509
Per Sq Ft
Sales
103.4%
To List Ratio
BAY AREA

BAY AREA
2015YTD SALES

CENTRAL VALLEY AUG 2015
Sales
Median Price
10% YTD
12% YTY
UII
3.6
Months
MTM
24.4
Days
$276,900
7% YTY
Price
NA
Per Sq Ft
Sales
97.3%
To List Ratio
CENTRAL VALLEY

CENTRAL VALLEY
2015YTD SALES

CENTRAL COAST AUG 2015
Sales
Median Price
11% YTD
6% YTY
UII
3.9
Months
MTM
29.1
Days
$520,830
4% YTY
Price
NA
Per Sq Ft
Sales
97.7%
To List Ratio
CENTRAL COAST

CENTRAL COAST
2015YTD SALES

SOUTHERN CALIFORNIA AUG 2015
Sales
Median Price
9% YTD
7% YTY
UII
3.9
Months
MTM
41.9
Days
$464,400
3% YTY
Price
NA
Per Sq Ft
Sales
98.6%
To List Ratio
SOUTHERN CALIFORNIA

SOUTHERN CALIFORNIA
2015YTD SALES

ANNUAL HOUSING MARKET

SURVEY:
2015 FINDINGS
SHARE OF SECOND/ VACATION HOMES HIGHER

AFTER TWOYEARS OF DECLINE
% to Total Sales
8%
7%
6%
5.3%
5%
4%
3%
2%
1%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SERIES: 2015 Housing Market Survey
SHARE OF INVESTMENT PROPERTIES DROPS TO THE

LOWEST LEVEL SINCE 2009
% to Total Sales
20%
18%
16%
14%
13.1%
12%
10%
8%
6%
4%
2%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FIRST-TIME BUYERS FINDING IT HARD TO BUY

% First-Time Home Buyers
Long Run Average
50%
40%
Long Run Average = 38%
29.5%
30%
20%
10%
0%
2005
2006
2007
2008

2009
2010
2011
2012
2013
2014
2015
SHARE OF CASH BUYERS

LOWEST SINCE 2009
Almost one-fourth of buyers paid with all cash
The share of all cash buyers is the lowest in the last 6 years
% of All Cash Sales
35%
30%
25%
21%
20%
15%
10%
5%
0%
2005
2006
2007
2008

2009
2010
2011
2012
2013
2014
2015
THE SHARE OF INTERNATIONAL BUYERS

LOWEST IN 8YEARS
9%
8%
7%
6%
5%
4%
4%
3%
2%
1%
0%
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.?
23% OF CA REALTORS WORKED WITH AN

INTERNATIONAL BUYER IN THE PAST 12 MONTHS
# of Properties Sold to International Buyers in the Last 12 Months
% Who Sold to International Buyers
90%
80%
70%
77%
71% 72%
2013
2014
60%
2015
50%
40%
30%
20%
14%
10%
12% 9%
6% 6% 5%
4% 3% 3%
2% 2% 1%
4% 5% 4%
5 or more
0%
0
Q. How many properties have you sold to an international buyer in the last 12 months?
COUNTRY OF INTERNATIONAL BUYER
50%
45%
40%
35%
43%
30%
25%
20%
15%
10%
5%
0%
China
8%
8%
Mexico
South Korea
THE MEDIAN DOWN PAYMENT INCHED UP FROM 2014

Median Down Payment
% of Down Payment to Price
$90,000
25%
$80,000
20%
20%
$70,000
$60,000
$74,500
15%
$50,000
$40,000
10%
$30,000
$20,000
5%
$10,000
$0
2005 2006 2007 2008
Q. What was the amount of downpayment?
0%
2009
2010
2011
2012
2013
2014
2015
MARKET COMPETITION COOLS DOWN

AFTER PEAKING IN 2013
% with Multiple Offers
80%
# of Multiple offers (Average)
70%
60%
53%
53%
50%
4.3
40%
5
4
4.0
30%
3
2
20%
10%
0%
0
2005
2006
2007
2008
2009

2010
2011
2012
2013
2014
2015
YEARS OWNED HOME BEFORE SELLING

12
10
8
6
4
2
0

All Sellers
10
NET CASH GAIN TO SELLERS HIGHEST SINCE 2007

$250,000
$200,000
$150,000
$120,000
$100,000
$50,000
$0
2005
2006
2007
2008
2009
2010
2011
Q. What was the net cash gain or net loss to the seller as a result of this sale?
2012
2013
2014
2015
HOUSING AFFORDABILITY:
CRISIS BREWING
CALIFORNIA PRICES MORE VOLATILE AND MUCH

HIGHER THAN THE NATION
1970-2015
2015 Dollar Value
$700,000
California
US
$600,000
$500,000
The difference between Californias prices and national home prices increased
from $10K in 1970 to $255K today
$400,000
$300,000
$200,000
$100,000
$-

SOURCE: CALIFORNIA
CALIFORNIA ASSOCIATION
OFOF
REALTORS
SOURCE:
ASSOCIATION
REALTORS
HOUSING AFFORDABILITY PEAKED Q1 2012

PRICES V. LOW RATES AND INCOME GROWTH
California vs. U.S. 1984-2015
% OF HOUSEHOLDS THAT CAN BUY
A MEDIAN-PRICED HOME
80%
CA
70%
60%
50%
US
Annual
71%
56%
Quarterly
57%
40%
30%
20%
10%
0%
SERIES: Housing Affordability Index of Traditional Buyers

30%
HOUSING AFFORDABILITY IN CA: BY COUNTY

% able to purchase median priced home
70
2015 Q2
62
60
50
40
57 56
55 54
50 50
47 46
44
41 40
30
20
10
0
SERIES: Housing Affordability Index

37
30 30
28 27
25 25 25
23
21 20
19 18 18
17 16
13
10
AFFORDABLE INVENTORY AVAILABLE TO

MEDIAN-INCOME HOUSEHOLDS
2015 Q2
80%
70% 67.2%
60%
50%
40%
30%
28.5%
20%
10%
0%
2.1%
HOW WAGES MEASURED AGAINST INCOME

REQUIRED TO BUY A HOME
California
$120,000
2014 Annual Mean Wage
$100,000
$98,400
$87,520
$80,000
$69,990
$71,630
Retail
Chefs and Elementary
Salespersons Head Cooks
School
Teachers
Firefighters
$60,000
$40,000
$20,000
$0
$119,970
$89,250
$95,978
$45,340
$27,010
SOURCE: Bureau of Labor Statistics, C.A.R.
Police and
Computer
Registered
Software
Min. Inc
Sherriff's Programmers
Nurses
Developers Required to
Patrol
(Applications) Buy a Med.
Officers
Home

San Francisco
$300,000
$250,000
$267,783
$200,000
$150,000
$124,980 $118,690
$100,000
$50,000
$0
$52,690
$30,340
Retail
Auto.
Salespersons Mechanics
$70,680
$88,390
$97,570
$49,230
Head Cooks
School
Teachers
Firefighters
Computer
Registered
Programmers
Nurses
Software
Min. Inc
Home

Sacramento
$120,000
$100,000
$105,390 $103,730
$80,000
$75,980
$60,000
$67,300
$58,520
$40,000
$20,000
$0
$46,790
$57,581
$50,730
$26,610
Retail
Auto.

Head Cooks
School
Teachers
Firefighters
Computer
Registered
Programmers
Nurses
Software
Min. Inc
Home

Los Angeles
$120,000
$100,000
$103,790
$80,000
$82,830
$40,000
$0
$88,082
$72,720
$60,000
$20,000
$86,840
$93,180
$42,610
$44,330
$26,870
Retail
Auto.

Head Cooks
School
Teachers
Firefighters
Computer
Registered
Programmers
Nurses
Software
Min. Inc
Home
CALIFORNIAS MAJOR METROS ARE LESS

AFFORDABLE THAN THE AVERAGE U.S. METRO
SOURCE: Legislative Analysts Office
SHARE OF FIRST-TIME BUYERS REMAINS

BELOW LONG-RUN AVERAGE
% First-Time Home Buyers
Long Run Average
50%
40%
Long Run Average = 38%

29.5%
30%
20%
10%
0%
2005
2006
2007
2008

2009
2010
2011
2012
2013
2014
2015
HOMEOWNERSHIP RATES
California Vs. U.S.
75%
CA
Peak: 69.0%
70%
65%
US
64.5%
64.8%
60%
Peak: 60.2%
55%
53.7%
50%
45%
40%
SERIES: Homeownership Rates

SOURCE: U.S. Census Bureau
54.9%
MISSING 100,000 UNITS ANNUALLY, AT LEAST

2015p: 98,500 (42,190 sf, 56,310 mf)
2016f: 124,600 total units
350000
300000
Single Family
250000
200000
150000
100000
50000
0
SERIES: New Housing Permits

SOURCE: Construction Industry Research Board
Multi-Family
Household Growth:
165,000/yr
THE BOOMERS AND

THEIR NEXT MOVE
THE BOOMERS AND

THEIR NEXT MOVE
BOOMERS BORN BETWEEN 1946-1964

8%
Average:
59
7%
6%
5%
4%
3%
2%
1%
0%
50
51
52
53
54
55
56
57
58
59
60
Age (Years)
What is your age?
SERIES: 2014 Baby Boomer Survey
61
62
63
64
65
66
67
68
MAJORITY ARE MARRIED
Other 18%
Married 56%
Single 26%
What is your marital status?

BABY BOOMERS LESS DIVERSE THAN MILLENNIALS

79%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Boomers
Millennials
38%
35%
18%
9%
Caucasian/
White
Asian
What is your ethnic background?

4%
7%
African
American/
Black
4%
Hispanic/
Latino
4% 4%
Other
3/4 BABY BOOMERS ARE HOME OWNERS

Other 3%
Rent 22%
Own 75%
What is your current living situation?

HOME OWNERSHIP RATE NEARLY 4 TIMES HIGHER

AMONG BOOMERS
Baby Boomers
Millennials
3%
22%
39%
20%
Own
Own
Rent
Rent
Other
Other
75%
What is your current living situation?
41%
MOST HAVE EQUITY IN THEIR HOME

No, 8%
Yes, 92%
Do you have equity in your home?

MOST DONT PLAN TO USE HOME EQUITY FOR

INCOME DURING RETIREMENT
Yes, 23%
No, 77%
Are you planning on using this equity for income during retirement?
MAJORITY DO NOT PLAN TO SELL HOME

WHEN THEY RETIRE
Yes, 10%
Don't know/
unsure, 32%
No, 59%
Do you plan to sell your current home when you retire?

MAJORITY WONT SELL BECAUSE THEY LIKE THEIR

HOME
5%
8%
I like my home
10%
I cannot afford to buy another

retirement home
I plan to give the home to my
child(ren)
Another reason
78%
Why do you not plan to sell your current home when you retire?
POSTPONED RETIREMENT BECAUSE

14%
Did not save enough money yet for retirement
9%
Loss of employment
7%
Loss of assets/ income due to 2008 economic recession
4%
Other
3%
Loss of retirement income

Loss of home
2%
Medical bills
2%
Loss of pension
1%
Death of significant other
1%
0%
2%
4%
6%
Did you have to postpone your date of retirement due to any of the following?
8%
10%
12%
14%
> DO NOT FEEL THEY HAVE SAVED ENOUGH MONEY

TO RETIRE COMFORTABLY
Yes, 46%
No, 54%
Do you feel you have saved enough money to retire comfortably?

MAJORITY WORRY ABOUT CHILDRENS ABILITY TO

BECOME HOME OWNERS
No, 45%
Yes, 55%
Do you worry about your childrens ability to become home owners in the future?
2/5 PLAN TO HELP CHILDREN WITH DOWN PAYMENT
No, 57%
Yes, 43%
Do you plan to help your children with their down payment to purchase a home?
WHAT FINANCIAL DECISION

WOULD BOOMERS CHANGE?
22%
Saving more/ spending less
19%
Better investment decisions
8%
Invest in real estate
7%
Seek better job
5%
Retiring prematurely
4%
Carry less debt/ poor credit
2%
Cash out/ open IRA
1%
Moving to the wrong location
0%
5%
10%
15%
20%
If you could change one financial decision that you made within the past 10 years, what would it be?
25%
WHAT KEEPS BOOMERS UP AT NIGHT?

39%
Nothing
13%
Bills/ finances
6%
Stress/ anxiety
Family issues
4%
Work
4%
Job security
4%
Ache/ pain
4%
Insomnia
3%
Health concerns
3%
TV/ internet
2%
World politics
2%
1%
Economy
0%
5%
10%
15%
What keeps you up at night?

20%
25%
30%
35%
40%
45%
CRAFTSMAN BUNGALOW IS DREAM HOME FOR

1/3 HOME OWNERS
craftsman bungalow
neo colonial
dream mansion
32%
desert modernism
19%
art nouveau/art moderne
8.5%
14%
modern townhome
1.6%
12%
downtown loft
5.1%
5.7%
brick urban rowhome
Q. Which of the following is your dream home?
Frank Lloyd Wright
2.6%
2/3 HOME OWNERS PREFER A NIGHT IN WITH

FAMILY/FRIENDS FOR FUN
65%
A quiet night in with friends/family

A trip to Paris
57%
A trip to New York City
56%
A fantastic movie
53%
A concert with your favorite artist
52%
37%
A week camping/fishing
21%
A "Hangover" weekend in Vegas
16%
Woodstock in 1969
10%
Burning Man
0%
10%
20%
30%
Q. In which of the following activities would you like to participate? Select all that apply.
40%
50%
60%
70%
DIVERSITY IN HOMEOWNERSHIP
SHARE OF MINORITY HOME BUYERS

HAS GROWN OVER TIME
1995
2005
2015
80%
70%
60%
68.5%
55.8% 56.3%
50%
40%
30%
19.9%
20%
14.1%
10%
14.0%
12.5%
7.5%
5.0% 4.2% 3.6%
0%
White/Non-Hispanic
African-American
Hispanic
Q. What was the race/ethnicity of the head of household buying the property
Asian
16.5%
HOUSING DEMAND WILL INCREASE,

LARGELY DRIVEN BY MINORITIES
Net new households, millions
14
12
Projected household growth, 2010-2020

2010-2010
100%
Projected household growth, 2020-2030
10
100%
77%
88%
6
39%
46%
23%
2
2.7
19% 18%
12%
1.3
White
SOURCE: Urban Institute
4.6
4.8
Hispanic
2.2
1.9
18%
2.1
24%
2.5
Black, Non-Hispanic Other, Non-Hispanic
8.9
9.1
Total Minority
11.6 10.4
Total
IMMIGRANT SHARE OF GROWTH IN

HOME OWNERS
2010-2020
100%
90%
West
Midwest
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: Dowell Myers and John Pitkin, Immigrant Contributions to the Housing
Market RIHA, Mortgage Bankers Association, 2013
South
Northeast
2016 FORECAST
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
-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%
Housing Affordability
Index
48%
-6.2%
11.6%
27.5%
9.8%
6.5%
3.2%
53%
51%
36%
30%
31%
27%
4.5%
3.7%
4.0%
4.2%
3.9%
4.5%
% Change
30-Yr FRM
4.7%

SALES UP FOR 2015 AND CONTINUE TO IMPROVE IN 2015;

PRICE WILL GROW STEADILY THISYEAR AND NEXT
Sales of Existing Detached Homes
Units
(Thousand)
Median Price
Price
(Thousand)
700
$600
600
$476
$500
500
407
400
433
$491
$400
$300
300
$200
200
$100
100
$0
0
2005
2007
2009
2011
2013
2015p

2005
2007
2009
2011
2013
2015p
CA: DOLLAR VOLUME

UP 13.3% IN 2015, UP 9.6% IN 2016
$ in Billion
% Change
$400
$ Volume of Sales
30%
Percent Change
$350
$300
20%
$301
10%
$244
$250
$200
-60%
$169
$164
$133
$150
$131
$127
$121
$171
$194
$213
0%
-10%
$140
-20%
$100
$50
-30%
$0
-40%
2005
2006
2007
2008
2009

2010
2011
2012
2013
2014
2015p 2016f
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
MARKET OPPORTUNITIES IN 2016
MARKETOPPORTUNITIES
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 cant keep them in CA, help them find a place out of
state. Network with REALTORS outside of CA
MARKETOPPORTUNITIES
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
Yes 22%
Don't know
45%
No 33%
SOURCE: C.A.R. 2014 Millennial Survey

Q: Could you obtain a mortgage if you applied now ?
#TBTC.A.R.110
#TBT. SACRAMENTO 110YEARS AGO
730 N Street
#TBT. SAN FRANCISCO 110YEARS AGO
500 block of Liberty Street
#TBT. FRESNO 110YEARS AGO
Brix Mansion 2844 Fresno St
#TBT. SUMMER OF LOVE
THANKYOU!
lesliea@car.org
Facebook: CARResearchgroup
Twitter: CARResearchInfo
This presentation can be found on
Speeches & Presentations

2016 California Economic &amp; Market Forecast

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2016 California Economic &amp; Market Forecast

Uploaded by

Copyright:

Available Formats

2016 CALIFORNIA

HOW DID I DO?

2015 FORECAST REPORTCARD

SFH Resales (000s)

Median Price ($000s)

Housing Affordability Index

U.S. Gross Domestic Product

Forecast Date: October 2015 vs. October 2014

ECONOMY HAS BEEN GROWING FOR 68 MONTHS

2009 Largest Annual Drop since 1938 (-3.4%)

KEY SECTORSOF MACRO-ECONOMY

EMPLOYMENT STALLED IN SEPT:142K

ANNUAL PERCENT CHANGE

SERIES: Total Nonfarm Employment

UNEMPLOYMENT RATE HOLDS STEADY

UNEMPLOYMENT RATES (U6 VS. U3)

SERIES: Unemployment Rates

PARTICIPATION DOWN: AGING POP & SLOW JOB

SERIES: Labor Force Participation Rate

JOB TRENDS BY CALIFORNIA METRO AREA

SERIES: Total Nonfarm Employment

CALIFORNIA JOB CHANGES BY INDUSTRY

SERIES: Total Nonfarm Employment By Industry

NONFARM EMPLOYMENT BY REGION

SERIES: Total Nonfarm Employment

JOB LOSSES IN PRIOR RECESSIONS RECENT CYCLE WORST BY FAR

SERIES: Consumer Confidence

CONSUMER CONFIDENCE INDEX

September 2015: 103.0

CONSUMER PRICE INDEX

SERIES: Consumer Price Index

IS ITTIME?AH LETSWAITA LITTLE LONGER

SERIES: 30Yr FRM, 1Yr ARM

RATE HIKE POSTPONED, BUT NOTCANCELLED

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

MARKET DOWN SHARPLY FROM THE PEAK

S & P 500 Composite

Causes of the financial market turmoil

- Highly valued asset markets

- Economic slowdown in China

- U.S. monetary policy normalization

- Collapse in energy and other

$50 bbl Lower Oil Prices

U.S. HOME SALES UP IN 2015

SERIES: Sales of Existing Single Family Homes

*Sales are seasonally adjusted and annualized

U.S. HOME PRICE GAINS MODERATING

SERIES: Median Price of Existing Single Family Homes

U.S. COMMERCIAL VACANCY RATES

Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 2014

11.3% 10.8% 10.3% 9.8% 9.4% 9.0%

8.4% 6.6% 6.7%

SOURCE: NATIONAL ASSOCIATION OF REALTORS

8.4% 12.0% 11.7% 8.8%

6.6% 6.6% 6.6% 6.6% 6.7%

CA METRO COMMERCIAL VACANCY RATES

SOURCE: National Association of REALTORS

HOUSEHOLD GROWTH AFFECTED BY

HOUSEHOLD FORMATION ACCELERATES IN 2015

U.S. ECONOMIC OUTLOOK

Nonfarm Job Growth

2016 California Economic & Market Forecast

2016 California Economic & Market Forecast