CAR_EconomicForcast_April_20_2012

transcript

2012 California Real Estate Market Forecast

Real Estate Education CenterApril 20, 2012

Oscar WeiSenior Research AnalystCalifornia Association of REALTORS®

Overview

US and California Economies

California Housing Market

Local Housing Market

Buyers and Sellers

Market Forecast

Market Opportunities

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US and California Economic Conditions

Gross Domestic Product

-8%-7%-6%

-5%-4%-3%

-2%-1%

0%1%2%

3%4%5%

2011: 1.7%; 2011 Q4: 3.0%

ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $

ANNUAL QTRLY

2009 Largest Annual Drop since 1938 (-3.4%)

Unemployment: Heading Lower U.S. at 3 year low

California vs. United States

SOURCE: CA Employment Development Division

-1,000,000

-800,000

-600,000

-400,000

-200,000

200,000

400,000

600,000

U.S. Non-farm Job Growth

SOURCE: US Dept of Labor, Bureau of Labor Statistics

Month-to-Month Changes

Recession Job Losses: 8.8 millionSince Jan’10: +3.4 million

-160000

-140000

-120000

-100000

-80000

-60000

-40000

-20000

100000

California Non-farm Job Growth

SOURCE: CA Employment Development Division

Month-to-Month Changes

Recession Job Losses: 1.3 millionSince Jan’10: +308,200

Where are California’s Jobs? Employment Trends:

Construction & Financial Sectors Biggest Losers

SOURCE: California Association of REALTORS®

Industry 2005 Jul-11Year to

Mining and Logging 23,600 27,600 4,000

Construction 905,300 567,300 -338,000

Manufacturing 1,502,600 1,257,600 -245,000

Trade, Transportation & Utilities 2,822,100 2,641,500 -180,600

Information 473,600 455,400 -18,200

Financial Activities 920,300 755,800 -164,500

Professional & Business Services 2,160,700 2,136,200 -24,500

Educational & Health Services 1,593,400 1,837,000 243,600

Leisure & Hospitality 1,475,200 1,531,600 56,400

Other Services 505,500 484,500 -21,000

Government 2,420,200 2,380,200 -40,000

TOTAL 14,802,500 14,074,700 -727,800

INDEX, 100=1985

Consumer Confidence IndexMarch 2012: 70.2

Consumer Price IndexMarch 2012: All Items +2.6% YTY; Core +2.2% YTY

All Items

PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

Performance Targets for National Economy

Current Target

Unemployment 6% 9.0%

US GDP 3% or higher 1.8%

Nonfarm Job Growth

3%+ or 400K+/mo

CPI 2.5% 3.2%

U.S. Economic Outlook

2005 2006 2007 2008 2009 2010 2011 2012f

US GDP 3.1% 3.1% 1.9% -0.3% -3.5% 3.0% 1.7% 2.0%

Nonfarm Job Growth

1.7% 1.8% 1.1% -0.6% -4.4% -0.7% 1.2% 0.9%

Unemployment 5.1% 4.6% 4.6% 5.8% 9.3% 9.6% 9.0% 8.9%

CPI 3.4% 3.2% 2.8% 3.8% -0.4% 1.6% 3.2% 2.3%

Real Disposable Income, % Change

1.3% 4.0% 2.2% 0.5% 0.9% 1.8% 1.3% 1.5%

Revised Date: March 2012

California Economic Outlook

2005 2006 2007 2008 2009 2010 2011 2012f

Nonfarm Job Growth

1.8% 1.7% 0.8% -1.3% -6.0% -1.1% 0.9% 2.1%

Unemployment Rate

5.4% 4.9% 5.4% 7.2% 11.3% 12.4% 11.7% 11.2%

Population Growth

0.7% 0.7% 0.8% 0.8% 0.6% 0.7% 0.7% 0.9%

Real Disposable Income, % Change

1.2% 4.4% 1.3% 1.0% -3.1% 1.8% 1.5% 2.0%

Revised Date: March 2012

Economic Snapshot

Recession over, slow recovery expected

Engine of growth must come from consumers

Labor market: job growth remained slow

Inflation in check through 2012-12

Monetary policy: No rate hikes until 2013

Fiscal policy: politics = paralysis

California Housing Market

Sales of Existing Detached Homes and Pacific West Consumer ConfidenceCalifornia, March 2012 Sales: 505,360 Units, Down 0.9% YTD, Down 2.3% YTY

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Sales Consumer ConfidenceUNITS INDEX

SOURCE: California Association of REALTORS®; The Conference Board

*Sales are seasonally adjusted and annualized

Median Price of Existing Detached HomesCalifornia, March 2012: $291,080, Up 1.6% YTY

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000 P: May-07$594,530

T: Feb-09$245,230-59% frompeak

Unsold Inventory IndexCalifornia, March 2012: 4.1 Months

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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.

Price Range (Thousand) Mar-11 Feb-12 Mar-12

$1,000K+ 9.0 12.1 7.7$750-1000K 6.4 7.6 5.5$500-750K 5.6 6.1 4.4$300-500K 5.3 5.2 3.9$0-300K 5.0 4.6 3.6

Higher Price = Higher Inventory Unsold Inventory Index

(Months of Supply)

Unsold Inventory By Price RangeJanuary 2005 – March 2012

$0 - 300K

$300-500K

$500-750K

$750-1000K

$1,000K+-

MONTHS

REOs; 25.2%

Short Sales; 23.0%

Other Distressed Sales (Not Specified); 0.7%

Equity Sales; 51.1%

Feb-12

Share of Distressed Sales to Total Sales

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-120%

Equity Sales Short Sale REO

Share of Equity Sales Edged Up Following Two Months of Decline

Median Price by Sale TypeREO, Short-Sale, Non-Distressed

SOURCE: C.A.R.

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Equity Sales Short Sale REOMedian Price

Tight Supply of Inventory for REO Sales

Equity Sales REO Sales Short Sales0

Feb-12Unsold In-ventory In-dex (Months)

Short Sale Inventory Without Contingent Sales

Equity Sales REO Sales Short Sales0

Feb-12Unsold In-ventory In-dex (Months)

California Foreclosure Inventory, March 2012

SOURCE: ForeclosureRadar.com

California Foreclosure Timeframes- March 2012

SOURCE: ForeclosureRadar.com

More Buyers Purchasing Investments & Second/ Vacation Homes

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Investment/Rental Property Vacation/Second Home

Share of First-Time Buyers Fell Below Average

Q. Was the buyer a first-time buyer?

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0%

% First-Time Home Buyers Long Run Average

All Cash Buyers More Than Doubled Since 2007

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

% of All Cash Sales

FHA Loans Gained Popularity in Last 4 Years (First Mortgage)

Q. Please indicate the type of mortgage

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

FHA VA

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

FRM ARM Other

Types Of New First Mortgages

Q. Please indicate the type of mortgage

CA New Housing Permits2011: 47,015 units, +5.0% YTY; Jan 2012: -18.4% YTD

50,000

100,000

150,000

200,000

250,000

300,0001

Single Family Multi-Family

SOURCE: CBIA

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

Local/Regional Markets

Bay Area

Nonfarm EmploymentBay Area Region

Feb 2011 Feb 2012 Change % Change

San Francisco 936.5 958.3 21.8 2.3%

Oakland 940.9 953.3 12.4 1.3%

San Jose 864.9 891.8 26.9 3.1%

Napa/Solano 115.9 120.1 4.2 3.6%

Sonoma 167.4 168.2 0.8 0.5%

Bay Area Total 3,025.6 3,091.7 66.1 2.2%

Nonfarm Employment (Thousands)

SOURCE: California Economic Development Dept.

Sales of Existing Detached Homes and Pacific West Consumer Confidence

Bay Area, March 2012: 3,808 Units, Up 5.8% YTD, Up 0.7% YTY

160Sales Consumer Confidence

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®; The Conference Board

INDEXUNITS

Alameda 606 383 560 46.2% -7.6% 2.6%Contra-Costa (Central County) 339 240 359 49.6% 5.9% 4.9%Marin 177 121 181 49.6% 2.3% 13.4%Napa 109 90 121 34.4% 11.0% 10.6%San Francisco 288 222 280 26.1% -2.8% 0.9%San Mateo 392 280 458 63.6% 16.8% 9.7%Santa Clara 1,013 710 967 36.2% -4.5% -2.9%Solano 464 382 469 22.8% 1.1% 14.6%Sonoma 393 343 412 20.1% 4.8% 18.8%

Y-t-DY-t-YCounty Mar-11 Feb-12 Mar-12 M-t-M

Sales of Existing Detached HomesBay Area Counties

Median Price of Existing Detached HomesBay Area Counties

Alameda $480,250 $402,880 $425,000 5.5% -11.5%Contra Costa (Central County) $567,310 $515,620 $582,070 12.9% 2.6%Marin $826,700 $732,140 $672,620 -8.1% -18.6%Napa $332,610 $348,000 $351,470 1.0% 5.7%San Francisco $679,780 $592,950 $649,390 9.5% -4.5%San Mateo $666,950 $582,500 $677,900 16.4% 1.6%Santa Clara $550,250 $530,000 $575,250 8.5% 4.5%Solano $193,480 $179,020 $194,310 8.5% 0.4%Sonoma $325,910 $324,710 $317,650 -2.2% -2.5%

Mar-12 M-t-M Y-t-YCounty Mar-11 Feb-12

March 2011

February 2012

March2012

Median Time on the Market56.0 Days 62.7 Days 53.2 Days

Unsold Inventory Index4.4 Mos. 4.2 Mos. 3.5 Mos.

Supply IndicatorsBay Area

Note: The Unsold Inventory Index represents the number of months it would take to deplete the remaining inventory at the end of a particular month with the sales rate of the month in consideration. Inventory includes listings with “Active”, “Pending”, and “Contingent” (when available) statuses.

County Mar-11 Feb-12 Mar-12

Alameda 4.1 5.0 3.3Contra-Costa (Central County) 4.9 5.0 3.4Marin 5.1 4.0 4.6Napa 6.4 6.4 5.9San Francisco 5.1 4.8 3.9San Mateo 4.3 4.0 2.4Santa Clara 3.6 3.5 2.5Solano 4.5 3.7 4.0Sonoma 5.0 4.5 4.9S. F. Bay Area 4.4 4.2 3.5

Unsold Inventory Index (Months)

Bay Area

Notices of Default – Bay AreaHouses and Condos

County/Region 2010-Q4 2011-Q3 2011-Q4QTQ%Chg

YTY%Chg

San Francisco 435 472 409 -13.3% -6.0%Alameda 2,660 2,654 2,117 -20.2% -20.4%Contra Costa 2,931 3,022 2,398 -20.6% -18.2%Santa Clara 2,325 2,176 1,847 -15.1% -20.6%San Mateo 820 908 712 -21.6% -13.2%Marin 276 295 263 -10.8% -4.7%Solano 1,441 1,406 1,245 -11.5% -13.6%Sonoma 884 896 815 -9.0% -7.8%Napa 226 263 206 -21.7% -8.8%Bay Area 11,998 12,092 10,012 -17.2% -16.6%

SOURCE: DataQuick Information Systems

Foreclosures (Trustee Deeds Recorded) – Bay AreaHouses and Condos

County/Region 2010-Q4 2011-Q3 2011-Q4QTQ%Chg

YTY%Chg

San Francisco 156 162 162 0.0% 3.8%Alameda 1,362 1,357 1,038 -23.5% -23.8%Contra Costa 1,559 1,708 1,354 -20.7% -13.1%Santa Clara 901 915 718 -21.5% -20.3%San Mateo 302 352 290 -17.6% -4.0%Marin 129 131 96 -26.7% -25.6%Solano 786 910 697 -23.4% -11.3%Sonoma 443 493 391 -20.7% -11.7%Napa 126 114 85 -25.4% -32.5%Bay Area 5,764 6,142 4,831 -21.3% -16.2%

SOURCE: Data Quick Information Systems

Buyers and Sellers

2011 California Buyer Survey

The Buying Experience

• Considered buying for over 4 months & investigated homes/neighborhoods for 2.5 months, on average, before contacting an agent

• Viewed 12 homes in 8 weeks with agent• 49% owned previous home• Motivated by price decreases & mortgage interest and

property tax deductions• 80% found home through agent• 76% didn’t close escrow on time

How Buyers Found Home- 2011 -

Q. How did you find the home your purcahsed?

Why Buyers Chose their Agent

1. Most responsive (28%)

2. Worked with agent before (18%)

3. First to respond (17%)

4. Most aggressive (16%)

5. Most knowledgeable (6%)

Q. What was the single most important reason for selecting the agent that you used in your recent home purchase?

Satisfaction Ratings

Category Rating

Information on housing market conditions provided by agent 3.27

Agent’s negotiating skills 3.20

Assistance provided by agent in searching for a home 3.39

Professional referrals from agent provided (i.e. lender, inspector, etc.) 3.12

Value received for what you paid the agent 3.61

Overall process of finding a home 3.56

Overall satisfaction with agent 3.44

Q. Please rate your degree of satisfaction with these aspects of your home buying experience (aspects shown in the table above).

Reasons for Satisfaction With Agent

1. Worked hard on my behalf (55%)

2. Helped find the best home for me (55%)

3. Always quick to respond (31%)

4. Negotiated good deal on my behalf (29%)

5. Listened to what we needed (20%)

Q. Why do you have that level of satisfaction with your agent?

Reasons for Dissatisfaction With Agent

1. Slow to respond (51%)

2. Communication problems (19%)

3. Didn’t communicate effectively during transaction (14%)

4. Didn’t negotiate aggressively on my behalf (12%)

5. Wasted time with homes I’m not likely to buy (3%)

Q. Why do you have that level of satisfaction with your agent?

Q. What was the typical response time you expected from your agent to return any form of communication to you?

Over 1/3 of Buyers ExpectInstant Response from Agent

- Up 50% in Recent Years -

2011 California Seller Survey

First-time Sellers

2008 2009 2010 20110%

44%47% 48%

Q: Was this your first experience in selling a house?

Top 5 Reasons for Selling

Reason Percent of Sellers1. Could not afford mortgage 22%2. Job/income uncertainty 13%3. Loss of household income 12%4. Low prices allowed upgrade 7%5. Mortgage is too expensive 7%

Q: Why did you sell your home?

Most Sellers Did Not Consider Strategic Default

Q: As you may be aware, some home owners decided to stop paying their mortgages because their home value was lower than the balance on their loan. This is known as strategic default. Did you consider a strategic default?

Reason Seller Selected Agent

Reason Percentage of Sellers

1. First to respond 21%

2. Seemed most responsive 21%

3. Seemed most aggressive 19%

4. Worked with agent before 11%

5. Understanding of distressed properties 8%

Q: What was the single most important reason for selecting the agent you used in your recent home sale?

Agent / Seller Communication Gap

E-mail

Text message

Instant messaging

TelephoneFacebook

In-person

69%64%

26%18%

Preferred Actual

Q: What was the actual method of communication used most frequently with your agent?

Q: What was your preferred method of communication with your agent?

Agent Satisfaction Ratings

Category Mean Rating

Marketing the home 3.58

Setting the price 3.39

Assuring the buyer is qualified 3.13

Time on market before going into escrow 3.12

Preparing the home for sale 3.11

Value received for what you paid your real estate agent 3.07

Negotiating the transaction 3.04

Escrow closing on time 2.99

Overall satisfaction with the real estate agent 2.82

Communications with your agent 2.72

Overall satisfaction with the home selling process 2.63

Q: Please rate your degree of satisfaction with your agent for each of the following aspects on a scale of 1 to 5, where 1 is least satisfied and 5 is most satisfied.

Response Time is of the Essence

Instantly Within 30 Minutes

Within 1 Hour

Within 2 Hours

Within 4 Hours

Same day 1 business day

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

Actual Expected

Q: On average, what was the ACTUAL time of your agent to return any form of communication to you?

Q: What was the typical response time you EXPECTED from your agent to return any form of communication with you?

Direction of Home Prices- Sellers Skeptical, Buyers More Hopeful -

Sellers Buyers0%

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

13% 21%

Down Flat Unsure Up

Q: Do you think home prices in your neighborhood will go up, down or stay flat in one year?

Market Opportunities

Mortgage Rates

FRM ARM

WEEKLYMONTHLY

SOURCE: Federal Home Loan Mortgage Corporation

Mortgage Rates

Federal Funds

Median Price to Median HH Income RatioCalifornia

Average Over Years Shown: 6:1 Ratio

Housing Affordability IndexCalifornia Vs. U.S.

% OF HOUSEHOLDS THAT CAN BUY

8 in 10 Americans Agree Buying a Home is the Best Investment One Can Make

SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”

8 in 10 Renters Would Like to Buy in the Future

“…renters are hardly immune to the allure of

homeownership, even in the face of the five-year decline in prices. Asked if they rent

out of choice or because they cannot afford to buy a

home, just 24% say they rent out of

choice.”

SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”

California Housing Market Forecast

California Housing Market Outlook

2005 2006 2007 2008 2009 2010 2011 2012f

SFH Resales (000s)

625.0 477.5 346.9 441.8 546.9 492.3 497.9 502.8

% Change 0.03% -23.6% -27.3% 27.3% 23.8% -10.0% 1.1% 1.0%Median Price ($000s)

$522.7 $556.4 $560.3 $348.5 $275.0 $305.0 $286.0 $290.9

% Change 16.0% 6.5% 0.7% -37.8% -21.1% 10.9% -6.2% 1.7%

30-Yr FRM 5.9% 6.4% 6.3% 6.0% 5.1% 4.7% 4.5% 4.7%

1-Yr ARM 4.5% 5.5% 5.6% 5.2% 4.7% 3.5% 3.0% 3.1%

Source: CALIFORNIA ASSOCIATION OF REALTORS®

Forecast Date: February 2012

Dollar Volume of Sales Down 5% in 2011, Up 3% in 2012

$129 $132

$154$142 $146$150$150

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$ Volume of Sales Percent Change% Change$ in Billion

Summary

Economy: Recession over, slow recovery expected Labor market: mixed signals, job growth slow

Housing: Slow improvement Continued but decreasing numbers of distressed sales Prices – stabilizing in 2012

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