California Community Colleges Real Estate Educator’s Conference February 22, 2013 Sara Sutachan, Manager of Broker and Real Estate Finance Outreach

1. 2013 CALIFORNIA HOUSING
MARKET OUTLOOK
California Community Colleges Real Estate Educator’s
Conference
February 22, 2013
Sara Sutachan, Manager of Broker and Real Estate
Finance Outreach

2. 2013 New Member Benefit:
12 FREE Hours Online CE Courses
C.A.R.’s newest member benefit
Delivered online – available 24/7
Choose from over 20 courses
Learn from most tablet devices
Accredited by the DRE
store.car.org/12FreeCE

3. C.A.R. Finance Helpline
Finance.car.org
(213) 739-8383
Get one-on-one assistance with short
sales, funding, REOs, Deeds in Lieu, and
closing transactions.

4. California Mortgage Directory
Resource
Mortgage.car.org
One-stop online resource to find public
and private funded assistance programs
including FHA/VA, HUD, affordable fixed-
rate mortgages, rehab loans, and more.

5. THE ECONOMY

6. Signs of General Economic Recovery
1. Fiscal cliff (and recession “relapse”) avoided
2. December Jobs report exceeded expectations
3. Unemployment rate at 7.8%
4. Fed will keep rates low until U = 6.5%
5. “QE” (Quantitative Easing) continues
6. Euro-zone still holding it together despite
stagnant/negative growth

7. “Fiscal Cliff Agreement”
1. Tax Rates on income and capital gains/dividends
higher for individuals making $400K or households
making $450K
2. Estate tax increases for individual estates over
$5M and family estates over $10m
3. 2% payroll tax cut expired as scheduled
4. LT unemployment benefits extended for 1 year
5. Mortgage debt forgiveness extended for 1 year
6. AMT patch for middle class
7. “Pease Limitation” on itemized deductions
reinstituted for $250 AGI or couples making $300
AGI (above limit X 3%)

8. GDP: Sub-Par Growth, Sluggish Recovery
2012: 2.2%; 2012 Q4: -0.1%
ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $
5%
4%
ANNUALLY QUARTERLY
3%
2%
1%
0%
-1%
-2%
-3% 2009 Largest Annual Drop since 1938 (-3.4%)
-4%

9. Personal Consumption
2012 Q4: 2.2%
QUARTERLY PERCENT CHANGE
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
SOURCE: US Dept of Commerce,
Bureau of Economic Analysis

10. Consumers Weary, De-Leveraging
Consumer Confidence Reflects Economic Realities
January 2013: 58.6
INDEX, 100=1985
120
100
80
60
40
20
0

11. Unemployment Rates Coming Down
California (9.8%) vs. United States (7.8%)
14% US-CA CA US
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
SOURCE: CA Employment Development Division

12. Only 54% of Lost Jobs Replaced to Date
U.S. Jobs: Month to Month Changes
Recession Job Losses: 8.8 million
800,000
Since Jan’10: +4.5 million
600,000
400,000
200,000
0
-200,000
-400,000
-600,000
-800,000
-1,000,000
SOURCE: CA Employment Development Division

13. CA Employment By Region
Strongest Regional Economy: SF Bay Area
Nonfarm Employment (Thousands)
(Thousands) Nov 2012 Nov 2011 Change % Change
Southern California 8,026.9 7,902.1 124.8 1.6%
Bay Area 3,197.6 3,104.3 93.3 3.0%
Central Valley 1,877.9 1,858.1 19.8 1.1%
Central Coast 491.8 477.5 14.3 3.0%
North Central 129.5 127.2 2.3 1.8%
CALIFORNIA 14,406.4 14,137.8 268.6 1.9%
SOURCE: CA Employment Development Division

14. SoCal Regions:Employment
Nonfarm Employment (Thousands)
(Thousands) Oct 2012 Oct 2011 Change % Change
Los Angeles 3,885.3 3,827.5 57.8 1.5%
Orange County 1,404.4 1,383.9 20.5 1.5%
Riverside/SB 1,144.2 1,136.9 7.3 0.6%
San Diego 1,261.6 1,238.1 23.5 1.9%
Ventura 279.0 275.0 4.0 1.5%
Southern
California Total 7,974.5 7,861.4 113.1 1.4%
SOURCE: California Economic Development Dept.

15. CPI : Inflation a No Show – For Now
December 2012: All Items +1.7% YTY; Core +1.9% YTY
PERCENT CHANGE FROM A YEAR AGO
6% All Items Core
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
SOURCE: U.S. Bureau of Labor Statistics

16. 2013: The Year of the “Political Economy”
1. Fiscal Cliff Averted but Tax and Spend
Decisions Await – 60 Day Deadline
2. Tax Reform:
Mortgage Interest Deductibility
Mortgage Debt Forgiveness
3. Future of Fannie and Freddie
4. Future of FHA

17. Fiscal Cliff Averted: But in 60 days automatic
spending cuts will be back unless….

18. Federal Budget Receipts & Outlays as
Percentage of GDP
Receipts Outlays
26
24
22
20
18
16
14
12
10
Source: Office of Management & Budget

20. Signs of U.S. Housing Recovery
1. Prices have bottomed!
2. Home equity up 20% last year to $7.71Trillion as
rising prices begin to reverse negative equity
3. New and Existing Home Sales at four- year highs
4. Low inventory across the board
5. Housing starts at four-year high
6. Threat of shadow inventory fading as
delinquencies, foreclosures decline
7. Foreclosure starts at 6 year low

21. Mortgage Rates @ 50 Year Lows
8% FRM ARM Federal Funds
7%
6%
5%
4%
3%
2%
1%
0%
SOURCE: Federal Home Loan Mortgage Corporation

22. CA Prices Still Below Trend Line
Spells Opportunity
(1970-2013)
$600,000
California
$500,000 US
CA Price Trend
$400,000
$300,000
$200,000
$100,000
$0
2012
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

23. Housing Affordability at Record Highs
% OF HOUSEHOLDS THAT CAN BUY
80% CA US
70%
60%
50%
40%
30%
20%
10%
0%
Q1 2005
Q3 2005
Q1 2006
Q3 2006
Q1 2007
Q3 2007
Q1 2008
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2012
Q1 2011
Q3 2011
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

24. But there a few issues…
1. Mortgage rates are low but credit is tight
2. “Defensive” Lending is prevalent
3. Appraisals lagging today’s market
4. Listings are scarce:
• Underwater homeowners are stuck
• Investors are renting instead of flipping
• Some sellers still don’t get it

26. Fannie & Freddie are the Market Today
87% of loans are purchased by the GSE’s
Source: LPS CoreLogic

27. FHA Pricing Changes: 175bps Upfront Fees + 135bps MIP
Pricing
Changes
Effective Action New Mortgage Date FHA Share
Date Insurance Letter Announced Primary MI
Premium
05-Apr-10 Increase up 225bps ML 2010-12 21-Jan-10 69.8%
front MIP
04-Oct-10 Raise 100 bps ML 2010-28 01-Sep-10 63.1%
Upfront MIP
Lower 0 bps to 90
annual MIP bps
18-Apr-11 Increases 25 bps to ML 2011-10 14-Feb-11 61.3%
annual MIP 115 bps
by 25 bps
09-Apr-12 Raise annual 35 bps to ML 2012-04 06-Mar-12 45.6%
MIP 10 bps 125 bps
Add 25 bps 60 bps to
for FHA 150 bps
jumbo Source: Inside FHA Lending

28. FHA Price Changes Cont…
Pricing
Changes
Effective Action New Mortgag Date FHA Share
Date Insurance e Letter Announced Primary MI
Premium
Add 25 bps for 60 bps to
FHA jumbo 150 bps
Upfront MIP 175 bps
increased 75 bps
11-Jun-12 Lower MIP for 55bps ML 2012- 06-Mar-12 42.3%
streamlined refi 04
Lower annual 1 bps
MIP for
streamlined refi
01-Apr-13 Raise annual 45 bps to ML 2013- 31-Jan-13
MIP 10 bps 155 bps 04

29. FHA Underwriting Changes
Underwritin
g
Changes
Effective Action Mortgage Date FHA Share
Date Letter Announced Primary MI
27-May-10 Allows streamlined ML 2010-19 27-May-10 69.8%
refinances to be processed
in TOTAL scorecard
07-Sep-10 Eliminates combined LTV ML 2010-24 06-Aug-10 66.3%
ratio limits implemented in
2007
07-Sep-10 Eliminates requirement that ML 2010-36 22-Oct-10 66.3%
sum of all liens be less than
max loan limit
04-Oct-10 Limits LTV ratios for ML 2010-29 03-Sep-10 63.1%
borrowers with FICO
scores below 580
14-Feb-11 Clarifies FHA refinance ML 2011-11 14-Feb-11 61.5%
mortgages must be current
month before closing
Source: Inside FHA

30. FHA Underwriting Changes Cont…
Underwritin
g
Changes
Effective Action Mortgage Date FHA Share
Date Letter Announced Primary MI
Clarifies net tangible benefit
for FHA streamlined
refinances
11-Sep-11 Clarifies annual MIP is zero ML 2011-35 53.1%
for 15-year mortgages with
LTV below 78%
13-Mar-12 Various changes in FHA refi ML 2012-05 13-Mar-12 47.9%
program for underwater
mortgages
01-Apr-13 Requires manual ML 2013-05 31-Jan-13
underwriting if FICO below
620 and DTI over 43%
Source: Inside FHA

31. Average Credit Score Increased 26 points
since 2005 For Purchase Loans
AVERAGE FICO PURCHASE LOANS
745
740
735
730
725
720
715
710
705
700
2005 2006 2007 2008 2009 2010 2011 2012*
SOURCE: CoreLogic *2012 through Feb

32. What Private Capital Investors Are Pursuing Today: Transparency!
Credit Score Distribution of Latest
Sequoia Mortgage Trust (SEMT)
Fico Range # Loans WA FICO WA LTV % WA CLTV % % Total Balance
660-679 7 669 59 65 1.3
680-699 8 692 67 68 1.6
700-719 19 711 62 63 2.5
720-739 73 731 66 68 8.9
740-759 86 751 63 65 10.1
760-779 186 771 65 68 24.5
780-799 277 790 61 63 36.3
800-819 119 805 62 65 14.5
820-850 2 823 69 69 0.3
Grand Total 777 773 63 65 100
Source: Sequoia Mortgage Trust 2013-2

33. Share of Underwater Mortgages Dropping as
Prices Rise and Short Sales Close
Negative Equity Share in CA Near Negative Equity Share in CA
40%
35%
30% 28.3%
25%
20%
15%
10%
4.5%
5%
0%
SOURCE: CoreLogic

34. 29% of CA Mortgages are Underwater
15.6% over 125% LTV
US CA
10%
9%
8% 7.3% 7.1%
7%
6%
5%
4% 3.6%
3.0% 2.6%
3% 2.3% 2.0%
2% 1.2%
1%
0%
125 to 149%
225%+
110% to 114%
115% to 119%
100% to 104%
105% to 109%
120% to 124%
150% to 224%
Loan-To-Value
SOURCE: CoreLogic

35. THE CALIFORNIA RESIDENTIAL
REAL ESTATE MARKET

36. C.A.R. Membership Off 50,000+ From Peak
1970-2011
THOUSANDS
Home Sales Membership
700,000 250,000
600,000
200,000
500,000
150,000
400,000
300,000
100,000
200,000
50,000
100,000
0 0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010

37. Dollar Volume of Sales Slowly Improving
Up 16.5% in 2012, Up 7.0% in 2013
$ in Billion % Change
$400 20%
$ Volume of Sales Percent Change
$350 15%
$327
-54% 10%
$300
$266 5%
$250 0%
$194
$200 $178 -5%
$166
$154 $150 $150
$150 $142 -10%
-15%
$100
-20%
$50 -25%
$0 -30%
2005 2006 2007 2008 2009 2010 2011 2012p 2013f
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

38. Sales of Existing Detached Homes and Pacific West Consumer Confidence
California, January 2013 Sales: 491,720 Units, Down 3.9% YTD, Down 3.9% YTY
UNITS INDEX
700,000 Sales Consumer Confidence 140
600,000 120
500,000 100
400,000 80
300,000 60
200,000 40
100,000 20
0 0
SOURCE: California Association of REALTORS®; The Conference Board
*Sales are seasonally adjusted and annualized

39. History of CA Housing Recovery in One Slide! Share of
Equity, RE and Short Sales
2009 - 2012
70% Equity Sales Short Sale REO
63.6%
60%
50%
40%
30%
25.0%
20%
10%
10.9%
0%
SOURCE: California Association of REALTORS®

40. Median Price of Existing Detached Homes
California, January : $337,040, Up 24.1% YTY
$700,000 P: May-07
$594,530
$600,000
$500,000
T: Feb-09
$400,000 $245,230
-59% from
peak
$300,000
$200,000
$100,000
$-
SOURCE: California Association of REALTORS®

41. National Home Price Measures:
Prices Have Hit Bottom and Are Rising
Year Over Year % Increase
Home Price Measure
November October
Core Logic Home Price Index 7.1% (f) 6.3%
Zillow Home Value Index 5.2% 4.7%
Radar Logic Home Price Index NA* 6.9%
Existing-Homes, Median Sales Price 10.1% 11.1%
New Homes, Median Sales Price 15.3% 5.7%
Trulia Asking Price Index 3.8% 3.6%
3rd Quarter 2nd Quarter
FHFA Quarterly House Price Index 4.0% 2.0%
Case-Shiller Home Price Index 0.3% (f) 1.2%
(f) – Forecast
* Data available 1/24/13.
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

42. Trough vs. Current Price – January 2013
Trough Trough Jan-13 % Chg From
Region
Month Price Median Trough
Monterey Region Mar-09 $241,025 $399,073 65.6%
Palm Springs/Lower Desert Apr-09 $150,140 $228,930 52.5%
Santa Clara Feb-09 $445,000 $652,500 46.6%
San Francisco Bay Area Feb-09 $378,520 $548,890 45.0%
Los Angeles May-09 $248,850 $349,720 40.5%
Riverside/San Bernardino Apr-09 $150,860 $207,530 37.6%
CALIFORNIA Feb-09 $245,230 $337,040 37.4%
Orange County Jan-09 $442,170 $566,500 28.1%
High Desert May-09 $106,210 $132,660 24.9%
Sacramento Jan-12 $162,290 $201,010 23.9%
Ventura Feb-09 $359,630 $440,670 22.5%
San Luis Obispo Feb-11 $328,750 $398,980 21.4%
San Diego Mar-09 $326,832 $390,890 19.6%
Northern Wine Country Nov-11 $310,570 $367,672 18.4%
Northern California Jan-12 $210,280 NA NA
SOURCE: California Association of REALTORS®

43. Unsold Inventory Index
California, January 2013: 3.5 Months
18
16
14
12
10
8
6
4
2
0
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.
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

44. Unsold Inventory Index (Months)
Price Range (Thousand) Jan-13 Dec-13 Jan-13
$1,000K+ 9.0 4.4 13.8
$750-1000K 5.0 2.9 8.8
$500-750K 3.4 2.3 7.0
$300-500K 3.1 2.3 5.9
$0-300K 3.0 2.4 5.0
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.
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

45. Tight Supply of Inventory,
Especially for REO Sales
Unsold Inventory California: December 2012
Index (Months)
2.7
3
2.4
1.9
2
1
0
Equity Sales REO Sales Short Sales
SOURCE: California Association of REALTORS®

46. Extremely Low Levels of Active Listings
at the State Level
Unsold Inventory
Index (Months)
4
3
1.7
2
1.0
0.7
1
0
Equity Sales REO Sales Short Sales
SOURCE: California Association of REALTORS®

47. Shadow Inventory

48. The CA Foreclosure Funnel:
9.9 Million Homes
7.4 Million Mortgages
2.1 Million Underwater
.com/CAR

49. 613,000/18,000 = 34 months of Inventory
435,000 Delinquent
117,000 in Foreclosure
61,000 Bank Owned
18,000 Distressed Sales
.com/CAR

50. California Foreclosure Filings, Jan. 2013
NTS: 9356 , -64.6% YTD • NOD: 4,748, -76.4% YTD
70,000 Notice of Trustee Sale - Counts Notice of Defaults - Counts
60,000
6 Month Average:
50,000
NTSs: 15,142
40,000 NODs: 12,542
30,000
20,000
10,000
0
SOURCE: ForeclosureRadar.com

51. California Foreclosure Outcomes, Jan. 2013
REO: -67.9% YTD • 3rd Party: -34.6% YTD • Cancel: +18.1% YTD
30,000 REOs Sold to 3rd Party Cancellations
6 Month Average:
25,000 REO: 4,544
3rd Party: 3,063
20,000
Cancelled: 14,007
15,000
10,000
5,000
0
SOURCE: ForeclosureRadar.com

53. 901 Camino Del Rio South, 10 Mile Radius
• Preforeclosure: 817 • Auction: 963 • Bank Owned: 248
Source: ForeclosureRadar.com as of 02/19/13.

54. Lemon Grove
• Preforeclosure: 28 • Auction: 36 • Bank Owned: 9
Source: ForeclosureRadar.com as of 02/19/13.

55. Coronado
• Preforeclosure: 6 • Auction: 9 • Bank Owned: 0
Source: ForeclosureRadar.com as of 02/19/13.

56. San Diego
• Preforeclosure: 848 • Auction: 1,014 • Bank Owned: 253
Source: ForeclosureRadar.com as of 02/19/13.

57. REGIONAL/LOCAL
REAL ESTATE MARKETS

58. LEMON GROVE

59. Sales of Single Family Homes
• Lemon Grove, January 2013: 19 Units
• Up 72.7% MTM, Up 58.3% YTY
SOURCE: Clarus Market Metrics

60. Median Price of Single Family Homes
• Lemon Grove, January 2013: $290,000
• Up 22.6% MTM, Up 14.2% YTY
SOURCE: Clarus Market Metrics

61. For Sale Properties
• Lemon Grove, January 2013: 54 Units
• Down 18.2% MTM, Down 48.1% YTY
Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active”
any point in time during the month.
SOURCE: Clarus Market Metrics

62. Month’s Supply of Inventory
• Lemon Grove, January 2013: 1.9 Months
Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question.
The inventory figure is then divided by the number of properties that went Under Contract during the month.
SOURCE: Clarus Market Metrics

63. CORONADO

64. Sales of Single Family Homes
• Coronado, January 2013: 4 Units
• Down 66.7% MTM, Down 75.0% YTY
SOURCE: Clarus Market Metrics

65. Median Price of Single Family Homes
• Coronado, January 2013: $1,337,500
• Down 3.6% MTM, Up 7.6% YTY
SOURCE: Clarus Market Metrics

66. For Sale Properties
• Coronado, January 2013: 110 Units
• Down 2.7% MTM, Up 4.8% YTY
Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active”
any point in time during the month.
SOURCE: Clarus Market Metrics

67. Month’s Supply of Inventory
• Coronado, January 2013: 5.4 Months
Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question.
The inventory figure is then divided by the number of properties that went Under Contract during the month.
SOURCE: Clarus Market Metrics

68. SAN DIEGO

69. Sales of Single Family Homes
• San Diego, January 2013: 464 Units
• Down 30.4% MTM, Up 2.9% YTY
SOURCE: Clarus Market Metrics

70. Median Price of Single Family Homes
• San Diego, January 2013: $430,000
• Down 6.5% MTM, Up 16.2% YTY
SOURCE: Clarus Market Metrics

71. For Sale Properties
• San Diego, January 2013: 1,949 Units
• Down 0.4% MTM, Down 39.5% YTY
Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active”
any point in time during the month.
SOURCE: Clarus Market Metrics

72. Month’s Supply of Inventory
• San Diego, January 2013: 1.5 Months
Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question.
The inventory figure is then divided by the number of properties that went Under Contract during the month.
SOURCE: Clarus Market Metrics

73. CALIFORNIA HOUSING
MARKET FORECAST

74. Forecast Report Card
2011 Projected 2012 Forecasted 2012
September 2011 2011 Actual September 2011 Projected
SFH Resales
(000s) 491.1 497.9 496.2 523.3
% Change -0.1% 1.1% 1.0% 5.1%
Median Price
($000s) $291.0 $286.0 $296.0 $317.0
% Change -4.0% -6.2% 1.7% 10.9%
Forecast Date: October 2012 vs. September 2011
Source: CALIFORNIA ASSOCIATION OF REALTORS®

75. California Housing Market Outlook
Indicator 2008 2009 2010 2011 2012p 2013f
SFH Resales (000s) 441.81 546.86 492.29 497.86 523.25 530
% Change 27.3% 23.8% -10.0% 1.1% 5.1% 1.3%
Median Price
($000s) $ 348.5 $ 275.0 $ 305.0 $ 286.0 $ 317.0 $ 335.0
% Change -37.8% -21.1% 10.9% -6.2% 10.9% 5.7%
30-Yr FRM 6.0% 5.1% 4.7% 4.5% 3.8% 4.0%
1-Yr ARM 5.2% 4.7% 3.5% 3.0% 2.8% 2.8%

76. Recovery Will Continue in 2013,
with Both Sales and the Median Price Up
Sales of Existing Detached Homes Median Price
Units Price
(Thousand) (Thousand)
700 $600
600
523.3530.0 $500
500
$400
$335
400
$300
300 $317
$200
200
$100
100
0 $0
2005 2007 2009 2011 2013f 2005 2007 2009 2011 2013f
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

77. When will CA Start Building Again?
2012(p): 52,000 units, Up 10.4% from 2011
Single Family Multi-Family
250,000
Household Growth: 220,000-250,000/yr.
200,000
150,000
100,000
50,000
0
2005 2006 2007 2008 2009 2010 2011 2012P
SOURCE: Construction Industry Research Board

78. CLOSING THOUGHTS

79. Presentation Take - Aways
1. Worst of the recession is over but recovery
will continue to be sluggish
2. Tax and spend debate critical next 60 days
3. Rates low until Unemployment rate
reaches 6.5%
4. Global Wild Cards: Euro Zone Crisis/
Recession, China & India, Trading Partners
5. Biggest Policy Issues: Future of
Fannie, Freddie & FHA

80. THANK YOU AND PLEASE
STAY INFORMED!
WWW.CAR.ORG/MARKETDATA
SARAS@CAR.ORG