California's Housing Market Outlook 2015

CALIFORNIA’S
HOUSING MARKET
OUTLOOK 2015
February 27, 2015
CaliforniaCommunity Colleges REEC Conference
Sara Sutachan, Manager of Broker and Real Estate FinanceOutreach

OVERVIEW
• Economic Outlook
• California Housing Market Outlook
• Housing Affordability and Homeownership
• 2015 Forecast

ECONOMIC FUNDAMENTALSARE BETTER
• Economic growth strong
• Unemployment rate 5.9% - lowest since ?
• Best employment growth since 1999, 3 million new jobs
• Construction jobs +230,000 in last 12 months
• Uncertainty from abroad, yet again

-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Q1-10
Q2-10
Q3-10
Q4-10
Q1-11
Q2-11
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
Q4-12
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
GROSS DOMESTIC PRODUCT
2013: 1.9% 2014: 2.4%; 2014 Q4: 2.6%
ANNUAL PERCENTCHANGE, CHAIN-TYPE (2005) $
ANNUALLY QUARTERLY
2009 Largest Annual Drop since 1938 (-3.4%)
SERIES: GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

SERIES:Components of GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
COMPONENTS OF GDP: CONSUMPTION
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2000Q1
2000Q3
2001Q1
2001Q3
2002Q1
2002Q3
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
ANNUAL PERCENTCHANGE

CONSUMER CONFIDENCE – 7YEAR HIGH
January 2015: 102.9
0
20
40
60
80
100
120
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
INDEX, 100=1985
SERIES:Consumer Confidence
SOURCE: The Conference Board

UNEMPLOYMENT RATE FALLING
December 2014: US 5.6% & CA 7.2%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14% US-CA CA US
SERIES: Unemployment Rate
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

2007-2010 LOST JOBS REPLACED: JAN 2014
-8
-6
-4
-2
0
2
4 California US
SERIES:Total Nonfarm Employment

JOB LOSSES IN PRIOR RECESSIONS -
RECENT CYCLEWORST BY FAR

NONFARM EMPLOYMENT BY REGION
Dec 2014 Dec 2013 Change % Change
Southern California 8,741.4 8,562.3 179.1 2.1%
Bay Area 4,263.0 4,192.4 70.6 1.7%
Central Valley 1,515.3 1,481.8 33.5 2.3%
Central Coast 1,289.7 1,265.0 24.7 2.0%
North Central 1,376.1 1,331.6 44.5 3.3%
CALIFORNIA 297.3 291.5 5.8 2.0%
Nonfarm Employment (Thousands)
SOURCE: CA Employment Development Division

CA JOBTRENDS – BAY AREA LEADS
1.5%
1.5%
1.7%
2.0%
2.0%
2.2%
2.3%
2.4%
2.7%
3.3%
3.7%
4.0%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
Modesto
Bakersfield
Los Angeles
Ventura
Sacramento
Stockton MSA
Orange County
Oakland
Fresno MSA
San Diego
San Francisco
San Jose
SOURCE: CA Employment Development Division
December 2014: CA +2.1%, +320,300

CONSTRUCTIONWORKERS IN DEMAND
-1.0%
-0.5%
-0.1%
0.7%
0.9%
1.4%
1.9%
2.7%
2.9%
2.9%
3.4%
3.6%
4.3%
6.2%
6.4%
-2% -1% 0% 1% 2% 3% 4% 5% 6% 7%
Nondurable Goods
Finance & Insurance
Government
Durable Goods
Retail Trade
Transportation, Warehousing & Utilities
Real Estate & Rental & Leasing
Wholesale Trade
Educational Services
Information
Leisure & Hospitality
Health Care & Social Assistance
Professional, Scientific & Technical Services
Admistrative & Support & Waste Services
Construction
SERIES:Total Nonfarm Employment By Industry
November 2014: CA +2.2%, +344,100;
250K new construction jobs in next 5 years

MORTGAGE RATES
January 2009 – December 2014
0%
1%
2%
3%
4%
5%
6%
2009/01
2009/04
2009/07
2009/10
2010/01
2010/04
2010/07
2010/10
2011/01
2011/04
2011/07
2011/10
2012/01
2012/04
2012/07
2012/10
2013/01
2013/04
2013/07
2013/10
2014/01
2014/04
2014/07
2014/10
11.06.14
11.27.14
12.18.14
FRM
ARM
MONTHLY WEEKLY
SERIES: 30Yr FRM, 1Yr ARM
SOURCE: Federal Home Loan Mortgage Corporation

ISTHERE A FORECAST BIAS FOR RISING RATES?
Percent
0
1
2
3
4
5
6
0
1
2
3
4
5
6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Actual 10-year Treasury yield (solid black line)
Predictions out to five quarters ahead of professional forecasters (hatched lines)
Percent
SERIES: Loan Officer Survey
SOURCE: Philadelphia Federal Reserve Survey of Professional Forecasters, Bloomberg

CREDIT AVAILABILITY UPVERYSLIGHTLY

LOOSENED CREDIT REQUIREMENTS:
FICO ScoresTrending Down Since 2012
SERIES:Average FICO Score on Closed Loans
SOURCE: Ellie Mae
710
720
730
740
750
760

C.A.R. LENDER
PERFORMANCE
INDEX

LENDER PERFORMANCE IMPROVING
31
33
41
56
66
0
10
20
30
40
50
60
70
2010 2011 2012 2013 2014
SOURCE: California Association of REALTORS®

LENDER SATISFACTION HAS IMPROVED
SIGNIFICANTLY OVERTHE PAST FOURYEARS
1 2 3 4 5
The timeliness of responses to your inquiries
Knowledge/professionalism of the
representative you worked with
Length of time to obtain approval/disapproval
of the short sale transaction
Expectations of financial contributions from
the seller at or after closing
Timeliness of buyer's financing approval
Your overall satisfaction with this lender
3.74
3.92
3.5
3.7
3.64
3.71
3.30
3.57
2.92
3.39
3.42
3.23
2.80
3.10
2.38
3.09
2.73
2011
2012
2013
2014
Very Dissatisfied Very Satisfied

EASE OF CLOSING
0% 10% 20% 30% 40% 50%
1
2
3
4
5
27%
23%
11%
19%
20%
16%
18%
10%
28%
27%
12%
13%
15%
28%
31%
8%
11%
13%
19%
49%
2011
2012
2013
2014
Extremel
y Easy
Extremely
Difficult

UNDERWRITING STANDARDS INDEX
17
23
0
5
10
15
20
25
2013 2014

UNDERWRITING STANDARDS SLIGHTLY
BETTER
49%
41%
35%
45%
16% 14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014
Easier
(access to
credit
easier for
clients)
No change
from 12
months
ago
Tighter
(access to
credit
harder for
clients)

U.S. ECONOMIC OUTLOOK 2014 - 2015
2009 2010 2011 2012 2013 2014p 2015f
US GDP -3.4% 2.4% 1.8% 2.8% 1.9% 2.5% 3.0%
Nonfarm Job Growth -4.4% -0.7% 1.2% 1.7% 1.7% 2.0% 2.3%
Unemployment 9.3% 9.6% 8.9% 8.1% 7.4% 6.2% 5.6%
CPI -0.4% 1.6% 3.1% 2.1% 1.5% 1.5% 1.6%
Real Disposable
Income, % Change 0.9% 1.8% 1.3% 1.5% 0.7% 2.4% 2.4%
SERIES: U.S. Economic Outlook
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

CALIFORNIA ECONOMIC FORECAST
SERIES:CA Economic Outlook
Nonfarm Job Growth
Unemployment Rate
Population Growth
Real Disposable Income,
% Change
2011
1.1%
11.8%
0.7%
1.9%
2012
2.4%
10.4%
0.7%
1.1%
2013
3.0%
8.9%
0.9%
0.9%
2014 P
2.2%
7.5%
0.9%
3.0%
2015 F
2.4%
6.7%
0.9%
3.8%

CALIFORNIA HOUSING MARKET
OUTLOOK

CA HOME SALES DOWN 7.6% IN 2014
California, Jan. 2015 Sales: 351,890 Units, -2.7%YTD, -2.7%YTY
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
*Sales are seasonally adjusted and annualizedSERIES: Sales of Existing Single Family Homes
Jan-15:
351,890
Jan-14:
361,790

SHAREOF EQUITY SALES REMAINED STEADY ATTHE
HIGHEST LEVEL SINCE LATE 2007
90.5%
4.8%
4.3%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Equity Sales Short Sale REO
SERIES: Distressed Sales, Not Seasonally Adjusted

LOSANGELES COUNTY
Preforeclosure: 4,899 • Auction: 4,098 • Bank Owned: 937
SOURCE: PropertyRadar on 02/05/15

SAN BERNARDINO COUNTY
Preforeclosure: 1,595 • Auction: 1,017 • Bank Owned: 613
SOURCE: PropertyRadar on 02/23/15

MEDIAN PRICE OF EXISTING DETACHED HOMES
California, Jan. 2015: $426,790, -5.9% MTM, +3.4%YTY
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
P: May-07
$594,530
T: Feb-09
$245,230
-59% from
peak
SERIES: Median Price of Existing Single Family Homes
Jan-15:
$426,790
Jan-14:
$412,820

PRICE PER SQUARE FOOT
January 2015: $203, Down 3.5% MTM, Up 1.8%YTY
$0
$50
$100
$150
$200
$250
$300
$350
$400
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
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-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
PRICE PER SQ. FT.
SERIES: Median Price Per Square Feet

INVENTORY IMPROVING FROM LASTYEAR
Jan 2014: 4.3 Months; Jan 2015: 5.0 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.
0
2
4
6
8
10
12
14
16
18
Jan-05
Jul-05
Jan-…
Jul-06
Jan-07
Jul-07
Jan-…
Jul-08
Jan-…
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
SERIES: Unsold Inventory Index of Existing Single Family Homes

UNSOLD INVENTORY INDEX (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) Jan-15 Dec-14 Jan-14
$1,000K+ 7.6 4.3 6.9
$750-999K 5.5 3.1 5.0
$500-749K 4.9 3.0 4.1
$400-499K 4.7 3.0 4.0
$300-399K 4.9 3.2 4.0
$200-299K 4.5 3.3 4.0
$0-199K 4.5 3.4 4.0
SERIES: Unsold Inventory Index of Existing Single Family Homes

WHAT HAPPENEDTO ALLTHE INVENTORY?
–Investors renting instead of flipping
–Mortgage Lock-In Effect
–Where will I go?
–Foreclosure pipeline is dry
–New construction up but still LOW
– Off- MLS (aka “pocket’) listings not
being counted in listing stats

HOUSING AFFORDABILITY & HOME
OWNERSHIP

WHERE AREWE HEADED?
“…By 2025, California will have a middle class of
renters.”
John Husing, Ph.D Economics

• Housing market is under-preforming given
fundamentals
– Low mortgage rates
– Job & Income growth are back
• And yet…
– Sales off 7.6% in 2014 compared to 2013
– Share of first-time buyers LOW
– Affordability key concern for renters
2015 -WHERE AREWETODAY?

• Housing supply constrained in long-run
– New construction recovery is very slow
– Missing 165,000+ new units per year
– Production has fallen short of housing needs
• Inhibited by
– Fiscal interests of local government
– Residents who disdain further development, especially
multi-family
– Unfavorable legal/business environment for
development in general & multi-family in particular
INADEQUATE HOUSING SUPPLY ISSUE

CALIFORNIA’S 3 HOUSING GAPS
• Housing Gaps:
– Housing affordability gap
– Homeownership gap
– Housing production gap
• Chronic problems spanning decades

SHARE OF FIRST-TIME BUYERS UP IN ’14 BUT
STILL BELOW LONG-RUN AVERAGE
28.1%
30.5%
0%
10%
20%
30%
40%
50%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% First-Time Home Buyers Long Run Average
Long Run Average = 38%
QUESTION: Was the buyer a first-time buyer?
SERIES: 2014 Housing Market Survey

HOUSING AFFORDABILITY DOWN
SHARPLY SINCE Q1 2012
California vs. U.S. – 1984-2014
% OF HOUSEHOLDSTHAT CAN BUY
A MEDIAN-PRICED HOME
SERIES: Housing Affordability Index ofTraditional Buyers
0%
10%
20%
30%
40%
50%
60%
70%
80% CA US
Annual Quarterly

HOUSING AFFORDABILITY IN CA: BY COUNTY
SERIES: Housing Affordability Index
HAI
64
59 57 56 56
53 53
50 49
45
41
31 29 29 28 27 27 26 24 23 22 21 21 20
17 15 15 14
0
10
20
30
40
50
60
70
% able to purchase median priced home
2014 Q4

INCOME REQUIREDTO BUY A MEDIAN-PRICED
HOME IN CA: (PEAKVS. CURRENT)
$56,324
$93,593
$0
$20,000
$40,000
$60,000
$80,000
$100,000
2012 Q1 2014 Q2
• Change in minimum required income:
$37,269
• Increase in income attributed to
interest rate increase:
$836 (2.2% of total change)
• Increase in income attributed to price
increase :
$36,433 (97.8% of total change)
SERIES: Housing Affordability Index

VERY SLOW REAL INCOME GROWTH
$0.00
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
$60,000.00
$70,000.00
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
U.S. CAIn 2013 Dollars
SERIES: Median Household Income
SOURCE: US Census Bureau, Current Population Survey
2013 gap = $5600

HOMEOWNERSHIP RATE FALLING
CaliforniaVs. U.S.
53.7%
Peak: 60.2%
54.9%
64.5%
Peak: 69.0%
64.8%
40%
45%
50%
55%
60%
65%
70%
75% CA US
SERIES: Homeownership Rates
SOURCE: U.S. Census Bureau

MILLENNIAL HOMEOWNERSHIP FALLING
SOURCE: Census Bureau

$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000 California US
CA PRICES UPWARD MARCHWILL SLOW
1970-2014

CAV. US PRICE GAP: $10KTO $246K
1970-2014
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000 California US
$10K to $246
2014 DollarValue

STUDENT LOAN DEBT:25% OF RENTERS
Yes, 23%
No, 75%
Refused, 2%
Student Loan Debt
SERIES: 2013 Renter Survey
78%
8%
6%
3%
2%
2%
<$10,000
$10-$20K
$20-$50K
$50-$100K
> $100K
Refused
Amount of Debt

STUDENT DEBT: DRAGS ON HOME SALES

CA PERMITS UP BUT MORE UNITS NEEDED
2013: 57,496 Units, Up 43.0% from 2012
SERIES: New Housing Permits
SOURCE: Construction Industry Research Board
0
50000
100000
150000
200000
250000
300000
350000 Single Family Multi-Family
Household Growth: 165,000/yr

REASONS FOR RENTING INSTEAD OF BUYING
44%
9%
6%
6%
6%
5%
5%
3%
2%
Can't afford to buy
Poor credit / Can't qualify
Renting is easier
Young/Starting out/Not ready
Flexibility/Freedom if renting
Cost/Upkeep/Responsibility
Plan to / Saving for down
Never considered it/No interest
Disabled/On disability
SERIES: 2013 Renter Survey

DOWN PAYMENT RESOURCE DIRECTORY
Down Payment Resource™
Homeownership Program Index’s
Key Findings:
Over 300 programs in California
59% provide direct down payment &
closing cost assistance
10% provide mortgage credit up to
$2,000 for the life of the loan
26% are available to repeat buyers
There are hundreds of homeownership programs
available to help motivate buyers. Visit
downpayment.car.org to find them.

PEOPLE WOULD PREFERTHE FOLLOWING OVER GOING
THROUGHTHE HOME MORTGAGE PROCESS AGAIN:
SOURCE: Guaranteed Rate Mortgage Survey of 1,000 adults 25 and older USA Today April 2014

THE FINANCE HELPLINE
finance.car.org
(213)739-8383
financehelpline@car.org

finance.car.org
(213) 739-8383
WEBINAR
SERIES
FINANCEHELPLINE
PRESENTS:

CALIFORNIA HOUSING MARKET OUTLOOK
2009 2010 2011 2012 2013 2014 2015f
SFH Resales (000s) 474.9 416.5 422.6 439.8 414.9 383.3 402.5
% Change 24.5% -12.3% 1.4% 4.1% -5.9% -7.6% 5.0%
Median Price ($000s) $275.0 $305.0 $286.0 $319.3 $407.2 $447.0 $478.7
% Change -21.1% 10.9% -6.2% 11.6% 27.5% 9.8% 7.1%
Housing Affordability
Index 51% 48% 53% 51% 36% 30% 27%
30-Yr FRM 5.0% 4.7% 4.5% 3.7% 4.0% 4.3% 4.5%
SERIES:CA Housing Market Outlook

INTERNATIONAL BUYERS
MAKETHEIR MARK

1/3 FROM CHINA
Please tell us about your last closed transaction with an international client. What is your client’s country of permanent residence?
3.8%
4.7%
8.3%
14%
35%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
India
Japan
Mexico
Canada
China/Hong Kong

WHY INTERNATIONALCLIENTS BUY
5%
5%
5%
7%
12%
14%
18%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Investment to acquire legal permenant U.S.
resident status
Tired of renting
Affordable price
Desired a better/other location
Changed jobs/relocated
To rent out property
Investment/tax advantages in U.S.
What was your clients’ main reason for buying/selling now in your last closed transaction with an international client?

INTENDED USE FOR PROPERTY? HOME
4%
27%
38%
30%
0%
2%
7%
91%
0% 20% 40% 60% 80% 100%
Other
Vacation/Second Home
Investment/Rental Property
Primary Residence
US Buyer
International Buyer
What was the intended use of the property in your last closed transaction with an international client?

ALL CASH INTERNATIONAL BUYERS
0%
20%
40%
60%
80%
100%
International buyers Traditional buyers
69%
27%
31%
73%
All cash Obtained financing
SOURCE: 2013 International Client Survey, 2013 Annual Housing Market Survey
How did your last international buyer pay for the property?

STAY CONNECTEDWITH RESEARCH
CARResearchGroup
CARResearchInfo
On.car.org/CARResearch
Housingmatters.car.org

THANKYOU!
saras@car.org
finance.car.org
downpayment.car.org
(213)-739-8383

California's Housing Market Outlook 2015

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