2009 California Real Estate Market Forecast March 3

2009 California Real Estate Market Forecast March 3, 2009 SACRAMENTO AOR Leslie Appleton-Young C. A. R. Vice President and Chief Economist

Economic Fundamentals

U. S. & California Economic Update

Gross Domestic Product Year 2007: +2. 0%; 2008 Q 3: -0. 5%; Q 4 -6. 2% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $ ANNUAL QTRLY

Components of GDP Percent Change SOURCE: US Dept of Commerce, Bureau of Economic Analysis

Consumer Confidence Index All time low: January 2009: 37. 7 INDEX, 100=1985

Dow Jones Stock Price and Consumer Confidence 30 Industrial Index vs. Consumer Confidence Index 1987 -2009 DJI Monthly Avg. Cons. Conf.

Personal Consumption 2008 Q 3: -3. 8% Q 4: -3. 5% QUARTERLY PERCENT CHANGE SOURCE: US Dept of Commerce, Bureau of Economic Analysis

Existing Single-Family Home Sales 4. 192 m in 2008 Down 13. 1 from 5. 652 m in 2007 (lowest since 1997) Median Price: $174, 500 Down 15. 3% YTY (2008 down 9. 3% - lowest since 2004)

Unemployment Rate California vs. United States SOURCE: CA Employment Development Division

Employment Growth, California vs. U. S. YEAR TO YEAR % CHANGE SOURCE: CA Employment Development Division

U. S. Cumulative Job Loss December 2007 – January 2009 NONFARM JOB LOSS, MILLIONS SOURCE: Bureau of Labor Statistics

California Cumulative Job Loss December 2007 – December 2008 NONFARM JOB LOSS, THOUSANDS SOURCE: Bureau of Labor Statistics

Nonfarm Employment By Region SOURCE: CA Employment Development Division

Nonfarm Employment Sacramento-Arden Arcade-Roseville MSA, Dec. 2008: Down 2. 6% YTY Y-T-Y PERCENT CHANGE SOURCE: CA Employment Development Division

Unemployment Rate Sacramento Metropolitan Area, December 2008: 8. 7% SOURCE: CA Employment Development Division

Taxable Sales Sacramento County ANNUAL PERCENT CHANGE SOURCE: CA State Board of Equalization

Industrial Production December 2008: Down 7. 4% YTY PERCENT CHANGE FROM A YEAR AGO SOURCE: Federal Reserve Board

Capacity Utilization Rate December 2008: 73. 6% SA, PERCENT OF CAPACITY

Retail Sales December 2008 Down 10. 8% YTY PERCENT CHANGE FROM A YEAR AGO

Consumer Price Index December 2008: All Items -0. 1% YTY; Core 1. 7% YTY PERCENT CHANGE FROM A YEAR AGO, 100=1982 -1984

Fed Funds and Mortgage Rates Easing: 2000 -2004; 2007 -2008 SOURCE: Federal Home Loan Mortgage Corporation

30 -Year FRM vs. 10 -Year T-Bond Above-Average Risk Premiums Associated With Mortgage Loans Average. Risk Premium: 1. 6% SOURCE: Federal Home Loan Mortgage Corporation – 30 -yr FRM Federal Reserve Board – 10 -Year T-Bond

California Real Estate Market Update

California’s Housing Cycles and Membership 1970 -2009 THOUSANDS

Licensee Numbers Dropping 552, 000 549, 244 550, 000 548, 959 548, 070 548, 879 548, 013 548, 000 546, 247 544, 962 546, 000 543, 947 543, 194 544, 000 542, 267 541, 580 542, 000 540, 000 538, 598 538, 000 FY 2007/2008 536, 000 534, 000 -y y M M M -y y M M M M -y y M M M -y y M M M M M M -y y 532, 000

Sales Hit Bottom in 2007, Up in 2008 California Sales of Existing Homes and Median Price UNITS/MEDIAN PRICE $ -44% -61% SOURCE: California Association of REALTORS® -25%

Sales of Existing Detached Homes, California 2008: 439, 740 units, Up 26. 7% UNITS SOURCE: California Association of REALTORS®

Sales of Existing Detached Homes and Pacific West Consumer Confidence California, Jan. 2009 Sales: 624, 940 Units, Up 100. 8% YTD, Up 100. 8% YTY UNITS SOURCE: California Association of REALTORS®; The Conference Board *Sales are seasonally adjusted annualized INDEX

Home Sales in Central Valley Region SOURCE: California Association of REALTORS®

Sales of Existing Detached Homes Central Valley Regions SOURCE: California Association of REALTORS®

Median Price of Existing Detached Homes California, January 2009: $254, 350, Down 40. 5% YTY SOURCE: California Association of REALTORS®

Median Price of Existing Detached Homes Central Valley Regions SOURCE: California Association of REALTORS®

Lower Price Ranges Hit Hardest, but… Percentage Change in Sales YTY …Credit Crunch hit the market over $500 K from September forward SOURCE: California Association of REALTORS®

Peak vs Current Price - December 2008

Sales By Price Range Financial Turmoil: 8/07 -Now SOURCE: Mortgage Bankers Association, C. A. R.

Unsold Inventory Index California, January 2009: 6. 7 Months MONTHS Average Since 1/88: 7. 2 months SOURCE: California Association of REALTORS®

Entry-Level Monthly House Payment and Payment as Share of Median Household Income PITI/Month % Change Peak 2007 -Q 2: $3, 380/mo Latest 2008 -Q 4: $1, 630/mo SOURCE: California Association of REALTORS®

Buyers See Opportunities in This Market… The Role Of Market Conditions In The Decision To Buy

…While Sellers Are Reacting to Financial Stress The Role of Market Conditions In the Decision to Sell Signs of Distress in 2008

Sacramento County Economic Profile

Sales of Existing Detached Homes and Pacific West Consumer Confidence Sacramento County, Jan. 2009: 1, 542 Units, Up 108. 7% YTD, Up 108. 7% YTY UNITS SOURCE: California Association of REALTORS®; The Conference Board INDEX

Sales of Existing Detached Homes Sacramento County, 2008: 19, 299 Units, Up 88. 9% YTY UNITS ANNUAL SOURCE: California Association of REALTORS® MONTHLY

Median Price of Existing Detached Homes Sacramento County, January 2009: $169, 670, Down 34. 3% YTY SOURCE: California Association of REALTORS®

Median Price Annual Comparison Sacramento County, 2008: $216, 660, Down 36. 8% YTY ANNUAL SOURCE: California Association of REALTORS® MONTHLY

Median Home Sales Price Sacramento County SOURCE: C. A. R. ; Data. Quick Information Systems. The price statistics are derived from all types of home sales -new and existing, condos and single-family.

Unsold Inventory Index Sacramento County, January 2009: 3. 8 Months MONTHS SOURCE: California Association of REALTORS®

First-time Buyer Housing Affordability Index Sacramento County, 4 th Quarter 2008: 74% % OF HOUSEHOLDS THAT CAN BUY SOURCE: California Association of REALTORS®

New Housing Permits Sacramento Metropolitan Area, January 2009: 179 Units, Down 26. 6% YTD SOURCE: Construction Industry Research Board

New Home Sales Sacramento MSA (Detached), 2008 Q 4 Sales: 471 Units SOURCE: California Association of REALTORS®; Hanley Wood

Asking Rents for Class A&B Apartments Sacramento MSA, 2008 Q 4: $966, Up 0. 4% YTY SOURCE: California Association of REALTORS®; REALFACTS

Vacancy Rates for Class A&B Apartments Sacramento MSA, 2008 Q 4: 7. 2% VACANCY RATE SOURCE: California Association of REALTORS®; REALFACTS

Where are new Sacramento County households coming from? • • Placer (3284) Yolo (2042) Alameda (1493) Santa Clara (1424) San Joaquin (1378) Total incoming for 2006: 29, 000 Total outgoing for 2006: 30, 499 Source: NAR Relocation Report 2006 – IRS Data; Item 187 -06061

Top 10 Home Buyer Surnames Sacramento County SOURCE: Data. Quick Information Systems

2008 Housing Market Survey

Median Price Discount and Weeks on Market 2008: Discount 7. 5%, Time on Market: 8. 6 weeks Median Price Discount 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? Weeks on MLS

Percent of Homes Sold with Price Discount Long Run Average = 68% Q. What was the original list sales price of the property? What was the final sales price of the property?

Median Net Cash To Sellers $100, 000 Q. What was the net cash gain or net loss to the seller as a result of this sale?

Percent of Loans Below the Maximum Conforming Loan Limit (New First Mortgage) 2008 Limit: $729, 750

Proportion of First-Time Home Buyers 2008: 35. 9% Q. Was the buyer a first-time buyer?

First-time Buyer Housing Affordability Index California Vs. U. S. % OF HOUSEHOLDS THAT CAN BUY SOURCE: California Association of REALTORS®

Percent of Buyers with Zero Downpayment First-Time Buyers vs. Repeat Buyers: 1998 - 2008 5. 7% 3. 4% 2. 0% Source: C. A. R. 2008 Annual Housing Market Survey

Real Estate Finance

Prime, Sub-Prime, & Other Loans Q 2 -2008 As a Percentage of All Loans Outstanding in United States SOURCE: Mortgage Bankers Association, C. A. R.

Adjustable Rate Mortgage Reset Schedule Alt-A & Option ARM Peak 2010 &2011 Source: Credit Suisse, as reported by IMF

Sub-Prime ARM* Resets Peak in 2008 Selected Counties in CA *Sub-Prime ARMs = 347, 300/500, 100 = 69% of all Sub-Prime Loans in CA (as of Dec 2007) **CA – Based on January 2008 data, counties based on December 2007 data SOURCE: First. American Core. Logic, Loan. Performance Data, U. S. Census Bureau, and Federal Reserve Bank of New York

Alt-A ARM Resets – Resets in 2010 Selected Counties in CA *Alt-A ARMs = 427, 300/ 732, 100 = 58% of all Alt-A Loans in CA (Dec 2007) SOURCE: First. American Core. Logic, Loan. Performance Data, U. S. Census Bureau, and Federal Reserve Bank of New York

Prime Versus Sub-Prime Past Due California Q 3 -2008 Sub-Prime Past Due: LR Avg: 8. 2% Prime Past Due: LR Avg: 2. 0% SOURCE: Mortgage Bankers Association

California Subprime & Alt A Loans Current Picture August 2008 SOURCE: First. American Core. Logic, Loan. Performance Data, U. S. Census Bureau, and Federal Reserve Bank of New York, compiled by C. A. R.

Notices of Default – CA Q 4 -2008 Houses and Condos * Includes additional counties NOTES: • SB 1137 imposed a 30 -day Notice of Intent to File NOD, effective 9/08 • NODs peaked in 2008 -Q 2 at 121, 342 filings SOURCE: Data Quick Information Systems

Mortgage Foreclosure & Delinquency Rates Delinquencies: Long Run Average: 3. 9% Foreclosure Rate: Long Run Average: 0. 9% SOURCE: Mortgage Bankers Association

• • • Comprehensive tools to manage and analyze foreclosure business Generate more leads from your website Get listings priced to sell and buyers off the fence Get short sale and REO transactions approved Find more Short sale and REO business Featured in 60 minutes, Forbes, Bloomberg, LA Times, etc. Visit www. foreclosureradar. com and Enter promo code SWATØ 9 for a FREE 7 Day Trial and an exclusive C. A. R. 10% discount. For more information visit the C. A. R. Business Product Table in the Foyer

Stockton: A Tale of Two Cities Foreclosure Mapping Source: Foreclosure Radar

Stockton: A Tale of Two Cities http: //www. foreclosureradar. com/

Sacramento: Hybrid Map Foreclosure Mapping Source: Foreclosure. Radar. com

Sacramento: Street Map Foreclosure Mapping Source: Foreclosure. Radar. com

Live Oak: Hybrid Map Foreclosure Mapping Source: Foreclosure. Radar. com

Live Oak: Street Map Foreclosure Mapping Source: Foreclosure. Radar. com

Marysville: Hybrid Map Foreclosure Mapping Source: Foreclosure. Radar. com

Marysville: Street Map Foreclosure Mapping Source: Foreclosure. Radar. com

Olivehurst: Hybrid Map Foreclosure Mapping Source: Foreclosure. Radar. com

Live Oak: Street Map Foreclosure Mapping Source: Foreclosure. Radar. com

• • • Comprehensive tools to manage and analyze foreclosure business Generate more leads from your website Get listings priced to sell and buyers off the fence Get short sale and REO transactions approved Find more Short sale and REO business Featured in 60 minutes, Forbes, Bloomberg, LA Times, etc. Visit www. foreclosureradar. com and Enter promo code SWATØ 9 for a FREE 7 Day Trial and an exclusive C. A. R. 10% discount. For more information visit the C. A. R. Business Product Table in the Foyer

From Sub-Prime to Credit Crisis

Mortgage Origination Refinance vs. Purchase ORIGINATION (BIL $) Source: Mortgage Bankers Association of America 30 -YR FIXED RATE MORTGAGE

“The Perfect Storm” Lack of personal financial accountability Exotic loan products and cash-out refi craze Wall St. Innovation: Bundled Debt + MBS/Mortgages Derivatives, Collateralized Debt Obligation’s (CDO’s) Credit Default Swaps (CDS) aka “weapons of mass desrtruction” Wall St. Leverage Inaccurate pricing of risk – rating agencies Trade and Budget Deficits – Huge global pool of money seeking high returns Low interest rate environment in US Behavioral assumptions based on past history

…September 14 -19, 2008 Downward Spiral

Treasury Yield Curve SOURCE: Bloomberg L. P.

Then…and Now

2009 Forecast

California Housing Market Summary February 2009 SOURCE: California Association of REALTORS®

The American Recovery and Reinvestment Act ($787 Billion Stimulus)

GSE and FHA Loan Limits The American Recovery and Reinvestment Act reinstates the 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans through December 31, 2009. These limits were equal to the greater of 125% of the 2008 local area median home price or $271, 050 for FHA and $417, 000 for Fannie and Freddie, with an overall maximum cap of $729, 750. For the few areas where the 2009 limits were higher the higher limits will apply.

Changes to the Homebuyer Tax Credit If the home was purchased between April 8, 2008 and December 31, 2008 If the home was purchased between January 1, 2009 and November 30, 2009 The tax credit is 10% of the purchase price, capped at $7, 500. The tax credit does need to be repaid, therefore working more as an interest free loan. The credit is repaid out of your taxes over 15 years. You cannot get the credit if the property is financed by a tax exempt qualified mortgage issue/bond. The tax credit is 10% of the purchase price, capped at $8, 000. The tax credit does not need to be repaid – the only exception being if the property is sold within 3 -years of purchase. You can get the credit if the property is financed by a tax exempt qualified mortgage issue/bond.

Neighborhood Stabilization Program The American Recovery and Reinvestment Act provided $2 Billion in additional funding for the Neighborhood Stabilization Program (NSP). The funds can be used to purchase, manage, repair, and resell foreclosed and abandoned properties. Funds can also be used by states and localities to establish financing methods for the purchase and redevelopment of foreclosed properties.

Real Estate Related Provisions Low-Income Housing - Allows states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or rehabilitation of low-income housing. Energy Efficienct Upgrades - Through 2010, homeowners will be able to claim a 30% tax credit (up from 10%) for purchases of new furnaces, windows and insulation. There is also $5 billion for weatherization assistance for low income households.

TARP II ($350 Billion)

Treasury Plan: TARP 2. 0 Announced 2/10/09 “This strategy will cost money, involve risk, and take time. " • Wall St Disappointed by lack of specifics • Committing $50 Billion to reduce mortgage payments and mitigate foreclosure • Asking foreclosure moratorium until details of loan modification plan are known • Term Asset-Backed Securities Loan Facility (TALF) – Amount: Lending to hit $1 Trillion – Concept: Fed lends to investors who use the money to buy securities backed by consumer loans – Goal: Liquefy the markets for consumer debt – Uncertain: Types of assets the Fed will finance » Auto, card, student loans, residential MBS’s » Will commercial MBS’s be included? » Issued since 1/09 and AAA rating only » Risk of taking on these assets

Homeowner Affordability and Stability Plan

Homeowner Affordability and Stability Plan Announced February by Treasury Secretary Geithner to help stabilize the housing market and prevent families from losing their homes to foreclosure. Three components: 1. Help homeowners suffering from falling home prices refinance. 2. Help modify mortgages for homeowners at risk of foreclosure. 3. Lower mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

Helping Homeowners Refinance • • • Target is homeowners who’ve lost equity in their home because of falling home prices. Homeowners with existing Freddie Mac and Fannie Mae loans can refinance up to 105 percent loan-to-value. Objective: Help 4 to 5 million homeowners.

Helping Homeowners Who are at Risk of Foreclosure through Loan Modification • • • Brings together lenders, servicers, and the government to share in the cost of the modification. Homeowners do not have to be delinquent. Monthly payments not to exceed a 38 percent debt-toincome ratio; bring down to this ratio at cost to lender. Further reduction to 31 percent DTI; cost split between lender and government. Accomplished by reducing the interest rate on the loan. New rate locked for five years and then adjusted upward to conforming rate at time of modification. Lenders may reduce mortgage principal with government helping to offset some costs.

Helping Homeowners Who are at Risk of Foreclosure to Modify Their Loans (Cont. ) 1. Incentives: Servicers receive $1, 000 for every eligible modification - guidelines to be released by March 4. 2. Mortgage holders receive $1, 500 and servicers $500, for modifications on loans that are non-delinquent but at risk of imminent default. 3. Homeowners with modified loan may receive $1, 000 towards their principle every year they are current on their payments. Good for the first five-years. 4. Administration will work with federal agencies, banking and credit union regulators, and the private sector to develop loan modification guidelines to implement across mortgage market. 5. Guidelines are voluntary unless the institution receives Financial Stability Plan assistance after this announcement. 6. The cost is expected to be $75 billion, with 3 to 4 million homeowners to benefit.

Supporting low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac • • Treasury to increase Preferred Stock Purchase Agreements with Fannie Mae and Freddie Mac from $100 billion (currently) to $200 billion each. Treasury will continue purchasing Fannie and Freddie mortgage-back securities. Fannie and Freddie may increase portfolios $50 billion to $900 billion. Fannie and Freddie will support state housing finance agencies, such as Cal. FHA.

STAY INFORMED www. car. org Newsstand Market Matters www. realtors. org www. recovery. org www. federalreserve. gov http: //federalreserve. gov/monetraypolicy/bst. htm

Technology

2008 Home Buyer Survey

Weeks Considered Buying A Home Before Contacting Agent

Weeks Spent Looking For Home With Agent

Number Of Homes Previewed with Agent

Internet Sites Visited As Part Of Home Buying Process

First Web Site Visited During the Home Buying Process

Percent of Homebuyers Who “Google” Agent Before Final Selection

Most Useful Web Site Visited During the Home Buying Process

How Did You Find Your Real Estate Agent? Unaided Multiple Responses

How Did You First See The Home You Purchased? 77% saw home on the Internet

Means Of Communication With Real Estate Agent

Typical Response Time Expected from Agent

Importance Of Agent’s Response Time In the Selection Process

Satisfaction With Real Estate Agent’s Response Time Mean Score On A 5 -point Scale 5 Is “Well Surpassed Expectations” And 1 Is “Fell Way Below Expectations”

Single Most Important Reasons For Selecting An Agent Unaided Responses

The Role Of Market Conditions In The Decision To Purchase A Home All Buyers

Homebuyers Who Looked at Newspaper/Magazine Ads to Search for a Home

Publication Used to Search for a Home Respondents Who Looked at Newspaper/Magazine Ads to Search for a Home All Buyers

Advice to Give to Other First-Time Home Buyers

Advice to Give to Real Estate Agents to Improve Their Service

From the bookshelf…

Next Week: Ventura on Wed. , Feb. 24! March 4 - Oakland Marriott City Center March 10 - Holiday Inn Chico April 16 - Glendale Hilton April 28 - San Diego TBD http: //www. realtorswat. com

www. car. org Economics

Here we go!

Thank You lesliea@car. org