2011 Housing Market Update Malibu AOR June 7

2011 Housing Market Update Malibu AOR June 7, 2011. Leslie Appleton-Young Chief Economist

Overview US and California Economies California Housing Market Local/Regional Housing Market Survey Highlights California Forecast

US and California Economic Conditions

Gross Domestic Product 2010: +2. 9%; 2011 Q 1: +1. 8% Q 2 p: 2% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUAL QTRLY

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

Consumer Confidence Index March 2011: 63. 4 INDEX, 100=1985

U. S. Non-farm Job Growth Month-to-Month Changes SOURCE: US Dept of Labor, Bureau of Labor Statistics

California Nonfarm Job Growth Month-to-Month Changes SOURCE: CA Employment Development Division

Nonfarm Employment Southern California Regions SOURCE: California Economic Development Dept.

Unemployment Rate CA v. US Disappointing May Jobs Report 54 K new jobs vs 165 K in expectations. SOURCE: CA Employment Development Division

Consumer Price Index March 2011: All Items +2. 7% YTY; Core +1. 2% YTY PERCENT CHANGE FROM A YEAR AGO, 100=1982 -1984

Oil Prices A Near Term Concern West Texas Intermediate: Mar-11: $102. 90 • Mar-10: $81. 20 Dollars per Barrel CPI (1982 -84=100, NSA)

Mortgage Rates Header Higher in 2011 SOURCE: Federal Home Loan Mortgage Corporation

Existing Single-Family Home Sales Mar. 2011 Sales: +6. 5% YTY, Median Price: +3. 5% YTY

Positive Signals… Job creation Strong stock market recovery Real Estate net worth stabilizing Rising rents and more qualified renters Strong demand for distressed properties International demand is strong Smart money chasing real estate (all cash sales)

Federal Issues High-cost Loan Limit - expires 10/1/11 Future of Fannie and Freddie in flux MID and Tax Reform on the horizon FHA targeted for market share drop QRM (Qualified Residential Mortgage) 20% Down – 30 year mortgage? ? ? Short Sales – Standardization, Transparency and Communication

% Over 90 -Days Delinquent (All Mortgages FRMs +ARMs) SF Mortgages Originated between 2001 – 2008 SOURCE: Federal Housing Finance Agency (using data from Fannie Mae, Freddie Mac, and Core. Logic, Inc. ), Mortgage Bankers Association

Now You See Fannie/Freddie Sales… California, 2010 Sales: 494, 900 Units, 2010 Conforming Share of CA Mtgs: 92%* UNITS SOURCE: California Association of REALTORS® *Based on C. A. R. estimates, includes All Conforming: Fannie/Freddie/FHA/VA

…Now You Don’t! Without Fannie & Freddie Worst Case Scenario: No Private Response 2010 Conforming Share of CA Mtgs: 92%* UNITS SOURCE: California Association of REALTORS® *Based on National Share of Fannie/Freddie Share from Inside Mortgage Finance Estimates

QRM – Qualified Residential Mortgage 1. Strict Proposed Requirements (March 2011) Ø 20% Down Ø 28/36 Debt to Income Ø 25% equity stake to refi Ø 30% equity for cash-out refi Ø Squeaky clean credit Ø Exempt • Fannie and Freddie (under conservatorship) • FHA and VA • Estimates of rate differential: . 75% to 3% • Comment period ends June 10

On Average over last 12 years, Less than 1 in 5 Fannie/Freddie Loans Would Have Met QRM SOURCE: Federal Housing Finance Agency SOURCE: Mortgage Bankers Association, C. A. R.

Mortgage Originations: 1990 -2010 Refinance vs. Purchase ORIGINATION (BIL $) Source: Mortgage Bankers Association of America 30 -YR FIXED RATE MORTGAGE

What Happened?

Trustee Sales in Anaheim Scheduled for 10/7/10

1872 W. Admiral, 92801 3 bd, 2. 5 ba, built in 1982 Purchased in Sept 2005 for $594, 000 with 30% down. In April 2006, added a second for $57, 000. In Oct 2006, refinanced the second into a new second for $100, 000. Defaulted in 2010 Zestimate of current value = $364, 000.

1572 W. Orangewood, 92802 3 bd, 2 ba, 2, 016 sq ft built in 1977. Purchased in June 2003 for $455, 000 with 30% down. March 2004: added a second for $75, 000; added a third for $90, 500; added a fourth for $80, 000. Within one year of purchase, the property had $565, 000 in debt on it! Defaulted in 2010. Zestimate of current value = $442, 000.

8871 Regal, 92804 3 bd, 2 ba, 1, 314 sq ft built in 1956. Purchased as REO in 2007 for $417, 000 with zero down. Had previously sold for $568, 000 in 2005. Defaulted in 2010. Zestimate of current value = $367, 500.

2414 E. Underhill, 92806 3 bd, 2 ba, 1, 459 sq ft built in 1957. Purchased for $640, 000 in July 2006 with piggyback financing: $500, 000 first and $140, 000 second, i. e. zero down. Defaulted in 2010. Zestimate of current value = $387, 000.

Conclusions Excessive borrowing against home equity is the untold part of the foreclosure story. “House Prices, Home Equity-Based Borrowing, and the U. S. Household Leverage Crisis” by Mian and Sufi: American Economic Review (forthcoming): 39% of new defaults from 2006 to 2008 attributable to home equity borrowing

Understanding the Financial Crisis

Definition of Credit Default Swap Financial instrument for swapping the risk of debt default. Credit default swaps may be used for emerging market bonds, mortgage backed securities, corporate bonds and local government bond The buyer of a credit default swap pays a premium for effectively insuring against a debt default. Buyer receives a lump sum payment if the debt instrument is defaulted. The seller of a credit default swap receives monthly payments from the buyer. If the debt instrument defaults they have to pay the agreed amount to the buyer of the credit default swap.

Concerns About CDS’s The size of the credit default market dwarfs that of the stock market and the bond market they represent. Therefore, this shows that credit default swaps are being used for speculation and not insuring against actual bonds. Credit Default Swaps are unregulated and because they get traded so frequently there is uncertainty of who owns them and whether the holders can actually pay in the event of a negative credit event.

Credit Default Swaps and Credit Crisis Did credit default swaps exacerbated the financial crisis of 2008? Yes: One example, when Lehman Brother went bankrupt, the swaps that Wa. Mu bought to hedge their exposure after purchasing MBS’s were nullified. No: Credit default is only an instrument reflecting changes in risk and are not the cause of the underlying liquidity problems

U. S. Economic Outlook Forecast Date: May 2011 SOURCE: California Association of REALTORS®

California Economic Outlook Forecast Date: May 2011 SOURCE: California Association of REALTORS®

California Housing Market

California’s Housing Cycles and Membership 1970 -2010 THOUSANDS

Hitting Bottom: Sales 2007, Prices 2009 California Sales of Existing Homes and Median Price UNITS/MEDIAN PRICE $ -44% -61% SOURCE: California Association of REALTORS® -25%

Dollar Volume of Sales 2011 Projection: +4% $ in Billion % Change -54% SOURCE: California Association of REALTORS®

Sales of Existing Detached Homes and Pacific West Consumer Confidence California, April 2011 Sales: 499, 830 Units, Up 1. 3% YTD, Up 5. 0% YTY UNITS SOURCE: California Association of REALTORS®; The Conference Board *Sales are seasonally adjusted annualized INDEX

Median Price of Existing Detached California, April 2011: $293, 570, Down 4. 4% YTY Homes SOURCE: California Association of REALTORS®

Unsold Inventory Index California, April 2011: 5. 4 Months MONTHS SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Unsold Inventory Index (Months) SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Unsold Inventory By Price Range Jan 2005 – March 2011 MONTHS SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Housing Affordability Index California Vs. U. S. % OF HOUSEHOLDS THAT CAN BUY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Malibu

Sales of Residential Homes Malibu, May 2011: 18 Units, Up 20. 0% MTM, Down 18. 2% YTY SOURCE: Clarus Market Metrics

Median Price of Residential Homes Malibu, May 2011: $1, 877, 500, Up 41. 7% MTM, Up 30. 8% YTY SOURCE: Clarus Market Metrics

For Sale Properties Malibu, May 2011: 476 Units, Up 3. 0% MTM, Down 3. 4% YTY SOURCE: Clarus Market Metrics

Months Supply of Inventory Malibu, May 2011: 13. 2 Months SOURCE: Clarus Market Metrics

Santa Monica

Sales of Residential Homes Santa Monica, Apr. 2011: 43 Units, Down 25. 9% MTM, Down 23. 2% YTY SOURCE: Clarus Market Metrics

Median Price of Residential Homes Santa Monica, May 2011: $807, 000, Down 1. 0% MTM, Up 6. 9% YTY SOURCE: Clarus Market Metrics

For Sale Properties Santa Monica, Apr. 2011: 363 Units, Up 2. 5% MTM, Down 26. 8% YTY SOURCE: Clarus Market Metrics

Months Supply of Inventory Santa Monica, May 2011: 4. 1 Months SOURCE: Clarus Market Metrics

Beverly Hills

Sales of Residential Homes Beverly Hills, May 2011: 31 Units, Down 6. 1% MTM, Even 0% YTY SOURCE: Clarus Market Metrics

Median Price of Residential Homes Beverly Hills, May 2011: $1, 590, 000, Down 34. 4% MTM, Down 5. 9% YTY SOURCE: Clarus Market Metrics

For Sale Properties Beverly Hills, May 2011: 428 Units, Even 0% MTM, Down 17. 4% YTY SOURCE: Clarus Market Metrics

Months Supply of Inventory Beverly Hills, May 2011: 7. 6 Months SOURCE: Clarus Market Metrics

Distressed Properties

Distressed Sales by County (Percent of Total Sales) SOURCE: California Association of REALTORS®

REO Sales & Short Sales by County Mar 2011 SOURCE: California Association of REALTORS®

Malibu Preforeclosure: 61 • Auction: 66 • Bank Owned: 12 Source: Foreclosure. Radar. com as of 06/06/11

Santa Monica Preforeclosure: 65 • Auction: 82 • Bank Owned: 24 Source: Foreclosure. Radar. com as of 06/06/11

Beverly Hills Preforeclosure: 65 • Auction: 83 • Bank Owned: 12 Source: Foreclosure. Radar. com as of 06/06/11

Southern California

Sales of Existing Detached Homes and Pacific West Consumer Confidence Los Angeles Metro Area April 2011 Sales: 9, 102 Units, Down 7. 6% YTY, Down 4. 7% YTD UNITS SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®; The Conference Board INDEX

Home Sales in Los Angeles Metro Area SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Median Price of Existing Detached Homes Los Angeles Metro Area, April 2011: $277300, Down 2. 4% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Sales of Existing Detached Homes Los Angeles Metro Area SOURCE: California Association of REALTORS®

Median Price of Existing Detached Homes Los Angeles Metro Area SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Supply Indicators Los Angeles Metro Area April 2010 Median Time on the Market Unsold Inventory Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® March 2011 April 2011 32. 5 Days 58. 0 Days 55. 5 Days 4. 4 Mos. 5. 7 Mos. 5. 8 Mos.

Unsold Inventory Index (Months) SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Notices of Default – So CAL Houses and Condos * Includes additional counties SOURCE: Data Quick Information Systems

Foreclosures (Trustee Deeds Recorded) – So CAL Houses and Condos * Includes additional counties SOURCE: Data Quick Information Systems

2010 Annual Housing Market Summary

Home Sellers Planning to Repurchase at Historic Lows Q. Is the seller planning on purchasing another home?

Net Cash To Sellers at Record Lows $35, 000 Q. What was the net cash gain or net loss to the seller as a result of this sale?

Multiple Offers Common: Buyers Face Highly Competitive Market

More Buyers Pay with All Cash Percent of All Cash Sales

Investor Sales Continue to Grow

2010 Survey of Home Buyers

Became Aware of Home Purchased Through Agent Q. Did you become aware of the home you purchased through a real estate agent?

Home Buyers Who Looked at Newspaper/Magazine Ads to Search for a Home Q. Did you look at newspaper/magazine ads to search for a home?

Level of Difficulty to Obtain Financing (All Buyers) 2009: Mean = 8. 1 Median = 9 2010: Mean = 8. 5, Median = 9 Scale: “ 1” = very easy, “ 10” = very difficult Q. Please rate how easy of difficult it was to obtain financing on a scale of 1 to 10, with 1 being very easy and 10 being very difficult.

Buyers Who Know the Terms of Their Loan Q. Do you know the terms of your loan?

California Housing Market Forecast

California Housing Market Outlook Forecast Date: May 2011 Source: CALIFORNIA ASSOCIATION OF REALTORS®

Real Estate: It’s Time To Buy Again “Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing. ” SOURCE: “Real estate: It’s time to buy again” Fortune Magazine’s 3/28/11 article written by Shawn Tully

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 fiveyear 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”

2011 Strategic Planning Committee Book Selections

www. car. org/marketdata Speeches & Presentations

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