2015 California Economic Outlook and Market Outlook. San Francisco Bay Area Real Estate Market Summary.

2015 CALIFORNIA ECONOMIC & MARKET OUTLOOK

February 19, 2015San Francisco WCR & AOR

Leslie Appleton-Young, Chief Economist

OVERVIEW

• Macro-Economic Outlook

• California Housing Market Outlook

• Focus: Housing Affordability

• San Francisco Regional Market Stats

• 2015 Forecast

• In closing…

ECONOMIC OUTLOOK

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Q1-

10Q

2-10

Q3-

10Q

4-10

Q1-

11Q

2-11

Q3-

11Q

4-11

Q1-

12Q

2-12

Q3-

12Q

4-12

Q1-

13Q

2-13

Q3-

13Q

4-13

Q1-

14Q

2-14

Q3-

14Q

4-14

GROSS DOMESTIC PRODUCT

2013: 1.9% 2014: 2.4%; 2014 Q4: 2.6% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $

ANNUALLY QUARTERLY

2009 Largest Annual Drop since 1938 (-3.4%)

SERIES: GDPSOURCE: US Dept. of Commerce, Bureau of Economic Analysis

SERIES: Components of GDPSOURCE: US Dept. of Commerce, Bureau of Economic Analysis

COMPONENTS OF GDP

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Consumption Fixed Nonres. Investment Net Exports Government

Q1 2014

Q2 2014

Q3 2014

Q4 2014

ANNUAL PERCENT CHANGE

SERIES: Components of GDPSOURCE: 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

2000

Q1

2000

Q3

2001

Q1

2001

Q3

2002

Q1

2002

Q3

2003

Q1

2003

Q3

2004

Q1

2004

Q3

2005

Q1

2005

Q3

2006

Q1

2006

Q3

2007

Q1

2007

Q3

2008

Q1

2008

Q3

2009

Q1

2009

Q3

2010

Q1

2010

Q3

2011

Q1

2011

Q3

2012

Q1

2012

Q3

2013

Q1

2013

Q3

2014

Q1

2014

Q3


CONSUMER CONFIDENCE – 7 YEAR HIGH

January 2015: 102.9

0

20

40

60

80

100

120

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

INDEX, 100=1985

SERIES: Consumer ConfidenceSOURCE: The Conference Board

UNEMPLOYMENT RATE FALLING

January 2015: US 5.7% (U6 = 11.3%) & CA 7.2%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14% US-CA CA US

SERIES: Unemployment Rate The U-6 rate covers the unemployed, underemployed and those who are not looking but who want a jobSOURCE: US Bureau of Labor Statistics, CA Employment Development Division

LABOR FORCE PARTICIPATION RATE DOWN

CA- 62.5% (Dec. 2014) vs. USA- 62.7% (Dec. 2014)

60%

62%

64%

66%

68%

70%US CA

Labor Force Rate

SERIES: Labor Force Participation RateSOURCE: BLS, Data Buffet

YOUNGER WORKERS HIT HARDER

2007-2010 LOST JOBS REPLACED: JAN 2014

-8

-6

-4

-2

0

2

4 California US


SERIES: Total Nonfarm EmploymentSOURCE: US Bureau of Labor Statistics, CA Employment Development Division

JOB LOSSES IN PRIOR RECESSIONS -RECENT CYCLE WORST BY FAR

NONFARM EMPLOYMENT BY REGION

Nov 2014 Nov 2013 Change % Change

Southern California 8,721.2 8,553.1 168.1 2.0%

Bay Area 3,555.6 3,441.0 114.6 3.3%

Central Valley 2,068.4 2,021.6 46.8 2.3%

Central Coast 514.4 503.9 10.5 2.1%

North Central 139.4 137.7 1.7 1.2%

CALIFORNIA 15,650.5 15,306.4 344.1 2.2%

Nonfarm Employment (Thousands)

SERIES: Total Nonfarm EmploymentSOURCE: CA Employment Development Division

CA JOB TRENDS – BAY AREA LEADS

1.4%

1.8%

2.1%

2.1%

2.2%

2.2%

2.6%

2.6%

2.8%

3.2%

3.6%

3.8%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

Los Angeles

Ventura

Modesto

Stockton MSA

Bakersfield

Orange County

Fresno MSA

Sacramento

Oakland

San Diego

San Francisco

San Jose

SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division


November 2014: CA +2.2%, +344,100

CONSTRUCTION WORKERS 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 GoodsFinance & Insurance

GovernmentDurable Goods

Retail TradeTransportation, Warehousing & Utilities

Real Estate & Rental & LeasingWholesale Trade

Educational ServicesInformation

Leisure & HospitalityHealth Care & Social Assistance

Professional, Scientific & Technical ServicesAdmistrative & Support & Waste Services

Construction

SERIES: Total Nonfarm Employment By IndustrySOURCE: US Bureau of Labor Statistics, CA Employment Development Division

November 2014: CA +2.2%, +344,100; 250K new construction jobs in next 5 years


MORTGAGE RATES UP 1% IN MID-2013SIX YEARS OF 0% FED FUNDS RATE

0%

1%

2%

3%

4%

5%

6%

7%

8% FRM ARM Federal Funds

SERIES: 30Yr FRM, 1Yr ARM, Federal FundsSOURCE: Federal Home Loan Mortgage Corporation

CPI REMAINS SUBDUED

December 2014: All Items +.8% YTY; Core +1.6% YTY

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6% All Items Core


SERIES: Consumer Price IndexSOURCE: US Bureau of Labor Statistics

U.S. DEPOSITORY INSTITUTIONS:HIGH LEVEL OF EXCESS RESERVES SINCE 9/08

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

SERIES: Excess Reserves of Depository Institutions SOURCE: Federal Reserve Bank of Saint Louis

$ BILLIONS

MORTGAGE RATES DEFIED FORECASTERS IN 2014

• 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

11.0

6.14

11.2

7.14

12.1

8.14

FRMARM

MONTHLY WEEKLY

SERIES: 30Yr FRM, 1Yr ARMSOURCE: Federal Home Loan Mortgage Corporation

IS THERE 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 SurveySOURCE: Philadelphia Federal Reserve Survey of Professional Forecasters, Bloomberg

CREDIT AVAILABILITY UP VERYSLIGHTLY

http://blog.metrotrends.org/wp-content/uploads/2015/01/FigOne1.jpg

http://blog.metrotrends.org/wp-content/uploads/2015/01/FigOne1.jpg

HOUSING CREDIT INDEX

MORTGAGE ORIGINATION SHARE

Refinance Share vs. Purchase Share

0%

1%

2%

3%

4%

5%

6%

7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Refinance Share (%) Purchase Share (%) FRM

30YR FRM

SERIES: Mortgage OriginationsSOURCE: Mortgage Bankers Association of America

NEW HOME SALES

US, Dec. 2014 Sales: 481,000 Units, +1.6% YTD, +8.8% YTY

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

SERIES: New Home Sales, Seasonally Adjusted Annualized RateSOURCE: US Census Bureau

MEDIAN PRICE OF NEW HOME SALES

US, Dec. 2014: $208,300, Up 8.3% YTY

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

SERIES: Existing Home SalesSOURCE: NATIONAL ASSOCIATION OF REALTORS®

SALES OF EXISTING HOMES

US, December 2014 Sales: 5,040,000 Units, -3.1% YTD, +3.5% YTY

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000


MEDIAN PRICE OF EXISTING HOMES

US, December 2014: $209,500, Up 6.0% YTY

$0

$50,000

$100,000

$150,000

$200,000

$250,000


US: SALES OF EXISTING HOMES

Region Dec-14 Nov-14 Dec-13 MTM YTY YTD

U.S. 5,040,000 4,920,000 4,870,000 2.4% 3.5% -3.1%

Northeast 660,000 680,000 640,000 -2.9% 3.1% -3.0%

Midwest 1,090,000 1,130,000 1,120,000 -3.5% -2.7% -5.0%

South 2,170,000 2,090,000 2,020,000 3.8% 7.4% 0.0%

West 1,120,000 1,020,000 1,090,000 9.8% 2.8% -7.6%


REGIONAL PRICE TRENDS UP SHARPLY

Region Dec-14 Nov-14 Dec-13 MTM YTY

U.S. $209,500 $207,200 $197,700 1.1% 6.0%

Northeast $246,600 $247,000 $239,000 -0.2% 3.2%

Midwest $159,100 $160,800 $151,100 -1.1% 5.3%

South $184,100 $178,100 $172,700 3.4% 6.6%

West $299,600 $295,300 $283,700 1.5% 5.6%


November October

Core Logic Home Price Index 5.5% 5.4%

Zillow Home Value Index 6.6% 5.4%

Existing-Homes, Median Sales Price 5.0% 5.5%

New Homes, Median Sales Price 5.2% 12.3%

FHFA House Price Index 5.3% 4.3%

S&P/Case-Shiller Home Price Index 4.7% 4.6%

Year Over Year % IncreaseHome Price Measure

NATIONAL HOME PRICE MEASURES:PRICE GAINS MODERATING

SERIES: Home Price MeasuresSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

C.A.R. LENDERPERFORMANCE INDEX

OBJECTIVES

The Index seeks to efficiently combine experiences from REALTORS® and survey feedback to address the performance of lenders throughout the lending process. The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) updates the index on a semi-annually basis in order to gauge the overall climate of the real estate finance environment as it relates to consumers and REALTORS®. The Index measures the satisfaction REALTORS® have in their most recent housing transaction and when tracked over time, the Index will illustrate the current performance of lenders from the REALTORS® perspective.

LENDER PERFORMANCE IMPROVING

3133

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 OVER THE PAST FOUR YEARS

1 2 3 4 5

The timeliness of responses to your inquiries

Knowledge/professionalism of therepresentative you worked with

Length of time to obtain approval/disapprovalof the short sale transaction

Expectations of financial contributions fromthe 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

Extremely Easy

Extremely Difficult


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 OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

CALIFORNIA ECONOMIC FORECAST

SERIES: CA Economic OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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

CALIFORNIA’S HOUSING CYCLES AND MEMBERSHIP

1970-2014

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

0

50,000

100,000

150,000

200,000

250,000

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

p

Home Sales Membership

*Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

2014 SALES DOWN 7.6%; JAN LOWEST SINCE 2008

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-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

*Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Jan-15: 351,890

Jan-14: 361,790

HOME SALES IN BAY AREA COUNTIES

0

100

200

300

400

500

600 January-15 January-14

SERIES: Sales of Existing Detached HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SHARE OF EQUITY SALES REMAINED STEADY AT THE 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-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Equity Sales Short Sale REO

SERIES: Distressed Sales, Not Seasonally AdjustedSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

BAY AREA REO & SHORT SALES

Percent of Total Sales: Dec 2014

1%2% 2% 2% 2% 1%

6%

3%2%

3%

1%1%

0% 1%

5%

3%

0%

2%

4%

6%

8%

10%

12%

Alameda ContraCosta

Marin Napa San Mateo Santa Clara Solano Sonoma

REO Sales Short Sales

SERIES: Distressed Sales, Not Seasonally AdjustedSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SAN FRANCISCO

Preforeclosure: 140 • Auction: 108 • Bank Owned: 8

SOURCE: PropertyRadar on 2/19/15

MARIN COUNTY



SAN RAFAEL



OAKLAND



ALAMEDA COUNTY



ALAMEDA COUNTY



ALAMEDA COUNTY



MEDIAN PRICE OF EXISTING DETACHED HOMES

California, Dec. 2014: $452,570, +1.7% MTM, +3.1% 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

SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Dec-14: $452,570

Dec-13: $444,830

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-

07A

pr-0

7Ju

l-07

Oct

-07

Jan-

08A

pr-0

8Ju

l-08

Oct

-08

Jan-

09A

pr-0

9Ju

l-09

Oct

-09

Jan-

10A

pr-1

0Ju

l-10

Oct

-10

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12A

pr-1

2Ju

l-12

Oct

-12

Jan-

13A

pr-1

3Ju

l-13

Oct

-13

Jan-

14A

pr-1

4Ju

l-14

Oct

-14

Jan-

15

PRICE PER SQ. FT.

SERIES: Median Price Per Square FeetSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SF: STRONGEST PRICE GAINS IN THE STATE

SF: 10 YEARS OF PRICE GAINS 2004-2014

Source: Property Shark

PRICE GAINS DOWN SHARPLY SINCE MID 2013

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50% Condo Single-Family Homes

SERIES: Sales of SFH and Condo UnitsSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

YTY% Chg. in Price

INVENTORY IMPROVING BUT STILL LOW

Jan 2015: 5.0 Months; Jan 2014: 4.3 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-0

5

Jan-

…

Jul-0

6

Jan-

07

Jul-0

7

Jan-

…

Jul-0

8

Jan-

…

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

SERIES: Unsold Inventory Index of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MORE INVENTORY AT UPPER PRICE RANGES

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) Dec-14 Nov-14 Dec-13

$1,000K+ 4.3 5.5 4.3

$750-999K 3.1 4.2 3.2

$500-749K 3.0 4.1 2.7

$400-499K 3.0 3.9 2.6

$300-399K 3.2 4.2 2.8

$200-299K 3.3 4.3 3.0

$0-199K 3.4 4.5 3.1

SERIES: Unsold Inventory Index of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

WHERE IS THE INVENTORY?

– Investors renting instead of flipping– Mortgage Lock-In Effect– Where will I go?– Foreclosure pipeline is dry – New construction recovering but LOW– Off- MLS (aka “pocket’) listings not being

counted in listing stats

ANNUAL HOUSING MARKET SURVEY:

2014 FINDINGS

MULTIPLE OFFERS DECLINE -LESS INTENSE MARKET COMPETITION

AFTER PEAKING IN 2013

72%

53%5.7

4.3

0

1

2

3

4

5

6

7

0%

10%

20%

30%

40%

50%

60%

70%

80%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% with Multiple Offers # of Multiple offers (Average)

SERIES: 2014 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

50%

33%

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% of Sales above Asking Price

Long Run Average = 19%

FEWER HOMES SOLD ABOVE THE ASKING PRICE AS MARKET COMPETITION COOLED IN 2014

QUESTION: What was the original list sales price of the property? What was the final sales price of the property? SERIES: 2014 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

49 % SOLD BELOW ASKING IN 2014

7%

11%

28%

54%

0% 20% 40% 60%

20% or more

10% to 19.99%

5% to 9.99%

Less than 5%

% of Price Reduction(Properties Sold Below Asking Price)

49%

18%

33%

Sale Price to Asking Price

Below Asking Price At Asking Price Above Asking Price


Median Reduction:4.5% of List Price

$70,000

20%

0%

5%

10%

15%

20%

25%

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Median Down Payment % of Down Payment to Price

Q. What was the amount of downpayment?

20% REMAINS THE MEDIAN DOWN PAYMENT


INVESTMENT BUYERS DROPPING : 15% MARKET SHARE

19%

15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Long Run Average: 12 %


BUYING TO RENT V. FLIP; CHANGE IN PREFERRED INVESTMENT STRATEGY

Investment to Flip

Rental Property


HOUSING AFFORDABILITY:CRISIS BREWING

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 SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

HOUSING AFFORDABILITY DOWNSHARPLY SINCE Q1 2012

California vs. U.S. – 1984-2014% OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME

SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

0%

10%

20%

30%

40%

50%

60%

70%

80% CA USAnnual Quarterly

HOUSING AFFORDABILITY INDEX

San Francisco County, 4th Quarter 2014: 14%% OF HOUSEHOLDS THAT CAN BUY

0%

5%

10%

15%

20%

25%

30%

35%

SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

FIRST-TIME BUYER HOUSING AFFORDABILITY INDEX

San Francisco County, 4th Quarter 2014: 33%

0%

10%

20%

30%

40%

50%

60%% OF HOUSEHOLDS THAT CAN BUY

SERIES: Housing Affordability Index of First Time Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

BAY AREA HOUSING AFFORDABILITY DROPPING

4th Quarter 2014

0 10 20 30 40 50 60 70

United States

California

S.F. Bay Area

Alameda

Contra-Costa (Central County)

Marin

Napa

San Francisco

San Mateo

Santa Clara

Solano

Sonoma

Q4/2014 Q4/2013

SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

HOMEOWNERSHIP RATE FALLING

California Vs. 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 RatesSOURCE: 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 MARCH WILL SLOW

1970-2014

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

CA V. US REAL PRICE GAP: $10K TO $246K

1970-2014

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000 California US

$10K to $246

SERIES: Median Price of Existing Single Family HomesSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

2014 Dollar Value

INCOME TO BUY MEDIAN-PRICED HOME IN CA:UP SHARPLY IN TWO

$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 IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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 SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

STUDENT LOAN DEBT:25% OF RENTERS

Yes, 23%

No, 75%

Refused, 2%

Student Loan Debt

SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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

CALIFORNIA’S HOUSING DILEMMA

• Even with everything (or at least most things) going right, our homeownership market is in trouble…

• The rental market, even with the conversion of 500,000 SFH’s, is still exhibiting inadequate supply and rising rents

• CA Housing Needs = Minimally 165,000 Units Annually– Regulatory Problem– Impact Fees– Public Attitudes

CA PERMITS UP BUT MORE UNITS NEEDED

2014p: 83,000 (43,000 sf, 40,000 mf)2015f: 101,000 total units

SERIES: New Housing PermitsSOURCE: Construction Industry Research Board

0

50000

100000

150000

200000

250000

300000

350000

Single Family Multi-Family

Household Growth: 165,000/yr

REGIONAL & LOCAL HOUSING MARKETS

SAN FRANCISCO NEIGHBORHOODS


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SAN FRANCISCO

SALES OF RESIDENTIAL HOMES

San Francisco, January 2015: 254 Units Down 38.8% MTM, Down 18.8% YTY

SOURCE: Clarus Market Metrics

MEDIAN PRICE OF RESIDENTIAL HOMES

San Francisco, January 2015: $952,500Down 2.3% MTM, Up 2.4% YTY


FOR SALE PROPERTIES

San Francisco, January 2015: 714 UnitsDown 2.2% MTM, Down 31.3% 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.


MONTH’S SUPPLY OF INVENTORY

San Francisco, January 2015: 1.8 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.


ALAMEDA COUNTY


Alameda County, January 2015: 624 Units Down 40.9% MTM, Down 15.4% YTY



Alameda County, January 2015: $555,000Down 2.6% MTM, Up 11.1% YTY


FOR SALE PROPERTIES

Alameda County, January 2015: 1,932 Units Down 1.7% MTM, Down 25.7% YTY



Alameda County, January 2015: 1.2 Months



OAKLAND


Oakland, January 2015: 151 Units Down 43.2% MTM, Down 23.0% YTY



Oakland, January 2015: $420,000Down 11.3% MTM, Up 22.6% YTY


FOR SALE PROPERTIES

Oakland, January 2015: 533 Units Down 7.3% MTM, Down 38.5% YTY



Oakland, January 2015: 1.6 Months



MARIN COUNTY


Marin County, January 2015: $823,120Down 6.5% MTM, Up 1.4% YTY



Marin County, January 2015: 114 Units Down 34.5% MTM, Down 20.3% YTY


FOR SALE PROPERTIES

Marin County, January 2015: 478 UnitsDown 7.0% MTM, Down 18.2% 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.



Marin County, January 2015: 1.6 Months



SAN RAFAEL


San Rafael, January 2015: 22 Units Down 54.2% MTM, Down 15.4% YTY



San Rafael, January 2015: $755,000Down 7.8% MTM, Up 28.1% YTY


FOR SALE PROPERTIES

San Rafael, January 2015: 115 Units Up 9.5% MTM, Down 12.9% YTY



San Rafael, January 2015: 1.4 Months



2015 FORECAST


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 OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®


Sales Down for 2014 but will Improve in 2015; Price Gains Slowing

Units (Thousand)

380 403

0

100

200

300

400

500

600

700

2005 2007 2009 2011 2013 2015f

Sales of Existing Detached Homes

$455

$479

$0

$100

$200

$300

$400

$500

$600

2005 2007 2009 2011 2013 2015f

Median PricePrice

(Thousand)


CA: DOLLAR VOLUME UP FOR 4TH YEAR

$301

$244

$164 $133 $131 $127 $121

$140 $169 $173

$193

-40%

-30%

-20%

-10%

0%

10%

20%

30%

$0

$50

$100

$150

$200

$250

$300

$350

$400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014p 2015f

$ Volume of Sales Percent Change

% Change$ in Billion

-60%


Up 2.7% in 2014, Up 11.3% in 2015

INTERNATIONAL BUYERSMAKE THEIR 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

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 SurveyHow did your last international buyer pay for the property?

MILLENNIALS: TOMORROW’S HOME OWNERS?

OVER 1/3 LIVE WITH THEIR PARENTS

What is your current living situation?

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

I rent I live with myparents

I own I live in a dorm Other:

41%

36%

20%

1%1%

SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MILLENNIALS’ BIGGEST CONCERNS

What are your biggest concerns about home ownership?

Price/Affordability (45%)

Problems with Credit, Mortgages, or Taxes (19%)

Maintenance/Upkeep (14%)

Satisfaction with Home/Location (7%)

Responsibility (4%)

SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

ATTITUDE TOWARD THE HOME BUYING PROCESS –MIXED RESULTS

SOURCE: How would you describe your attitude towards the home buying process?C.A.R. 2014 Millennial Survey

0%

10%

20%

30%

40%

50%

60%

Positive Negative Neutral N/A Other

50%

34%

8%4%

4%

MOST MILLENNIALS UNCERTAIN/DOUBTFUL THAT THEY COULD OBTAIN A MORTGAGE

NOW?AMILLENNIAL ETHNICITY

SOURCE: C.A.R. 2014 Millennial SurveyQ: Could you obtain a mortgage if you applied now ?

Yes 22%

No 33%

Don't know45%

PEOPLE WOULD PREFER THE FOLLOWING OVER GOING THROUGH THE HOME MORTGAGE PROCESS AGAIN:

SOURCE: Guaranteed Rate Mortgage Survey of 1,000 adults 25 and older USA Today April 2014

2015 Book Recommendations

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THE FINANCE HELPLINE

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DOWN PAYMENT RESOURCE DIRECTORYDOWNPAYMENT.CAR.ORG

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

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