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

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Presentation on theme: "March 3, 2009 SACRAMENTO AOR Leslie Appleton-Young C.A.R. Vice President and Chief Economist 2009 California Real Estate Market Forecast."— Presentation transcript:

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

2 Economic Fundamentals

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7 U.S. & California Economic Update

8 Gross Domestic Product Year 2007: +2.0%; 2008 Q3: -0.5%; Q4 -6.2% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $ ANNUAL QTRLY

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

10 INDEX, 100=1985 Consumer Confidence Index All time low: January 2009: 37.7

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

12 QUARTERLY PERCENT CHANGE Personal Consumption 2008 Q3: -3.8% Q4: -3.5% SOURCE: US Dept of Commerce, Bureau of Economic Analysis

13 Existing Single-Family Home Sales Sales 4.192m in 2008 Down 13.1 from 5.652m in 2007 (lowest since 1997) Median Price: $174,500 Down 15.3% YTY (2008 down 9.3% - lowest since 2004)

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

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

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

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

18 Nonfarm Employment By Region SOURCE: CA Employment Development Division

19 Nonfarm Employment Sacramento-Arden Arcade-Roseville MSA, Dec. 2008: Down 2.6% YTY SOURCE: CA Employment Development Division Y-T-Y PERCENT CHANGE

20 Unemployment Rate Sacramento Metropolitan Area, December 2008: 8.7% SOURCE: CA Employment Development Division

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

22 PERCENT CHANGE FROM A YEAR AGO Industrial Production December 2008: Down 7.4% YTY SOURCE: Federal Reserve Board

23 SA, PERCENT OF CAPACITY Capacity Utilization Rate December 2008: 73.6%

24 PERCENT CHANGE FROM A YEAR AGO Retail Sales December 2008 Down 10.8% YTY

25 Consumer Price Index December 2008: All Items -0.1% YTY; Core 1.7% YTY PERCENT CHANGE FROM A YEAR AGO, 100=

26 SOURCE: Federal Home Loan Mortgage Corporation Fed Funds and Mortgage Rates Easing: ;

27 SOURCE: Federal Home Loan Mortgage Corporation – 30-yr FRM Federal Reserve Board – 10-Year T-Bond 30-Year FRM vs. 10-Year T-Bond Above-Average Risk Premiums Associated With Mortgage Loans Average. Risk Premium: 1.6%

28 California Real Estate Market Update

29 THOUSANDS Californias Housing Cycles and Membership

30 Licensee Numbers Dropping FY 2007/2008

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

32 Sales of Existing Detached Homes, California 2008: 439,740 units, Up 26.7% UNITS SOURCE: California Association of REALTORS®

33 Sales of Existing Detached Homes and Pacific West Consumer Confidence California, Jan Sales: 624,940 Units, Up 100.8% YTD, Up 100.8% YTY INDEXUNITS SOURCE: California Association of REALTORS®; The Conference Board *Sales are seasonally adjusted and annualized

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

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

36 Median Price of Existing Detached Homes California, January 2009: $254,350, Down 40.5% YTY SOURCE: California Association of REALTORS®

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

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

39 Peak vs Current Price - December 2008

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

41 Unsold Inventory Index California, January 2009: 6.7 Months MONTHS Average Since 1/88: 7.2 months SOURCE: California Association of REALTORS®

42 % ChangePITI/Month Entry-Level Monthly House Payment and Payment as Share of Median Household Income SOURCE: California Association of REALTORS® Peak 2007-Q2: $3,380/mo Latest 2008-Q4: $1,630/mo

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

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

45 Sacramento County Economic Profile

46 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 INDEXUNITS SOURCE: California Association of REALTORS®; The Conference Board

47 Sales of Existing Detached Homes Sacramento County, 2008: 19,299 Units, Up 88.9% YTY UNITS SOURCE: California Association of REALTORS® ANNUAL MONTHLY

48 Median Price of Existing Detached Homes Sacramento County, January 2009: $169,670, Down 34.3% YTY SOURCE: California Association of REALTORS®

49 Median Price Annual Comparison Sacramento County, 2008: $216,660, Down 36.8% YTY SOURCE: California Association of REALTORS® ANNUAL MONTHLY

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

51 Unsold Inventory Index Sacramento County, January 2009: 3.8 Months MONTHS SOURCE: California Association of REALTORS®

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

53 New Housing Permits Sacramento Metropolitan Area, January 2009: 179 Units, Down 26.6% YTD SOURCE: Construction Industry Research Board

54 New Home Sales Sacramento MSA (Detached), 2008 Q4 Sales: 471 Units SOURCE: California Association of REALTORS®; Hanley Wood

55 Asking Rents for Class A&B Apartments Sacramento MSA, 2008 Q4: $966, Up 0.4% YTY SOURCE: California Association of REALTORS®; REALFACTS

56 Vacancy Rates for Class A&B Apartments Sacramento MSA, 2008 Q4: 7.2% SOURCE: California Association of REALTORS®; REALFACTS VACANCY RATE

57 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

58 Top 10 Home Buyer Surnames Sacramento County SOURCE: DataQuick Information Systems

59 2008 Housing Market Survey

60 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 Median Price Discount Median Price Discount and Weeks on Market 2008: Discount 7.5%, Time on Market: 8.6 weeks

61 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?

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

63 2008 Limit: $729,750 Percent of Loans Below the Maximum Conforming Loan Limit (New First Mortgage)

64 Proportion of First-Time Home Buyers 2008: 35.9% Q. Was the buyer a first-time buyer?

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

66 5.7% 3.4% 2.0% Percent of Buyers with Zero Downpayment First-Time Buyers vs. Repeat Buyers: Source: C.A.R Annual Housing Market Survey

67 Real Estate Finance

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

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

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

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

72 California Q Prime Versus Sub-Prime Past Due SOURCE: Mortgage Bankers Association Sub-Prime Past Due: LR Avg: 8.2% Prime Past Due: LR Avg: 2.0%

73 California Subprime & Alt A Loans Current Picture August 2008 SOURCE: FirstAmerican CoreLogic, LoanPerformance Data, U.S. Census Bureau, and Federal Reserve Bank of New York, compiled by C.A.R.

74 Notices of Default – CA Q Houses and Condos SOURCE: Data Quick Information Systems * Includes additional counties NOTES: SB1137 imposed a 30-day Notice of Intent to File NOD, effective 9/08 NODs peaked in 2008-Q2 at 121,342 filings

75 Mortgage Foreclosure & Delinquency Rates SOURCE: Mortgage Bankers Association Delinquencies: Long Run Average: 3.9% Foreclosure Rate: Long Run Average: 0.9%

76 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 and Enter promo code SWATØ9 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

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

78 Stockton: A Tale of Two Cities

79 Sacramento: Hybrid Map Foreclosure Mapping Source: ForeclosureRadar.com

80 Sacramento: Street Map Foreclosure Mapping Source: ForeclosureRadar.com

81 Live Oak: Hybrid Map Foreclosure Mapping Source: ForeclosureRadar.com

82 Live Oak: Street Map Foreclosure Mapping Source: ForeclosureRadar.com

83 Marysville: Hybrid Map Foreclosure Mapping Source: ForeclosureRadar.com

84 Marysville: Street Map Foreclosure Mapping Source: ForeclosureRadar.com

85 Olivehurst: Hybrid Map Foreclosure Mapping Source: ForeclosureRadar.com

86 Live Oak: Street Map Foreclosure Mapping Source: ForeclosureRadar.com

87 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 and Enter promo code SWATØ9 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

88 From Sub-Prime to Credit Crisis

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

90 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 Obligations (CDOs) 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

91 …September 14-19, 2008 Downward Spiral

92 Treasury Yield Curve SOURCE: Bloomberg L.P.

93 Then…and Now

94 2009 Forecast

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

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

97 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, 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.

98 Changes to the Homebuyer Tax Credit 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. 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

99 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.

100 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.

101 TARP II ($350 Billion)

102 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 for 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 MBSs »Will commercial MBSs be included? »Issued since 1/09 and AAA rating only »Risk of taking on these assets

103 Homeowner Affordability and Stability Plan

104 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. Announced February by Treasury Secretary Geithner to help stabilize the housing market and prevent families from losing their homes to foreclosure. Three components: Homeowner Affordability and Stability Plan

105 Helping Homeowners Refinance Target is homeowners whove 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.

106 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-to- income 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.

107 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. Helping Homeowners Who are at Risk of Foreclosure to Modify Their Loans (Cont.)

108 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 CalFHA.

109 STAY INFORMED Newsstand Market Matters www. recovery.org

110 Technology

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114 2008 Home Buyer Survey

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116 Weeks Considered Buying A Home Before Contacting Agent

117 Weeks Spent Looking For Home With Agent

118 Number Of Homes Previewed with Agent

119 Internet Sites Visited As Part Of Home Buying Process

120 First Web Site Visited During the Home Buying Process

121 Percent of Homebuyers Who Google Agent Before Final Selection

122 Most Useful Web Site Visited During the Home Buying Process

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

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

125 Means Of Communication With Real Estate Agent

126 Typical Response Time Expected from Agent

127 Importance Of Agents Response Time In the Selection Process

128 Satisfaction With Real Estate Agents Response Time Mean Score On A 5-point Scale 5 Is Well Surpassed Expectations And 1 Is Fell Way Below Expectations

129 Single Most Important Reasons For Selecting An Agent Unaided Responses

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

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

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

133 Advice to Give to Other First-Time Home Buyers

134 Advice to Give to Real Estate Agents to Improve Their Service

135 From the bookshelf…

136

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

138

139 Economics

140

141 Here we go!

142 Thank You


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