california housing market: 2012 forecast southwest la aor november 8, 2011 leslie appleton-young,...

CALIFORNIA HOUSING MARKET: 2012 FORECAST

Southwest LA AOR

November 8, 2011

Leslie Appleton-Young, Chief Economist

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Overview

US and California Economies

California Housing Market

Regional & Local Markets

2011 Annual Market Survey

2012 Housing Market Forecast

U.S. Economic Outlook

Japanese

Earthquake &

Tsunami

Sovereign DebtCrisis in EuroZone

Oil Price Spikes

2011: A Year of Wild Cards

Arab Uprising

Political Change on Capitol Hill

Debt Limit Ceiling & Downgrade of US Debt

Stock Market Volatility

Gross Domestic Product

-8%-7%-6%

-5%-4%-3%

-2%-1%

0%1%2%

3%4%

5%6%7%

8%

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

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00

20

02

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20

08

20

10

Q1

-09

Q3

-09

Q1

-10

Q3

-10

Q1

-11

Q3

-11

2010: 2.8%; 2011 Q3: 2.5% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $

ANNUAL QTRLY

2009 Largest Annual Drop since 1938 (-3.4%)

SOURCE: US Dept of Commerce, Bureau of Economic Analysis

Components of GDPPercent Change

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Consumption Fixed Nonres.Investment

Net Exports Government

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Performance Targets for National Economy

Current TargetThis Year - Projected

Unemployment 6% 9.0%

US GDP 3% or higher 1.7%

Nonfarm Job Growth

3%+ or 400K+/mo

1.0%

CPI 2.5% 3.2%

•

SOURCE: California Association of REALTORS®

QUARTERLY PERCENT CHANGE

Consumers Pulling BackHome Equity & Reverse Wealth Effect

Consumer Spending 2011 Q3: 2.4%

SOURCE: US Dept of Commerce, Bureau of Economic Analysis

-4%

-2%

0%

2%

4%

6%

8%

1Q

-20

00

1Q

-20

01

1Q

-20

02

1Q

-20

03

1Q

-20

04

1Q

-20

05

1Q

-20

06

1Q

-20

07

1Q

-20

08

1Q

-20

09

1Q

-20

10

1Q

-20

11

CA Underwater Mortgages

SOURCE: CoreLogic

Q4-2009

Q1-2010

Q2-2010

Q3-2010

Q4-2010

Q1-2011

Q2-2011

0%

5%

10%

15%

20%

25%

30%

35%

40%

30.2%

0.046

Negative Equity Share in CA Near Negative Equity Share in CA

Unemployment Stubbornly High September 2011

SOURCE: CA Employment Development Division

0%

2%

4%

6%

8%

10%

12%

14%

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CA US

California (11.9%) vs. United States (9.1%)

Unemployment RateLos Angeles County, September 2011: 12.2%

-1%

1%

3%

5%

7%

9%

11%

13%

15%

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U.S. Job Growth: Flat in August

SOURCE: US Dept of Labor, Bureau of Labor Statistics

Month-to-Month Changes

Recession Job Losses: 8.4 millionSince Jan’10: +1.8 million

-900,000

-800,000

-700,000

-600,000

-500,000

-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,000

500,000

Ja

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Ap

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8

Ju

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Oc

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-160000

-140000

-120000

-100000

-80000

-60000

-40000

-20000

0

20000

40000

60000

80000

100000

Ja

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Ma

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Ma

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No

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California Non-farm Job Growth


Month-to-Month Changes

Recession Job Losses: 1 millionSince Jan’10: +170,000

Nonfarm Employment By Region


Nonfarm NonfarmEmployment Employment Percent

Sep-10 Sep-11 Change ChangeSouthern California 7,684.1 7,763.6 79.5 1.0%

Bay Area 3,028.4 3,062.9 34.5 1.1%

Central Valley 1,842.6 1,844.7 2.1 0.1%

Central Coast 460.6 464.9 4.3 0.9%

North Central 127.9 129.2 1.3 1.0%

CALIFORNIA 13,847.9 14,098.5 250.6 1.8%

(Thousands)

Nonfarm EmploymentLos Angeles County, September 2011: Up 0.8% YTY

-8%

-6%

-4%

-2%

0%

2%

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Y-T-Y PERCENT CHANGE


Where are California’s Jobs? Employment Trends:

Construction & Financial Sectors Biggest Losers


Industry 2005 Jul-11Year to

Date

Mining and Logging 23,600 27,600 4,000

Construction 905,300 567,300 -338,000

Manufacturing 1,502,600 1,257,600 -245,000

Trade, Transportation & Utilities 2,822,100 2,641,500 -180,600

Information 473,600 455,400 -18,200

Financial Activities 920,300 755,800 -164,500

Professional & Business Services 2,160,700 2,136,200 -24,500

Educational & Health Services 1,593,400 1,837,000 243,600

Leisure & Hospitality 1,475,200 1,531,600 56,400

Other Services 505,500 484,500 -21,000

Government 2,420,200 2,380,200 -40,000

TOTAL 14,802,500 14,074,700 -727,800

CA New Housing Permits2010: 44,601 units, +22.5% YTY; Aug 2011: +2.6% YTD

0

50,000

100,000

150,000

200,000

250,000

300,0001

98

8

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

Single Family Multi-Family

SOURCE: CBIA

INDEX, 100=1985

Consumer Confidence Slipping Again

October 2011: 39.8

20

40

60

80

100

120

140

160

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Ju

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Source: National Federation of Independent Business

Crisis of Confidence: Small Business Optimism Down

Consumer Price IndexSeptember 2011: All Items +3.9% YTY; Core +2.0% YTY

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Ja

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an

-81

Ja

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2J

an

-83

Ja

n-8

4J

an

-85

Ja

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6J

an

-87

Ja

n-8

8J

an

-89

Ja

n-9

0J

an

-91

Ja

n-9

2J

an

-93

Ja

n-9

4J

an

-95

Ja

n-9

6J

an

-97

Ja

n-9

8J

an

-99

Ja

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0J

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-01

Ja

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2J

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-03

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4J

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-05

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6J

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-07

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-09

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-11

All Items

Core

PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

Monetary Policy

2009

.01

2009

.03

2009

.05

2009

.07

2009

.09

2009

.11

2010

.01

2010

.03

2010

.05

2010

.07

2010

.09

2010

.11

2011

.01

2011

.03

2011

.05

2011

.07

7.28

.11

8.11

.11

8.25

.11

9.8.

11

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

FRM ARM

MONTHLY WEEKLY

Mortgage Rates @ Historical LowsDebt Down Grade Ignited Flight to Quality

SOURCE: Federal Home Loan Mortgage Corporation

Classic Liquidity Trap: Consumers DeleveragingLow Rates and Low Borrowing

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

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FRM

ARM

Federal Funds

Fiscal Policy

US Deficit Highest in Decades2010: 11% of GDP (Revenues – Expenses)

19621965

19681971

19741977

19801983

19861989

19921995

19982001

20042007

2010-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%Deficit as a % of GDP

Source: US Treasury, BEA, compiled by C.A.R.Note: Positive = Surplus

US Debt Jumped as Government Responded to Financial Crisis 2010: 93% of GDP

19621965

19681971

19741977

19801983

19861989

19921995

19982001

20042007

20100.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Debt as a % of GDP

Source: US Treasury, compiled by C.A.R.

Obama Jobs Proposal

What: $450 Billion stimulus: Tax cuts ($250B) and infrastructure spending ($200B)

Why: Economy is stalled/Avoid double-dip Zero job growth in August/high unemploymentStabilize confidence: consumer, business, investor

How:Increase taxes on the richEntitlement ReformTax Reform

Housing

Obama Mortgage Refinance Proposal “HARP II”

What: Make it easier for homeowners who are significantly underwater AND not behind on their payments to refi at today’s low rates. Mortgage sold to Fannie or Freddie on or before May 31, 2009Help 1 million homeowners to refinance)

Why: Housing market is stalled / Consumers leery of spending

How: Modify the Home Affordable Refi ProgramEliminates 125% capWaives some GSE fees if loan term reducedEliminates appraisals & extensive underwritingModifies Reps and Warranties

What Happened?

0

100

200

300

400

500

600

700

800

900

Q1

/90

Q1

/91

Q1

/92

Q1

/93

Q1

/94

Q1

/95

Q1

/96

Q1

/97

Q1

/98

Q1

/99

Q1

/00

Q1

/01

Q1

/02

Q1

/03

Q1

/04

Q1

/05

Q1

/06

Q1

/07

Q1

/08

Q1

/09

Q1

/10

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%Refinance Originations (Bil $)Purchase Originations (Bil $)Fixed Rate Mortgage

ORIGINATION (BIL $) 30-YR FIXED RATE MORTGAGE

Mortgage Originations: 1990-2010

Source: Mortgage Bankers Association of America

• Refinance vs. Purchase

Trustee Sales in Anaheim Scheduled for 10/7/10

1872 W. Admiral, 92801

•3 bed, 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.•Sold for $568,000 in 2005 and went into default•Purchased as REO in 2007 for $417,000 with zero down..•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 :

• 39% of new defaults from 2006 to 2008

• attributable to home equity borrowing

Understanding the Financial Crisis

Federal Issues – Critical Concerns

High-cost Loan Limit - expires 10/1/11

Future of Fannie and Freddie in flux - Increase

guarantee fee likely

FHA targeted for market share drop

Tax Reform on the horizon – MID?

QRM (Qualified Residential Mortgage)

20% Down – Is the future of the 30 year

mortgage in doubt?

U.S. Economic Outlook

• 2005 2006 2007 2008 2009 2010 2011f 2012f

US GDP 3.1% 2.7% 2.0% 0.0% -2.6% 2.9% 1.7% 2.0%

Nonfarm Job Growth

1.7% 1.8% 1.1% -0.6% -4.4% -0.7% 1.0% 0.9%

Unemployment 5.1% 4.6% 4.6% 5.8% 9.3% 9.6% 9.0% 8.9%

CPI 3.4% 3.2% 2.8% 3.8% -0.4% 1.6% 3.2% 2.3%

Real Disposable Income, % Change

1.3% 4.0% 2.2% 0.5% 0.9% 1.4% 1.7% 1.5%


Forecast Date: September 2011

California Economic Outlook

• 2005 2006 2007 2008 2009 2010 2011f 2012f

Nonfarm Job Growth

1.8% 1.7% 0.8% -1.3% -6.0% -1.4% 1.5% 2.1%

Unemployment Rate

5.4% 4.9% 5.4% 7.2% 11.4% 12.4% 12.0% 11.2%

Population Growth

1.2% 1.1% 1.1% 1.2% 1.1% 0.9% 0.9% 0.9%

Real Disposable Income, % Change

1.3% 3.4% 1.5% 0.1% -2.2% 1.6% 1.5% 2.0%



California Housing Market

California Sales of Existing Homes and Median Price

Housing Cycle Comparisons 1970- 2011UNITS/MEDIAN PRICE $


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

Sales of Existing Detached Homes Median Price

-61% -25%

-44%

Sales of Existing Detached Homes and Consumer Confidence• California, September 2011 Sales: 487,940 Units, Up 0.4% YTD, Up 4.1% YTY

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

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60

80

100

120

140

160

Sales Consumer Confidence INDEXUNITS

SOURCE: California Association of REALTORS®; The Conference Board

*Sales are seasonally adjusted and annualized

P: May-07$594,530

T: Feb-09$245,230

-59% frompeak

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000Ja

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0

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Median Price of Existing Detached HomesCalifornia, September 2011: $287,440, Down 8.3% YTY


California’s Million-Dollar Home Sales

22,52918,621

24,43642,506

50,01054,773

36,99020,595

15,70310,658

13,1018,906

5,3663,762

2,6512,0172,5222,2982,8903,3623,7734,271

2,718

0

10

00

0

20

00

0

30

00

0

40

00

0

50

00

0

60

00

0

19881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

Source: DataQuick Information Systems

Year

Number of Homes

Unsold Inventory IndexCalifornia, September 2011: 5.1 Months

0

2

4

6

8

10

12

14

16

18

20

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SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MONTHS

Price Range (Thousand) Sep-10 Aug-11 Sep-11

$1,000K+ 11.1 9.1 10.0$750-1000K 6.8 6.2 6.1$500-750K 6.3 5.6 6.0$300-500K 5.6 5.2 5.4$0-300K 5.1 4.6 4.7

Unsold Inventory Index: Sept 2011(By Price Range: Months)

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Market Breakdown: Equity v. Distressed Sales


REOs Short Sales Distressed Sales0%

20%

40%

60%

24.7%

19.3%

44.5%

25.2%

17.5%

42.9%

24.4%

18.9%

43.7%

Aug-10 Jul-11 Aug-11

Share of Distressed Sales to Total Sales

Tight Supply of Inventory for REO Sales



REO & Short Sales: Southern California(Percent of Total Sales)

Los AngelesOrange

RiversideSan Bernardino

San Diego

0%

20%

40%

60%

80%

100%

20%

12%35%

50%

17%

26%

24%

25%15%

8%

Sept 2011

Short Sales

REO Sales


REO & Short Sales: Central Valley(Percent of Total Sales)

MaderaMerced

San BenitoSacramento

Kern

0%

20%

40%

60%

80%

100%

51%

40%

23%37%

37%

12%

21%50% 26%

23%

Sept 2011

Short Sales

REO Sales


REO & Short Sales: Bay Area(Percent of Total Sales)

MarinNapa

San MateoSanta Clara

SolanoSonoma

0%

20%

40%

60%

80%

100%

19% 24%

13%12%

42%

26%

16%27%

13% 22%

31%

22%

Sept 2011

Short Sales

REO Sales


REO & Short Sales: Rest of California(Percent of Total Sales)

AmadorButte

HumboldtLake

Monterey

San Luis Obispo

Santa Cruz

South Lake Tahoe

Mendocino

Tehama

0%

20%

40%

60%

80%

100%

37%

25%

14%

49%

31%25% 25% 30% 33%

51%

17%

18%

5%

9%

27%

16% 15% 16%8%

8%

Sept 2011

Short Sales

REOs

California Foreclosure Inventory, September 2011

SOURCE: ForeclosureRadar.com

Foreclosures

0

2

4

6

8

10

12

14

Q1

/90

Q1

/91

Q1

/92

Q1

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Q1

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Q1

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Q1

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Q1

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Q1

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Q1

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Q1

/01

Q1

/02

Q1

/03

Q1

/04

Q1

/05

Q1

/06

Q1

/07

Q1

/08

Q1

/09

Q1

/10

Q1

/11

Los Angeles County

SOURCE: Real Estate Research Council

THOUSANDS

Los Angeles• Preforeclosure: 3,403 • Auction: 4,247 • Bank Owned: 1,211

Source: ForeclosureRadar.com as of 11/4/11.

Los Angeles• Preforeclosure: 3,403


Los Angeles• Auction: 4,247


Los Angeles• Bank Owned: 1,211


Inglewood• Preforeclosure: 278 • Auction: 300 • Bank Owned: 125


Regional Housing Markets

Los Angeles

Sales of Residential Homes• Los Angeles, October 2011: 687 Units

• Down 14.4% MTM, Down 2.1% YTY

SOURCE: Clarus Market Metrics

Median Price of Residential Homes• Los Angeles, October 2011: $300,000



For Sale Properties• Los Angeles, October 2011: 6,729 Units



Months Supply of Inventory • Los Angeles, October 2011: 3.9 Months


Inglewood

Sales of Residential Homes• Inglewood, October 2011: 53 Units

• , Up 3.9% MTM, Up 17.8% YTY


Median Price of Residential Homes• Inglewood, October 2011: $240,000

• Down 3.2% MTM, Up 1.7% YTY


For Sale Properties• Inglewood, October 2011: 323 Units• Down 7.4% MTM, Down 12.9% YTY


Months Supply of Inventory • Inglewood, October 2011: 3.3 Months


2011 Annual Housing Market Survey

Equity vs. REO vs. Short Sales

Equity Sales REO Sales Short Sales

Share of Total Sales 58.7% 19.7% 20.2%

Median Home Price $431,000 $240,000 $287,000

Square Footage 1,783 1,500 1,600

Price / SF $250 $112 $175

Sales-to-List Price Ratio 95.9% 98.0% 95.9%

% of Sales With Multiple Offers 35.2% 58.3% 57.5%

Avg. Number of Offers 3.0 3.0 3.6

% of All Cash Sales 25.5% 34.0% 23.3%

Days on MLS 67 50 141

Days in Escrow 35 35 45

1 in 3 Sellers Sold Because They Were in Distress

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

5%

10%

15%

20%

25%

30%

35%30%Sold due to foreclosure/Short sale/Default

Q. What was the single most important reason for selling/buying the property?

Net Cash to Sellers

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$0

$50,000

$100,000

$150,000

$200,000

$250,000

$75,000

Median

Q. What was the net cash gain or net loss to the seller as a result of this sale?

Proportion of Sellers Planning to Repurchase

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

Q. Is the seller planning on purchasing another home?

Reasons Sellers Not Planning to Buy Another Home

Q. Why is the seller not planning to purchase another home?

2.7%

4.7%

4.9%

5.7%

10.9%

11.4%

19.8%

0% 10% 20% 30% 40% 50%

Seller is a lender/bank

Seller prefers to have less financial obligation

Poor credit background

Lack of cash for down payment

Out of work/unemployment

Decide to live with family/friends

Waiting for market to bottom

Reasons For SellingAll Home Sellers

0% 5% 10% 15% 20% 25% 30% 35%

Foreclosure/ShortSale/Default

Change in Family Status

Retirement/Move toRetirement Community

Investment/ TaxConsderations

Desired Better Location

Desired Smaller Home

Changed Jobs

Desired Larger Home

Other

Q. What was the single most important reason for selling/buying the property?

Cash Sales on the Rise

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

5%

10%

15%

20%

25%

30%

% of All Sales

Investments & Second/Vacation Homes

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

5%

10%

15%

20%

25%

17%

7%

Investment/Rental Property Vacation/Second Home

Foreign Buyers

8%

5%6%6%

0%

2%

4%

6%

8%

10%

2008 2009 2010 2011

% of Foreign Buyers

Q. Was the buyer a foreign buyer?

California Housing Market Forecast

Forecast Progress Report

2010 Projected October

2010

2010 Actual

2011 Forecast October

2010

2011 Projected

SFH Resales (000s)

492.0 491.5 502.0 491.1

% Change -10.0% -10.1% 2.0% -0.1%Median Price ($000s)

$306.5 $303.1 $312.5 $291.0

% Change 11.5% 10.2% 2.0% -4.0%

Source: CALIFORNIA ASSOCIATION OF REALTORS®

Forecast Date: September 2011 vs October 2010

California Housing Market Outlook

2005 2006 2007 2008 2009 2010 2011f 2012f

SFH Resales (000s)

625.0 477.5 346.9 441.8 546.9 491.5 491.1 496.2

% Change 0.03% -23.6% -27.3% 27.3% 23.8% -10.1% -0.1% 1.0%

Median Price ($000s)

$522.7 $556.4 $560.3 $348.5 $275.0 $303.1 $291.0 $296.0

% Change 16.0% 6.5% 0.7% -37.8% -21.1% 10.2% -4.0% 1.7%

30-Yr FRM 5.9% 6.4% 6.3% 6.0% 5.1% 4.7% 4.5% 4.7%

1-Yr ARM 4.5% 5.5% 5.6% 5.2% 4.7% 3.5% 3.0% 3.1%

Source: CALIFORNIA ASSOCIATION OF REALTORS®


Closing Thoughts

Direction of Home Prices: Sellers Skeptical; Buyers Hopeful

Sellers Buyers0%

10%20%30%40%50%60%70%80%90%

100%

Down Flat Unsure Up

Q: Do you think home prices in your neighborhood will go up, down or stay flat in one year, five years and 10 years?

Real Estate: It’s Time To Buy Again

SOURCE: “Real estate: It’s time to buy again” Fortune Magazine’s 3/28/11 article written by Shawn Tully

“Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset

class in America is housing.”

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 five-year 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”

C.A.R. Strategic Planning Book Pics

Thank You

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