09-29-2016 EXPO Forecast Final

Leslie Appleton-Young
Chief Economist & Vice President

Cadence of Accountability
How did I do with last year’s

forecast?
2016 Story
• US economic and job growth expanding

• CA economy out-preforming the nation
• Rates rising in response to Fed policy
• Millennials leaving the nest as job opportunities expand
• Listings & new units remain low
• Formerly owner-occupied units now rentals
• Affordability challenges for first time & repeat buyers
• Boomers aren’t moving
2016 Forecast Report Card
2015 2016 2016
Actual Forecast Projected
SFH Resales (000s) 408.8 433.0 407.3
% Change 6.8% 6.3% -0.4%
Median Price ($000s) $474.4 $491.3 $503.9
% Change 6.2% 3.2% 6.2%
30-Yr FRM 3.9% 4.5% 3.6%
Housing Affordability Index 31% 27% 33%
U.S. Gross Domestic Product 2.4% 2.7% 1.5%
2016 Story Missed …
• US economic activity failed to support sustained rate hikes

• Global economic turmoil – China et al
• Degree to which lack of supply and affordability constrained
home sales
• Demographics – boomers really aren’t moving, millennials are
• Out-migration
• Uncertainty (election, Fed, Brexit,“Brecession”, etc.)
YTD 2016 CA sales flat compared to 2015
California, August 2016 Sales: 420,360 Units, -0.4% YTD, -2.2% YTY
700,000
600,000
Aug-15: Aug-16:
429,900 420,360
500,000
400,000
300,000
200,000
100,000
SERIES: Sales of Existing Single Family Homes

*Sales are seasonally adjusted and annualized
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Sales began the year strong (TRID Effect?) but
lost momentum…despite strong job growth
Year-over-Year % Chg
15%
11.6%
10%
5%
0%
-5%
-10%
Avg. year-over-year % chg. = -2%
-15%
Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16
SERIES: Sales of Existing Single Family Homes

*Sales are seasonally adjusted and annualized
2016 prices highest since 2007
California, Aug. 2016: $526,580, +1.7% MTM, +5.8% YTY
P: May-07
$700,000 Aug-16:
$594,530 Aug-15:
$526,580
$497,520
$600,000
$500,000 T: Feb-09
$245,230
$400,000 -59% from
peak
$300,000
$200,000
$100,000
$-
SERIES: Median Price of Existing Single Family Homes

Peak vs. 6/16: Southern California
Last Cyclical Last Cyclical Jun-16 %Chg From
Region
Peak Month Peak Price Median Peak
Orange County Jun-07 $775,420 $759,490 -2.1%
San Diego County May-06 $622,380 $594,430 -4.5%
Ventura Couty Aug-06 $710,910 $674,310 -5.1%
CALIFORNIA May-07 $594,530 $519,440 -12.6%
Riverside County Jun-06 $431,710 $357,810 -17.1%
Los Angeles Metro May-07 $578,700 $477,230 -17.5%
Inland Empire Jun-06 $389,380 $319,100 -18.0%
Los Angeles County Sep-07 $625,810 $502,190 -19.8%
San Bernardino County Aug-06 $350,290 $245,220 -30.0%
SERIES: Median Price of Existing Detached Homes

Los Angeles County
• 538 E Colorado Ave,
Glendora, CA 91740
• List: $519,000
• 3 Bed, 2 Bath
• 1,625 Sq Ft
• Last sold in 2011 for
$357,000
Orange County
• 17450 Rockrose
Circle, Yorba Linda,
CA
• List: $780,000
• 5 Bed, 2 Bath
• 2,809 Sq Ft
$400,000
Riverside County
• 25522 Buckley Drive,
Murrieta, CA
• List: $360,000
• 3 Bed, 3 Bath
• 1,700 Sq Ft
$230,000
Peak vs. 6/16 Median: Central Valley
Region
Peak Month Peak Price Median Peak
CALIFORNIA May-07 $594,530 $519,440 -12.6%
Madera County Feb-08 $275,000 $234,720 -14.6%
Sacramento County Aug-05 $394,450 $332,580 -15.7%
Placer County Aug-05 $527,990 $444,590 -15.8%
Kern (Bakersfield) County Jun-06 $299,920 $238,400 -20.5%
Kings County Mar-06 $268,050 $211,110 -21.2%
Tulare County Dec-05 $269,710 $211,820 -21.5%
Fresno County Jun-06 $313,510 $242,240 -22.7%
San Benito County May-05 $671,190 $511,500 -23.8%
Merced County Oct-05 $344,610 $207,580 -39.8%

Sacramento County
• 5109 Ocean Ln Elk
Grove, CA 95757
• List: $329,900
• 3 Bed, 2 Bath
• 1,425 Sq Ft
$184,000
Peak vs. 6/16 Median: Bay Area
Region
Peak Month Peak Price Median Cyclical Peak
San Francisco County May-07 $972,010 $1,350,000 38.9%
San Mateo County Oct-07 $1,020,000 $1,306,250 28.1%
Santa Clara County Apr-07 $865,000 $1,050,000 21.4%
Alameda County May-07 $709,420 $803,000 13.2%
San Francisco Bay Area May-07 $789,250 $841,960 6.7%
Marin County Jun-07 $1,149,390 $1,218,500 6.0%
Sonoma County Jan-06 $650,330 $608,000 -6.5%
CALIFORNIA May-07 $594,530 $519,440 -12.6%
Napa County Aug-06 $729,170 $619,000 -15.1%
Solano County Jun-06 $492,800 $390,000 -20.9%
Contra Costa County May-07 $923,150 $625,000 -32.3%

Contra Costa County
• 2389 Brandon Miles
Way, Brentwood, CA
94513
• List: $575,000
• 4 Bed, 3 Bath
• 2,774 Sq Ft
$360,000
San Francisco
• 77 Christopher Drive,
San Francisco, CA
• List: $1,200,000
• 4 Bed, 3 Bath
• 1,890 Sq Ft
$778,000
Don’t Bother Commuting in Major Metros
<1 hour 1-2 hours 2+ hours Impossible! Don't bother!
13% 52% 20% 15%

…from Palo Alto to San Francisco?
12% 51% 23% 13%

…from Riverside to Irvine?
Q4 - What is the average commute time …

Making Traffic Disappear is
Most Desired Super Power
Make traffic disappear 29%
Flying 26%
Instant mortgage approval 21%
Invisibility 19%
Super strength 4.9%
0% 5% 10% 15% 20% 25% 30% 35%

Q12 - Which super power would you like to have?
Abundance of
Uncertainty
BREXIT: Markets were surprised
Brexit: Limited Direct Impact on US
• The UK accounted for less

than 4 percent of
American exports of
goods in 2015, equivalent
to 0.4 percent of U.S. GDP
• Direct economic impact

on the U.S. would be
small, even if the UK
economy slipped into
recession.
SOURCE: Wells Fargo

Indirect effects are more significant
Financial markets meltdown after the Brexit vote
2140
Adjusted S & P 500 Composite
Closed
2,113.32
2120
2100
2080
2060 -3.6%
2040
2,037.30
2020
2000
1980
SOURCE: Yahoo Finance

Global Production & Export Growth Weak
World Export & Industrial Production Volume
Year-over-Year % Chg.
SOURCE: Wells Fargo Securities

Oil Price Decline was Unexpected
Dollars per Barrel
$160
$140
$120
$100
$80
$60
$40
$20
$0
SERIES: Crude Oil Prices: West Texas Intermediate

SOURCE: U.S. Energy Information Administration
Silver lining for economic weakness,
political turmoil and uncertainty …
18 • Treasury yield dropped to fresh low
Treasury Yield - 10 Yr.
amid global bond rally
16 Treasury Yield - 30 Yr.
14 • Fed may raise rates end-2016, but long-
term rates will remain low as foreign
12
cash flood into U.S. bond
10
06/24/16:
10 Yr. – 1.57%
8 30 Yr. – 2.43%
6
4
2
0
Jan-62
Jan-65
Jan-68
Jan-71
Jan-74
Jan-77
Jan-80
Jan-83
Jan-86
Jan-89
Jan-92
Jan-95
Jan-98
Jan-01
Jan-04
Jan-07
Jan-10
Jan-13
Jan-16
SERIES: Treasury Yield 10 Yr., Treasury Yield 30 Yr.
SOURCE: Yahoo Finance
Fed holds off again – see you in December?
Efficacy of Monetary Policy?
Rates remain attractive
Today’s rates: FRM 3.48% ARM 2.8%
6
MONTHLY WEEKLY
5
3
FRM
ARM
2
SERIES: 30Yr FRM, 5Yr ARM

SOURCE: Freddie Mac
Do you plan to leave the country if…?
[CATEGORY [CATEGORY
NAME] [VALUE] NAME] [VALUE]
[CATEGORY
NAME]
[VALUE]
Economic Outlook
Macro Economic Summary
1.2% 4.2%
GDP 2016-Q2 Consumption

2016-Q2
4.9% 1.7%
Unemployment Job Growth

2016-07 2016-07
Economic growth painfully slow - Consumer spending
recovered in Q2 Investment still weak
US GDP 2015: 2.6%; 2016 Q1: .8% Q2: 1.4%
6%
5% ANNUALLY QUARTERLY
ANNUAL PERCENT CHANGE, CHAIN-TYPE
4%
3%
2%
(2009) $
1%
0%
-1%
-2% 2009 Largest Annual Drop since 1946 (-2.8%)
-3%
-4%
2005 2007 2009 2011 2013 2015 Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13 Q2-14 Q4-14 Q2-15 Q4-15 Q2-16
SERIES: GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
Consumer Spending Robust Q2
August Retail Sales Weak
2015: 2.6%; 2016 Q2: 4.2%
ANNUAL PERCENT CHANGE
5%
ANNUALLY QUARTERLY
4%
3%
2%
1%
0%
-1%
-2%
-3%
2014 Q3
2013
2005
2007
2009
2011
2015
2012 Q1
2012 Q3
2013 Q1
2013 Q3
2014 Q1
2015 Q1
2015 Q3
2016 Q1
SERIES: Personal Consumption
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
CA Jobs Are Back
Recession Job Losses: 1.3 million, Since Jan’10: +2.2 million
150,000
MONTH TO MONTH CHANGES
100,000
50,000
-50,000
-100,000
-150,000
SERIES: Total Nonfarm Employment

SOURCE: CA Employment Development Division
California Job Changes by Industry
August 2016: CA +2.3%, +378,000 (YTY)
Educational Services 6.3%
Professional, Scientific & Technical Services 4.6%
Construction 3.7%
Leisure & Hospitality 3.6%
Real Estate & Rental & Leasing 3.3%
Health Care & Social Assistance 2.9%
Information 2.7%
Government 1.8%
Wholesale Trade 1.8%
Admistrative & Support & Waste Services 1.7%
Transportation, Warehousing & Utilities 1.6%
Retail Trade 1.3%
Finance & Insurance 0.3%
Durable Goods -0.8%
Nondurable Goods -0.8%
-2% -1% 0% 1% 2% 3% 4% 5% 6% 7%
SERIES: Total Nonfarm Employment By Industry
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
Consumer Confidence: 9 Year High
September 2016: 104.1
120
100
INDEX, 100=1985
80
60
40
20
SERIES: Consumer Confidence

SOURCE: The Conference Board
CA Jobs Growing Faster Than Nation
6 California US CA 2.3%
4
US 1.7%
ANNUAL PERCENT CHANGE
-2
-4
-6
-8

Unemployment Rates Near 8-year low
August 2016: US 4.9% & CA 5.5%
14% US-CA CA US
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
SERIES: Unemployment Rate The U-6 rate covers the unemployed, underemployed and those who are not looking but who want a job
CA Job Gains by Region
+378,000 last 12 months
Nonfarm Employment (Thousands)
Aug 2016 Aug 2015 Change % Change
Southern California 9,007.4 8,824.1 183.3 2.1%
Bay Area 3,574.8 3,542.4 32.4 0.9%
Central Valley 2,171.5 2,119.4 52.1 2.5%
Central Coast 534.4 527.2 7.2 1.4%
North Central 143.7 140.9 2.8 2.0%
CALIFORNIA 16,534.3 16,156.3 378.0 2.3%

Silicon Valley Leads Job Growth
August 2016: CA +2.3%, +378,000 (YTY)
San Jose 3.6%
Inland Empire 3.2%
Stockton 2.7%
Fresno MSA 2.7%
Sacramento 2.6%
Orange 2.5%
San Francisco 2.4%
Oakland 2.3%
Modesto 2.3%
Bakersfield 2.0%
San Diego 1.8%
Los Angeles 1.7%
Ventura 0.7%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
SERIES: Total Nonfarm Employment By Industry

Unemployment by Metro Area
August 2016: California 5.5%
Bakersfield 9.7%
Fresno MSA 8.7%
Modesto 8.0%
Stockton MSA 7.8%
Inland Empire 6.6%
Ventura 5.8%
Sacramento 5.5%
Los Angeles 5.3%
San Diego 5.0%
Oakland 4.7%
Orange County 4.4%
San Jose 4.1%
San Francisco 3.4%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Commercial Markets Developers’ Sentiment
SOURCE: Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey

REALTORS® CRE Outlook
A Tale of Two Markets: The “New” Normal
• High-end: discretionary & slowing

• Low/Moderate-end: demand continues unabated
• Urban coastal CA slowing
• Inland and Central and Northern CA growing
• Migration patterns mirror housing affordability and jobs
Supply
Supply Remains an Issue;
Unsold Inventory Stays Below the Norm
August 2016: 3.4 Months, August 2015: 3.6 Months;
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
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) SERIES: Unsold Inventory Index of Existing Single Family Homes
and divide the sum by the number of “Sold” properties for the month in question. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Inventory Tightest in the Bay Area
9.0 Bay Area So CA Central Valley

8.0
7.0
6.0
5.0
4.0 3.6
3.0 3.2
2.0
2.4
1.0
0.0
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) SERIES: Unsold Inventory Index of Existing Single Family Homes
and divide the sum by the number of “Sold” properties for the month in question. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Supply Tighter at the More Affordable Price
Ranges …
Aug-16 Aug-15
$1,000K+ 4.9
4.9
$750-1000K 3.6
3.7
$500-749K 3.1
3.4
$400-499K 3.0
3.1
$300-399K 3.1
3.4
$200-299K 3.0
3.4
$0-199K 3.1
3.5
SERIES: Unsold Inventory Index of Existing Single Family Homes
0 1 2 3 4 5 6
… Resulting in Disproportionate Price
Distribution Between Supply and Demand
Share by Price Segment
Price Segment Sales (% to Total) Active Listings (% to Total)

$0 - $199k 9.1% 8.3%
$200 - $299k 16.7% 14.0%
$300 - $399k 15.9% 13.9%
$400 - $499k 14.2% 11.8%
$500 - $749k 21.8% 19.5%
$750 - $999k 10.0% 11.2%
$1,000 - $1,999k 9.6% 13.0%
$2,000k+ 2.6% 8.3%
SERIES: Sales and Active Listings of Existing Single Family Homes

Where is the inventory?
Long-Time Homeowners are not moving as in the past
Low rate on current mortgage
Low property taxes
Capital gains hit
Where can I afford to go?
Could not qualify for a mortgage today
Remodel and stay
Are we headed for the “European Model” where children
inherit the home of their parents?
One more thing…Secular decline in marriage
Fewer housing units being turned over
since the Great Recession
Housing Turnover Rate
10% (Single-Family Homes only)
CA US
9%
8%
7%
6%
4.8%
5%
4% 4.2%
3%
2%
1%
0%
SERIES: Percent of existing single-family homes being sold

SOURCE: Census Bureau, American Community Survey, Moody’s Analytics, C.A.R.
Years Owned Home Before Selling
12 All Sellers
10
10
SERIES: 2016 Housing Market Survey

Owners Investing in Staying Put ?
Alterations/Additions Reach All-Time High & Gaining Steam
Up 16% from 2015 YTD levels
$3.9 Billion
4.5 through July
$ Billions
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Year-to-Date Through July
SOURCE: California Homebuilding Foundation (CHF)/Construction Industry Research Board (CIRB)

Downloaded from Moody’s Analytics
Boomers Not Moving as Often
71% of Californian’s aged 55+ haven’t moved since 1999
California Homeowners by Length of Tenure, 2013
35% Under 55 55+ 31.8%
30%
24.4% 24.0%
25%
21.3%
20%
15% 14.2%
12.4% 12.0%
11.0% 10.7%
10% 9.0% 8.9%
7.3%
5.7%
5%
0.9% 1.9%
0.8%
0%
1978 & Earlier 1979 to 1984 1985 to 1989 1990 to 1994 1995 to 1999 2000 to 2005 2005 to 2009 2010 to 2013
SERIES: Distribution of Home Ownership by Year Moved In
SOURCE: U.S. Census Bureau, 2013 American Housing Survey
Majority Do Not Plan to Sell Home
When they Retire
Yes, 36%
No, 64%
Do you plan to sell your current home when you retire? SERIES: 2016 Baby Boomer Survey
Do you worry about your children not having the
same opportunities to succeed as you did?
About the
same, 24%
Yes, they will

have worse
No, they will opportunities,
have have 52%
better
opportunities,
24%
Do you worry about your children or grandchildren not having SERIES: 2016 Generations / Boomer Survey
the same opportunities to succeed as you did?
Time to talk: ¾ Plan of have already Helped
Children with Down Payment
No, 23%
Yes, I am
planning to
Yes, I have help, 53%
already
helped, 24%
SERIES: 2016 Generations / Boomer Survey

Are you planning to provide help for your children to buy a home by contributing to their down
payment or mortgage payments?
Most Have Equity in their Home
No, 8%
Yes, 92%
Do you have equity in your home? SERIES: 2016 Baby Boomer Survey
Baby Boomers Not Moving Because…
They plan to be buried in the back yard and leave their

home to their kids. 13%
They want to see all of their children living under the same
roof again. 2.2%
Their $1M+ in equity isn't enough to retire in style. 44%
All of the above. 41%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Q11 - Why aren’t Baby Boomers moving?
“Missing” 65,000 New Units Annually
2015: 95,822 (42,959 sf, 52,863 mf)
350000
2016p: 98,300 total units
300000
Single Family Multi-Family
250000
Household Growth:
200000 165,000/yr.
150000
100000
50000
SERIES: California New Housing Permits

SOURCE: Construction Industry Research Board
What Would NIMBYs Rather Do?
Watch constant re-

Fund Elon Musk’s
runs of “Keeping Cut off their right
colony on Mars.
Up With The arm. (18%)
(27%)
Kardashians.” (25%)
Give away their Shop at Smart &

first-born. (16%) Final. (13%)
Q10 - What would NIMBYs rather do than allow new housing development?
Three of the Top 10 Markets in Need of More
Housing Constructions Are in California
Top 10 Markets in Need of More Single-Family Housing Starts
Metro Area # of permits required
1. New York 218,541
2. Dallas 132,482
3. San Francisco 127,412
4. Miami 118,937
5. Chicago 94,457
6. Atlanta 93,627
7. Seattle 73,135
8. San Jose, CA 69,042
9. Denver 67,403
10. San Diego 55,825
SOURCE: National Association of Realtors®, Census Bureau

Most Underbuilt Counties in California
New Jobs vs. New Permits (2010-2015)
450,000 Jobs
400,000 381,300 Permits
350,000
300,000
250,000
200,000 174,833 162,740
150,000 127,542 141,162
88,134 95,245 98,149 105,586
100,000 66,054
35,426 44,923 40,434 31,255 44,772
50,000 18,141 14,901 18,108 6,349 10,890
0
SOURCE: California Employment Development Department, Construction Industry Research Board

The More “Underbuilding”, the Higher the
Price Growth
CA Underbuilding and Price Growth (2010-2015)
12
Underbuilding (New Jobs/New Permits)
10
0
-40% -20% 0% 20% 40% 60% 80% 100% 120%
-2
Price Growth (%)
SERIES: Nonfarm Job Growth, New Housing Permits, Existing Median Prices
SOURCE: CA EDD, C.A.R., Construction Industry Research Board
Affordability
Housing Affordability In CA: by county
2016-Q2: % able to purchase median-priced home
60 57 56 56
54
52 50 50 50
50 48
46 45 45 45
41
40
32
31 30 29
30 27 26 26 25 25
22
20 20 19
20 18 17
14 13
10
SERIES: Housing Affordability Index

Housing Affordability peaked q1 2012
prices v. low rates and income growth
California vs. U.S. – 1984-2016
% OF HOUSEHOLDS THAT CAN
BUY A MEDIAN-PRICED HOME
Annual Quarterly
80%
CA US
70%
57%
60%
50%
40%
31%
30%
20%
10%
0%
SERIES: Housing Affordability Index of Traditional Buyers

California’s Single-Family Housing Stock
7,500,000 Owner-Occupied (left) Renter-Occupied (right) 3,000,000
2,500,000
7,000,000
2,000,000
6,500,000
1,500,000
6,000,000
1,000,000
5,500,000
500,000
5,000,000 0
2000 2003 2006 2009 2012 2015
SOURCE: U.S. Census Bureau, Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS)
Downloaded from the National Bureau of Economic Research (NBER)
More Single Family Units Now Rentals
8,000,000 Potentially between 400,000 and 700,000 SF Rentals that Used to be Owner-Occupied
6,919,164
7,000,000 6,527,730
6,000,000
5,000,000
4,000,000
3,000,000 2,674,808
1,940,607
2,000,000
1,000,000
0
SF Owners SF Renters
2000 2005 2010 2015
SOURCE: U.S. Census Bureau, Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS)
Downloaded from the National Bureau of Economic Research (NBER)
Wages v. Income Required to Qualify
California
$130,000 $126,560
2015 Annual Mean Wage
$110,000 $101,260
$92,571
$93,550 $92,170
$90,000
$72,360
$67,920
$70,000
$45,810
$50,000
$28,430
$30,000
$10,000
Retail Chefs and Elementary Firefighters Police and Computer Registered Software Min. Inc
-$10,000 Salespersons Head Cooks School Sherriff's Patrol Programmers Nurses Developers Required to
Teachers Officers (Applications) Buy a Med.
Home
SOURCE: Bureau of Labor Statistics, C.A.R.

Share of First-Time Buyers remains
Below Long-Run Average
% First-Time Home Buyers Long Run Average
50%
40%
Long Run Average = 38%
29.5%
30%
20%
10%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Los Angeles: Net Exit to
Inland Empire and Kern County
Total
Total Number
Number Moved
County Moved to from Los
Moved Los Angeles Angeles Total Net
To/From County County Migration
Inland
Empire 25,777 50,531 -24,754
Kern 2,466 10,460 -7,816
Orange 23,887 31,435 -7,548
San Diego 8,916 7,240 1,676
Ventura 7,464 7,543 -79
San Francisco: Affordability & Jobs Drive Migration
Total Number Total Number

County Moved Moved to San Moved from San
To/From Francisco County Francisco County Total Net Migration
Alameda 3983 10345 -6362
San Mateo 6161 7984 -1823
Contra Costa 1856 2998 -1142
Sonoma 557 1602 -1045
Marin 1428 1918 -490
Napa 0 243 -243
Solano 796 815 -19
Santa Clara 4041 2691 1350

Demand & Desire for
Homeownership
CA Household Growth Rebounding from
Great Recession
2.0
Annual Household Growth (Net Chg,
1.8 1.7
1.6
1.6
1.4
1.4 1.3
1.2 1.1 1.1

In Millions)
1.0
1.0
0.8 0.7 0.7

0.6
0.4
0.4
0.3 0.3
0.2
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p
SERIES: Annual Household Growth
SOURCE: US Census Bureau – Housing Vacancy Survey
Home Purchase Index Continued to
Climb from Same Period of Last Year
At the national level, consumer sentiment remains positive.
“Consumers have a fairly

optimistic 12-month outlook on
housing at the end of the
summer home-buying season,
supported by increased job
confidence and more
favorable expectations
regarding their personal
financial situations compared
with this time last year,”
SERIES: Home Purchase Sentiment Index

SOURCE: Fannie Mae
Millennials: American Dream is still Important
40%
35% 34%
31%
30%
25%
25%
20%
15%
10%
6%
5% 4%
0%
Not at All Important Of Little Importance Moderately Important Important Very Important
How important is fulfilling the 'American Dream' to you? SERIES: 2016 Generations / Millennials Survey
…And Homeownership is part of it
20%
18% 18%
18%
16%
16%
14%
14%
12%
12% 11%
10%
10%
8%
6%
4%
2%
0%
Owning a home A fulfilling job Having a family Education Seeing the world Helping others Becoming wealthy
Which factors contribute to your ideal of the `American Dream` SERIES: 2016 Generations / Millennials Survey
Many Millennials Also Believe Buying a Home
Is a Safe Investment
50%
45%
45%
40% 37%
35%
30%
25%
20%
15% 12%
10%
5%
5%
1%
0%
Strongly Disagree Disagree Neighter Agree nor Agree Strongly Agree
Disagree
Q. Do you think home purchase is still a safe investment? SERIES: 2016 Generations / Millennials Survey
Nearly ½ Renters Plan to Buy a Home
No plans to buy 28%
Not sure 24%
In 5+ Years 11%
3-5 Years 14%
In 2 Years 13%
Within a year 9.6%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Q. When do you plan to buy your next home?
82
55% of Renters Have Made Preparations to
Buy a Home
No preparations 45%
Searched for homes 34%
Searched for home buying process information online 21%
Spoken to a REALTOR® 16%
Consulted credit counselor/financial advisor 12.0%
Pre-qualified with a lender 9.0%
Other 1.0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Q. Have you made any of the following preparations to buy a home? Please select all that apply.
83
69% of Millennial renters would look into purchasing
if knew about lower down-payments
All Millennial Owners
No, 31%
Yes, 69%
If You knew you could qualify with lower down-payment, would you start to look for a house? SERIES: 2016 Generations / Millennials Survey
Only 19% Know about FHA Loans
Are you aware of FHA Loans?
Yes, [VALUE]
No, [VALUE]
FHA backed loans only require a 3.5% down-payment. SERIES: 2016 Generations / Millennials Survey
2016: Market Conditions
Annual Housing Market survey
Sellers - More than Half Plan to
Buy Another Home
80%
72%
70%
63%
60%
52% 53% 52%
49% 48%
50% 46%
39% 38% 40%
40%
33%
30%
20%
10%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Investor Buyers? Dropping Still Have
Demand in Lower-Priced Segments
Demand for Investment Properties remained at the Lowest level since 2009
% to Total Sales
30% Investment/Rental Property Vacation/Second Home
25%
20%
15%
10%
5%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Investors : Still Buying to Rent

International Buyers Dropping
9%
The share of international buyers dropped to the lowest level in 9 years
8% 8%
8%
7%
6% 6%
6% 6% 6%
5%
5%
4% 4%
3%
3%
2%
1%
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Q. Was the buyer an international buyer – a person who was a citizen of SERIES: 2016 Housing Market Survey
another country who wished to purchase residential real estate in the U.S.? SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Market Remained Competitive, as a Result of Tight
Supply
% with Multiple Offers # of Multiple offers (Average)

80% 7
70% 6
60%
53% 52% 5
50%
4
40% 4.0 4.0
3
30%
2
20%
10% 1
0% 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

62% of Properties Received Multiple Offers
80%
70% 66%
62%
60% 58%
50%
40%
30%
20%
10%
0%
Q: How many offers did the seller in your last closed transaction receive? SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® Market Pulse Survey
92
Number of Offers Steady
4.0
3.5
3.0 2.8 2.8
2.4
2.5
2.0
1.5
1.0
0.5
0.0
93
More Properties Received 3+ Offers than Last Year
Aug-15 Aug-16
40%
40% 37%
35%
30% 27%
25% 20%
18%
20%
14%
15% 9.5% 11%
10% 7.1% 6.4%
4.5% 3.4%
5%
0%
1 2 3 4 5 6+
Number of Offers
94
Proportion of 3+ Offers Up From A Year Ago
1-2 3+
100%
90%
80%
32% 44%
70% 42%
60%
50%
40% 58%
30%
68%
56%
20%
10%
0%
95
Tight Supply Also Pushed up Home Prices, as one-
third of Homes Were Sold above the Asking Price
60% 10% 16
% of Sales above Asking Price Median Price Discount & Weeks on Market
9%
Med. Price Discount 14
50%
8%
Med. Weeks on MLS
12
7%
40%
10
33% 32% 6%
30% 5% 8
4%
6
20%
3%
Long Run Average = 20% 4
2% 0%, 2.1
10% weeks
2
1%
0% 0% 0

Net Cash Gain to Sellers Highest since 2007
$250,000
$200,000
$175,000
$150,000
$100,000
$50,000
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Q. What was the net cash gain or net loss to the seller as a result of this sale? SERIES: 2016 Housing Market Survey
Student Debt Delayed Decisions to Move out
of Family Member’s Home After College?
% of Loan borrowers
SERIES: 2016 Student Loan Debt and Housing Report

SOURCE: National Association of Realtors®
Regional Housing Markets
Sales Growth by Region
Bay Area So Cal Central Valley
30%
20%
10%
YoY % chg.
0%
-10%
-20%
-30%
SERIES:Existing Single Family Sales, Not Seasonally Adjusted

2016 California
YTD Sales
2016 California
Median Prices YTY
Northern California
Sales Median Price

4.3% YTD $362,540
12.6% YTY 8.6% YTY
UII MTM Price Sales

3.7 28.8 NA NA
Months Days Per Sq Ft To List Ratio
2016 Northern CA
YTD Sales
2016 Northern CA
Median Prices YTY
Northern Wine Country
Sales Median Price

-2.7% YTD $569,000
1.0% YTY 7.4% YTY
UII MTM Price Sales

3.5 50.1 $358 98.9%
2016 Northern Wine
YTD Sales
2016 Northern Wine
Median Prices YTY
Bay Area
Sales Median Price

-7.4% YTD $777,160
-2.2% YTY 3.8% YTY
UII MTM Price Sales

2.4 23.5 $456 101.1%
2016 Bay Area
YTD Sales
2016 Bay Area
Median Prices YTY
Central Valley
Sales Median Price

3.7% YTD $290,750
8.4% YTY 7.3% YTY
UII MTM Price Sales

3.2 23.1 NA NA
2016 Central Valley
YTD Sales
2016 Central Valley
Median Prices YTY
Central Coast
Sales Median Price

0.1% YTD $648,900
4.9% YTY 17.0% YTY
UII MTM Price Sales

4.3 28.8 $358 97.7%
2016 Central Coast
YTD Sales
2016 Central Coast
Median Prices YTY
Southern California
Sales Median Price

-0.1% YTD $496,930
6.6% YTY 6.1% YTY
UII MTM Price Sales

3.6 40.2 $281 98.5%
2016 Southern Cal
YTD Sales
2016 Southern Cal
Median Prices YTY
2017 Forecast
U.S. Economic Outlook
2011 2012 2013 2014 2015 2016p 2017f
US GDP 1.8% 2.3% 2.2% 2.4% 2.4% 1.5% 2.2%

Nonfarm Job
1.2% 1.7% 1.7% 1.9% 2.1% 1.8% 1.4%
Growth
Unemployment 8.9% 8.1% 7.4% 6.2% 5.3% 4.9% 4.7%
CPI 3.1% 2.1% 1.5% 1.6% 0.1% 1.4% 2.1%

Real Disposable
2.5% 3.2% -1.4% 2.7% 3.4% 2.7% 2.7%
Income, % Change
30-Yr FRM 4.5% 3.7% 4.0% 4.2% 3.9% 3.6% 4.0%

SERIES: U.S. Economic Outlook
California Economic Outlook
2011 2012 2013 2014 2015 2016p 2017f

Nonfarm Job
1.1% 2.4% 3.0% 2.2% 2.7% 2.3% 1.6%
Growth
Unemployment
11.8% 10.4% 8.9% 7.5% 6.2% 5.5% 5.3%
Rate
Population
0.7% 0.7% 0.9% 0.9% 0.9% 1.0% 1.0%
Growth
Real Disposable
3.5% 4.7% -1.1% 3.2% 3.6% 2.9% 3.5%
Income, % Change
SERIES: CA Economic Outlook

Varying Market Expectations for 2017
100%
90%
31%
80% 36%
47%
70% 62%
60%
Up
50%
44% 35% Flat
40% Down
40%
30%
20% 35%
25% 29%
10%
13%
0% 3.0%
Prices Sales Inventory Interest rates
Q1 - What do you think will happen to the California real estate market in 2017?
Interest Rate Projected at 5% in 5 Years
8% 17%
Interest Rate Projection in 5 Years
5% 81%
2% 2.3%
0% 0.2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Q3 - Today the 30 year fixed rate mortgage is at 3.5%. Where do you think it will be in five years?
California Housing Market Outlook
2011 2012 2013 2014 2015 2016p 2017f
SFH Resales (000s) 422.6 439.8 414.9 382.7 408.8 407.3 413.0
% Change 1.4% 4.1% -5.9% -7.8% 6.8% -0.4% 1.4%

Median Price
$286.0 $319.3 $407.2 $446.9 $474.4 $503.9 $525.6
($000s)
% Change -6.2% 11.6% 27.5% 9.8% 6.2% 6.2% 4.3%
Housing
53% 51% 36% 30% 31% 33% 29%
Affordability Index
30-Yr FRM 4.5% 3.7% 4.0% 4.2% 3.9% 3.6% 4.0%
SERIES: CA Housing Market Outlook
Sales down for 2016 but Improve in 2017;
Price will Grow Steadily this Year and Next
Sales of Existing Detached Homes Median Price
Units Price
(Thousand) (Thousand)
700 $600
Thousands
$526
Thousands
$504
600 $500
500 413.0
407.3 $400
400
$300
300
$200
200
100 $100
0 $0
2005 2007 2009 2011 2013 2015 2017f 2005 2007 2009 2011 2013 2015 2017f

CA: Dollar Volume
Up 5.8% in 2016, Up 5.8% in 2017
$ in Billion % Change
$400 30%
$ Volume of Sales Percent Change
$350 20%
$301
$300
10%
$244
$250
$217 0%
$205
$194
$200
$164 $169 $171
-10%
$150 $133 $131 $127 $140
$121
-20%
$100
$50 -30%
$0 -40%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p 2017f
2017 Challenges &
Opportunities
Lack of Affordability Biggest Challenge
[CATEGORY NAME],
6%
Mortagage rate
increase, 10%
[CATEGORY
Lack of inventory, NAME], [VALUE]
28%
Q2 - What will be the biggest challenge for the housing market in 2017?
2017 Wild Cards
• Unexpected rise in rates
• Economic collapse
• Tech giants crumble…
• Other Black Swans
• Hit to equities
• Global instability
2017 Opportunities
• Up your game – Always a good option
• What business are YOU in?
• Educate first time-home buyers – talk to their parents
• Become well versed on down payment assistance
programs, debt management and improving credit to
turn renters into buyers.
• Don’t give up on international buyers
• Stay involved & stay current
• Get married!
Thank – You

09-29-2016 EXPO Forecast Final

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09-29-2016 EXPO Forecast Final

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Leslie Appleton-Young

Chief Economist & Vice President

How did I do with last year’s

• US economic and job growth expanding

• US economic activity failed to support sustained rate hikes

SERIES: Sales of Existing Single Family Homes

SERIES: Sales of Existing Single Family Homes

SERIES: Median Price of Existing Single Family Homes

SERIES: Median Price of Existing Detached Homes

SERIES: Median Price of Existing Detached Homes

SERIES: Median Price of Existing Detached Homes

13% 52% 20% 15%

12% 51% 23% 13%

Q4 - What is the average commute time …

Instant mortgage approval 21%

Super strength 4.9%

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

• The UK accounted for less

• Direct economic impact

SOURCE: Wells Fargo

SOURCE: Yahoo Finance

SOURCE: Wells Fargo Securities

SERIES: Crude Oil Prices: West Texas Intermediate

SERIES: 30Yr FRM, 5Yr ARM

GDP 2016-Q2 Consumption

Unemployment Job Growth

SERIES: Total Nonfarm Employment

SERIES: Consumer Confidence

SERIES: Total Nonfarm Employment

Aug 2016 Aug 2015 Change % Change

Southern California 9,007.4 8,824.1 183.3 2.1%

Bay Area 3,574.8 3,542.4 32.4 0.9%

Central Valley 2,171.5 2,119.4 52.1 2.5%

Central Coast 534.4 527.2 7.2 1.4%

North Central 143.7 140.9 2.8 2.0%

CALIFORNIA 16,534.3 16,156.3 378.0 2.3%

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

SERIES: Total Nonfarm Employment By Industry

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

SERIES: Total Nonfarm Employment

SOURCE: Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey

• High-end: discretionary & slowing

9.0 Bay Area So CA Central Valley

Price Segment Sales (% to Total) Active Listings (% to Total)

SERIES: Sales and Active Listings of Existing Single Family Homes

SERIES: Percent of existing single-family homes being sold

SERIES: 2016 Housing Market Survey

SOURCE: California Homebuilding Foundation (CHF)/Construction Industry Research Board (CIRB)

Yes, they will

SERIES: 2016 Generations / Boomer Survey

They plan to be buried in the back yard and leave their

Their $1M+ in equity isn't enough to retire in style. 44%

All of the above. 41%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

SERIES: California New Housing Permits

Watch constant re-

Give away their Shop at Smart &

1. New York 218,541

3. San Francisco 127,412

8. San Jose, CA 69,042

10. San Diego 55,825

SOURCE: National Association of Realtors®, Census Bureau

SOURCE: California Employment Development Department, Construction Industry Research Board

SERIES: Housing Affordability Index