2018 10 11Forecast2019FF

2019 Economic & Market
Forecast
REImagine
October 11, 2018
Leslie Appleton-Young
SVP & Chief Economist
2008
The CA Housing Market Recovery
100%
Equity Sales Short Sale REO
90% Equity Sales (Aug 2018)
80% = 98.4%
70%
60%
50%
Equity Sales Vs. Distressed Sales
40%
30% REO Sales (Aug 2018)

= 0.9%
20%
Short Sales (Aug 2018)
10% = 0.3%
0%
Note: Not including transactions in foreclosure.
SERIES: Distressed Sales, Not Seasonally Adjusted

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
2018
Assault on
Homeownership
Homeownership Rates
California Vs. U.S. – 9.5% gap in 2017
75% CA US
70% Peak: 69.0%
64.5% 63.9%
65%
60%
Peak: 60.2%
54.4%
55%
53.7%
50%
45%
SERIES: Homeownership Rates

SOURCE: U.S. Census Bureau
CA: Ownership Rebound?
Homeownership Rate
75
70
64.4
65
60
54.3
55
50
CA U.S.
… Homeownership Varies Sharply by Ethnicity
California Homeownership Rates by Race and Ethnicity (2010-2014 Average)
SERIES: Homeownership rate by ethnicity

SOURCE: CA HCD, PolicyLink, USC Program for Environmental and Regional Equity
CA: Majority Renter State by 2025
California Homeownership Rate
70%
60% 59.7%
57.1%
56.1%
50% 47.3%
44.2%
40%
41.0%
30%
2000 2005 2010 2015 2020 2025 2030 2035 2040
Fast Slow Avearge
SERIES: Homeownership Rate

SOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection
0%
10%
20%
30%
40%
50%
60%
70%
80%
Hawthorne
Glendale
Los Angeles
El Cajon
Costa Mesa
Burbank
Santa Barbara
Santa Clara
Lynwood
Alameda
Santa Cruz
Sunnyvale
San Diego
Sacramento
Stockton
Redwood City
Westminster
Compton
San Mateo
Palo Alto
Redding
Baldwin Park
Lancaster
Pittsburg
Citrus Heights
Carmichael
San Leandro
Chula Vista
Daly City
Newport Beach
Whittier
2017 California Renter Rate by City
Visalia
Hemet
Concord
Clovis
Temecula
San Marcos
Lake Elsinore
San Clemente
Walnut Creek
Fontana
Hesperia
Simi Valley
Lakewood
Livermore
Castro Valley
Menifee
Yorba Linda
50%
42 of 142 Big Cities ALREADY Majority Renter
0%
10%
20%
30%
40%
50%
60%
70%
Hawthorne
80% 76.0%
Santa Monica
East Los Angeles
Glendale
Inglewood
San Francisco
Los Angeles
Bellflower
Alhambra
El Cajon
Florence-Graham
Oakland
Costa Mesa
Merced
Long Beach
Burbank
Arden-Arcade
Mountain View
Santa Barbara
El Monte
Pasadena
Santa Clara
South Gate
Chico
Lynwood
Berkeley
Anaheim
2017 California Renter Rate by City
Alameda
Salinas
Santa Ana
Santa Cruz
Davis
Majority Renter Cities
Madera
Sunnyvale
Irvine
Tustin
San Diego
Fresno
Lodi
Sacramento
San Bernardino
Escondido
50.7%
Where will our children
live?
Izzy Come Back!
U.S. Economy Our Biggest Strength
4.2% 3.8% 2.2%
GDP 2018-Q2 Consumption Core CPI

2018-Q2 August 2018
3.7% 1.7%
Unemployment Job Growth

September 2018 September 2018
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
Jan-00
Feb-01
Mar-02
Apr-03
May-04
Jun-05
Jul-06
Aug-07
Sep-08
Oct-09
Nov-10
Dec-11
Jan-13
California Nonfarm Employment
Feb-14
Mar-15
Apr-16
May-17
Jun-18
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Jan-11
Jun-11
Nov-11
Apr-12
Sep-12
Employment: All-Time High
Feb-13
Jul-13
Dec-13
May-14
California
Oct-14
Mar-15
Aug-15
U.S.
Jan-16
Jun-16
Nonfarm Employment Growth
Nov-16
Apr-17
Sep-17
Feb-18
Jul-18
2.0%
Unemployment Lowest in 40+ Years
Unemployment Rate Tulare 9.3%
14 California U.S. Merced
Fresno
12 Modesto
Stanislaus
10
Chico
8 Monterey
Los Angeles
6 Solano
Ventura
4
San Diego
2 Orange County
Sonoma
0 South Bay
Jan-76
Mar-78
May-80
Jul-82
Sep-84
Nov-86
Jan-89
Mar-91
May-93
Jul-95
Sep-97
Nov-99
Jan-02
Mar-04
May-06
Jul-08
Sep-10
Nov-12
Jan-15
Mar-17
San Francisco 2.4%

0% 2% 4% 6% 8% 10%
Consumer Confidence
Highest in 18 Years
September 2018: 138.4
160
138.4
140
120
INDEX, 100=1985
100
80
60
40
20
SERIES: Consumer Confidence

SOURCE: The Conference Board
Inflation Remains Low
August 2018: All Items 2.7% YTY; Core +2.2% YTY
6.0 All Items Core
5.0
Annual Percent Change
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
SERIES: Consumer Price Index

SOURCE: US Bureau of Labor Statistics
Wild Card – Financial Markets
(Jan 2018 – Oct 2018) (9/1/18 – 10/10/18)

27000 27000
26800
26000 26600
26400
25000 26200
26000
24000
25800
25600 Down
23000 831 pts
25400
25200
22000
25000
21000 24800
SERIES: Dow 30
SOURCE: Yahoo Finance
30 Yr. FRM Hit 5%, 1st Time since Early 2011
Oct 10: 5.00%
SERIES: Average 30 Yr. Fixed Mortgage Rates

SOURCE: Mortgage News Daily
Fed Has Raised rates 8x Since Dec 2015
January 2012 – October 2018
5 MONTHLY WEEKLY
4.63 4.71
5
4 3.94 4.01
4
3
3
2.00 2.25
2 Fed Raise Rate
FRM the 1st time
2 since mid-2006
ARM
1
Fed Funds Rate
1
0
SERIES: 30Yr FRM, 5Yr ARM, Fed Funds Rate (Target Rate)
SOURCE: Freddie Mac, St. Louis Fed
Rates Rising Recently, but Keep Perspective
30-Year Fixed Rate Mortgage
20
18
16
14
12
10
8
6
4
2
0
SERIES: 30Yr FRM, 5Yr ARM

SOURCE: Freddie Mac
Higher Rates Hurt Affordabiity
Q2-2018 Median Price $596,730
20% Down-payment
MONTHLY MORTGAGE $3,017 Minimum Qualifying Income $148,145
$3,200 $2,862 $160,000 $141,936
$2,711 $135,871
$2,800 $2,563 $140,000 $129,958
$124,203
$2,419 $118,614
$2,279 $113,196
$2,400 $2,144 $120,000 $107,956
$2,013
$2,000 $100,000
$1,600 $80,000
$1,200 $60,000
$800 $40,000
$400 $20,000
$0 $0
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
INTEREST RATE INTEREST RATE
SERIES: Housing Affordability Index

II. California Housing
Market
Market Off 2.1% YTD – 4 Months of YTY Declines
California, August 2018 Sales: 399,600 Units, -2.1% YTD, -6.6% YTY
700,000
600,000
Aug-17: Aug-18:
427,630 399,600
500,000
400,000
300,000
200,000
100,000
SERIES: Sales of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized
Statewide Home Sales Off 5.5% YOY
Year-over-Year % Chg
20%
15% Avg. year-over-year

11.8%
% chg. = -5.5%
10%
5%
0%
-5%
-10% Last 4+ consecutive mo. with decline:

Avg. year-over-year % chg. = -1.9%
-15%
Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18
*Sales are seasonally adjusted and annualized
SERIES: Sales of Existing Single Family Homes

Price Growth Also Slowing Down
California, August 2018: $596,410, +0.8% MTM, +5.5% YTY Aug-18:
$700,000 Peak: May-07 $596,410
Aug-17:
$594,530 $565,320
$600,000
$500,000
Trough: Feb-09
$245,230
$400,000 -59% from
peak
$300,000
$200,000
$100,000
$-
SERIES: Median Price of Existing Single Family Homes

Price Gains Slowing Across the State
50% Condo Single-Family Homes
40%
30%
20%
YTY% Chg. in Price
10%
0%
-10%
-20%
-30%
-40%
-50%
SERIES: Median Price of Existing Condo/Townhomes

Price Gains Slowing Across the State
14% Condo Single-Family Homes
12%
10%
YTY% Chg. in Price
8%
6% Decelerating
Growth
4%
2%
0%

So Cal: Orange & SD Above Prior Peak
Peak Peak %Chg Fr
Region Aug-18
Month Price Peak
Orange Jun-07 $775,420 $838,500 8.1%
San Diego May-06 $622,380 $660,000 6.0%
Los Angeles Sep-07 $625,812 $607,490 -2.9%
So CA Jun-07 $589,710 $555,000 -5.9%
Ventura Aug-06 $710,910 $660,000 -7.2%
Riverside Jun-06 $431,710 $400,750 -7.2%
San Bernardino Aug-06 $350,290 $290,000 -17.2%
SERIES: Median Price of Existing Detached Homes

Central Coast: SC & SLO
Peak Peak %Chg Fr

Region Aug-18
Month Price Peak
Santa Cruz Oct-07 $865,000 $917,500 6.1%
San Luis Obispo Oct-05 $619,950 $630,000 1.6%
Monterey Aug-07 $777,000 $599,000 -22.9%
Santa Barbara Jul-07 $878,120 $572,500 -34.8%

Central Valley: All Below Prior Peak
Peak Peak %Chg Fr
Region Aug-18
Month Price Peak
Sacramento County Aug-05 $394,450 $369,950 -6.2%
Madera County Feb-08 $275,000 $254,900 -7.3%
Placer County Aug-05 $527,990 $475,000 -10.0%
Fresno County Jun-06 $313,500 $280,000 -10.7%
San Joaquin County Jun-06 $426,830 $380,000 -11.0%
Tulare County Dec-05 $269,710 $239,000 -11.4%
Stanislaus County Sep-05 $370,100 $319,900 -13.6%
San Benito County May-05 $671,190 $575,000 -14.3%
Kings County Mar-06 $268,050 $227,750 -15.0%
Merced County Oct-05 $344,610 $288,396 -16.3%
Kern County Jun-06 $299,920 $247,000 -17.6%
Glenn County Feb-07 $312,500 $225,500 -27.8%
Bay Area: All But Contra Costa & Solano
Peak Peak %Chg Fr
Month Price Aug-18 Peak
Region
San Francisco May-07 $972,010 $1,550,000 59.5%
Santa Clara Oct-07 $865,000 $1,295,000 49.7%
San Mateo Oct-07 $1,020,000 $1,500,000 47.1%
Alameda May-07 $709,420 $960,000 35.3%
Bay Area May-07 $789,250 $935,000 18.5%
Marin Jun-07 $1,149,390 $1,222,500 6.4%
Napa Jun-07 $729,170 $752,500 3.2%
Sonoma Jan-06 $650,330 $670,000 3.0%
Contra Costa May-07 $698,420 $650,000 -6.9%
Solano Jun-07 $492,800 $455,000 -7.7%

III. Shift
CA Consumer Poll: Sept 2018
Do you think it's a good time to buy a Do you think it's a good time to sell a
home in California? home in California?
78%
57%
43%
22%
Yes No Yes No
SERIES: 2018 Google Consumer Poll

Do you think it's a good time to buy a home in California? (n=300) SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Do you think it's a good time to sell a home in California? (n=300)
0
2
4
6
8
10
12
14
16
18
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08

Oct-08
Mar-09
Aug-09
SERIES: Unsold Inventory Index of Existing Single Family Homes

Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Inventory is Growing
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
3.3
May-18
Shift Started in January 2018; Tipped in April
+ 17.2 % Active Listings in August

20% 17.2%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
SERIES: Growth in Active Listings

Biggest Gains At Low End
Active Listings Growth
9%
8.0%
8%
7.0% 7.0%
7%
6%
5%
4% 3.5%
2.9%
3% 2.4%
2%
1% 0.5%
0.0%
0%
Under $300K $300-$500K $500-750K $750-1000K $1-1.5M $1.5-2M $2-$3M $3M +
SERIES: Unsold Inventory Index of Existing Single Family Homes

Discrepancies Point to Weaker Demand
Where did the buyers go?
Sales vs. Active Listings Growth
15%
10.2%
10% 8.0% 8.2% 8.6%
7.0% 7.0%
5% 3.5% 2.9% 2.4%
0.9% 0.5% 0.0%
0%
-1.1%
-5%
-10% -7.3% -7.0%
-15%
-20%
-21.1%
-25%
Under $300K $300-$500K $500-750K $750-1000K $1-1.5M $1.5-2M $2-$3M $3M +
Listings Sales
0
10
20
30
40
50
60
70
80
1/1/2005
7/1/2005
1/1/2006
7/1/2006
1/1/2007
7/1/2007

1/1/2008
7/1/2008
1/1/2009
SERIES: Median Time of Market of Existing Single Family Homes

7/1/2009
1/1/2010
7/1/2010
1/1/2011
7/1/2011
1/1/2012
7/1/2012
1/1/2013
7/1/2013
1/1/2014
7/1/2014
1/1/2015
Median Time on Market (Days)
7/1/2015
1/1/2016
7/1/2016
1/1/2017
7/1/2017
Listings Taking Longer to Sell
1/1/2018
7/1/2018
20
More Listings With Price Reductions
Reduced-Price Listings
50% 10%
45% 9%
40% 39.9% 8%
35% 7%
30% 6%
25% 5%
20% 4%
4.3%
15% 3%
10% 2%
5% 1%
0% 0%
1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018
Share Reduced Median Reduction
SERIES: Listing Price of Existing Single Family Homes

-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2007 01
2007 04
2007 07
2007 10
2008 01
2008 04
2008 07
2008 10
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
List Price
2012 04
2012 07
2012 10
2013 01
2013 04
2013 07
2013 10
Sales Price
Typically 4-6 month lag
2014 01
2014 04
2014 07
2014 10
2015 01
2015 04
California $1M Homes: Sales vs. List Price Growth
2015 07
2015 10
2016 01
2016 04
2016 07
2016 10
2017 01
2017 04
2017 07
2017 10
Listing & Sale Prices Dropping > $1M
2018 01
2018 04
2018 07
-4.5%
State of the Housing Market -
Study of Housing: Insight, Forecast, Trends (S.H.I.F.T)
Methodology
• C.A.R. has conducted the Annual Housing Market Survey since 1981.
• E-mailed to a random sample of 30,355 REALTORS® throughout CA
• Asked about their most recent transaction (Q2 2018).
• 1,492 valid survey responses, 4.9 percent response rate.
• The margin of error +/- 2.5 percent at a 95 percent confidence level.

Case Study: First-Time Buyer in San Francisco
Buyer’s Profile “Have you looked into the housing

Age: 45 market into the Bay Area? It is
Marital Status: Married with dependents RIDICULOUSLY impossibly
Income: $120,000 competitive.”*
Down Payment: $150,000
Down Payment Source: Sales of personal assets
(other than real property)
Reason to Buy: Tired of Renting
Characteristics of Home “Finding a home I could afford

[was the most difficult part of
Size: 1,200 sq. ft
the process] – the worst part
Property Type: Condominium about the buying process is that
Location: San Francisco County the list prices are fake.”*
Price: $755,000
*Quotes from first-time buyers from the 2018 State of the Consumer Report
SERIES: 2018 Housing Market Survey

First Time Buyers: Below LT Trend
% First-Time Home Buyers Long Run Average
50%
Long Run Average = 37.4%

40% 34.8%
30%
20%
10%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Affordability: Big Problem for First-Time Buyers
Q: Primary reason for changing county?
First-Time Buyers Repeat Buyers
0% 10% 20% 30% 40% 50% 60%
Housing affordability 49%

18%
Quality of life 19%
14%
Closer to family/relative 11%
12%
Second home 1%
12%
Job change 5%
7%
Shorter commute to work/school 2%
5%
Quality of school 5%
5%
Retired 0%
7%
Quality of community services 1%
1%
Other 8%
18%
SERIES: 2018 Annual Housing Market Survey
SOURCE: California Association of REALTORS®
International Buyers: Flat for 3 Years
9%
The share of international buyers dropped to the lowest level in at least ten years
8% 8%
8%
7%
6% 6%
6% 6% 6%
5%
5%
4% 4%
3% 3%
3% 3%
2%
1%
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Q. Was the buyer an international buyer – a person who was a citizen of
another country who wished to purchase residential real estate in the U.S.?

Case Study: Seller Leaving California
Seller’s Profile
Age: 56 “We doubled the size of our house
Marital Status: Married Couple with Dependents and lowered our mortgage
Income: $200,000 payment.”*
Yrs. Owned: 25
Net cash gain: $1,050,000
Reason for selling: Desired larger home
State moving to: Utah
Characteristics of Home “L.A would have been my first

Size: 1,948 sq. ft choice, and I didn’t want to have
Property Type: Single-Family Home to leave California. I couldn’t
Location: Los Angeles County afford to stay there”*
Price: $1,175,000
*Lopez, S. (2017) ‘They’re leaving California for Las Vegas for find middle-class life
that eluded them’. Los Angles Times, 3 December

Sellers Aren’t Not Moving
14
Years Owned Home Before Selling
12 11.5
Long-Time Homeowners are not
10 moving as in the past because:
8
• Low rate on current mortgage
6
• Low property taxes
4 • Capital gains hit
2 • Where can I afford to go?
• Why not remodel and stay?
0

29% Of Sellers Moving Out of California
Up 10% from 2013
Location of Seller’s New Home
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Within the same county 38% 41% 37% 45% 47% 42% 49% 49% 46% 44% 44% 40% 38% 36%
In another county in
23% 18% 24% 17% 21% 21% 19% 18% 20% 21% 20% 21% 20% 21%
California
In another state 31% 28% 29% 27% 19% 20% 20% 22% 19% 22% 22% 25% 28% 29%
Out of US 1% 2% 1% 1% 2% 1% 1% 1% 0% 1% 1% 1% 1% 1%
Don't Know/Not sure 7% 11% 9% 10% 12% 16% 10% 10% 15% 13% 13% 13% 14% 13%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

IV. New Housing Supply
Permits: CA Not Building Enough
2017: 112,886 (55,779 sf, 57,107 mf )
2018f: 127,780 (64,900 sf, 62,880 mf)
350000
300000 CA HCD Projected

Single Family Multi-Family Housing Needs:
250000 180,000/yr.
200000
150000
100000
50000
SERIES: California New Housing Permits

SOURCE: Construction Industry Research Board
CA: Less new housing per capita than
other states (2005 – 2016)
Ratio of Housing Units Added to
Population Added Housing Units Added Population Added
1,000 People Number Units per 1,000 People
Arizona 1,101 Arizona 416,330 Arizona 378
Nevada 559 Nevada 202,332 Nevada 362
New York 1,090 New York 379,019 New York 348
Washington 1,142 Washington 374,157 Washington 328
Oregon 533 Oregon 174,466 Oregon 327
Texas 5,592 Texas 1,728,257 Texas 309
California 3,971 California 1,072,121 California 270

+40%
SOURCE: U.S. Census Bureau, C.A.R.

VI. What Are the
Consequences?
1. CA is NOT Affordable
Housing Affordability is Off Sharply
California, 1984-2018
80%
Annual Quarterly
% OF HOUSEHOLDS THAT CAN BUY A
70%
60%
MEDIAN-PRICED
53%
50%
HOME
40%
30%
26%
20%
10%
0%
SERIES: Housing Affordability Index of Traditional Buyers

Only Lassen County Beats US Affordability
2018-Q2: % able to purchase median-priced home
70
64
60
53 53 52
51 50 49
50 48 48 47
46 45 45 45
44 43 43 42 42
41 41 39
38 38 38 38 37 37
40
33 33 32
30 29
30 28 26 26
25
23 22 22
20 20 20 19 18
20 16 16 14
14 14 12
10
SERIES: Housing Affordability Index of Traditional Buyers

Least Affordable Metros are in CA
• Los Angeles
• San Diego
• San Jose
• Oxnard
• San Francisco
Realtor.com 4/18/2018
2. CA is Home to
Record Number of
Homeless
#2: Largest Number of Homelessness
Estimates of Homeless People – By State, 2017
Top 5 State with Largest Increases

(2016 – 2017)
• California 16,136/13.7%
• New York 3,151/3.6%
• Oregon 715/5.4%
• Nevada 435/5.9%
• Texas 426/1.8%
SERIES: Estimates of Homeless People in January 2017

SOURCE: The U.S. Department of Housing & Urban Development
3. CA is Losing Workers
to More Affordable
States: Two Step
~750K People Have Left Since 2010
California Net Domestic Migration
0
-20,000
-24,972
-40,000
-41,362
-60,000
-57,563 -60,839
-80,000
-100,000
-104,317 -105,210
-120,000
-140,000
-160,000
-163,922
-180,000 -169,336
2010 2011 2012 2013 2014 2015 2016 2017
Step 1: Coastal to Cheaper Markets
Coastal Southern California Out Migration (2010-2016)
-19,854
-21,935
-34,217 -40,361
-42,503
-48,609
-65,534
-79,132
Elsewhere in CA
Another State -101,914
-124,148
Santa Colorado Oregon Washington Kern Nevada (ST) Arizona Texas San Riverside
Barbara Bernardino
Step 2: Pricing Prior Residents Out of State
Inland Empire Out Migration
(2010-2016)
-3,575
-5,117
-7,732 -7,970 -8,344
-10,604
Elsewhere in CA -10,680
-10,699
Another State
-16,374
-17,859
Hawaii Colorado Nevada (ST) Idaho North Utah Georgia Kern County Arizona Texas
Carolina
4. CA soon to be a
majority renter state
0%
10%
20%
30%
40%
50%
60%
70%
80%
New York
California
54.4%
Nevada
Hawaii
Rhode Island
SERIES: Homeownership Rates

Massachusetts
Texas
Oregon
North Dakota
Georgia
Washington
Colorado
Florida
SOURCE: U.S. Census Bureau (Current Population Survey)

New Jersey
Arizona
Arkansas
Illinois
Alaska
Kansas
Ohio
Connecticut
Louisiana
Nebraska
North Carolina
New Mexico
Maryland
Tennessee
Virginia
Missouri
Montana
South Dakota
Homeownership Rate
Wisconsin
Pennsylvania
Oklahoma
Idaho
Alabama
Delaware
Indiana
Iowa
Kentucky
Wyoming
Maine
California: 2nd lowest in nation
Mississippi
Utah
Vermont
New Hampshire
Minnesota
South Carolina
Michigan
West Virginia
5. CA is pricing itself out
of its future
Q: What needs to be
done?
A: Build More Housing

Lakewood CA 1950
Global Capitals Do Density
#10 Shanghai #43 London
#69 Paris
#35 Rio de Janerio #27 Mexico City
Source: citymayors.com
U.S. Cities Ranked by Density
#90 Los Angeles

#104 San Francisco/Oakland
#107 San Jose
#119 Honolulu
#120 Las Vegas
#121 Miami
Global Ranking 1-125
www.citymayors.com
The Forecast
What do YOU think?
Methodology
• E-mail survey to 866 members of the Board of Directors.

• There were 451 survey responses, equivalent to a response rate of
52.1%.
• The margin of error for this survey was ±3.2% at a 95% confidence level.
• Field dates: October 1- 8, 2018
SERIES: 2018 Director’s Survey

One-Year Outlook
There is risk to the upside 25%
There is risk to the downside 38%
The risk is balanced 37%
Which choice best applies to your one-year outlook SERIES: 2018 Director’s Survey
for California home values? (n=441)
5-Year Outlook: Directors more optimistic
25% C.A.R. Directors

There is risk to the upside Pulsenomics Experts
17%
40%
There is risk to the downside
55%
34%
The risk is balanced
28%
Which choice best applies to your

SERIES: 2018 Director’s Survey
five-year outlook for California home values? (C.A.R. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
n=437, Pulsenomics n=112)
2019 Sales Forecast?
37%
29%
27%
3% 4%
Down down Down slightly Flat Up slightly Up a lot

down
What’s your outlook for the number of SERIES: 2018 Director’s Survey
transactions in California next year? (n=443)
When Will Market Conditions Shift?
43% C.A.R. Directors
Pulsenomics West
Pulsenomics United States
30%
27% 28%
23%
20%
18%
14%
13% 14%
10%9%
8%8%7%
6%5% 6% 6%
4%
1% 2%
Shifted Prior to 2019 2020 2021 2022 Sometime Never

already year-end after 2022
2018
When do you expect California
housing market conditions to shift decidedly SERIES: 2018 Director’s Survey
in favor of home buyers? (C.A.R. n=438, Pulsenomics US n= 98, West n=91)
Entry Level Home Price
28%
25%
16% 17%
10%
5%
What is the price of an entry-level home SERIES: 2018 Director’s Survey

in your market? (n=438)
Expected Rate for a 30-Year FRM
1 year: At cycle peak:

C.A.R. Directors: 5.25% C.A.R. Directors: 6.00%
Pulsenomics Experts: 5.00% Pulsenomics Experts: 5.25%
The prevailing rate for a 30-year fixed rate mortgage is 4.75. What do you expect it to be SERIES: 2018 Director’s Survey
One year from now? (C.A.R. n=425, Pulsenomics n=100) SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
At the time you expect the current business cycle will reach its peak?(C.A.R. n=374, Pulsenomics n=94)
U.S. Economic Outlook
2013 2014 2015 2016 2017 2018p 2019f
US GDP 1.7% 2.4% 2.6% 1.6% 2.3% 3.0% 2.4%
Nonfarm Job Growth 1.7% 1.9% 2.1% 1.8% 1.4% 1.6% 1.3%
Unemployment 7.4% 6.2% 5.3% 4.9% 4.4% 3.9% 3.7%
CPI 1.5% 1.6% 0.1% 1.4% 2.0% 2.5% 2.4%
Real Disposable Income, % Change -1.4% 2.7% 3.4% 2.7% 2.1% 2.8% 2.6%
30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2%
SERIES: U.S. Economic Outlook

California Economic Outlook
2013 2014 2015 2016 2017 2018p 2019f
Nonfarm Job Growth 3.0% 2.2% 2.7% 2.3% 1.6% 2.0% 1.4%
Unemployment 8.9% 7.5% 6.2% 5.5% 4.8% 4.3% 4.3%
CA Population (Million) 38.4 38.7 39.1 39.4 39.6 39.9 40.2
Population Growth 0.9% 1.0% 0.8% 0.6% 0.8% 0.7% 0.7%
Real Disposable Income, % Change -2.1% 5.6% 3.9% 1.6% 1.6% 2.4% 3.0%
SERIES: CA Economic Outlook

California Housing Market Outlook
2013 2014 2015 2016 2017 2018p 2019f
SFH Resales (000s) 414.9 382.7 409.4 417.7 424.1 410.5 396.8
% Change -5.9% -7.8% 7.0% 2.0% 1.5% -3.2% -3.3%
Median Price ($000s) $407.2 $446.9 $476.3 $502.3 $538.0 $575.8 $593.4
% Change 27.5% 9.8% 6.6% 5.4% 7.2% 7.0% 3.1%
Housing Affordability
36% 30% 31% 31% 29% 28% 25%
Index
30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2%
SERIES: CA Housing Market Outlook

Opportunities
• Listings are up & prices are favorable for sellers
• Call frustrated potential buyers and tell them the good
news
• Rates are rising – don’t wait
• Provide sellers a teachable moment
• Know where people are moving and why and work your
referral network
• Get involved in the political process – this is your future
Read This: California’s Housing Future

2018 10 11Forecast2019FF

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2019 Economic & Market

30% REO Sales (Aug 2018)

Note: Not including transactions in foreclosure.

SERIES: Distressed Sales, Not Seasonally Adjusted

70% Peak: 69.0%

SERIES: Homeownership Rates

SERIES: Homeownership rate by ethnicity

SERIES: Homeownership Rate

4.2% 3.8% 2.2%

GDP 2018-Q2 Consumption Core CPI

Unemployment Job Growth

San Francisco 2.4%

SERIES: Consumer Confidence

SERIES: Consumer Price Index

(Jan 2018 – Oct 2018) (9/1/18 – 10/10/18)

SERIES: Average 30 Yr. Fixed Mortgage Rates

SERIES: 30Yr FRM, 5Yr ARM

SERIES: Housing Affordability Index

SERIES: Sales of Existing Single Family Homes

15% Avg. year-over-year

-10% Last 4+ consecutive mo. with decline:

*Sales are seasonally adjusted and annualized

SERIES: Sales of Existing Single Family Homes

SERIES: Median Price of Existing Single Family Homes

SERIES: Median Price of Existing Condo/Townhomes

SERIES: Median Price of Existing Condo/Townhomes

SERIES: Median Price of Existing Detached Homes

Peak Peak %Chg Fr

SERIES: Median Price of Existing Detached Homes

SERIES: Median Price of Existing Detached Homes

SERIES: 2018 Google Consumer Poll

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SERIES: Unsold Inventory Index of Existing Single Family Homes

+ 17.2 % Active Listings in August

SERIES: Growth in Active Listings

SERIES: Unsold Inventory Index of Existing Single Family Homes

-10% -7.3% -7.0%

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SERIES: Median Time of Market of Existing Single Family Homes

SERIES: Listing Price of Existing Single Family Homes

SERIES: Median Price of Existing Condo/Townhomes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

• E-mailed to a random sample of 30,355 REALTORS® throughout CA

• Asked about their most recent transaction (Q2 2018).

• 1,492 valid survey responses, 4.9 percent response rate.

• The margin of error +/- 2.5 percent at a 95 percent confidence level.

Buyer’s Profile “Have you looked into the housing

Characteristics of Home “Finding a home I could afford

SERIES: 2018 Housing Market Survey

Long Run Average = 37.4%

SERIES: 2018 Housing Market Survey

Housing affordability 49%

SERIES: 2018 Housing Market Survey

Characteristics of Home “L.A would have been my first

SERIES: 2018 Housing Market Survey

SERIES: 2018 Housing Market Survey

SERIES: 2018 Housing Market Survey

300000 CA HCD Projected

SERIES: California New Housing Permits

Arizona 1,101 Arizona 416,330 Arizona 378

Nevada 559 Nevada 202,332 Nevada 362

New York 1,090 New York 379,019 New York 348

Washington 1,142 Washington 374,157 Washington 328