2012 Real Estate Market Update

Real Estate Market Update/ 2012 FORECAST

California Desert AOR January 26, 2012Leslie Appleton-Young, Chief Economist

Overview

US and California EconomiesCalifornia Housing MarketRegional & Local Markets2011 Annual Market Survey2012 Housing Market ForecastCA Buyers & Sellers in Today’s Housing Market

U.S. Economic Outlook

Economy Slowly Gaining Post-Stimulus Momentum

-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%

GDP 2010: 2.8% 2011:1.8% 2012: 2.6%

ANNUAL QTRLY

2009 Largest Annual Drop since 1938 (-3.4%)

Performance Targets for National Economy

Current Target

This Year - Projected

Unemployment 6% 9.0%

US GDP 3% or higher 1.8%

Nonfarm Job Growth

3%+ or 400K+/mo 1.0%

CPI 2.5% 3.2%

SOURCE: California Association of REALTORS®

QUARTERLY PERCENT CHANGE

Consumer Spending ReboundingHoliday and Auto Sales

Consumer Spending 2011 Q3: 2.4%

SOURCE: US Dept of Commerce, Bureau of Economic Analysis

INDEX, 100=1985

Consumer Confidence: Nov/Dec ReboundHoliday Shoppers & Improved Jobs Reports

December 2011: 64.5

CA Underwater Mortgages:Reverse Wealth Effect

SOURCE: CoreLogic

Q4‐2009

Q1‐2010

Q2‐2010

Q3‐2010

Q4‐2010

Q1‐2011

Q2‐2011

Negative Equity Share in CA Near Negative Equity Share in CA

Unemployment: Heading Lower U.S. at 3 year low

December 2011

SOURCE: CA Employment Development Division

California (11.1%) vs. United States (8.5%)

-1,000,000

-800,000

-600,000

-400,000

-200,000

200,000

400,000

600,000

U.S. Non-farm Job Growth: Gaining!

SOURCE: US Dept of Labor, Bureau of Labor Statistics

Month-to-Month Changes

Recession Job Losses: 8.8 millionSince Jan’10: +2.4 million

-160000-140000-120000-100000

-80000-60000-40000-20000

020000400006000080000

100000

California Non-farm Job Growth

SOURCE: CA Employment Development Division

Month-to-Month ChangesRecession Job Losses: 1.3 million

Since Jan’10: +282,000

Where are California’s Jobs? Employment Trends:

Construction & Financial Sectors Biggest Losers

Industry 2005 Jul-11 Year to Date

Mining and Logging 23,600 27,600 4,000Construction 905,300 567,300 -338,000Manufacturing 1,502,600 1,257,600 -245,000Trade, Transportation & Utilities 2,822,100 2,641,500 -180,600Information 473,600 455,400 -18,200Financial Activities 920,300 755,800 -164,500Professional & Business Services 2,160,700 2,136,200 -24,500Educational & Health Services 1,593,400 1,837,000 243,600Leisure & Hospitality 1,475,200 1,531,600 56,400Other Services 505,500 484,500 -21,000Government 2,420,200 2,380,200 -40,000TOTAL 14,802,500 14,074,700 -727,800

CA New Housing Permits2011: 47,015 units, Up 5.0% from 2010

50,000

100,000

150,000

200,000

250,000

300,00019

Single Family Multi-Family

SOURCE: CBIA

Household Growth: 220,000-250,000/yr

SOURCE: Federal Home Loan Mortgage Corporation

Classic Liquidity Trap: Consumers DeleveragingLow Rates and Tight Credit

Fed easing through 2012

FRMARMFederal Funds

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

‐12.0%

‐10.0%

‐8.0%

‐6.0%

‐4.0%

‐2.0%

4.0%1962

Deficit as a % of GDP

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

Federal Issues – Critical Concerns for the REALTOR Party

Future of Fannie and Freddie? FHA?

Tax Reform on the horizon – Mortgage Interest

Deduction?

QRM (Qualified Residential Mortgage)

20% Down requirement -- 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% 1.8% 2.6%

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%

SOURCE: California Association of REALTORS®Forecast Date: January 2012

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%

Forecast Date: January 2012

California Housing Market

Sales Hit Bottom 4 Years Ago Median Price 2011 = 2002

“Lost Decade” UNITS/MEDIAN PRICE $

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Sales of Existing Detached Homes Median Price

-61% -25%

Sales of Existing Detached Homes and Pacific West Consumer Confidence• California, December 2011 Sales: 520,940 Units, Up 1.1% YTD, Up 0.1% YTY

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Sales Consumer Confidence INDEXUNITS

SOURCE: California Association of REALTORS®; The Conference Board

*Sales are seasonally adjusted and annualized

INDEX, 100 = 03/16/90

Mortgage Loan Applications for PurchaseJanuary 20, 2012: 184.8

Source: Mortgage Bankers Association

Mortgage Applications – Total Purchase Loans (Weekly % Chg.)

P: May-07$594,530

T: Feb-09$245,230

-59% frompeak

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000Ja

Median Price of Existing Detached HomesCalifornia, December 2011: $285,920, Down 6.2% YTY

Trough vs. Current Price – December 2011Southern California

Region Trough Month

Trough Price

Dec-11 Median

% Chg From Trough

San Bernardino County May-09 $120,410 $128,450 6.7%Ventura Couty Feb-09 $359,630 $391,060 8.7%Orange County Jan-09 $442,170 $484,630 9.6%San Diego County Mar-09 $326,830 $359,930 10.1%Palm Springs/Lower Desert Apr-09 $150,140 $165,960 10.5%Inland Empire Apr-09 $150,860 $172,430 14.3%CALIFORNIA Feb-09 $245,230 $285,920 16.6%Southern California Apr-09 $246,063 $286,950 16.6%Los Angeles Metro Apr-09 $227,370 $265,830 16.9%Riverside County Apr-09 $171,480 $203,650 18.8%Los Angeles County May-09 $248,850 $306,950 23.3%

Unsold Inventory IndexCalifornia, December 2011: 4.2 Months

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MONTHS

Tight Supply of Inventory for REO Sales

0123456789

Equity Sales REO Sales Short Sales

2011Unsold Inventory Index (Months)

Price Range (Thousand) Dec-10 Nov-11 Dec-11

$1,000K+ 8.2 9.6 8.3$750-1000K 5.7 7.0 5.9$500-750K 4.7 6.0 4.5$300-500K 4.9 5.3 4.4$0-300K 4.9 4.7 3.9

Higher Price = Higher Inventory Unsold Inventory Index

(Months of Supply)

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California’s Million-Dollar Home Sales

2252918,621

24,43642,506

50,01054,773

36,99020,595

15,70310,658

13,1018,9065,366

3,7622,6512,0172,5222,2982,8903,3623,7734,271

2,7180

19881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

Source: DataQuick Information Systems

Number of Homes

Market Breakdown: Equity v. Distressed

REOs, 24.6%

Short Sales, 22.2%

Other Distressed Sales (Not

Specified), 0.5%

Equity Sales, 52.7%

Dec‐11

Share of Distressed Sales to Total Sales

SOURCE: ForeclosureRadar.com

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11

Equity Sales Short Sale Bank Owned

Share of Equity Sales Increased Throughout 2011

Distressed Sales: Southern California(Percent of Total Sales)

Los AngelesOrange

RiversideSan

Bernardino San Diego

63% 67%

Dec-11

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

Los AngelesOrange

RiversideSan

Bernardino San Diego

21%15%

31%47%

31%19%

Dec 2011

Short Sales

REO Sales

Mortgage Foreclosure & Delinquency RatesCalifornia: Q3-2011

Delinquency Rate Foreclosure Rate

SOURCE: Mortgage Bankers Association

Delinquencies: Long Run Average: 4.4%

Foreclosure Rate: Long Run Average: 1.2%

California Foreclosure Outcomes, Dec. 2011REO: -16.4% YTD • 3rd Party: +5.0% YTD • Cancel: -13.1% YTD

10,000

15,000

20,000

25,000

30,000

REOs Sold to 3rd Party Cancellations

6 Month Average:

REO: 8,950

3rd Party: 3,353

Cancelled: 13,243

California Foreclosure Inventories, Dec. 2011Preforeclosure: -19.7% YTD • Schedule for Sale: -21.7% YTD •

Bank Owned: 0.6% YTD

50,000

100,000

150,000

200,000

Preforeclosure Scheduled for Sale Bank Owned

6 Month Average:

Preforeclosure: 109,200

Schedule for Sale: 89,029

Bank Owned: 100,887

ForeclosuresSouthern California

SOURCE: Real Estate Research Council

THOUSANDS

Palm DesertPreforeclosure: 199 • Auction: 123 • Bank Owned: 88

Source: ForeclosureRadar.com as of 01/19/2012.

La QuintaPreforeclosure: 159 • Auction: 138 • Bank Owned: 100

IndioPreforeclosure: 315 • Auction: 205 • Bank Owned: 157

SacramentoPreforeclosure: 2,216 • Auction: 1,905 • Bank Owned: 1,560

Source: ForeclosureRadar.com as of 08/19/11

Local Market Conditions

Sales of Residential PropertiesPalm Desert, 2011: 1,514 Units, Up 7.4% YTY

SOURCE: Clarus Market Metrics

020406080

100120140160180

May Ju

Sept Oct

Nov Dec

Sales of Residential HomesPalm Desert, December 2011: 121 Unit

, Up 17.5% MTM, Down 2.4% YTY

Median Price of Residential HomesPalm Desert, December 2011: $265,000

Up 6.0% MTM, Down 8.5% YTY

Sales of Residential PropertiesLa Quinta, 2011: 1,353 Units, Up 5.5% YTY

May Jun

Sept Oct

Nov Dec

Sales of Residential HomesLa Quinta, December 2011: 129 Units

Up 51.8% MTM, Up 18.3% YTY

Median Price of Residential HomesLa Quinta, December 2011: $285,000

Down 9.8% MTM, Up 0.4% YTY

Sales of Residential PropertiesIndio, 2011: 1,461 Units, Down 2.1% YTY

020406080

100120140160180200

May Ju

Sept Oct

Nov Dec

Sales of Residential HomesIndio, December 2011: 125 UnitsUp 26.3% MTM, Down 4.6% YTY

Median Price of Residential HomesIndio, December 2011: $159,900Up 6.6% MTM, Down 8.6% YTY

2011 Annual Housing Market Survey

Equity vs. REO vs. Short SalesEquity 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

Proportion of Sellers Planning to Repurchase

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

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?

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

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

Investments & Second/Vacation Homes

Investment/Rental Property Vacation/Second Home

Foreign Buyers

5% 6%6%

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 Outlook2005 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®

Forecast Date: September 2011

Real Estate Buyers & Sellers in Today’s

Market

How Buyers Found Home- 2011 -

Q. How did you find the home your purcahsed?

The Buying Experience

Considered buying for over 4 monthsShopped 2.5 months before contacting agentViewed 12 homes in 8 weeks with agent76% of buyers didn’t close escrow on time49% owned previous homeMotivated by price decreases, low mortgage rates and tax deductions80% found home through agent

The Selling Experience

Home was listed more than 2 months before opening escrowMedian escrow length was 1.5 monthsOnly 40% of sellers said their escrow closed on time20% of sellers used electronic signature

Why Buyers Chose their Agent

1. Most responsive (28%)2. Worked with agent before (18%)3. First to respond (17%)4. Most aggressive (16%)5. Most knowledgeable (6%)

Q. What was the single most important reason for selecting the agent that you used in your recent home purchase?

Why Sellers Chose their Agent

1. First to Respond (21%)2. Seemed most responsive (21%)3. Seemed most aggressive (19%)4. Worked with agent before (16%)5. Understanding of distressed properties (6%)

Q. What was the single most important reason for selecting the agent that you used in your recent home purchase?

Buyer Method of Communicating With Agent

Q. What was your preferred method of communicating with your agent? How did your agent actually communicate with you?

Preferred ActualE-mail 73% 70%Telephone 37% 50%Text message 32% 1%Twitter 21% 0%Facebook 14% 0%In-person 6% 3%

Agent / Seller Communication Gap

69%64%

26%18%

Preferred Actual

Q: What was the actual method of communication used most frequently with your agent?

Q: What was your preferred method of communication with your agent?

Buyer Expected vs Actual Agent Response Time

Instantly Within30mins.

Within 1hr.

Within 2hrs.

Within 4hrs.

Same day 1businessday

37%28%

15%11% 8%

13% 16%

Expected Actual

Q. What was the typical response time you expected from your agent to return any form of communication to you?

Q. On average, what was the actual response time of your agent to return any form of communication to you?

Seller Response Time is of the Essence

10%15%20%25%30%35%40%45%

Instantly Within 30 Minutes

Within 1 Hour

Within 2 Hours

Within 4 Hours

Same day 1 business

Actual Expected

Q: On average, what was the ACTUAL time of your agent to return any form of communication to you?

Q: What was the typical response time you EXPECTED from your agent to return any form of communication with you?

Buyer Reasons for Satisfaction With Agent

1. Worked hard on my behalf (55%)2. Helped find the best home for me (55%)3. Always quick to respond (31%)4. Negotiated good deal on my behalf (29%)5. Listened to what we needed (20%)

Q. Why do you have that level of satisfaction with your agent?

Buyer Reasons for Dissatisfaction With Agent

1. Slow to respond (51%)2. Communication problems (19%)3. Didn’t communicate effectively during

transaction (14%)4. Didn’t negotiate aggressively on my behalf

(12%)5. Wasted time with homes I’m not likely to buy

(3%)Q. Why do you have that level of satisfaction with your agent?

What Buyers Would Like to Change About their Home Buying Experience

1. Faster response from agent (30%)

2. Better agent negotiation (27%)

3. Better agent communication (25%)

4. Better market direction understanding (19%)

5. Escrow close on time (9%)

Q. If there is one thing you would like to change about your home buying experience, what would that be?

Quick Facts About Buyers

• 59% found their agent online• 51% Googled their agent• 52% used social media in the buying process• 93% are receptive to receiving information via

social media

How Internet Was Used

Activity Percentage of Buyers

Preview homes to narrow search 75%

Find an agent 68%

Identify homes for agent to show 47%

Find a real estate firm 40%

Learn about neighborhoods 33%

Get information about financing & downpayments 33%

Q. For which of the following did you use the internet as a part of your home buying process?

Buyer Importance of OnlineFeatures in Home Viewing

Q. Please rate the following online features by the level of importance in your home viewing on a scale of one to five, with five being extremely important and one being not at all important.

Top 10 Websites Used

Real estate agent websiteQ. Which websites did you use as part of your home buying process?

52% of Buyers Used Social Media

Activity Percent of Buyers Who Engaged in Activity

Agent referrals 33%

Video home tours 26%

Agent Facebook page 24%

Home buying tips 23%

Comments on neighborhoods 21%

Neighborhood lifestyle 20%

Q. How did you use social media (such as Facebook, Twitter, LinkedIn, etc.) in your home buying process?

77% of Sellers Used Social Media

Q: Which social media websites did you use to learn more about and communicate with real estate agents and companies?

Closing Thoughts

Direction of Home Prices: Sellers Skeptical; Buyers Hopeful

Sellers Buyers

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, just24% 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 Books

Thank You

www.car.org.marketdata

lesliea@car.org

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