John Husing, Ph.D. Economics & Politics, Inc. Chief Economist, IEEP Residential Construction Issues John Husing, Ph.D. Economics & Politics, Inc. Chief Economist, IEEP

After Losing 8. 71 Million Jobs … Now At A Record Level of Jobs U. S After Losing 8.71 Million Jobs … Now At A Record Level of Jobs U.S. Jobs Long Slow Growth - Not Over-Heating

Gross Domestic Product Very Slow Growth

Current Consumer Confidence Very High! 128.5

Oil Prices: Low But Roughly Stable $45.00

Consumer Spending Quite Aggressive

Residential Construction Spending Gaining Speed

Looking Six Month Ahead Consumer Confidence Lagging 87.8

Business Investment Spending Weak

Industrial Capacity Utilization Full Capacity 82.5% 75.5%

U.S. Unemployment History Prime Rate: 21% Cold War Ends Great Recession

Consumer Price Stable: Below 2.0% Fed Target 1.1%

Interest Rate Environment 3.46% 1.62%

Required FICO Scores – 30 Year Fixed Fannie Mae Share of Income: 36% or less … 680 if LTV 75% … 620 if Less Share of Income: 45% or less … 700 if LTV 75% … 640 if Less Issue: Maximum Allowable Level for Conforming Loans FICO Report 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 300-499 6.6% 6.5% 7.1% 7.2% 7.4% 6.9% 6.2% 6.0% 5.8% 5.2% 5.0% 500-549 8.0% 8.2% 8.7% 9.0% 8.5% 8.4% 7.9% 550-599 8.8% 9.1% 9.6% 9.8% 9.9% 9.5% 9.2% 600-649 10.2% 9.7% 10.0% 10.1% 10.3% 650-699 12.8% 12.5% 12.1% 12.0% 11.9% 12.2% 12.7% 13.0% 700-749 16.4% 16.3% 16.2% 16.0% 15.9% 15.7% 15.5% 16.6% 16.8% 750-799 20.1% 19.8% 19.6% 19.4% 19.5% 18.8% 18.4% 18.1% 18.3% 800-850 16.9% 17.9% 18.7% 18.2% 18.6% 20.0% Total 100.0% 68.1% 55.1%

U.S. Home Sales Remain Relatively Weak

U.S. Median Home Prices Soaring!

California Job Gains/Losses Up 1,074,272 6.8% Up 2007 15,844,325 2016 16,918,587 Recovery 2,253,330 Great Recession -1,179,058

U.S. & CA Unemployment History Prime Rate: 21% Cold War Ends Great Recession

CA’s East-West Split in Prosperity San Francisco-Oakland-Fremont 4.10% Bay Area San Jose-Sunnyvale-Santa Clara Napa Orange County 4.40% So. Coast San Luis Obispo-Paso Robles 4.60% No. Coast Santa Barbara-Santa Maria-Goleta 4.80% San Diego-Carlsbad-San Marcos 5.00% Los Angeles County 5.30% Sacramento-Arden-Arcade-Roseville 5.50% No. Inland Salinas-Monterey 5.70% Vallejo-Fairfield Oxnard-Thousand Oaks-Ventura 5.80% Santa Cruz-Watsonville Riverside-San Bernardino-Ontario 6.60% So. Inland Chico 6.70% Redding 6.80% Stockton 7.80% Central Modesto 8.00% Yuba City 8.10% Madera-Chowchilla 8.30% Fresno 8.70% Hanford-Corcoran 8.90% Merced 9.30% Bakersfield-Delano 9.70% Visalia-Porterville 10.70% North El Centro 23.80%

Job Quality & Income Split 2011-2016e Growth Period

Gold Mine Theory Secondary Tier Primary Tier

Construction - Strong Job Growth! 9.2%

CA: State Prices Almost All The Way Back Median Price Existing Detached Homes, 2005-2016 $594,530 $526,580 5.8% -11.4% $497,520 $245,230 -59%

CA: Sales of Existing Detached Homes Annualized & Seasonally Adjusted 620,000 429,520 420,360 -2.2% 235,000

Housing Permits, Single Family Residential Seasonally Adjusted Annual Rate

Housing Permits, Attached Seasonally Adjusted Annual Rate

Bay Area Existing Single Family Homes Sales % Year to Year 6 Mos. Moving Average 30% 20% 10% 0% -10% -20%

So. Calif. Existing Single Family Homes Sales % Year to Year 6 Mos. Moving Average 30% 20% 10% 0% -10% -20%

Central Valley Single Family Home Sales % Year to Year 6 Mos. Moving Average 30% 20% 10% 0% -10% -20%

Change In Sales Demand vs. Supply of Active Listings August 2015-2016 Active Listings: Supply 8% 7% 6% -2% -4% -9% Bay Area Southern California Central Valley

Months of Housing Supply Available By California Region Bay Area So. CA Central Valley 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 3.6 3.2 2.4

High Priced Bay Area & Central Coast Affordability Median Price Payment Required Income San Francisco 13% $1,375,000 $6,740 $269,601 San Mateo 14% $1,330,000 $6,519 $260,778 Marin 18% $1,225,000 $6,005 $240,190 Santa Clara 19% $1,085,000 $5,318 $212,740 Alameda 20% $825,700 $4,047 $161,898 Napa 25% $630,000 $3,088 $123,526 Contra-Costa 32% $628,150 $3,079 $123,164 Sonoma 26% $585,000 $2,868 $114,703 Solano 45% $386,000 $1,892 $75,684 Central Coast Affordability Median Price Payment Required Income Santa Cruz 17% $799,000 $3,917 $156,663 Santa Barbara 20% $703,460 $3,448 $137,930 San Luis Obispo 27% $546,620 $2,679 $107,178 Monterey 25% $535,000 $2,622 $104,899

Mix Priced So. California Low Priced Central Valley Affordability Median Price Payment Required Income Orange County 22% $742,220 $3,638 $145,530 Ventura 29% $647,320 $3,173 $126,922 San Diego 26% $589,910 $2,892 $115,666 Los Angeles 30% $480,040 $2,353 $94,123 Riverside County 41% $355,320 $1,742 $69,669 San Bernardino 56% $242,370 $1,188 $47,522 Central Valley Affordability Median Price Payment Required Income Placer County 46% $438,490 $2,149 $85,976 Sacramento 45% $323,710 $1,587 $63,471 San Joaquin $313,840 $1,538 $61,536 Stanislaus 48% $271,940 $1,333 $53,320 Fresno 50% $235,020 $1,152 $46,081 Kern (Bakersfield) 54% $228,950 $1,122 $44,891 Madera $221,700 $1,087 $43,469 Kings County 56% $212,660 $1,042 $41,697 Merced 52% $212,080 $1,040 $41,583 Tulare $207,700 $1,018 $40,724

Families Forced Inland

Legislative Craziness

CEQA Repeatedly Abused NIMBYS Wanting To Stop Projects, Drive Up Their Costs Lawyers Using Threat Of Suits As A Cash Cow Business Wanting To Drive Up The Costs Of Their Competitors Unions Using Threat of Suits To Force Developers To Use Their Members

SB 350 Home & Building Retrofit Pick A Census Year … What Share of CA Homes Will Need To Be Retrofitted? Will They Be Allowed To Sell Without Retrofit Given CARB Command & Control Approach? Who Will Pay For Retrofit?

Political Keys (42-45 Votes) Moderate Democrats from Poor Districts Their Party is Hurting Their Constituents (14-17) Combined With Republicans Create Legislation Rolling Back Regulators (28) CEQA AQMD CARB

Some Legislative Ideas CEQA Reform Extend CEQA litigation transparency from amicus briefs and attorney fee motions to CEQA petitions, so courts know who is suing and why.  Ending duplicative CEQA lawsuits against implementation of projects and plans for which a legally adequate EIR has already been approved.  Apply statewide the judicial remedy rule for the Kings Arena project, allowing deficient CEQA studies to be fixed (with more mitigation if needed) but allowing the project to be completed – unless it would cause significant risk to public health, natural ecology or irreplaceable tribal resources. Legislative Review of CARB and AQMD Proposed Rules With Eye To Unintended Consequences of Cumulative Impacts On Poverty, Public Health Pending Legislation on Cumulative Impact of Regulation (Two Examples) AB 12 (Cooley) – Eliminate Duplicative & Out of Date Regulation AB 1286 (Mayes) – Creation of CA Regulatory Reform Council like Little Hoover Commission To Research Cumulative Impact of Regulation And Advise The Legislature

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