2016 economic and housing market Forecast June 15, 2016 Placer County AOR – Lincoln Joint Marketing Meeting Oscar Wei, Senior Economist of C.A.R.

Overview Economic Outlook California Housing Market Outlook Regional Housing Market Outlook 2016 Forecast

Economic outlook

Macro Economy Summary 0.8% 1.3% 4.7% 1.7% GDP 2016-Q1 Consumption 2016-Q1 4.7% Unemployment 2016-05 1.7% Job Growth 2016-05

US GDP: Q1 Slow, Expect pick-up in Q2 at risk from weak global growth? 2015: 2.4%; 2016 Q1: 0.8%, 2016 (F): 2.0% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUALLY QUARTERLY Notes: E – expected, F – forecast, P- preliminary 1929 though first quarter 2009 annual GDP figures were revised in July 2009 using 2005 benchmark. 2009 Largest Annual Drop since 1938 (-3.4%) SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis 5

Unemployment Rates at 8-year lows US 4.7% (May 2016), CA 5.3% (Apr 2016) CA: 5/14 7.6% 4/13 7.8% 3/14 8.1% 2/14 8.0% 1/14 8.1% 12/13 8.3% 11/13 8.5% 10/13 8.7% 9/13 8.7% 8/13 8.9% 7/13 8.5% 6/13 8.5% 5/13 8.6% 4/13 9.0% 3/13 9.4% 2/13 9.6% 1/13 9.8% 12/12 9.8% 11/12 9.9% 10/12 10.1% 9/12 10.2% 8/12 10.4% 7/12 10.6% 6/12 10.6% 5/12 10.7% 4/12 10.7% 3/12 10.7% 2/1210.8% 1/12 11.0% 12/11 11.2% 11/11 11.4% 10/11 11.6% 09/11 11.8% 08/11 11.9% 07/11 12.0% 06/11 11.9% 05/11 11.9% 04/11 11.8% 03/11 11.9% 02/11 12.0% 01/11 12.1% 12/10 12.2% 11/10 12.3% 10/10 12.4% 9/10 12.4% 8/10 12.4% 7/10 12.4% 6/10 12.3% 5/10 12.3% 4/10 12.3% 3/10 12.4% 2/10 9 12.4% 1/10 12.3% 12/09 12.3% 11/09 12.2% 10/09 12.1% 9/09 12.0% 8/09 11.9% 7/09 11.7% 6/09 11.5% 5/09 11.2% 4/09 10.9% 3/09 10.6% 2/09 10.1% 1/09 9.7% US: 6/14 6.1% 5/14 6.3% 4/13 6.3% 3/14 6.7% 2/14 6.7% 1/14 6.6% 12/13 6.7% 11/13 7.0% 10/13 7.3% 09/13 7.2% 08/13 7.3% 07/13 7.4% 06/13 7.6% 05/13 7.6% 04/13 7.5% 03/13 7.6% 02/13 7.7% 01/13 7.9% 12/12 7.8% 11/12 7.8% 10/12 7.9% 9/12 7.8% 8/12 8.1% 7/12 8.2% 6/12 8.2% 5/12 8.2% 4/12 8.1% 3/12 8.2% 2/12 8.3% 1/12 8.3% 12/11 8.5% 11/11 8.6% 10/11 8.9% 09/11 9.0% 08/11 9.0% 07/11 9.0% 06/11 9.1% 05/11 9.0% 04/11 9.0% 03/11 8.9% 02/11 9.0% 01/11 9.1% 12/10 9.3% 11/10 9.8% 10/10 9.5% 9/10 9.5% 8/10 9.5% 7/10 9.5% 6/10 9.4% 5/10 9.6% 4/10 9.9% 3/10 9.9% 2/10 9.8% 1/10 9.8% 12/09 9.9% 11/09 9.90% 10/09 10.0% 9/09 9.8% 8/09 9.6% 7/09 9.5% 6/09 9.5% 5/09 9.4% 4/09 9.0% 3/09 8.7% 2/09 8.3% 1/09 7.8% Based on revised figures during EDD’s early-2009 rebenchmarking, CA job market has been on a par with US market over past several months. SOURCE: http://www.labormarketinfo.edd.ca.gov/?pageid=164 SERIES: Unemployment Rate SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

Labor Force Participation Rate May 2016: USA – 62.6% vs. CA – 61.8% Labor Force Rate Source: http://data.bls.gov/pdq/SurveyOutputServlet https://www.economy.com/databuffet/pro/beta/# SERIES: Labor Force Participation Rate SOURCE: BLS, Data Buffet

May Jobs Report a huge disappointment Only 38,00 new jobs in May, following 160,000 increase in April Recession Job Losses: 8.8 million --- Since Jan’10: +14.0 million MONTH TO MONTH CHANGE http://data.bls.gov/pdq/querytool.jsp?survey=ce; in more formatting options : 1 month net change Also in US Nonfarm Employment.xls, column I. SERIES: Employment Growth SOURCE: US Bureau of Labor Statistics 8

Employment Growth, California vs. U.S. ANNUAL PERCENT CHANGE May jobs report a huge disappointment with only 38,000 new jobs in may, following 160,000 increase in April. SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

Unemployment rate by California Metro Area April 2016: California 5.3% ANNUAL PERCENT CHANGE Source: http://www.labormarketinfo.edd.ca.gov/LMID/Employment_by_Industry_Data.html SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

Consumer Confidence Index May 2016: 92.6 INDEX, 100=1985 SERIES: Consumer Confidence SOURCE: The Conference Board

Mortgage Rates Lower Now than 2015 January 2009 – June 2016 MONTHLY WEEKLY Monthly from 2009 to present, weekly for the past 8 weeks SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

Silver lining for economic weakness and uncertainty … Treasury yield dropped to fresh low amid global bond rally Fed may raise rate once or twice in the second half of 2016, but long-term rates will remain low as foreign cash flood into U.S. bond 06/10/16: 10 Yr. – 1.64% 30 Yr. – 2.45% SERIES: Treasury Yield 10 Yr., Treasury Yield 30 Yr. SOURCE: Yahoo Finance

U.S. Economic Outlook SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California Economic Outlook SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

California housing market outlook

Sales of Existing Detached Homes California, Apr. 2016 Sales: 406,800 Units, +3.6% YTD, -5.4% YTY Apr-15: 430,030 Apr 16: 406,800 Peak:624,957 units in 2005 Valley:189,345 units in 1982 2012 annual sales up 4.3% from 2011 2011 annual sales up 1.4% from 2010 2010 annual sales down 12.3% from 2009 2009 annual sales up 24.5% from 2008 2008 annual sales up 30.4% from 2007 2007 annual sales down 33.4% from 2006 2006 annual sales down 23.8% from 2005 2005 annual sales up 0.8% from 2004 2004 annual sales up 3.8% from 2003 2003 annual sales up 7.6% from 2002 2002 annual sales up 14.1% from 2001 2001 annual sales down 4.7% from 2000 YTD 2000 annual sales up 1.4 from 1999 1999 sales up 7.3% over 1998 10/93: 41.0 Consumer Confidence 01/00: 148.6 03/03: 63.0 5/07: 128.4 2/09: 23.9 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized

CA Sales Improved After declining two years California 2015 Sales: 407,060 Units, Up 6.4% YTY Peak:624,957 units in 2005 Valley:189,345 units in 1982 2012 annual sales up 4.3% from 2011 2011 annual sales up 1.4% from 2010 2010 annual sales down 12.3% from 2009 2009 annual sales up 24.5% from 2008 2008 annual sales up 30.4% from 2007 2007 annual sales down 33.4% from 2006 2006 annual sales down 23.8% from 2005 2005 annual sales up 0.8% from 2004 2004 annual sales up 3.8% from 2003 2003 annual sales up 7.6% from 2002 2002 annual sales up 14.1% from 2001 2001 annual sales down 4.7% from 2000 YTD 2000 annual sales up 1.4 from 1999 1999 sales up 7.3% over 1998 10/93: 41.0 Consumer Confidence 01/00: 148.6 03/03: 63.0 5/07: 128.4 2/09: 23.9 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized

Household Formation rebounding SERIES: Household Formation SOURCE: U.S. Census Bureau, Housing Vacancy Survey

Median Price of Existing Detached Homes California, Apr. 2016: $509,100, +5.3% MTM, +5.1% YTY Apr-16: $509,100 Apr-15: $484,370 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Inventory Up From Last Year But Primarily due to Sales Decline Apr. 2015: 3.4 Months; Apr. 2016: 3.5 Months Range since 1988: Low: 1.3 months in April 2004 High: 18.8 months in Feb 1991 Long-run average: 6.9 months 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) and divide the sum by the number of “Sold” properties for the month in question. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Where is the inventory? Affordability challenge for repeat buyers Low rate on current mortgage Low property taxes Capital gains hit is onerous Why sell when there is nowhere to go I can afford? Could not qualify for a mortgage today Demographics: Trade-up buyer pool is smaller Investors renting instead of flipping New construction recovering but LOW Measurement error? Off- MLS listings not counted

Fewer housing units being turned over since the Great Recession Housing Turnover Rate (Single-Family Homes only) SERIES: Percent of existing single-family homes being sold SOURCE: Census Bureau, American Community Survey, Moody’s Analytics, C.A.R.

Years Owned Before Sale highest in 30 years Q: How long had the seller lived in their home? SERIES: 2015 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Fewer Middle-Age Adults in Recent years Source: Harvard Joint Center of Housing Studies, Census Bureau

Drop in Homeownership Source: Harvard Joint Center of Housing Studies, Census Bureau

Decline in # of Trade Up Buyers Due to population loss & drop in Homeownership Rate Source: Harvard Joint Center of Housing Studies, Census Bureau

“missing” 65,000 new units annually 2015: 95,822 (42,959 sf, 52,863 mf) 2016f: 100,380 total units Household Growth: 165,000/yr SERIES: New Housing Permits SOURCE: Construction Industry Research Board

Housing Affordability peaked q1 2012 prices v Housing Affordability peaked q1 2012 prices v. low rates and income growth California vs. U.S. – 1984-2015 % OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME Annual Quarterly C.A.R.’s traditional Housing Affordability Index (HAI) was replaced with the First-Time Buyer Housing Affordability Index (FTB-HAI) in 2006. Note this slide takes the average of the 3 months in each of the quarters. C.A.R. began producing its Housing Affordability Index (HAI) in 1984. At that time, fixed-rate mortgages were the prevailing form of financing a home purchase, while the calculations used to produce the HAI reflected a 20 percent down payment. The methodology also assumed a monthly payment for principal, interest, taxes and insurance that was no more than 30 percent of a household’s income. In the more than two decades since the CALIFORNIA ASSOCIATION OF REALTORS® first conceived the HAI, the mortgage finance landscape has changed dramatically. The range of mortgage products available to buyers as well as underwriting criteria has changed. C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market. SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Housing Affordability In CA: by county 2016-Q1: % able to purchase median-priced home SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

How Wages measured against Income Required to buy a Home California 2014 Annual Mean Wage http://www.bls.gov/oes/current/oessrcma.htm - Wage data is from May 2014; Min. income to buy a med. Home from Q215 SOURCE: Bureau of Labor Statistics, C.A.R.

Share of First-Time Buyers remains Below Long-Run Average SERIES: 2015 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Regional Housing Market Outlook

Placer County

Job Trends by California Metro Area April 2016: CA +2.8%, +450,200 ANNUAL PERCENT CHANGE Source: http://www.labormarketinfo.edd.ca.gov/LMID/Employment_by_Industry_Data.html SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

Unemployment Rate Placer County, April 2016: 4.3% Source: http://www.labormarketinfo.edd.ca.gov/LMID/Employment_by_Industry_Data.html SERIES: Unemployment Rate SOURCE: CA Employment Development Division

Employment Growth: California vs. Placer ( MSA) ANNUAL PERCENT CHANGE SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

Employment improvement in most industries Placer (MSA)*, April 16: +2.21%, +20,400 ANNUAL PERCENT CHANGE Source: http://www.labormarketinfo.edd.ca.gov/LMID/Employment_by_Industry_Data.html *Non Seasonally Adjusted SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

Household Formation rebounding SERIES: Household Formation, Placer County SOURCE: California Department of Finance, E5 Housing Estimates

Sales Reached the highest level in the last 15 years Placer County, 2015: +13.4%, 2016 YTD: +10.4% SERIES: Sales of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Sales of Existing Detached Homes Placer County, April 2016: 546 Units, -3.7% YTD, -5.0% YTY SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Median Price of Existing Detached Homes Placer County, April 2016: $435,800, Up 4.2% YTY SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Median Price of Existing Detached Homes Placer County, April 2016: $435,800, Up 4.2% YTY Placer County, 2015: $393,330, Up 3.7% SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Unsold Inventory Index Placer County, April 2016: 3.0 Months Note: The Unsold Inventory Index represents the number of months it would take to deplete the remaining inventory at the end of a particular month with the sales rate of the month in consideration. Inventory includes listings with “Active”, “Pending”, and “Contingent” (when available) statuses. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Median Time on the Market Placer County, April 2016: 21.1 Days SERIES: Median Time of Market of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

New Housing Permits Placer County, 2015: 2,039 Units, +14.3% YTY 2012 permits: 10706 units, up 2.9% from 2011 2011 permits: 10403 units, up 39.3% from 2010 2010 permits: 7,468 units, up 32.1% from 2009 2009 permits: 5,649 units, down 58.8% from 2008 2008 permits: 13,704 units, down 32.7% from 2007 2007 permits: 20,363 units, down 22.7% from 2006 2006 permits: 26,348 units, up 2.7% from 2005 2005 permits: 25,647 units, down 4.8% from 2004. 2004 permits were up significantly, but remained below levels of late 1980s and early 1990s. 2004 permits: 26,935 units, up 26.4% over 2003. 2003 annual permits: 21,313 units, up 10.1% over 2002 2002 annual permits up 6.1% over 2001 2001 annual permits up 6.9% over 2000 2000 annual permits up 18.7% from 1999 Giant housing shortage looming SERIES: New Housing Permits SOURCE: Construction Industry Research Board

Auburn 47

Sales of Single Family Homes Auburn, May 2016: 58 Units +12.9% 2015, +8.0% 2016 YTD, +13.7% YTY SOURCE: Clarus Market Metrics 48

Median Price of Single Family Homes Auburn, May 2016: $367,000 Down 17.0% MTM, Up 8.9% YTY SOURCE: Clarus Market Metrics 49

SOURCE: Clarus Market Metrics For Sale Properties Auburn, May 2016: 255 Units +6.6% 2015, +7.1% 2016 YTD, -3.8% YTY Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active” any point in time during the month. SOURCE: Clarus Market Metrics 50

Rocklin hdaor 51

Sales of Single Family Homes Rocklin, May 2016: 107 Units +10.9% 2015, -1.4% 2016 YTD, +33.8% YTY SOURCE: Clarus Market Metrics 52

Median Price of Single Family Homes Rocklin, May 2016: $442,680 Down 1.8% MTM, Up 5.3% YTY SOURCE: Clarus Market Metrics 53

SOURCE: Clarus Market Metrics For Sale Properties Rocklin, May 2016: 286 Units -0.2% 2015, -7.0% 2016 YTD, -5.3% YTY Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active” any point in time during the month. SOURCE: Clarus Market Metrics 54

Roseville 55

Sales of Single Family Homes Roseville, May 2016: 208 Units +12.2% 2015, -4.3% 2016 YTD, -6.7% YTY SOURCE: Clarus Market Metrics 56

Median Price of Single Family Homes Roseville, May 2016: $425,000 Up 3.8% MTM, Up 8.7% YTY SOURCE: Clarus Market Metrics 57

SOURCE: Clarus Market Metrics For Sale Properties Roseville, May 2016: 662 Units -1.9% 2015, -7.5% 2016 YTD, +2.0% YTY Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active” any point in time during the month. SOURCE: Clarus Market Metrics 58

Lincoln 59

Sales of Single Family Homes Lincoln, May 2016: 93 Units +17.9% 2015, -12.9% 2016 YTD, -21.8% YTY SOURCE: Clarus Market Metrics 60

Median Price of Single Family Homes Lincoln, May 2016: $391,000 Up 0.3% MTM, Up 7.1% YTY SOURCE: Clarus Market Metrics 61

SOURCE: Clarus Market Metrics For Sale Properties Lincoln, May 2016: 299 Units +0.6% 2015, -20.1% 2016 YTD, -20.1% YTY Note: “For Sale Properties” represents the overall supply that exist throughout the entire month, including any listings that appear as “Active” any point in time during the month. SOURCE: Clarus Market Metrics 62

2016 forecast

California Housing Market Outlook SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Key Takeaways Both CA home sales and prices will be up slightly in 2016 Fundamental demand drivers (jobs; rates; household formation) are strong Housing affordability an insurmountable hurdle for many CA will see accelerating out-migration of Millennials in search of housing they can afford

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