2017 Economic Outlook IREM Los Angeles February 22, 2017 IREM Los Angeles Kimberly Ritter-Martinez, Economist LAEDC Institute for Applied Economics February 22, 2017 LAEDC: Kimberly Ritter-Martinez

Outline U.S. Economy California and Los Angeles County IREM Los Angeles February 22, 2017 Outline U.S. Economy California and Los Angeles County Los Angeles County Housing Market What’s Next? Key Areas to Watch Los Angeles County Economic Development Corp. LAEDC: Kimberly Ritter-Martinez

IREM Los Angeles U.S. Economic Growth: February 22, 2017 2016 Real GDP Growth 1.6%; Forecast for 2017 2.3% % Annual Growth Rate, Quarter-Quarter Sources: Bureau of Labor Statistics, Forecasts by Wells Fargo LAEDC: Kimberly Ritter-Martinez

U.S. Economy at a Glance, 4Q16 Consumer Sector Business Sector IREM Los Angeles February 22, 2017 U.S. Economy at a Glance, 4Q16 Consumer Sector Business Sector Government International Trade Other Macro Indicators: Labor Market Inflation Los Angeles County Economic Development Corp. LAEDC: Kimberly Ritter-Martinez

U.S. Personal Consumption: IREM Los Angeles February 22, 2017 U.S. Personal Consumption: Consumers are doing the heavy lifting Annual Growth Rate, Quarter-Quarter Sources: Bureau of Economic Analysis, forecasts by Wells Fargo LAEDC: Kimberly Ritter-Martinez

Business Fixed Investment IREM Los Angeles February 22, 2017 Business Fixed Investment Annual % Change Source: US Bureau of Economic Analysis LAEDC: Kimberly Ritter-Martinez

Consumers vs. Businesses IREM Los Angeles February 22, 2017 Consumers vs. Businesses Contribution to % Change in Real GDP Sources: Bureau of Economic Analysis LAEDC: Kimberly Ritter-Martinez

Consumer Inflation Tame, but... IREM Los Angeles February 22, 2017 Consumer Inflation Tame, but... Percent change from a year ago, 100 = 1982-1984 January 2016: All Items 2.5%; Core +2.3% Source: US Bureau of Labor Statistics Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

Interest Rates IREM Los Angeles February 22, 2017 Forecast Source: Federal Reserve; Forecasts by Wells Fargo Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

IREM Los Angeles U.S. Non-farm Job Growth February 22, 2017 MONTH TO MONTH CHANGES IN THOUSANDS, SEASONALLY ADJUSTED January 2017: 227,000 Jobs Source: Bureau of Labor Statistics Kimberly Ritter-Martinez

U.S. Unemployment Rate January, Percent Unemployed (SA) IREM Los Angeles February 22, 2017 U.S. Unemployment Rate January, Percent Unemployed (SA) Sources: Bureau of Labor Statistics Kimberly Ritter-Martinez

Labor Force Participation Rate IREM Los Angeles Labor Force Participation Rate February 22, 2017 Source: Bureau of Labor Statistics LAEDC: Kimberly Ritter-Martinez

U.S. Wage Growth 3-Month Moving Average of Median Wage Growth IREM Los Angeles February 22, 2017 U.S. Wage Growth 3-Month Moving Average of Median Wage Growth Recession Source: Atlanta Federal Reserve Wage Tracker LAEDC: Kimberly Ritter-Martinez

Median Household Income IREM Los Angeles Median Household Income February 22, 2017 Median HH Income in Thousands of 2015 Dollars Source: Census Bureau, Income and Poverty in the United States, 2015 LAEDC: Kimberly Ritter-Martinez

The State and Local Economies IREM Los Angeles February 22, 2017 LAEDC: Kimberly Ritter-Martinez

California vs. U.S. Economic Growth IREM Los Angeles February 22, 2017 California vs. U.S. Economic Growth Indexed 1990 = 100 Annual % Change Source: US Bureau of Economic Analysis, IHS Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

U.S. & California Annual Job Growth IREM Los Angeles U.S. & California Annual Job Growth February 22, 2017 December YTY % change in nonfarm jobs, seasonally adjusted Source: US BLS, CA EDD LAEDC: Kimberly Ritter-Martinez

California Non-farm Job Growth IREM Los Angeles California Non-farm Job Growth February 22, 2017 Month to month changes in thousands, seasonally adjusted December 2016: 3,700 Jobs m/m and 332,500 | 2.0% y/y Source: CA EDD, Labor Market Information Division Kimberly Ritter-Martinez

Job Trends by California Metro Area IREM Los Angeles February 22, 2017 Job Trends by California Metro Area Metro Area (YTY Job Gain Dec.) Annual percentage change in nonfarm jobs (SA) Source: CA EDD, Labor Market Information Division LAEDC: Kimberly Ritter-Martinez

Educational Attainment by County IREM Los Angeles Educational Attainment by County February 22, 2017 Population 25 years and older County % High School % Bachelors or Higher Los Angeles 77.3% 30.3% Orange 84.3% 37.7% Riverside 80.1% 20.9% San Bernardino 78.6% 19.0% San Diego 86.0% 35.7% Ventura 83.1% 31.7% Santa Clara 87.0% 47.9% Source: Census, ACS Estimates 5-Yr Averages 2011-2015 LAEDC: Kimberly Ritter-Martinez

Educational Attainment by Age in L.A. County IREM Los Angeles February 22, 2017 Educational Attainment by Age in L.A. County Source: U.S. Census Bureau, ACE 2010-2014 5-Year Estimates LAEDC: Kimberly Ritter-Martinez

SoCal Unemployment Rates IREM Los Angeles February 22, 2017 SoCal Unemployment Rates Source: CA EDD, Labor Market Information Division LAEDC: Kimberly Ritter-Martinez

Los Angeles County Largest Industries IREM Los Angeles February 22, 2017 Los Angeles County Largest Industries Industry 2016 Average Employment % of Total Health Care & Social Assistance 646,300 14.8% Government/Public Sector 574,500 13.2% Leisure & Hospitality 505,500 11.6% Retail Trade 429,500 9.8% Manufacturing 354,800 8.1% Professional, Scientific & Technical Services 283,100 6.5% Total Nonfarm Jobs 4,362,200 Source: CA EDD, Labor Market Information Division Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

Los Angeles County Employment Trends IREM Los Angeles February 22, 2017 Los Angeles County Employment Trends December 2016: Gain +1.3%, +58,600 jobs (y/y), NSA Industry, Annual % Change Number of Jobs, Thousands Source: CA EDD, Labor Market Information Division LAEDC: Kimberly Ritter-Martinez

The Housing Market IREM Los Angeles February 22, 2017 LAEDC: Kimberly Ritter-Martinez

5 Critical Questions for 2017 IREM Los Angeles February 22, 2017 Housing Market: 5 Critical Questions for 2017 Will homeownership rate rise from recent lows? Will home prices continue to outpace wages and inflation How will higher mortgage rates impact home sales? Will first-time homebuyers return to the housing market? Has the apartment market topped out? LAEDC: Kimberly Ritter-Martinez

Homeownership Rates Beginning to stabilize? IREM Los Angeles February 22, 2017 Homeownership Rates Beginning to stabilize? Percent, annual, not seasonally adjusted Source: Federal Reserve Bank of St. Louis LAEDC: Kimberly Ritter-Martinez

Median Prices in Southern California Existing Single-Family Homes IREM Los Angeles Median Prices in Southern California Existing Single-Family Homes February 22, 2017 Source: California Association of Realtors Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

Santa Clara (Silicon Valley) IREM Los Angeles Home Affordability in California February 22, 2017 California Santa Clara (Silicon Valley) Los Angeles Median Home Price (3q16) Single-Family Homes $515,940 $1,000,000 $536,720 Median HH Income (2011-2015) $61,818 $96,310 $56,196 Minimum Qualifying Income (3q16) $100,290 $194,380 $104,330 Housing Affordability Index (3q16) 31 22 26 Source: US Census ACS 5-year estimates, C.A.R. Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

SoCal Apartment Rents IREM Los Angeles February 22, 2017 Source: Real Estate Research Council, Harvard Joint Center for Housing Studies Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

Residential Building Permits Issued in Los Angeles County IREM Los Angeles February 22, 2017 Residential Building Permits Issued in Los Angeles County Source: CIRB, California Home Building Foundation, Kyser Center for Economic Research LAEDC: Kimberly Ritter-Martinez

Housing Market: Where are we headed? Fundamentals are strong IREM Los Angeles February 22, 2017 Housing Market: Where are we headed? Fundamentals are strong Job and income growth are positive Lending standards are reasonable Household formation is rebounding And yet.... Supply well below long-run average Boomers are not moving Share of first-time buyers is LOW Affordability-constrained Millennials looking outside California LAEDC: Kimberly Ritter-Martinez

U.S. Economy: Key Areas to Watch IREM Los Angeles February 22, 2017 U.S. Economy: Key Areas to Watch Trade Policy Corporate Tax Reform and Investment Regulation Health Care Immigration Infrastructure Policy LAEDC: Kimberly Ritter-Martinez

Conclusion Economic growth continues Job gains solid Consumer momentum IREM Los Angeles February 22, 2017 Conclusion Economic growth continues Job gains solid Consumer momentum Real estate/construction outlook good Rising but still low energy prices Consumer credit is expanding Fed policy slowly firming but will be cautious But..... Weak global economy/geopolitical risks Political gridlock/policy uncertainty in U.S. Health Care??? Housing shortage in California LAEDC: Kimberly Ritter-Martinez

For Further Insight into the Local Economy Visit: IREM Los Angeles February 22, 2017 Thank you! For Further Insight into the Local Economy Visit: LAEDC Research & Data: http://laedc.org/research-data/ LAEDC: Kimberly Ritter-Martinez