Inland Empire & San Bernardino County 2009 … A Very Difficult Year! John Husing, Ph.D. Economics & Politics, Inc. 11/20/2018

So. Calif. Job Change, 1984-2009 11/20/2018

Inland Empire Job Change, 1984-2009 11/20/2018

Worst National Unemployment Rates 11/20/2018

Unemployment Can Get Stuck For Years L not U 11/20/2018

What Happened? 11/20/2018

Shrinking Our Economy $10.6 Billion Hole In IE Economic Base $8.3 Billion From Residential Decline 11/20/2018

-$21.2 Billion Loss To The Economy Gold Mine Theory -$21.2 Billion Loss To The Economy Secondary Tier Another -$10.6 Billion Primary Tier -$10.6 Billion 11/20/2018

Taxable Sales Decline 11/20/2018

Housing Demand Rose With Population CA Home Restrictions Slow Growth NIMBYs Endangered Species Water Keep “Them” Out of Our City Just Under LA & OC Production In 2006 or 2007 1997 18.3 million people/3.9 million SFR homes = 4.66 1997-2007 Add 3.2 million people: Need 709,600 homes = 4.66 1997-2007 Actual New homes 552,900 1997-2007 Shortfall 156,700 Annual Production Too Low: 15,670 a year 11/20/2018

Prices Had To Take-Off To Eliminate Buyers Exhibit 8.-Price Trends, New & Existing Homes $404,611 Inland Empire, 1988-2008, Quarterly 420,000 400,000 380,000 360,000 340,000 320,000 1997-2003 12.9% per year 300,000 280,000 260,000 240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 2003-2006 19.7% per year 80,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 11/20/2018 Source: Dataquick

Sales Soars Until Late 2005 … Back to 2002 Price Peak 31,545 Exhibit 11.-Existing & New Homes Sales, Inland Empire 29,670 Seasonally Adjusted, by quarter, 1988-2008 32,000 32,000 30,000 19,664 30,000 28,000 28,000 26,000 26,000 24,000 24,000 22,000 22,000 20,000 20,000 18,000 18,000 16,000 11,398 83.5% 16,000 14,000 14,000 12,000 12,000 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 11/20/2018 Source: Dataquick Source: Dataquick

Prices Back to Early 2002 Levels 359,044 SFR Homes Traded 2004-2007 More Owed They Are Worth! 33.2% Of IE’s 1,080,328 SFR Homes -56.8% $404,611 Exhibit 8.-Price Trends, All Homes Inland Empire, 1988-2009, Quarterly $420,000 $390,000 $360,000 $330,000 $300,000 $270,000 $240,000 $210,000 $180,000 $177,363 $150,000 $120,000 $90,000 $60,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 11/20/2018 Source: Dataquick & Economics & Politics, Inc.

Supply: Foreclosures Sales In Jan. 2009 71.2% of Riv. Co. 67.3% of SB Co. 11/20/2018

Housing Affordability Exhibit 16.-Share Able To Buy Median Price Home San Bernardino County, 2000-2009 66% 53% 45% 18% 2000 2002 2005 1Q_2009 SB County 11/20/2018 Source: CA Association of Realtors, 2000-2005; Economics & Politics, Inc., 2009

Demand Rising From Lower Prices Supply High From Foreclosures Demand & Supply Demand Rising From Lower Prices Supply High From Foreclosures vs. 11/20/2018

Foreclosure Supply Still Overwhelming Demand And The Winner So Far …. Foreclosure Supply Still Overwhelming Demand BUT … Price Is Stabilizing Indicating The Supply and Demand are Nearing Equality … The Price Bottom Is Near 11/20/2018

Current Status Of SB Co. Housing 150,927 San Bdno Current Status Of SB Co. Housing 150,927 San Bdno. County’s Traded in 2004-2007 515,492 Total Homes Existed in January 2009 29.3% Share of Homes In Potential Trouble 11/20/2018

Notices of Default 76,180 of 150,927 Homes Sold 2004-2007: Notices of Default 74,747 Upside Down but Not Yet in Visible Trouble (49.5%) 11/20/2018

Defaulted Homes 76,180 Notices of Default 67,338 through 90-Day grace period 52,323 (78%) foreclosed … 15,015 (22%) worked out 11/20/2018

Upside Down Homes 74,747 Upside Down … Not Yet Notices of Default 12,820 NOD Grace Period 87,567 Future Issue! 11/20/2018

Bank Foreclosure Sales 36,357 Re-Sold (69%) of 52,323 Foreclosed 15,966 Inventory (31%) of Unsold Foreclosures 11/20/2018

Pace of Future Problem Alt-A Sub-Prime Option Adjustable Over Unsecured ARMS Sub-Prime Over 11/20/2018

Months of Standing New Home Inventory Southern California 1st Qtr 2009 Statistics Orange County 12.3 LA County 11.8 Inland Empire 4.6 Riverside 3.8 San Bernardino 6.4 Source: Market Monitor, Metrostudy 11/20/2018

Standing New Home Inventory 1st-2009 11/20/2018

Inland Empire’s Long Term Competitive Advantage Still Exists Exhibit 118.-Home Price Advantage, So. California Markets Median Priced New & Existing Home, 1st Quarter 2009 Median All Home Price $433,000 Inland Empire Advantage $331,000 $307,000 $130,000 $154,000 $256,000 $177,000 Have To Get This Crisis Behind Us … $10.6 Billion Hole to Fill Inland Empire Los Angeles San Diego Orange 11/20/2018 Source: Dataquick

Worst Potential Financial Crisis Since 1929 President Hoover Fed Raised Rates Cut Money Supply! Fed’s Ben Bernanke 11/20/2018

Issue: Mortgage Backed Securities Loan Servicer Loan Originator Home Buyer Mortgage Fannie, Freddie Investment Bank Loan Servicer Will Do Nothing To Hurt the Interest of the Investors Low Risk Investors Mortgage Group High Risk Investors 11/20/2018

Reduce Principal Purchase Price $400,000 Owe $350,000 Today’s Value $250,000 90% of Today’s Value Paid To Investor $225,000 Loss to Investor $125,000 30 Year FHA Mortgage, Less Principal & Interest, Lower Payment If Sell Early For Over $225,000 Profit To Lender Only For Existing Mortgages Obama Cramdown: Bankruptcy But Must Negotiate First 11/20/2018

Hurts The Interest of the Investor NO! Hurts The Interest of the Investor 11/20/2018

Reduce Monthly Payment Leave Principal Alone Cut Interest Rate Lengthen Term Reduce Monthly Payment 11/20/2018

Stay In Home BUT Upside Down Never Able To Sell! Inland Empire Upside Down Too Much For These Strategies! Obama: FNMA, Freddie Mac If Owe 105% Refi To Lower Rate Obama: If 38% of Income, Share Cost of Lowering to 31% of Income 11/20/2018

What About Moral Hazard? Unless We Cut Off The Flow of Foreclosures … If Foreclosures Not Lowered … No Recovery Until Past 2012 11/20/2018

225,000 Unemployed – 2½ times Normal 11/20/2018

Can New Homes They Be Profitably Built? 2,500 Square Foot Homes on 7,200 Square Foot Lot, No Fee Reduction $336,500 with 34% Affordability @$80,219 @ 4% return 2,000 Square Foot Homes on 6,000 Square Foot Lot, 40% Fee Reduction $257,000 with 47% Affordability @$61,876 @ 4% return Fees: 100% School; 60% Agency; -500 Sq. Ft.; 6,000 Sq. Ft. Lot 11/20/2018

Consumer Confidence In Future Dec 2007 Level (pre-Recession) 11/20/2018

Housing Slowdown Hurts! Office Market Housing Slowdown Hurts! 11/20/2018

Absorption Falls With Housing Slowdown Office Absorption Absorption Falls With Housing Slowdown 11/20/2018

Office Vacancy Rate Has Jumped Dramatically 23.3% 7.0% 11/20/2018

Blue Collar Industrial Jobs 11/20/2018

Why Blue Collar Jobs Important 11/20/2018

1. International Containers Thru So. Calif. 11/20/2018

2. Ports On West Coast Nearest Asia Los Angeles Long Beach 11/20/2018

3. Deep Water Ports As Ships Draw Over 50 feet of Water 8,000-Container Post-Panamax Ships 11/20/2018

U.S. Economy Has Crashed -6,001,000 Jobs 11/20/2018

Ports Increasingly Regarded As Unreliable UP Buys SP, Trains Can’t Move ILWU-PMSA Lockout/Strike 93 Ships Can’t Be Unloaded: Not Enough Labor Rains Wash-Out Rail Track Clean Truck Fees Employee Truck Mandate & Law Suits Riverside Suing Ports 11/20/2018

BCOs 4-Corners Strategy Beneficial Cargo Owners BCOs 4-Corners Strategy 11/20/2018

Port Imports Have Crashed 11/20/2018

Logistics Gained 76,500 But Now Lost -6,900 11/20/2018

Industrial Absorption Has Stopped 11/20/2018

Industrial Vacancy Rate Soaring SB-Redlands 21.4% Moreno Valley-Perris 18.8% 11.8% Ontario-Mira Loma 8.0% 11/20/2018

Issue: Financial Freeze Savers Account x Bank, S & L, CU More Loans Borrower Mortgage Student Auto Business Personal Secondary Market TALF: Term Asset Backed Security Loan Facility Creates Secondary Market Mortgages Auto Loans Student Loans Personal Loans Short Term Business Loans 11/20/2018

Restoring Demand Borrow $787 Billion & Spend It Consumer (Scared) Business Investment (Can’t Borrow) Export Growth (Dollar Value Has Risen Again) Government Borrow & Spend (World War II Experience) Borrow $787 Billion & Spend It 11/20/2018

Collect Taxes … Spend That Amount Borrow $787 Billion … Spent That Too … Adds $787 To Demand Collect $787 Billion In Taxes … Cuts $787 Billion In Private Spending Spend $787 Billion Collect … Effect is NEUTRAL on Demand 11/20/2018

Has This Been Tried? 11/20/2018

World War II As A Giant Stimulus Effort U.S. Unemployment Rates Entering World War II 14.5% 9.7% 4.7% 1.9% 1940 1941 1942 1943 11/20/2018

Why Do This? $10.6 Billion Hole In IE Economic Base $8.3 Billion From Residential Decline 11/20/2018

When Will “Normal” Start To Return? x x 2010, 2011 2012 If Policies Work! 11/20/2018

While Waiting For Recovery…. 11/20/2018

www.johnhusing.com 11/20/2018