Inland Empire & San Bernardino County 2009-10 A Very Difficult Period! John Husing, Ph.D. Economics & Politics, Inc. 12/6/2018

So. Calif. Job Change, 1984-2009 12/6/2018

Inland Empire Job Change, 1984-2009 12/6/2018

Worst National Unemployment Rates 22 16 4 2 12/6/2018

Unemployment Can Get Stuck For Years not U or V 12/6/2018

What Happened? 12/6/2018

Shrinking Our Economy $10.6 Billion Hole In IE Economic Base $8.3 Billion From Residential Decline 12/6/2018

-$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 12/6/2018

Prop 172 Changes: Month Vs. Last Yr. Based On California Retail Sales 12/6/2018

Housing Demand Rose With Population CA Home Restrictions Slow Growth NIMBYs Endangered Species Water 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 12/6/2018

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 12/6/2018 Source: Dataquick

Sales Soars Until Late 2005 … Back to 2002 Price Peak 78.1% 12/6/2018

Inland Empire Has 1,080,328 Homes Home Traded 2004-7 Notices of Default Share of 2004-7 359,044 (33.2%) 232,535 64.8% Balance Are Future Issue + Unemployed + Piggy Bank Loans 12/6/2018

Alt-A Option Adjustable Sub-Prime Over 12/6/2018

Is There Any Good News? YES! 12/6/2018

Supply From Foreclosures Demand From Lower Prices Supply & Demand Supply From Foreclosures Demand From Lower Prices vs. 12/6/2018

Demand > Supply & Price Rising 4.3% 12/6/2018

Soaring Housing Affordability Easily Sets A Record 68% 59% 4.5 Times 15% 12/6/2018

Some Market Normality Has Returned July Foreclosure Sales Riv. Co. 59% down from 71% in Jan. SB Co. 61% down from 69% in Apr. 12/6/2018

Price Advantages/Disadvantages Home Price Advantage, So. California Markets Median Priced New & Existing Home, 3rd Quarter 2009 Median All Home Price Inland Empire Advantage $498,000 $366,000 $332,000 $279,000 $147,000 $219,000 $113,000 Inland Empire Los Angeles San Diego Orange 12/6/2018 Source: Dataquick

Standing New Home Inventory 2nd -2009 12/6/2018

Consumer Confidence In Future At Dec 2007 Level (pre-Recession) 12/6/2018

Price Stability Now Likely 12/6/2018

259,200 Unemployed – Nearly 3 times Normal 282,600 89,450 12/6/2018

Housing Slowdown Hurts! Office Market Housing Slowdown Hurts! 12/6/2018

Office Absorption Absorption Fell With Housing Slowdown 1991 Exhibit 10.-Office Net Space Absorption Moving 4-quarters, Inland Empire, 1991-2009 2,000,000 Absorption Fell With Housing Slowdown 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 (200,000) (400,000) (600,000) 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 12/6/2018 Source: Grubb & Ellis & Economics & Politics, Inc.

Office Vacancy Rate Has Jumped Dramatically 23.6% 7.0% 12/6/2018

Vacancy Rates By Area, 3rd-2009 Office Availability Rate, 3rd Quarter 2009 Inland Empire, By Market Source: Grubb & Ellis 29.0% 23.2% 10.7% 26.6% 25.8% 24.4% 23.6% 22.6% 18.8% 16.9% Class A Class B Class C High Desert Temecula-Murr. Inland Empire Riverside-Corona Ont-R. Cucamonga San Bdno-Redlands Chino-Upland-Mtcl 12/6/2018

Office Vacancy Rate Up Everywhere! 2005 2009 Inland Empire 7.4% 23.6% Orange County 8.8% 18.0% San Diego 7.0% 18.0% Los Angeles County 12.2% 13.6% 12/6/2018

Lease Rates Down! 2007 2009 Inland Empire $2.18 $2.17 2007 2009 Inland Empire $2.18 $2.17 Orange County $3.13 $2.50 San Diego $3.20 $2.87 Los Angeles County $3.28 $3.06 12/6/2018

Why? Housing Finance Escrow Title Home Insurance Developers Engineers Planners 12/6/2018

Refinancing Is A Growing Issue High Vacancy Rates Falling Lease Rates Balloon Payments 12/6/2018

Blue Collar Industrial Jobs 12/6/2018

Why Blue Collar Jobs Important? 12/6/2018

Ports On West Coast Nearest Asia Los Angeles Long Beach 12/6/2018

Deep Water Ports As Ships Draw Over 50 feet of Water 8,000-Container Post-Panamax Ships 12/6/2018

International Containers Thru So. Calif. Were 43% of U.S. … But … Port Container Traffic Ports of Los Angeles & Long Beach, 1990-2008 & Long Term (million TEUs) 42.5 2025e 42.5 2035e Loss of 4% Market Share 15.8 15.7 14.2 14.5 11.8 13.1 9.5 9.6 10.6 6.5 7.5 8.2 4.4 5.1 5.4 5.8 3.7 3.8 4.1 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 12/6/2018 TEU=20 foot equivalent container units Source: Ports of Los Angeles & Long Beach; forecast: Moffatt & Nichol Engineers

U.S. Economy Has Shrunk -7,205,000 Jobs 12/6/2018

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 LA Supporting Teamsters Legislation to Organize Ports 12/6/2018

The Diversion Fear : 4-Corners Strategy Loss of 4% Market Share 12/6/2018 Panama & Suez

Port Imports Have Crashed 12/6/2018

Logistics Joined Blue Collar Job Losses 12/6/2018

12/6/2018

Logistics Gained 76,500 But Now Lost -6,900 12/6/2018

Industrial Absorption Has Stopped 12/6/2018

Industrial Vacancy Rate Soaring SB-Redlands 21.4% Moreno Valley-Perris 18.8% 11.8% Ontario-Mira Loma 8.0% 12/6/2018

When Will “Normal” Start To Return? 2010 National 2011 California 2012 So. Calif. If Policies Work! 12/6/2018

While Waiting For Recovery…. 12/6/2018

www.johnhusing.com 12/6/2018