1. 2016 market update September 1, 2016 Scenic Coast AOR & WCR
Springhill Suites, Atascadero
Leslie Appleton-Young, C.A.R. Chief Economist

2. Economic outlook

3. BREXIT

4. Brexit’s Direct effects for the U.S. Economy are limited
The UK accounted for less than 4 percent of American exports of goods in 2015, equivalent to 0.4 percent of U.S. GDP
Direct economic impact on the U.S. would be small, even if the UK economy slipped into recession.
SOURCE: Wells Fargo

5. Indirect effects are more significant
Financial markets meltdown after the Brexit vote
Adjusted Closed
-3.6%
Negative Impact:
Decline in stock prices lowers consumer spending due to adverse wealth effect
Strong $ weakens international trade
Emerging markets struggle to adjust to lower commodity prices
Positive Impact:
Lower interest rate environment supports housing and refinancing activity
Lower energy prices benefit consumers in the long run, with consumer spending more than offset the hit to the energy sector
Reduces over-valuation in asset markets and minimizes risk for a shaper downturn. Allows Fed to raise rates more slowly
SOURCE: Yahoo Finance

6. 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
06/24/16:
10 Yr. – 1.57%
30 Yr. – 2.43%
SERIES: Treasury Yield 10 Yr., Treasury Yield 30 Yr.
SOURCE: Yahoo Finance

7. Fed rate hike odds have “strengthened”
Next meeting late September
6/6/16 Federal Reserve Chairwoman Janet Yellen affirmed Monday that the central bank won’t be raising short-term interest rates until new uncertainties about the economic outlook are resolved.
Falling oil prices, china’s slowdown, rocky stock markets, May jobs report and UK vote to leave the EU -- Brexit

8. Mortgage Rates Lowest since Mid- 2013
January 2010 – August 2016
MONTHLY
WEEKLY
Monthly from 2009 to present, weekly for the past 8 weeks
SERIES: 30Yr FRM, 5Yr ARM
SOURCE: Freddie Mac

9. How will housing fare?
On average, some months during an election year perform better than the long-run average for that month, while others are worse (again, on average). This suggests that overall economic and market conditions dominate the decision to buy and sell a home, rather than the recurrence of the election cycle. A naïve analysis might even point out that sales and price growth “seem” higher during an election than the typical year. For example, during the last 5 election cycles ( ) growth in home sales out-performed its long-run average in 56 of the 72 months observed or roughly 78% of the time.

10. Macro Economy Summary 1.2% 4.2% 4.9% 1.7% GDP 2016-Q2
Consumption Q2
4.9%
Unemployment
1.7%
Job Growth

11. 2009 Largest Annual Drop since 1946 (-2.8%)
US GDP: Poor start for the 1st Half PCE Recovered in Q2, But investment still weak
2015: 2.6%; 2016 Q2: 1.2%; 2016 (P): 1.6%; 2017(F): 2.2%
ANNUAL PERCENT CHANGE, CHAIN-TYPE (2009) $
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 1946 (-2.8%)
SERIES: GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis 11

12. Gross Domestic Product
2015: 2.6%; 2016 Q2: 1.1%
ANNUAL PERCENT CHANGE, CHAIN-TYPE (2009) $
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 1946 (-2.8%)
SERIES: GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis 12

13. Weak global Economic Growth persists in 2016 …
World Export & Industrial Production Volume
Year-over-Year % Chg.
Weak growth in global industrial production and world export volumes in Q116
Factors for weak global growth:
Softer-than expected growth in advanced economies
Decline in commodity prices
Heightened political uncertainties (e.g. BREXIT)
Volatile equity markets
Central banks remained on hold
EU and Japan held policy steady after monetary easing
U.S. Fed paused its rate hike
Weak US economic growth in Q116, but recent activity suggested a bounce back
Chinese economy continued to slow down, but downward adjustment should remain relatively gradual
Stabilization and rebound in commodity prices, helped Canada, Australia, and many emerging markets.
BOJ and ECB appear to be on hold for the time being as they weigh the impact of prior easing measure.
Brazil’s president (Dilma Rousseff) impeachment creates uncertainty and dampen the possibilities of a prompt economic recovery
Fiscal and structural policies need to be implemented for the global economy to emerge from the low growth trap.
SOURCE: Wells Fargo Securities

14. Personal Consumption 2015: 2.6%; 2016 Q2: 4.4% QUARTERLY ANNUALLY
ANNUAL PERCENT CHANGE
ANNUALLY
QUARTERLY
SERIES: Personal Consumption
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis 14

15. Components of GDP ANNUAL PERCENT CHANGE
1929 though first quarter 2009 annual GDP figures were revised in July 2009 using 2005 benchmark.
SERIES: Components of GDP
SOURCE: US Dept. of Commerce, Bureau of Economic Analysis 15

16. Unemployment Rates Near 8-year low
US 4.9% (July 2016), CA 5.5% (July 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/ % 9/ % 8/ % 7/ % 6/ % 5/ % 4/ % 3/ % 2/1210.8% 1/ % 12/ % 11/ % 10/ % 09/ % 08/ % 07/ % 06/ % 05/ % 04/ % 03/ % 02/ % 01/ % 12/ % 11/ % 10/ % 9/ % 8/ % 7/ % 6/ % 5/ % 4/ % 3/ % 2/ % / % / % / % 10/ % 9/ % 8/ % 7/ % 6/ % 5/ % 4/ % 3/ % 2/ % 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/ % 6/ % 5/ % 4/ % 3/ % / % /10 9.8% /09 9.9% / % 10/ % 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:
SERIES: Unemployment Rate
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

17. Unemployment rate by California Metro Area
July 2016: California 5.5%
Source:
SERIES: Total Nonfarm Employment
SOURCE: CA Employment Development Division

18. Back to Back Gain of 250k+; Avg. 186k in 2016, 228k in 2015
Recession Job Losses: 8.8 million
Since Jan’10: million
MONTH TO MONTH CHANGE
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 18

19. Ca jobs growing faster than nation
ANNUAL PERCENT CHANGE
SERIES: Total Nonfarm Employment
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

20. Job Trends by California Metro Area
July 2016: CA +2.3%, +374,600 last 12 months
ANNUAL PERCENT CHANGE
Source:
SERIES: Total Nonfarm Employment
SOURCE: CA Employment Development Division

21. California Job Changes by Industry
July 2016: CA +2.3%, +374,600 last 12 months
ANNUAL PERCENT CHANGE
Source:
SERIES: Total Nonfarm Employment By Industry
SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

22. San luis Obispo/central coast
Argiculture/Wine Industry
Tourisim/New Hotels/Hearst Castle
Professional Services
Financial Services/Insurance
World-class Universities
Tech start-ups
Housing: more affordable than SB or Carmel but a challenge for working class
Service jobs are 38% of total
Secular decline in the marriage rate
Educ mis-match. More women are getting educated and women don’t like to mary “down”

23. Consumer Confidence Index
August 2016: 101.1
INDEX, 100=1985
SERIES: Consumer Confidence
SOURCE: The Conference Board

24. U.S. Economic Outlook
U.S. economic growth should improve in 2017 as energy and commodity prices continue to improve in the upcoming year. The bounce back in oil prices should help the energy sector and stabilize economic growth for those states that rely heavily on oil drilling.
As we are already at or near full employment level, unemployment rate will dip down but only slightly as skilled workers in the labor market remain in short supply.
The labor supply shortage, along with steady increase in energy and commodity prices, will put upward pressure on overall price level and lead to higher inflation in 2007.
To keep inflation under control, the Fed will most likely raise rate by 50 basis points throughout the year 2017.
With global economic and political uncertainty subsiding, long term interest rates will steadily rise but continue to increase at a slow pace
SERIES: U.S. Economic Outlook
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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

26. California housing market outlook

27. CA Sales stuck since in Neutral 2010
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:
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

28. Sales of Existing Detached Homes
California, July 2016 Sales: 415,840 Units, -0.3% YTD, -5.1% YTY
Jul-15: 436,500
Jul-16: 415,840
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:
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

29. Median Price of Existing Detached Homes
California, July 2016: $509,830, -1.8% MTM, +3.9% YTY
Jul-16: $ $509,830
Jul-15: $490,780
SERIES: Median Price of Existing Single Family Homes
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

30. UII increased from 2015 but remained at low level
July 2015: 3.3 Months; July 2016: 3.6 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®

31. Affordability challenge for repeat buyers
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
Headed for the “European Model” where children inherit the home of their parents?
One more thing…
Secular decline in marriage
Secular decline in the marriage rate
Educ mis-match. More women are getting educated and women don’t like to mary “down”

32. 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.

33. 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®

34. “missing” 66,000 new units annually
2015: 95,822 (42,959 sf, 52,863 mf) 2016f: 98,301 total units
Household Growth:
165,000/yr
SERIES: New Housing Permits
SOURCE: Construction Industry Research Board

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

36. Housing Affordability peaked q1 2012 prices v
Housing Affordability peaked q prices v. low rates and income growth
California vs. U.S. –
% 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 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®

37. Housing Affordability In CA: by county
2016-Q2: % able to purchase median-priced home
SERIES: Housing Affordability Index
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

38. How Wages measured against Income Required to buy a Home
California
2015 Annual Mean Wage
Wage data is from May 2015; Min. income to buy a med. Home from Q215
SOURCE: Bureau of Labor Statistics, C.A.R.

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

40. Regional markets: SLO

41. San Luis Obispo County
hdaor 41

42. Sales of Single Family Homes
San Luis Obispo County, July 2016: 300 Units +13.5% 2015, -1.2% 2016 YTD, -8.8% YTY
SOURCE: Clarus Market Metrics 42

43. Median Price of Single Family Homes
San Luis Obispo County, July 2016: $556,950 Up 5.1% MTM, Up 7.3% YTY
SOURCE: Clarus Market Metrics 43

44. SOURCE: Clarus Market Metrics
For Sale Properties
San Luis Obispo County, July 2016: 1,357 Units +2.3% 2015, -5.4% 2016 YTD, -10.5% 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 44

45. City of San Luis Obispo
hdaor 45

46. Sales of Single Family Homes
City of San Luis Obispo, July 2016: 41 Units +10.7% 2015, +7.6% 2016 YTD, +2.5% YTY
SOURCE: Clarus Market Metrics 46

47. Median Price of Single Family Homes
City of San Luis Obispo, July 2016: $730,190 Down 1.7% MTM, Down 4.4% YTY
SOURCE: Clarus Market Metrics 47

48. SOURCE: Clarus Market Metrics
For Sale Properties
City of San Luis Obispo, July 2016: 135 Units +3.5% 2015, +9.0% 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 48

49. Paso Robles 49

50. Sales of Single Family Homes
Paso Robles, July 2016: 63 Units +20.0% 2015, -2.7% 2016 YTD, -25.9% YTY
SOURCE: Clarus Market Metrics 50

51. Median Price of Single Family Homes
Paso Robles, July 2016: $505,000 Up 19.5% MTM, Up 23.2% YTY
SOURCE: Clarus Market Metrics 51

52. SOURCE: Clarus Market Metrics
For Sale Properties
Paso Robles, July 2016: 283 Units -5.9% 2015, -15.6% 2016 YTD, -11.8% 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 52

53. Arroyo Grande 53

54. Sales of Single Family Homes
Arroyo Grande, July 2016: 27 Units +14.1% 2015, +6.0% 2016 YTD, -12.9% YTY
SOURCE: Clarus Market Metrics 54

55. Median Price of Single Family Homes
Arroyo Grande, July 2016: $745,000 Up 22.9% MTM, Up 15.5% YTY
SOURCE: Clarus Market Metrics 55

56. SOURCE: Clarus Market Metrics
For Sale Properties
Arroyo Grande, July 2016: 137 Units +5.1% 2015, -3.9% 2016 YTD, -12.2% 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 56

57. The Boomers and their next move

58. The Boomers and their Next Move

59. Older Generations In Particular are not moving as Often
71% of Californian’s aged 55+ haven’t moved since 1999
SERIES: Distribution of Home Ownership by Year Moved In
SOURCE: U.S. Census Bureau, 2013 American Housing Survey

60. Older Generations In Particular are not moving as Often
Almost half have been in their homes for at least 25 years
SERIES: Distribution of Home Ownership by Year Moved In
SOURCE: U.S. Census Bureau, 2013 American Housing Survey

61. Boomers – born between 1946-1964
Average: 59 Q1
Mean: 58.9
Median: 59
What is your age?
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

62. Majority are Married What is your marital status? Q47
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

63. 3/4 Baby Boomers are Home OwnersQ3
What is your current living situation?
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

64. Most Have Equity in their Home
Do you have equity in your home?
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

65. Majority Do Not Plan to Sell Home When they RetireQ8
Do you plan to sell your current home when you retire?
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

66. Majority Worry About Childrens’ Ability to Become Home Owners
Q20
Do you worry about your children’s ability to become home owners in the future?
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

67. Time to talk: 2/5 Plan to Help Children with Down Payment
Q21
Do you plan to help your children with their down payment to purchase a home?
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

68. What Keeps Boomers Up At Night?
Q23
Q: What keeps you up at night?
SERIES: 2014 Baby Boomer Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

69. Millennials: tomorrow’s Home owners?

70. Maslow’s Hierarchy of needs: Revised
Q20

71. Over 1/3 Live with their Parents
Q: What is your current living situation?
SERIES: 2014 Millennials Survey
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

72. Attitude toward the home buying process – mixed results
SOURCE: How would you describe your attitude towards the home buying process?
C.A.R Millennial Survey

73. Most millennials uncertain/doubtful that they could obtain a mortgage now?AMillennial Ethnicity
SOURCE: C.A.R Millennial Survey
Q: Could you obtain a mortgage if you applied now ?

74. People would prefer the following over going through the home mortgage process again:
SOURCE: Guaranteed Rate Mortgage Survey of 1,000 adults 25 and older USA Today April 2014

75. 2016 forecast

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

77. Take 5: 2016 Market
CA home sales flat with prices up mid - single digits in 2016
Fundamental demand drivers (jobs; rates; household formation) are strong
Housing affordability an insurmountable hurdle for many Millennials
Trading up/down is too expensive for Boomers
CA will see accelerating out-migration of Millennials in search of housing they can afford

78. Book Recommendations

79. The all-new Housing Matters Podcast is your housing hub for market analysis, economic trends, and housing news from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) and its institute the Center for California Real Estate. Be sure to subscribe on iTunes to hear the latest episode every Friday to learn what you need to know about the market from C.A.R. experts who will give you their take on the week’s top real estate stories.

80. Stay connected with Research
CARResearchGroup CARResearchInfo On.car.org/CARResearch Housingmatters.car.org

81. Thank You! www.car.org/marketdata lesliea@car.org
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