1. CALIFORNIA HOUSING MARKET 2012 FORECAST Coldwell Banker San Diego/Inland Empire October 25, 2011 Leslie Appleton-Young, Chief Economist

2. Overview US and California Economies California Housing Market Regional & Local Markets 2011 Annual Market Survey 2012 Housing Market Forecast

3. U.S. Economic Outlook

5. Japanese Earthquake & Tsunami Sovereign Debt Crisis in EuroZone Oil Price Spikes 2011: A Year of Wild Cards Arab Uprising Political Change on Capitol Hill Debt Limit Ceiling & Downgrade of US Debt Stock Market Volatility

6. Gross Domestic Product: Stall Speed 2010: 2.8%; 2011 Q1: 0.4% Q2: 1.0% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUAL QTRLY

7. SOURCE: US Dept of Commerce, Bureau of Economic Analysis Components of GDP: Consumer Spending Weak; Gov’t Sector Down Quarterly Percent Change

8. QUARTERLY PERCENT CHANGE Consumers Pulling Back Home Equity & Reverse Wealth Effect Consumer Spending 2011 Q1: 2.7% Q2: 0.4% SOURCE: US Dept of Commerce, Bureau of Economic Analysis

9. CA Underwater Mortgages SOURCE: CoreLogic

10. Unemployment Stubbornly High September 2011 SOURCE: CA Employment Development Division California (12.1%) vs. United States (9.1%)

11. Unemployment Rate San Diego County, September 2011: 9.7% SOURCE: CA Employment Development Division

12. Unemployment Rate – Cont. San Diego County – September 2011 SOURCE: CA Employment Development Department CCD Census County Division CDP Census Designated Place

13. Unemployment Rate San Diego County – September 2011 SOURCE: CA Employment Development Department CCD Census County Division CDP Census Designated Place

14. U.S. Job Growth: Flat in August SOURCE: US Dept of Labor, Bureau of Labor Statistics Month-to-Month Changes Recession Job Losses: 8.4 million Since Jan’10: +1.8 million

15. California Job Growth Faltering SOURCE: CA Employment Development Division Month-to-Month Changes Recession Job Losses: 1.3 million Since Jan’10: +188,100

16. San Diego Nonfarm Employment San Diego County, September 2011: Up 1.4% YTY SOURCE: CA Employment Development Division Y-T-Y PERCENT CHANGE

17. Where are California’s Jobs? Employment Trends: Construction & Financial Sectors Biggest Losers SOURCE: California Association of REALTORS®

18. CA New Housing Permits 2010: 44,601 units, +22.5% YTY; Aug 2011: +2.6% YTD SOURCE: CBIA

19. New Housing Permits San Diego County, September 2011: 420 Units, Up 47.2% YTD SOURCE: Construction Industry Research Board

20. INDEX, 100=1985 Consumer Confidence Slipping Marginal Gains in September September 2011: 45.4

21. Source: National Federation of Independent Business Crisis of Confidence: Small Business Optimism Down

22. Consumer Prices Low CPI August 2011: All Items +3.8% YTY; Core +2.0% YTY PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

23. Monetary Policy

24. MONTHLYWEEKLY Mortgage Rates @ Historical Lows Debt Down Grade Ignited Flight to Quality

25. SOURCE: Federal Home Loan Mortgage Corporation Classic Liquidity Trap: Consumers Deleveraging Low Rates and Low Borrowing

26. Fiscal Policy

27. US Deficit Highest in Decades 2010: 11% of GDP (Revenues – Expenses) Source: US Treasury, BEA, compiled by C.A.R. Note: Positive = Surplus

28. US Debt Jumped as Government Responded to Financial Crisis 2010: 93% of GDP Source: US Treasury, compiled by C.A.R.

29. Obama Jobs Proposal What: $450 Billion stimulus: Tax cuts ($250B) and infrastructure spending ($200B) Why: Economy is stalled/Avoid double-dip Zero job growth in August/high unemployment Stabilize confidence: consumer, business, investor How: Increase taxes on the rich Entitlement Reform Tax Reform

30. Housing

31. Obama Mortgage Refinance Proposal “HARP II” What: Make it easier for homeowners who are significantly underwater AND not behind on their payments to refi at today’s low rates. Mortgage sold to Fannie or Freddie on or before May 31, 2009 Help 1 million homeowners to refinance (Pool: 7 million) Why: Housing market is stalled / Consumers leery of spending How: Modify the Home Affordable Refi Program Eliminates 125% cap Waives some GSE fees if loan term reduced Eliminates appraisals & extensive underwriting Modifies Reps and Warranties

32. SOURCE: California Association of REALTORS® California vs. U.S. Sales

33. SOURCE: California Association of REALTORS® California vs. U.S. Median Price

34. Housing Affordability: Historic Highs Obsolete Metric? California Vs. U.S. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® % OF HOUSEHOLDS THAT CAN BUY

35. ORIGINATION (BIL $)30-YR FIXED RATE MORTGAGE Mortgage Originations: 1990-2010 Source: Mortgage Bankers Association of America Refinance vs. Purchase

36. What Happened?

37. Trustee Sales in Anaheim Scheduled for 10/7/10

38. 1872 W. Admiral, 92801 3 bed, 2.5 ba, built in 1982 Purchased in Sept 2005 for $594,000 with 30% down. In April 2006, added a second for $57,000. In Oct 2006, refinanced the second into a new second for $100,000. Defaulted in 2010 Zestimate of current value = $364,000.

39. 1572 W. Orangewood, 92802 3 bd, 2 ba, 2,016 sq ft built in 1977. Purchased in June 2003 for $455,000 with 30% down. March 2004: added a second for $75,000; added a third for $90,500; added a fourth for $80,000. Within one year of purchase, the property had $565,000 in debt on it! Defaulted in 2010. Zestimate of current value = $442,000.

40. 8871 Regal, 92804 3 bd, 2 ba, 1,314 sq ft built in 1956. Sold for $568,000 in 2005 and went into default Purchased as REO in 2007 for $417,000 with zero down.. Defaulted in 2010. Zestimate of current value = $367,500.

41. 2414 E. Underhill, 92806 3 bd, 2 ba, 1,459 sq ft built in 1957. Purchased for $640,000 in July 2006 with piggyback financing: $500,000 first and $140,000 second, i.e. zero down. Defaulted in 2010. Zestimate of current value = $387,000.

42. Conclusions Excessive borrowing against home equity is the untold part of the foreclosure story. “House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis” by Mian and Sufi: American Economic Review : 39% of new defaults from 2006 to 2008 attributable to home equity borrowing

43. Understanding the Financial Crisis

44. Federal Issues – Critical Concerns High-cost Loan Limit - expires 10/1/11 Future of Fannie and Freddie in flux - Increase guarantee fee likely FHA targeted for market share drop Tax Reform on the horizon – MID? QRM (Qualified Residential Mortgage) 20% Down – Is the future of the 30 year mortgage in doubt?

45. U.S. Economic Outlook SOURCE: California Association of REALTORS® Forecast Date: September 2011

46. California Economic Outlook SOURCE: California Association of REALTORS® Forecast Date: September 2011

47. California Housing Market

48. California Sales of Existing Homes and Median Price Housing Cycle Comparisons 1970- 2011 UNITS/MEDIAN PRICE $ SOURCE: California Association of REALTORS® -61% -25% -44%

49. Sales of Existing Detached Homes and Consumer Confidence California, September 2011 Sales: 487,940 Units, Up 0.4% YTD, Up 4.1% YTY INDEXUNITS SOURCE: California Association of REALTORS®; The Conference Board *Sales are seasonally adjusted and annualized

50. Median Price of Existing Detached Homes California, September 2011: $287,440, Down 8.3% YTY SOURCE: California Association of REALTORS®

51. California’s Million-Dollar Home Sales Source: DataQuick Information Systems Year Number of Homes

52. Unsold Inventory Index California, September 2011: 5.1 Months SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® MONTHS

53. Unsold Inventory Index: Sept 2011 (By Price Range: Months) SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

54. Market Breakdown: Equity v. Distressed Sales

55. SOURCE: California Association of REALTORS® Share of Distressed Sales to Total Sales

56. SOURCE: ForeclosureRadar.com Share of Equity Sales Increased Throughout 2011

57. Price Trends by Sale Type SOURCE: ForeclosureRadar.com

58. Tight Supply of Inventory for REO Sales

59. SOURCE: California Association of REALTORS® REO & Short Sales: Southern California (Percent of Total Sales)

60. SOURCE: California Association of REALTORS® REO & Short Sales: Central Valley (Percent of Total Sales)

61. SOURCE: California Association of REALTORS® REO & Short Sales: Bay Area (Percent of Total Sales)

63. California Foreclosure Inventory, September 2011 SOURCE: ForeclosureRadar.com

64. Foreclosures San Diego County SOURCE: Real Estate Research Council

65. San Diego Preforeclosure: 2,251 Source: ForeclosureRadar.com as of 10/24/11

66. San Diego Auction: 1,840 Source: ForeclosureRadar.com as of 10/24/11

67. San Diego Bank Owned: 754 Source: ForeclosureRadar.com as of 10/24/11

68. Del Mar Preforeclosure: 25 Auction: 21 Bank Owned: 5 Source: ForeclosureRadar.com as of 10/24/11

69. La Jolla Preforeclosure: 66 Auction: 73 Bank Owned: 19 Source: ForeclosureRadar.com as of 10/24/11

70. Point Loma Preforeclosure: 45 Auction: 51 Bank Owned: 23 Source: ForeclosureRadar.com as of 10/24/11

71. Rancho Santa Fe Preforeclosure: 20 Auction: 30 Bank Owned: 2 Source: ForeclosureRadar.com as of 10/24/11

72. Murrieta Preforeclosure: 481 Auction: 430 Bank Owned: 198 Source: ForeclosureRadar.com as of 10/24/11

73. Temecula Preforeclosure: 459 Auction: 359 Bank Owned: 143 Source: ForeclosureRadar.com as of 10/24/11

74. Regional Housing Markets

75. San Diego County October 2011 Economic Profile

76. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®; The Conference Board INDEXUNITS Sales of Existing Detached Homes and Pacific West Consumer Confidence San Diego County, Sept. 2011: 1,785 Units, Down 0.5% YTD, Up 6.1% YTY

77. SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® UNITS Sales of Existing Detached Homes San Diego County, 2010: 20,257 Units, Down 6.7% YTY ANNUAL MONTHLY

78. Median Price of Existing Detached Homes San Diego County, September 2011: $364,180, Down 6.3% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

79. Median Price Annual Comparison San Diego County, 2010: $385,740, Up 7.3% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® MONTHLY ANNUAL

80. Median Home Sales Price San Diego County SOURCE: DataQuick Information Systems. The price statistics are derived from all types of home sales -- new and existing, condos and single-family.

81. Median Home Sales Price – Cont. San Diego County SOURCE: DataQuick Information Systems. The price statistics are derived from all types of home sales -- new and existing, condos and single-family.

82. Median Home Sales Price – Cont. San Diego County SOURCE: DataQuick Information Systems. The price statistics are derived from all types of home sales -- new and existing, condos and single-family.

83. Asking Rents for Class A&B Apartments San Diego County, 2011 Q3: $1,404 Up 1.7% YTY SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®; REALFACTS

84. Vacancy Rates for Class A&B Apartments San Diego County, 2011 Q3: 4.5% SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®; REALFACTS VACANCY RATE

85. San Diego

86. Sales of Residential Homes San Diego, September 2011: 994 Units Down 13.6% MTM, Down 3.3% YTY SOURCE: Clarus Market Metrics

87. Median Price of Residential Homes San Diego, September 2011: $302,150 Down 3.2% MTM, Down 8.0% YTY SOURCE: Clarus Market Metrics

88. For Sale Properties San Diego, September 2011: 6,565 Unit Down 8.6% MTM, Down 20.8% YTY SOURCE: Clarus Market Metrics

89. Months Supply of Inventory San Diego, September 2011: 4.8 Months SOURCE: Clarus Market Metrics

90. Del Mar

91. Sales of Residential Homes Del Mar, September 2011: 24 Units Up 41.2% MTM, Up 33.3% YTY SOURCE: Clarus Market Metrics

92. Median Price of Residential Homes Del Mar, September 2011: $872,500 Down 20.3% MTM, Down 29.6% YTY SOURCE: Clarus Market Metrics

93. For Sale Properties Del Mar, September 2011: 218 Units Down 4.0% MTM, Down 17.7% YTY SOURCE: Clarus Market Metrics

94. Months Supply of Inventory Del Mar, September 2011: 8.9 Months SOURCE: Clarus Market Metrics

95. La Jolla

96. Sales of Residential Homes La Jolla, September 2011: 46 Units Even 0% MTM, Up 2.2% YTY SOURCE: Clarus Market Metrics

97. Median Price of Residential Homes La Jolla, September 2011: $812,500 Down 5.0% MTM, Down 18.3% YTY SOURCE: Clarus Market Metrics

98. For Sale Properties La Jolla, September 2011: 596 Units Down 3.9% MTM, Down 12.1% YTY SOURCE: Clarus Market Metrics

99. Months Supply of Inventory La Jolla, September 2011: 7.7 Months SOURCE: Clarus Market Metrics

100. Point Loma

101. Sales of Residential Homes Point Loma, September 2011: 29 Units Down 3.3% MTM, Up 38.1% YTY SOURCE: Clarus Market Metrics

102. Median Price of Residential Homes Point Loma, September 2011: $685,000 Up 24.5% MTM, Up 5.4% YTY SOURCE: Clarus Market Metrics

103. For Sale Properties Point Loma, September 2011: 233 Units Down 9.0% MTM, Down 21.0% YTY SOURCE: Clarus Market Metrics

104. Months Supply of Inventory Point Loma, September 2011: 5.0 Months SOURCE: Clarus Market Metrics

105. Rancho Santa Fe

106. Sales of Residential Homes Rancho Santa Fe, September 2011: 20 Units Up 33.3% MTM, Up 5.3% YTY SOURCE: Clarus Market Metrics

107. Median Price of Residential Homes Rancho Santa Fe, Sept. 2011: $1,588,750 Up 2.6% MTM, Down 30.9% YTY SOURCE: Clarus Market Metrics

108. For Sale Properties Rancho Santa Fe, Sept. 2011: 401 Units Down 1.7% MTM, Down 17.3% YTY SOURCE: Clarus Market Metrics

109. Months Supply of Inventory Rancho Santa Fe, September 2011: 15.7 Months SOURCE: Clarus Market Metrics

110. Murrieta

111. Sales of Residential Homes Murrieta, September 2011: 187 Units Down 14.2% MTM, Down 13.4% YTY SOURCE: Clarus Market Metrics

112. Median Price of Residential Homes Murrieta, September 2011: $237,000 Down 1.2% MTM, Up 0.1% YTY SOURCE: Clarus Market Metrics

113. For Sale Properties Murrieta, September 2011: 1,145 Units Down 7.2% MTM, Down 25.1% YTY SOURCE: Clarus Market Metrics

114. Months Supply of Inventory Murrieta, September 2011: 3.4 Months SOURCE: Clarus Market Metrics

115. Temecula

116. Sales of Residential Homes Temecula, September 2011: 162 Units Down 17.8% MTM, Down 23.2% YTY SOURCE: Clarus Market Metrics

117. Median Price of Residential Homes Temecula, September 2011: $258,730 Down 6.6% MTM, Down 1.2% YTY SOURCE: Clarus Market Metrics

118. For Sale Properties Temecula, September 2011: 942 Units Down 7.2% MTM, Down 20.4% YTY SOURCE: Clarus Market Metrics

119. Months Supply of Inventory Temecula, September 2011: 2.7 Months SOURCE: Clarus Market Metrics

120. 2011 Annual Housing Market Survey

121. Equity vs. REO vs. Short Sales Equity SalesREO SalesShort Sales Share of Total Sales58.7%19.7%20.2% Median Home Price$431,000$240,000$287,000 Square Footage1,7831,5001,600 Price / SF$250$112$175 Sales-to-List Price Ratio95.9%98.0%95.9% % of Sales With Multiple Offers35.2%58.3%57.5% Avg. Number of Offers3.0 3.6 % of All Cash Sales25.5%34.0%23.3% Days on MLS6750141 Days in Escrow35 45

122. 1 in 3 Sellers Sold Because They Were in Distress Q. What was the single most important reason for selling/buying the property?

123. Net Cash to Sellers Q. What was the net cash gain or net loss to the seller as a result of this sale?

124. Proportion of Sellers Planning to Repurchase Q. Is the seller planning on purchasing another home?

125. Reasons Sellers Not Planning to Buy Another Home Q. Why is the seller not planning to purchase another home?

126. Reasons For Selling All Home Sellers Q. What was the single most important reason for selling/buying the property?

127. Cash Sales on the Rise

128. Investments & Second/ Vacation Homes

129. Foreign Buyers Q. Was the buyer a foreign buyer?

130. California Housing Market Forecast

131. Forecast Progress Report Source: CALIFORNIA ASSOCIATION OF REALTORS® Forecast Date: September 2011 vs October 2010

132. California Housing Market Outlook Source: CALIFORNIA ASSOCIATION OF REALTORS® Forecast Date: September 2011

133. Closing Thoughts

134. Direction of Home Prices: Sellers Skeptical; Buyers Hopeful Q: Do you think home prices in your neighborhood will go up, down or stay flat in one year, five years and 10 years?

135. Real Estate: It’s Time To Buy Again SOURCE: “Real estate: It’s time to buy again” Fortune Magazine’s 3/28/11 article written by Shawn Tully “ Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.”

136. 8 in 10 Americans Agree Buying a Home is the Best Investment One Can Make SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”

137. 8 in 10 Renters Would Like to Buy in the Future “…renters are hardly immune to the allure of homeownership, even in the face of the five-year decline in prices. Asked if they rent out of choice or because they cannot afford to buy a home, just 24% say they rent out of choice.” SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”

138. C.A.R. Strategic Planning Book Pics

139. Thank You www.car.org.marketdata lesliea@car.org