1. 2015 CALIFORNIA ECONOMIC & MARKET OUTLOOK March 11, 2015 Palm Springs AOR Leslie Appleton-Young, Chief Economist

2. OVERVIEW Macro-Economic Outlook California Housing Market Outlook Focus: Housing Affordability Regional Market Stats 2015 Forecast In closing…

3. ECONOMIC OUTLOOK

4. ECONOMIC GROWTH SO-SO GDP: 2014: 2.4%; 2014 Q4: 2.2% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUALLYQUARTERLY 2009 Largest Annual Drop since 1938 (-3.4%) SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

5. SERIES: Components of GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis COMPONENTS OF GDP ANNUAL PERCENT CHANGE

6. CONFIDENCE FALTERS IN FEBUARY February 2015: 96.4 INDEX, 100=1985 SERIES: Consumer Confidence SOURCE: The Conference Board

7. CONSUMER PRICE INDEX January 2015: All Items -0.2% YTY; Core +1.6% YTY ANNUAL PERCENT CHANGE SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics

8. UNEMPLOYMENT RATES AT 7-YEAR LOWS CA (Jan. 2015): 6.9% vs. US (Feb. 2015): 5.5% SERIES: Unemployment Rate SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

9. LABOR FORCE PARTICIPATION RATE DOWN CA- 62.5% (Dec. 2014) vs. USA- 62.7% (Dec. 2014) Labor Force Rate SERIES: Labor Force Participation Rate SOURCE: BLS, Data Buffet

10. 2007-2010 LOST JOBS REPLACED: JAN 2014 ANNUAL PERCENT CHANGE SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

11. JOB LOSSES IN PRIOR RECESSIONS - RECENT CYCLE WORST BY FAR

12. BAY AREA LEADS THE STATE IN NEW JOBS SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division ANNUAL PERCENT CHANGE December 2014: CA +2.1%, +320,300

13. CONSTRUCTION JOB GROWTH REMAINS STRONG SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division December 2014: CA +2.1%, +320,300 ANNUAL PERCENT CHANGE

14. NONFARM EMPLOYMENT BY REGION SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

15. MORTGAGE RATES UP 1% IN MID-2013 SIX YEARS OF 0% FED FUNDS RATE SERIES: 30Yr FRM, 1Yr ARM, Federal Funds SOURCE: Federal Home Loan Mortgage Corporation

16. U.S. DEPOSITORY INSTITUTIONS: HIGH LEVEL OF EXCESS RESERVES SINCE 9/08 SERIES: Excess Reserves of Depository Institutions SOURCE: Federal Reserve Bank of Saint Louis $ BILLIONS

17. MORTGAGE RATES DEFIED FORECASTERS IN 2014 January 2009 – December 2014 MONTHLY WEEKLY SERIES: 30Yr FRM, 1Yr ARM SOURCE: Federal Home Loan Mortgage Corporation

18. IS THERE A FORECAST BIAS FOR RISING RATES? Percent SERIES: Loan Officer Survey SOURCE: Philadelphia Federal Reserve Survey of Professional Forecasters, Bloomberg

19. CREDIT AVAILABILITY UP VERYSLIGHTLY

20. CALIFORNIA HOUSING MARKET OUTLOOK

21. MARKET & MEMBERSHIP DISCONNECT 1970-2014 SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualizedSERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

22. 2014 SALES OFF 7.6%; JAN ‘15 LOWEST SINCE 2008 California, Jan. 2015 Sales: 351,890 Units, -2.7% YTD, -2.7% YTY *Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® Jan-15: 351,890 Jan-14: 361,790

23. WHAT DOES A HOUSING RECOVERY LOOK LIKE? SERIES: Distressed Sales, Not Seasonally Adjusted SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

24. REO & SHORT SALES Percent of Total Sales, Southern California: Dec 2014 SERIES: Distressed Sales, Not Seasonally Adjusted SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

25. SOURCE: California Association of REALTORS® REO & SHORT SALES: SOUTHERN CALIFORNIA (PERCENT OF TOTAL SALES)

26. RIVERSIDE COUNTY Preforeclosure: 1,907 Auction: 1,147 Bank Owned: 601 SOURCE: PropertyRadar on 03/09/15

27. RIVERSIDE COUNTY Preforeclosure: 1,907 Auction: 1,147 Bank Owned: 601 SOURCE: PropertyRadar on 03/09/15

28. RIVERSIDE COUNTY Preforeclosure: 1,907 Auction: 1,147 Bank Owned: 601 SOURCE: PropertyRadar on 03/09/15

29. PALM SPRINGS MARCH 2015 Preforeclosure: 42 Auction: 24 Bank Owned: 13 SOURCE: PropertyRadar on 03/09/15

30. PALM SPRINGS MARCH 2011 Source: ForeclosureRadar.com as of 03/29/11 Preforeclosure: 256 Auction: 238 Bank Owned: 180

31. LA QUINTA Preforeclosure: 30 Auction: 20 Bank Owned: 14 SOURCE: PropertyRadar on 03/09/15

32. CATHEDRAL CITY Preforeclosure: 36 Auction: 21 Bank Owned: 18 SOURCE: PropertyRadar on 03/09/15

33. ANNUAL PRICE GAINS CONTINUE TO DROP California, Jan. 2015: $426,790, -5.9% MTM, +3.4% YTY SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® Jan-15: $426,790 Jan-14: $412,820

34. PRICE PER SQUARE FOOT January 2015: $203, Down 3.5% MTM, Up 1.8% YTY PRICE PER SQ. FT. SERIES: Median Price Per Square Feet SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

35. PRICE GAINS DOWN SHARPLY SINCE MID 2013 SERIES: Sales of SFH and Condo Units SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® YTY% Chg. in Price

36. INVENTORY IMPROVING BUT STILL LOW Jan 2015: 5.0 Months; Jan 2014: 4.3 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®

37. INVENTORY RISING ACROSS THE BOARD 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®

38. WHERE IS THE INVENTORY? – Investors renting instead of flipping – Mortgage Lock-In Effect – Where will I go? – Foreclosure pipeline is dry – New construction recovering but LOW – Off- MLS (aka “pocket’) listings not being counted in listing stats

39. REGIONAL & LOCAL HOUSING MARKETS

40. RIVERSIDE COUNTY

41. SALES OF RESIDENTIAL HOMES Riverside County, February 2015: 2,017 Units Up 1.5% MTM, Up 22.4% YTY SOURCE: Clarus Market Metrics

42. MEDIAN PRICE OF RESIDENTIAL HOMES Riverside County, February 2015: $296,000 Up 5.7% MTM, Up 9.6% YTY SOURCE: Clarus Market Metrics

43. FOR SALE PROPERTIES Riverside County, February 2015: 15,239 Units Down 0.9% MTM, Up 37.4% YTY SOURCE: Clarus Market Metrics 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.

44. MONTH’S SUPPLY OF INVENTORY Riverside County, February 2015: 3.1 Months SOURCE: Clarus Market Metrics Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question. The inventory figure is then divided by the number of properties that went Under Contract during the month.

45. PALM SPRINGS

46. SALES OF RESIDENTIAL HOMES Palm Springs, February 2015: 112 Units Down 6.7% MTM, Down 1.8% YTY SOURCE: Clarus Market Metrics

47. MEDIAN PRICE OF RESIDENTIAL HOMES Palm Springs, February 2015: $277,500 Down 6.7% MTM, Down 9.8% YTY SOURCE: Clarus Market Metrics

48. FOR SALE PROPERTIES Palm Springs, February 2015: 1,022 Units Up 4.7% MTM, Up 7.0% 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

49. MONTH’S SUPPLY OF INVENTORY Palm Springs, February 2015: 3.5 Months Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question. The inventory figure is then divided by the number of properties that went Under Contract during the month. SOURCE: Clarus Market Metrics

50. LA QUINTA

51. SALES OF RESIDENTIAL HOMES La Quinta, February 2015: 91 Units Up 18.2% MTM, Down 24.8% YTY SOURCE: Clarus Market Metrics

52. MEDIAN PRICE OF RESIDENTIAL HOMES La Quinta, February 2015: $405,000 Down 12.5% MTM, Up 11.0% YTY SOURCE: Clarus Market Metrics

53. FOR SALE PROPERTIES La Quinta, February 2015: 1,179 Units Up 1.7% MTM, Up 5.1% YTY SOURCE: Clarus Market Metrics 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.

54. MONTH’S SUPPLY OF INVENTORY La Quinta, February 2015: 7.2 Months Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question. The inventory figure is then divided by the number of properties that went Under Contract during the month. SOURCE: Clarus Market Metrics

55. CATHEDRAL CITY

56. SALES OF RESIDENTIAL HOMES Cathedral City, February 2015: 51 Units Up 18.6% MTM, Up 37.8% YTY SOURCE: Clarus Market Metrics

57. MEDIAN PRICE OF RESIDENTIAL HOMES Cathedral City, February 2015: $225,500 Up 0.2% MTM, Up 15.6% YTY SOURCE: Clarus Market Metrics

58. FOR SALE PROPERTIES Cathedral City, February 2015: 414 Units Down 0.7% MTM, Down 0.5% YTY SOURCE: Clarus Market Metrics 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.

59. MONTH’S SUPPLY OF INVENTORY Cathedral City, February 2015: 3.6 Months SOURCE: Clarus Market Metrics Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question. The inventory figure is then divided by the number of properties that went Under Contract during the month.

60. ANNUAL HOUSING MARKET SURVEY: 2014 FINDINGS

61. MULTIPLE OFFERS DECLINE - LESS INTENSE MARKET COMPETITION AFTER PEAKING IN 2013 SERIES: 2014 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

62. Long Run Average = 19% FEWER HOMES SOLD ABOVE THE ASKING PRICE AS MARKET COMPETITION COOLED IN 2014 QUESTION: What was the original list sales price of the property? What was the final sales price of the property? SERIES: 2014 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

63. 49 % SOLD BELOW ASKING IN 2014 SERIES: 2014 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® Median Reduction: 4.5% of List Price

64. Q. What was the amount of downpayment? 20% REMAINS THE MEDIAN DOWN PAYMENT SERIES: 2014 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

65. INVESTMENT BUYERS DROPPING : 15% MARKET SHARE Long Run Average: 12 % SERIES: 2013 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

66. BUYING TO RENT V. FLIP; CHANGE IN PREFERRED INVESTMENT STRATEGY 2013: 18% 2014: 30% 2013: 82% 2014: 70% Investment to Flip Rental Property SERIES: 2014 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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68. HOUSING AFFORDABILITY: CRISIS BREWING

69. SHARE OF FIRST-TIME BUYERS UP IN ’14 BUT STILL BELOW LONG-RUN AVERAGE Long Run Average = 38% QUESTION: Was the buyer a first-time buyer? SERIES: 2014 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

70. HOUSING AFFORDABILITY DOWN SHARPLY SINCE Q1 2012 California vs. U.S. – 1984-2014 % OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® AnnualQuarterly

71. HOMEOWNERSHIP RATE FALLING California Vs. U.S. SERIES: Homeownership Rates SOURCE: U.S. Census Bureau

72. MILLENNIAL HOMEOWNERSHIP FALLING SOURCE: Census Bureau

73. CA PRICES UPWARD MARCH WILL SLOW 1970-2014 SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

74. CA V. US REAL PRICE GAP: $10K TO $246K 1970-2014 SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® 2014 Dollar Value

75. INCOME TO BUY MEDIAN-PRICED HOME IN CA: UP SHARPLY IN TWO Change in minimum required income: $37,269 Increase in income attributed to interest rate increase: $836 (2.2% of total change) Increase in income attributed to price increase : $36,433 (97.8% of total change) SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

76. REASONS FOR RENTING INSTEAD OF BUYING SERIES: 2013 Renter Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

77. DOWN PAYMENT RESOURCE DIRECTORY DOWNPAYMENT.CAR.ORG Down Payment Resource™ Homeownership Program Index’s Key Findings:  Over 300 programs in California  59% provide direct down payment & closing cost assistance  10% provide mortgage credit up to $2,000 for the life of the loan  26% are available to repeat buyers There are hundreds of homeownership programs available to help motivate buyers. Visit downpayment.car.org to find them.

78. STUDENT LOAN DEBT:25% OF RENTERS SERIES: 2013 Renter Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

79. STUDENT DEBT: DRAGS ON HOME SALES

80. CALIFORNIA’S HOUSING DILEMMA Even with everything (or at least most things) going right, our homeownership market is in trouble… The rental market, even with the conversion of 500,000 SFH’s, is still exhibiting inadequate supply and rising rents CA Housing Needs = Minimally 165,000 Units Annually – Regulatory Problem – Impact Fees – Public Attitudes

81. CA PERMITS UP BUT MORE UNITS NEEDED 2014p: 83,000 (43,000 sf, 40,000 mf) 2015f: 101,000 total units SERIES: New Housing Permits SOURCE: Construction Industry Research Board Household Growth: 165,000/yr

82. 2015 FORECAST

83. U.S. ECONOMIC OUTLOOK 2014 - 2015 SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

84. CALIFORNIA ECONOMIC FORECAST SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® Nonfarm Job Growth Unemployment Rate Population Growth Real Disposable Income, % Change 2011 1.1% 11.8% 0.7% 1.9% 2012 2.4% 10.4% 0.7% 1.1% 2013 3.0% 8.9% 0.9% 2014 P 2.2% 7.5% 0.9% 3.0% 2015 F 2.4% 6.7% 0.9% 3.8%

85. CALIFORNIA HOUSING MARKET OUTLOOK SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

86. CA: DOLLAR VOLUME UP FOR 4 TH YEAR % Change $ in Billion -60% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® Up 2.7% in 2014, Up 11.3% in 2015

87. INTERNATIONAL BUYERS MAKE THEIR MARK

88. 1/3 FROM CHINA Please tell us about your last closed transaction with an international client. What is your client’s country of permanent residence?

89. INTENDED USE FOR PROPERTY? HOME What was the intended use of the property in your last closed transaction with an international client?

90. ALL CASH INTERNATIONAL BUYERS SOURCE: 2013 International Client Survey, 2013 Annual Housing Market Survey How did your last international buyer pay for the property?

91. MILLENNIALS: TOMORROW’S HOME OWNERS?

92. OVER 1/3 LIVE WITH THEIR PARENTS What is your current living situation? SERIES: 2014 Millennials Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

93. MILLENNIALS’ BIGGEST CONCERNS What are your biggest concerns about home ownership? Price/Affordability (45%)Problems with Credit, Mortgages, or Taxes (19%)Maintenance/Upkeep (14%)Satisfaction with Home/Location (7%)Responsibility (4%) SERIES: 2014 Millennials Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

94. ATTITUDE TOWARD THE HOME BUYING PROCESS – MIXED RESULTS SOURCE: How would you describe your attitude towards the home buying process? C.A.R. 2014 Millennial Survey

95. MOST MILLENNIALS UNCERTAIN/DOUBTFUL THAT THEY COULD OBTAIN A MORTGAGE NOW?AMILLENNIAL ETHNICITY SOURCE: C.A.R. 2014 Millennial Survey Q: Could you obtain a mortgage if you applied now ?

96. 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

97. 2015 Book Recommendations

98. THE MIRACLE OF FLIGHT https://www.youtube.com/watch?v=b3dYS7PcAG4 http://www.cc.com/video-clips/1myllo/stand-up-louis- ck--the-miracle-of-flight http://www.cc.com/video-clips/1myllo/stand-up-louis- ck--the-miracle-of-flight

99. STAY CONNECTED WITH RESEARCH CARResearchGroup CARResearchInfo On.car.org/CARResearch Housingmatters.car.org

100. THANK YOU! www.car.org/marketdata lesliea@car.org This presentation can be found on www.car.org/marketdata Speeches & Presentations