1. CALIFORNIA HOUSING MARKET: 2012 FORECAST Southwest LA AOR November 8, 2011 Leslie Appleton-Young, Chief Economist

2. News You Can Use from C.A.R.

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

5. U.S. Economic Outlook

7. 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

8. Gross Domestic Product 2010: 2.8%; 2011 Q3: 2.5% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUALQTRLY 2009 Largest Annual Drop since 1938 (-3.4%)

9. SOURCE: US Dept of Commerce, Bureau of Economic Analysis Components of GDP Percent Change

10. Performance Targets for National Economy SOURCE: California Association of REALTORS®

11. QUARTERLY PERCENT CHANGE Consumers Pulling Back Home Equity & Reverse Wealth Effect Consumer Spending 2011 Q3: 2.4% SOURCE: US Dept of Commerce, Bureau of Economic Analysis

12. CA Underwater Mortgages SOURCE: CoreLogic

13. Unemployment Stubbornly High September 2011 SOURCE: CA Employment Development Division California (11.9%) vs. United States (9.1%)

14. Unemployment Rate Los Angeles County, September 2011: 12.2% SOURCE: CA Employment Development Division

15. 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

16. California Non-farm Job Growth SOURCE: CA Employment Development Division Month-to-Month Changes Recession Job Losses: 1 million Since Jan’10: +170,000

17. Nonfarm Employment By Region SOURCE: CA Employment Development Division

18. Nonfarm Employment Los Angeles County, September 2011: Up 0.8% YTY Y-T-Y PERCENT CHANGE SOURCE: CA Employment Development Division

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

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

21. INDEX, 100=1985 Consumer Confidence Slipping Again October 2011: 39.8

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

23. Consumer Price Index September 2011: All Items +3.9% YTY; Core +2.0% YTY PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

24. Monetary Policy

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

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

27. Fiscal Policy

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

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

30. 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

31. Housing

32. 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) 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

33. What Happened?

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

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

36. 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.

37. 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.

38. 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.

39. 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.

40. 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

41. Understanding the Financial Crisis

42. 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?

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

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

45. California Housing Market

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

47. 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

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

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

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

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

52. Market Breakdown: Equity v. Distressed Sales

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

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

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

56. Tight Supply of Inventory for REO Sales SOURCE: California Association of REALTORS®

57. REO & Short Sales: Southern California (Percent of Total Sales)

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

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

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

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

64. Foreclosures Los Angeles County SOURCE: Real Estate Research Council THOUSANDS

65. Los Angeles Preforeclosure: 3,403 Auction: 4,247 Bank Owned: 1,211 Source: ForeclosureRadar.com as of 11/4/11.

66. Los Angeles Preforeclosure: 3,403 Source: ForeclosureRadar.com as of 11/4/11.

67. Los Angeles Auction: 4,247 Source: ForeclosureRadar.com as of 11/4/11.

68. Los Angeles Bank Owned: 1,211 Source: ForeclosureRadar.com as of 11/4/11.

69. Inglewood Preforeclosure: 278 Auction: 300 Bank Owned: 125 Source: ForeclosureRadar.com as of 11/4/11.

70. Regional Housing Markets

71. Los Angeles

72. Sales of Residential Homes Los Angeles, October 2011: 687 Units Down 14.4% MTM, Down 2.1% YTY SOURCE: Clarus Market Metrics

73. Median Price of Residential Homes Los Angeles, October 2011: $300,000 Down 11.4% MTM, Down 8.7% YTY SOURCE: Clarus Market Metrics

74. For Sale Properties Los Angeles, October 2011: 6,729 Units Down 5.6% MTM, Down 23.6% YTY SOURCE: Clarus Market Metrics

75. Months Supply of Inventory Los Angeles, October 2011: 3.9 Months SOURCE: Clarus Market Metrics

76. Inglewood

77. Sales of Residential Homes Inglewood, October 2011: 53 Units, Up 3.9% MTM, Up 17.8% YTY SOURCE: Clarus Market Metrics

78. Median Price of Residential Homes Inglewood, October 2011: $240,000 Down 3.2% MTM, Up 1.7% YTY SOURCE: Clarus Market Metrics

79. For Sale Properties Inglewood, October 2011: 323 Units Down 7.4% MTM, Down 12.9% YTY SOURCE: Clarus Market Metrics

80. Months Supply of Inventory Inglewood, October 2011: 3.3 Months SOURCE: Clarus Market Metrics

81. 2011 Annual Housing Market Survey

82. 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

83. 1 in 3 Sellers Sold Because They Were in Distress Q. What was the single most important reason for selling/buying the property?

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

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

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

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

88. Cash Sales on the Rise

89. Investments & Second/ Vacation Homes

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

91. California Housing Market Forecast

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

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

94. Closing Thoughts

95. 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?

96. 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.”

97. 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”

98. 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”

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

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