2018 Housing Market Outlook. California Desert Association of REALTORS October 19, 2017 Jordan G. Levine Economist

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1 2018 Housing Market Outlook California Desert Association of REALTORS October 19, 2017 Jordan G. Levine Economist

2 Overview Post-Election Outlook Starting 2017 with a bang! Lots of uncertainty hard time to forecast What to worry about, what to be hopeful for Economic Update U.S. and California economy Full employment? Up-/Downside Risks? California Housing Market Outlook Lack of inventory -> Affordability -> Homeownership Tight market -> hard for buyers -> good for sellers 2018 Forecast

3 Let s Talk Tax Reform

4 From January: The good, bad, & the ugly Deregulation: industry & banks General regulatory environment CFPB & Dodd-Frank Tax cuts on business & people Tax reform: repatriating profits Infrastructure investment Better trade terms? Economy relatively healthy GSEs and the FHA/HUD Will they stay or will they go? MIP reduction already gone Mortgage interest deduction? Pro-growth = higher rates Especially if more hawks at Fed Supply is already an issue here CA very exposed to trade war What does retaliation look like? Capital flows to/from China? Healthcare & Immigration Demand, but also Fed $$ CA exposed there too Uncertainty & Market volatility

5 Trumponomics: the good, bad, and ugly 1. Economy relatively healthy 2. Deregulation: industry & banks 1. General regulatory environment 2. CFPB & Dodd-Frank 3. Tax reform: repatriating profits 4. Tax cuts on business & people 1. 3 brackets, lower rates 2. More than half corporate rate 5. Infrastructure investment? 6. Better trade terms? 1. Mortgage interest deduction? 1. Double Standard Deduction 2. Limit MID to $500K? 2. Healthcare & Immigration 1. Demand, but also Fed $$ 2. CA exposed there too 3. GSEs and the FHA/HUD 4. Pro-growth = higher rates 1. Especially if more hawks at Fed 5. Supply is already an issue here 6. Uncertainty & Market volatility

6 Homeownership not front and center Overhaul of the current tax code Drop from 7 tax brackets to 3 10%, 25%, 35% Increase standard deduction Drop State/Local tax deduction! Results/Consequences? Good for renter s pocket books, not good for their wealth Bad for existing homeowners roughly ~$3,000 tax hit Reduces incentive to become a homeowner very bad!

7 Macro Consideration Emanating from DC

8 Looking at more demand for housing! Tax Reform Boosts GDP Big Infrastructure Stimulus? More Demand for Housing

9 Growth is good, but has its side effects too Higher Demand Full Employment Potential Inflation

10 There s also the bond market to consider Tax Cuts Bigger Deficits More Potential Inflation

11 So what? Here s the punchline. More Inflation Higher Rates Bigger Deficits

12 Annual Percent Change Inflation Ticked Up in August Aug 2017: All Items 1.94% YTY; Core +1.68% YTY All Items Core SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics

13 Mortgage Rates: Lowest Level since the Election January 2010 October 05, 2017 MONTHLY WEEKLY FRM ARM 0 SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

14 Housing could be negatively impacted Higher Prices More Demand Supply Shortage Higher Prices Deteriorating Affordability Higher Rates

15 What Will Happen When Mortgage Rates Increase? Q Median Price $553,260 20% Downpayment $3,200 $2,800 $2,400 $2,000 $1,866 MONTHLY MORTGAGE $2,513 $2,376 $2,113 $2,243 $1,988 $2,654 $2,798 $160,000 $140,000 $120,000 $100,000 Minimum Qualifying Income $131,596 $137,353 $125,973 $120,491 $115,155 $109,973 $104,950 $100,092 $1,600 $80,000 $1,200 $60,000 $800 $40,000 $400 $20,000 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

16 Most Cannot Afford to Purchase a Home with a Single Income California $120,000 $100, Annual Mean Wage $96,660 $92,380 $101,750 $120,710 $101,220 $80,000 $71,790 $74,270 $60,000 $49,810 $40,000 $29,810 $20,000 $0 Retail Salespersons Chefs and Head Cooks Firefighters Elementary School Teachers Computer Programmers Police and Sherriff's Patrol Officers Registered Nurses Software Developers (Applications) Min. Inc Required to Buy a Med. Home SOURCE: Bureau of Labor Statistics, C.A.R.

17 So what s the punchline? Higher prices Higher rates Less affordability Tax hit to existing homeowners No incentive to own for renters Bad news for homeownership?

18 The Wildcards

19 Important question marks for CA Healthcare future uncertain Potentially 4.6M covered under ACA That s just CoveredCA and MediCal Still have kids on parents plans That s health or pocketbook issue Could be a hidden negative for housing What does deportation of 12M look like? Politics aside, there s practical aspects Reduces the number of bodies/demand Reductions to household income How do sanctuary cities fare: fed funding? Again, large negative for housing in CA Uncertainty & Market volatility The Twitter already jolting equities around

20 Economic Update

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22 How s the economy closer to home?

23 Consumers still driving the show 3.1% 3.3% GDP 2017-Q2 4.2% Consumption 2017-Q2 1.2% Unemployment Sept 2017 Job Growth Sept 2017

24 Annual Percent Change, Chain-type (2009) $ Economy still lumbering along 6% 5% ANNUALLY 2016: 1.6% 2017(p) 2.1% 2018(f) 2.3% QUARTERLY 4% 3% 2% 1% 0% -1% -2% 3.1% -3% 2009 Largest Annual Drop since 1946 (-2.8%) -4% SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

25 Jan-05 Dec-05 Nov-06 Oct-07 Sep-08 Aug-09 Jul-10 Jun-11 May-12 Apr-13 Mar-14 Feb-15 Jan-16 Dec-16 First chinks in armor are showing on jobs California Labor Markets Recent Monthly Job Growth 800,000 14% 120, , , ,000 12% 10% 100,000 80,000 - (200,000) (400,000) 265, % 8% 6% 60,000 40,000 (600,000) (800,000) (1,000,000) (1,200,000) 4% 2% 0% 20,000 - (20,000) (12,700) (13,000) (3,200) (8,200) (17,600) (40,000) New Jobs Unemployment

26 Tertiary/secondary markets heat up This Photo by Unknown Author is licensed under CC BY-NC-SA Madera Ventura Tulare Yuba Monterey Kings Kern Fresno San Francisco East Bay San Diego San Joaquin Los Angeles Orange County 0.0% 1.0% 0.9% 0.9% 0.9% California Job Growth 3.0% 2.9% 2.9% 2.6% 2.4% 2.2% 2.1% 2.1% 1.9% 1.9% 1.8% 1.8% 1.7% 1.7% 1.7% 1.7% 1.5% 1.5% 3.5% 4.3% 4.2% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 5.2%

27 Unemployment rate by California Metro Area August 2017: California 5.4% Bakersfield Fresno MSA Stockton MSA Modesto Inland Empire Los Angeles Ventura Sacramento San Diego Oakland Orange County San Jose San Francisco 3.3% 5.4% 5.3% 5.2% 4.7% 4.4% 4.2% 3.9% 6.2% 7.5% 7.5% 8.6% 9.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% SERIES: Civilian Unemployment Rate SOURCE: CA Employment Development Division

28 Construction Leads Job Growth August 2017: CA +1.6%, +265,100 (YTY) Construction Educational Services Health Care & Social Assistance Leisure & Hospitality Government Wholesale Trade Real Estate & Rental & Leasing Information Admistrative & Support & Waste Services Finance & Insurance Transportation, Warehousing & Utilities Durable Goods Retail Trade Professional, Scientific & Technical Services Nondurable Goods -1.1% -0.4% 2.7% 2.2% 1.8% 1.6% 1.5% 1.2% 1.0% 0.5% 0.2% 0.1% 0.0% 4.0% 6.0% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% Annual Percent Change SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

29 Housing Market Trends

30 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 Ended fall on a strong note, but growth slows 700, , , , , ,000 Sept Sales: 436,920 Units, +2.6% YTD, +1.7% YTY 20% 15% 10% 5% 0% -5% -10% 100, % -20% -25% Year-over-Year % Chg 6 per. Mov. Avg. (Year-over-Year % Chg) SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS *Sales are seasonally adjusted and annualized

31 Locally, started strong but slowed in fall Outpacing state at 10.5% increase YTD California Desert Home Sales Existing SFR Sales Condo Sales

32 Most of the sales are in the Core Palm Springs 15% Palm Desert 17% 2017 Home Sales by City Cathedral City 8% Indio 17% Rancho Mirage 8% La Quinta 18% Desert Hot Springs 6% Indian Wells 3% Other 2% Coachella 2% Bermuda Dunes 2% Thousand Palms 1% Thermal 1% Salton City 0% Desert Center 29 Palms Salton Sea Salton City Thousand Palms Coachella Desert Hot Springs Cathedral City Palm Desert La Quinta 2017 Sales Growth by City -50.0% -33.3% -66.7% -59.6% -40.0% -2.6% -15.0% -12.7% 15.2% 26.6% 22.4% 10.2% 11.7% 5.0% 18.2% 50.0% 55.6% 100.0% 88.9% -100% -50% 0% 50% 100% 150%

33 Most parts of the area are growing 2017 Sales Canary Shrinking 42% Growing 58% This Photo by Unknown Author is licensed under CC BY-NC-SA

34 Seasonal dip in price, but growth is strong California, September 2017: $553,490, -2.1% MTM, +7.2% YTY $700,000 $600,000 P: May-07 $594,530 Sep-16: $516,450 Sep-17: $553,490 $500,000 $400,000 $300,000 T: Feb-09 $245,230-59% from peak $200,000 $100,000 $- SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

35 1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/ /1/ /1/ /1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/ /1/ /1/ /1/2016 1/1/2017 2/1/2017 3/1/2017 4/1/2017 5/1/2017 6/1/2017 7/1/2017 8/1/2017 9/1/2017 Home prices actually gaining steam 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Median Home Price Growth 8.63% 7.17% Condo Single-Family Homes SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

36 Price ramp-up started earlier here CA Desert AOR Median Home Prices CA Desert AOR Existing SFR Price Growth 450, , ,000 16% 14% 12% 10% 8% 13.5% 14.1% 14.2% 7.7% 7.8% 10.0% 7.4% 300,000 6% 4.8% 250,000 4% 2% 200,000 0% -2% -0.3% Median SFR Price Median Condo Price SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

37 Prices growing more often than not 2017 Price Growth 2017 Price Growth Shrinking 41% Growing 59% Mecca Salton City Thermal Desert Hot Springs Thousand Palms Coachella Indio Cathedral City Palm Desert Bermuda Dunes La Quinta Rancho Mirage Palm Springs Indian Wells 133, , , , , , , , , , , , , ,000

38 Broken record time: it s still about supply September : 3.5 Months; September 2017: 3.2 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

39 and no relief in sight Active Listings 15% Year-over-Year % Chg 10% 5% 0% -5% -10% -15% -11.2% -20% This Photo by Unknown Author is licensed under CC BY SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

40 Grumpy cat even grumpier here 4,500 4,000 3,500 California Desert AOR Active Listings Change in Active Listings by Segment Total -16.6% $1M % 3,000 $750-$1M -16.1% 2,500 2,000 1,500 2,182 $500-$750K $400-$500K -19.3% -9.9% 1,000 $300-$400K -22.5% 500 $200-$300K-31.0% 0 Under $200K -30.7% -35% -30% -25% -20% -15% -10% -5% 0% SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

41 Best of times and the worst of times Unsold Inventory Index Sep-16 Sep-17

42 Listings down across board, especially bottom 10% Active Listing Sept % 1.7% -10% -10.6% -6.6% -10.1% -7.2% -11.2% -20% -16.2% -30% -28.3% SERIES: Active Listings of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

43 Sales declines spread up price ladder 50% 40% Existing Home Sales Growth 45.1% 30% 20% 15.0% 19.5% 19.5% 10% 0% 5.0% 6.9% -10% -4.8% -20% -30% -17.8% Under $300K $300-$500K $ K $ K $1-1.5M $1.5-2M $2-$3M $3M + SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

44 Many listings in affordable segments 2017 Home Sales by Price Segment 2017 Sales Growth by Price Segment $750-$1M 7% $1M + 9% Under $200K 8% 40% 30% 20% 10% 19.3% 15.8% 22.6% 31.1% 26.5% 10.5% $500-$750K 18% $200-$300K 25% 0% -10% -0.3% -20% $400-$500K 12% $300-$400K 21% -30% -22.3%

45 Cashing in at very top end? Worrisome? Year-over-Year Price Growth 14% 12% 10% 11.3% 9.4% 10.4% 9.6% 12.2% 8% 8.2% 8.0% 7.3% 6% 6.1% 4% 2% 0% Percentile SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

46 Market moving quickly, especially lower Median Time on Market Total Percentile Sep-16 Sep-17

47 Local inventory slower, but gaining 2017 Median Time on Market Median Time on Market

48 And still very competitive amongst buyers Sales-to-List Price Ratio 100.5% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 99.5% 99.0% 98.5% 98.0% 98.2% 97.5% 97.0% 96.5% Percentile Sep-16 Sep-17

49 Buyers here get more deals, but tightening 99% 98.4% 98.2% 97.7% 2017 Sales-to-List Price (%) 97.4% Median Sales/List Price Ratio 98% 97% 96% 97.0% 97.0% 96.7% 97.4% 97.2% 97.0% 96.8% 95% 94% 93% 92% 94.2% 96.6% 96.4% 96.2% 96.0% 95.8%

50 More competition reflects retail demand? 100% 90% Local Home Sales by Financing Type 13.4% 16.5% 18.9% 22.3% 23.3% 22.7% 20.0% 19.3% 19.5% 80% 70% 60% 50% 40% 86.6% 83.5% 81.1% 77.7% 76.7% 77.3% 80.0% 80.7% 80.5% 30% 20% 10% 0% YTD Financed Cash

51 Year straight of fewer price reductions 45% 40% 35% 30% 25% 20% 15% Listing Price Reductions -4.0% -4.2% -4.4% -4.6% -4.8% -5.0% -5.2% Share Reduced Median Reduction

52 Year-to-Year % Chg The shuffle towards more affordable areas Sales Active Listings California Job Growth 10% 0% -10% -20% -30% -4% -20% San Francisco Bay Area -3% -13% Southern California 0% -8% Central Valley Madera Ventura Tulare Yuba Monterey Kings Kern Fresno San Francisco East Bay San Diego San Joaquin Los Angeles Orange County 0.0% 3.0% 2.9% 2.9% 2.6% 2.4% 2.2% 2.1% 2.1% 1.9% 1.9% 1.8% 1.8% 1.7% 1.7% 1.7% 1.7% 1.5% 1.5% 1.0% 0.9% 0.9% 0.9% 3.5% 4.3% 4.2% 5.2% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

53 My dad would still kill for these rates January 2010 October 05, 2017 MONTHLY WEEKLY FRM ARM 0 SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

54 Perspective is everything!! Year Fixed Rate Mortgage 3.9

55 What Will Happen When Mortgage Rates Increase? Q Median Price $553,260 20% Downpayment $3,200 $2,800 $2,400 $2,000 $1,866 MONTHLY MORTGAGE $2,513 $2,376 $2,113 $2,243 $1,988 $2,654 $2,798 $160,000 $140,000 $120,000 $100,000 Minimum Qualifying Income $131,596 $137,353 $125,973 $120,491 $115,155 $109,973 $104,950 $100,092 $1,600 $80,000 $1,200 $60,000 $800 $40,000 $400 $20,000 $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% $0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% INTEREST RATE INTEREST RATE SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

56 70% 60% Housing affordability taking it on the chin 2017-Q2: % able to purchase median-priced home 57% 57% 50% 40% 30% 29% 20% 10% 12% 0% SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

57 Q1-90 Q4-90 Q3-91 Q2-92 Q1-93 Q4-93 Q3-94 Q2-95 Q1-96 Q4-96 Q3-97 Q2-98 Q1-99 Q4-99 Q3-00 Q2-01 Q1-02 Q4-02 Q3-03 Q2-04 Q1-05 Q4-05 Q3-06 Q2-07 Q1-08 Q4-08 Q3-09 Q2-10 Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q2-16 Q1-17 Should we question price sustainability? California Price/Income Ratio Avg Price/Income Ratio Historical Avg. SERIES: Median Home Price to Median Income Ratio SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

58 Q1-90 Q4-90 Q3-91 Q2-92 Q1-93 Q4-93 Q3-94 Q2-95 Q1-96 Q4-96 Q3-97 Q2-98 Q1-99 Q4-99 Q3-00 Q2-01 Q1-02 Q4-02 Q3-03 Q2-04 Q1-05 Q4-05 Q3-06 Q2-07 Q1-08 Q4-08 Q3-09 Q2-10 Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q2-16 Q1-17 Still too early to call a bubble, but rates! Median Home Payment Relative to Income 100% 90% 90.1% 80% 70% 60% 50% Avg. 49.7% 54.9% 40% 30% 20% 10% 0% Affordability Historical Avg.

59 Q1-90 Q2-91 Q3-92 Q4-93 Q1-95 Q2-96 Q3-97 Q4-98 Q1-00 Q2-01 Q3-02 Q4-03 Q1-05 Q2-06 Q3-07 Q4-08 Q1-10 Q2-11 Q3-12 Q4-13 Q1-15 Q2-16 Q3-17 Q1-90 Q3-91 Q1-93 Q3-94 Q1-96 Q3-97 Q1-99 Q3-00 Q1-02 Q3-03 Q1-05 Q3-06 Q1-08 Q3-09 Q1-11 Q3-12 Q1-14 Q3-15 Q1-17 Prices are certainly expensive 700,000 California Actual Median vs. Market Clearing Price 40% 30% Potential Correction 600, , ,093 20% 10% 400, , , , ,038 0% -10% -20% -30% -23.8% 100,000-40% 0-50% -60% -52.2% Lower Bound Upper Bound Actual

60 Not widespread as last go-round, some w/room to run -0.4% Butte -0.6% -3.3% Riverside -3.6% -3.6% San Benito -7.5% -7.9% Contra Costa -13.5% -17.2% Ventura -18.3% -21.7% Napa -26.5% -28.3% Sonoma -32.2% -33.0% Monterey -34.1% -34.4% Alameda -36.0% -36.0% Orange -37.0% -39.8% Santa Clara -42.3% -46.8% San Mateo -52.8% -53.8% San Francisco-54.1% California Potential Price Correction by County -23.8% -60% -50% -40% -30% -20% -10% 0% Tehama Kern Yuba Kings Mariposa Shasta Fresno El Dorado Sutter Madera Plumas Solano California Potential Price Correction by County -23.8% 58.2% 54.3% 43.1% 34.3% 32.4% 31.8% 28.9% 27.8% 25.9% 23.9% 22.7% 19.5% 19.2% 16.8% 16.3% 16.2% 15.0% 14.2% 13.4% 12.3% 7.1% 5.0% 0.2% -40% -20% 0% 20% 40% 60% 80%

61 What are the consequences Good new for existing owners Building good equity Accumulating wealth Good news for sellers Commanding top dollar Home will sell quickly No pressure to cut deals Headwinds for buyers Homes are selling for more Homes are selling quicker Virtually no discounting This Photo by Unknown Author is licensed under CC BY-NC-SA

62 How Did We Get Here? Connecting the Dots

63 Homeownership Dropped, Big Gap in CA Homeownership Rate U.S. California SERIES: Homeownership Rate (%) SOURCE: U.S. Census Bureau, Housing Vacancy Survey (HVS)

64 Missing 72,000 New Units Annually 2016: 98,881 (47,889 sf, 50,992 mf) p: 107,756 (53,708 sf, 54,048 mf ) 2018f: 115,292 (58,542 sf, 56,750 mf) Single Family Multi-Family CA HCD Projected Housing Needs: ,000/yr SERIES: California New Housing Permits SOURCE: Construction Industry Research Board

65 Most Underbuilt Counties in California New Jobs vs. New Permits ( ) 450, , ,300 Jobs Permits 350, , , , , ,000 50, , , ,740 35,426 44, ,542 18, ,162 40,434 95,245 98, ,586 14,901 18,108 31,255 66,054 44,772 6,349 10,890 SOURCE: California Employment Development Department, Construction Industry Research Board SERIES: Nonfarm Job Growth & New Housing Permits SOURCE: CA EDD, Construction Industry Research Board

66 Housing Affordability Index (%) More underbuilding, less affordability Housing Deficit vs. Housing Affordability 60 Bakersfield Inland Empire Modesto East Bay Napa Sonoma Santa Clara San Francisco MD Santa Cruz Marin Housing Deficit SERIES: Nonfarm Job Growth, New Housing Permits, Existing Median Prices SOURCE: CA EDD, C.A.R., Construction Industry Research Board

67 Existing homeowners won t move 12 All Sellers Long-Time Homeowners are not moving as in the past because: Low rate on current mortgage Low property taxes Capital gains hit Where can I afford to go? Remodel and stay SERIES: 2017 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

68 Fewer units turning over since the Great Recession 10% 9% Housing Turnover Rate (Single-Family Homes only) CA US 8% 7% 6% 5% 4% 4.8% 4.2% 3% 2% 1% 0% SERIES: Percent of existing single-family homes being sold SOURCE: Census Bureau, American Community Survey, Moody s Analytics, C.A.R.

69 More Single Family Units Now Rentals 8,000,000 Potentially between 400,000 and 700,000 SF Rentals that Used to be Owner-Occupied 7,000,000 6,000,000 6,919,164 6,527,730 5,000,000 4,000,000 3,000,000 2,674,808 2,000,000 1,940,607 1,000,000 0 SF Owners SF Renters SOURCE: U.S. Census Bureau, Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS) Downloaded from the National Bureau of Economic Research (NBER)

70 Putting it all together Economy still lumbers along Few red flags in labor market In terms of trends Sales continue to defy gravity Prices are accelerating Lack of supply driving market Tight at bottom, moving at top Rates are still really low Household formation rising Market more competitive Homes moving quickly Virtually no discounting Keeping it really real There s some challenges Lack of new listings Market will remain tight Rates are expected to rise gradually, but going to hurt Plus, we still have structural stuff Still Demand is there from economy High end has room to run Not in a bubble yet Market IS defying gravity Forecast: ongoing growth in 18

71 The Forecast

72 U.S. Economic Outlook p 2018f US GDP 2.20% 1.70% 2.40% 2.60% 1.60% 2.10% 2.30% Nonfarm Job Growth 1.70% 1.70% 1.90% 2.10% 1.80% 1.40% 1.20% Unemployment 8.10% 7.40% 6.20% 5.30% 4.90% 4.40% 4.20% CPI 2.10% 1.50% 1.60% 0.10% 1.40% 2.00% 2.20% Real Disposable Income, % Change 3.20% -1.40% 2.70% 3.40% 2.70% 2.10% 3.00% 30-Yr FRM 3.70% 4.00% 4.20% 3.90% 3.60% 4.00% 4.30% SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

73 California Economic Outlook p 2018f Nonfarm Job Growth 2.4% 3.0% 2.2% 2.7% 2.3% 1.6% 1.2% Unemployment Rate 10.4% 8.9% 7.5% 6.2% 5.5% 4.8% 4.6% Population Growth Real Disposable Income, % Change 0.7% 0.9% 0.9% 0.9% 0.9% 0.8% 0.8% SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

74 California Housing Market Outlook p 2018f SFH Resales (000s) % Change 4.1% -5.9% -7.8% 7.0% 1.8% 1.3% 1.0% Median Price ($000s) $319.3 $407.2 $446.9 $476.3 $502.3 $538.5 $561.0 % Change 11.6% 27.5% 9.8% 6.6% 5.4% 7.2% 4.2% Housing Affordability Index 51% 36% 30% 31% 31% 29% 26% 30-Yr FRM 3.7% 4.0% 4.2% 3.9% 3.6% 4.0% 4.3% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

75 Units (Thousand) Price (Thousand) Sales and Price up in 2017 and in 2018 Sales of Existing Detached Homes Median Price 700 $600 $539 $ $ $400 $ $ $ p $ p SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

76 CA: Dollar Volume Up 8.6% in 2017, Up 5.2% in 2018 $ in Billion % Change $400 30% $ Volume of Sales Percent Change $350 $300 $250 $200 $150 $100 $301 $244 $164 $133 $131 $127 $121 $140 $169 $171 $195 $209 $227 $239 20% 10% 0% -10% -20% $50 $ p 2018f -30% -40% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

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78 CARResearchGroup CARResearchInfo Housingmatters.car.org

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