November 1, 2016 Sacramento AOR Membership Meeting Oscar Wei, Senior Economist of C.A.R.

November 1, 2016 Sacramento AOR Membership Meeting Oscar Wei, Senior Economist of C.A.R.

Overview Economic Outlook California Housing Market Outlook Regional Housing Market Outlook 2017 Forecast

Economic Outlook

Macro Economic Summary 2.9% 2.1% GDP 2016-Q3 5.0% Consumption 2016-Q3 1.7% Unemployment 2016-09 Job Growth 2016-09

US GDP: Improve in Q3 after a Weak 1 st Half Consumer Spending Remained Solid; Net Exports Surged 2015: 2.6%; 2016 Q3: 2.9% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2009) $ 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% ANNUALLY QUARTERLY 2009 Largest Annual Drop since 1946 (-2.8%) 2005 2007 2009 2011 2013 2015 Q2-11 Q4-11 Q2-12 Q4-12 Q2-13 Q4-13 Q2-14 Q4-14 Q2-15 Q4-15 Q2-16 SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

Unemployment Rates Near 8-year low September 2016: US 5.0% & CA 5.5% 14% US-CA CA US 12% 10% 8% 6% 4% 2% 0% -2% -4% SERIES: Unemployment Rate The U-6 rate covers the unemployed, underemployed and those who are not looking but who want a job SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

CA Jobs Growing Faster Than Nation Annual Percent Change 6 4 2 0-2 -4 California US CA 2.3% (9/16) US 1.7% (9/16) -6-8 SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

California Non-farm Job Growth Recession Job Losses: 1.3 million, Since Jan 10: +2.2 million MONTH TO MONTH CHANGES 150,000 100,000 50,000 0-50,000-100,000-150,000 SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

Unemployment rate by California Metro Area September 2016: California 5.5% Bakersfield Fresno MSA Stockton MSA Modesto Inland Empire Ventura Sacramento Los Angeles San Diego Oakland Orange County San Jose San Francisco 3.2% 5.5% 5.4% 5.2% 4.7% 4.4% 4.1% 3.8% 6.2% 7.5% 7.5% 8.3% 9.2% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

Job Trends by California Metro Area September 2016: CA +2.3%, +379,800 (YTY) San Jose Sacramento Orange Modesto Oakland San Francisco Fresno MSA Inland Empire San Diego Stockton Bakersfield Los Angeles Ventura 1.2% 1.7% 1.6% 1.6% 2.2% 2.3% 2.9% 2.8% 2.8% 2.6% 2.6% 2.6% 3.6% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

Consumer Confidence: Retreated from Recent High October 2016: 98.6 120 100 INDEX, 100=1985 80 60 40 20 0 SERIES: Consumer Confidence SOURCE: The Conference Board

Mortgage Rates: Still near Record Low January 2010 October 2016 6 5 MONTHLY WEEKLY 4 3 FRM ARM 2 1 0 2010/01 2010/09 2011/05 2012/01 2012/09 2013/05 2014/01 2014/09 2015/05 2016/01 2016/09 10.06.16 SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

Silver Lining for Economic Weakness and Uncertainty: Interest Rates Stay Low 18 16 14 12 10 8 6 4 2 0 Treasury Yield - 10 Yr. Treasury Yield - 30 Yr. Treasury yield dropped to fresh low amid global bond rally Fed may raise rate in December, but long-term rates will remain low as foreign cash continues to flow into U.S. bond 07/05/16: 10 Yr. 1.37% 30 Yr. 2.14% Jan-62 Jan-64 Jan-66 Jan-68 Jan-70 Jan-72 Jan-74 Jan-76 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 SERIES: Treasury Yield 10 Yr., Treasury Yield 30 Yr. SOURCE: Yahoo Finance

California Housing Market Outlook

Household Growth Decelerates But Still Solid in 2016 Annual Household Growth (Net Chg, In Millions) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1.6 1.3 0.7 1.1 0.3 0.4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p 1.0 1.4 0.3 0.7 1.7 1.1 SERIES: Annual Household Growth SOURCE: US Census Bureau Housing Vacancy Survey

Home Purchase Index Continued to Climb from Same Period of Last Year At the national level, consumer sentiment remains positive. Consumers have a fairly optimistic 12-month outlook on housing at the end of the summer home-buying season, supported by increased job confidence and more favorable expectations regarding their personal financial situations compared with this time last year, said Doug Duncan, senior vice president and chief economist at Fannie Mae. SERIES: Home Purchase Sentiment Index SOURCE: Fannie Mae

Millennials: American Dream is still Important 40% 35% 30% 25% 20% 15% Answer on a scale of 0 to 5, from 'No Challenge' to 'Significant Challenge' n: 1260 34% 31% 25% 10% 5% 4% 6% 0% Not at All Important Of Little Importance Moderately Important Important Very Important How important is fulfilling the 'American Dream' to you? SERIES: 2016 Generations / Millennials Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

And Homeownership is part of it 20% 18% 16% 14% 12% 10% 18% 18% 16% 14% 12% 11% 10% 8% 6% 4% 2% 0% Owning a home A fulfilling job Having a family Education Seeing the world Helping others Becoming wealthy Which factors contribute to your ideal of the `American Dream` SERIES: 2016 Generations / Millennials Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

50% 45% 40% 35% Many Millennials Also Believe Buying a Home Is a Safe Investment 45% 37% 30% 25% 20% 15% 12% 10% 5% 0% 1% 5% Strongly Disagree Disagree Neighter Agree nor Disagree Agree Strongly Agree Q. Do you think home purchase is still a safe investment? SERIES: 2016 Generations / Millennials Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Nearly ½ Renters Plan to Buy a Home No plans to buy 28% Not sure 24% In 5+ Years 11% 3-5 Years 14% In 2 Years 13% Within a year 9.6% Q. When do you plan to buy your next home? 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 20

55% of Renters Have Made Preparations to Buy a Home No preparations 45% Searched for homes 34% Searched for home buying process information online 21% Spoken to a REALTOR 16% Consulted credit counselor/financial advisor 12.0% Pre-qualified with a lender 9.0% Other 1.0% Q. Have you made any of the following preparations to buy a home? Please select all that apply. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 21

Sellers - More than Half of All Sellers Plan to Buy Another Home 80% 70% 60% 50% 72% 63% 52% 46% 49% 48% 53% 52% 40% 39% 33% 38% 40% 30% 20% 10% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Investor Buyers? Fewer than 2013, Still Have Demand in Lower-Priced Segments Demand for Investment Properties remained at the Lowest level since 2009 % to Total Sales 30% Investment/Rental Property Vacation/Second Home 25% 20% 15% 10% 5% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Investor Strategy: Still Buying to Rent SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

9% 8% 8% International Buyers? Smaller Share than Before, Partly Because of Global Economic Slowdown The share of international buyers dropped to the lowest level in 9 years 8% 7% 6% 5% 6% 5% 6% 6% 6% 4% 3% 2% 1% 4% 3% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q. Was the buyer an international buyer a person who was a citizen of another country who wished to purchase residential real estate in the U.S.? SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Real Estate is Still Considered the Best Long Term Investment 26

Demand Drivers Seem Solid, So Sales Should Be Up, Right? California, Sept. 2016 Sales: 425,680 Units, -0.4% YTD, +0.8% YTY 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Sep-15: 422,360 Sep-16: 425,680 *Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Sales More Robust in Higher-Priced Segments Jan to September 2016 Sales 15% Year-to-Year % Chg 10% 5% 0% -5% -10% -15% -3% -2% 3% 8% 6% 9% 1% -20% -25% -21% $0 - $199k $200 - $299k $300 - $399k $400 - $499k $500 - $749k $750 - $999k $1,000 - $1,999k $2,000k+ SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Supply Remains an Issue, as Unsold Inventory Stays Below the Norm Sept. 2015: 3.6 Months; Sept. 2016: 3.5 Months 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 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

Supply More Restricted at the More Affordable Price Ranges Sep-16 Sep-15 $1,000K+ 5.3 5.3 $750-1000K $500-749K $400-499K $300-399K $200-299K 3.1 3.0 3.1 3.1 3.2 3.1 3.3 3.5 3.8 3.9 $0-199K 3.3 3.4 0 1 2 3 4 5 6 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

Where is the inventory? Long-Time Homeowners are not moving as in the past Low rate on current mortgage Low property taxes Capital gains hit Where can I afford to go? Could not qualify for a mortgage today Remodel and stay Are we headed for the European Model where children inherit the home of their parents? One more thing Secular decline in marriage

Years Owned Home Before Selling 12 All Sellers 10 10 8 6 4 2 0 SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Owners Investing in Staying Put? $ Billions 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Alterations/Additions Reach All-Time High & Gaining Steam Up 16% from 2015 YTD levels $3.9 Billion through July 0.0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Year-to-Date Through July SOURCE: California Homebuilding Foundation (CHF)/Construction Industry Research Board (CIRB) Downloaded from Moody s Analytics

Boomers Not Moving as Often 71% of Californian s aged 55+ haven t moved since 1999 California Homeowners by Length of Tenure, 2013 35% Under 55 55+ 31.8% 30% 25% 20% 24.4% 21.3% 24.0% 15% 10% 5% 0% 9.0% 14.2% 12.4% 11.0% 12.0% 10.7% 8.9% 7.3% 5.7% 0.9% 0.8% 1.9% 1978 & Earlier 1979 to 1984 1985 to 1989 1990 to 1994 1995 to 1999 2000 to 2005 2005 to 2009 2010 to 2013 SERIES: Distribution of Home Ownership by Year Moved In SOURCE: U.S. Census Bureau, 2013 American Housing Survey

Missing 65,000 New Units Annually 350000 300000 2015: 95,822 (42,959 sf, 52,863 mf) 2016p: 98,300 total units Single Family Multi-Family 250000 200000 Household Growth: 165,000/yr. 150000 100000 50000 0 SERIES: California New Housing Permits SOURCE: Construction Industry Research Board

Three of the Top 10 Markets in Need of More Housing Constructions Are in California Top 10 Markets in Need of More Single-Family Housing Starts Metro Area # of permits required 1. New York 218,541 2. Dallas 132,482 3. San Francisco 127,412 4. Miami 118,937 5. Chicago 94,457 6. Atlanta 93,627 7. Seattle 73,135 8. San Jose, CA 69,042 9. Denver 67,403 10. San Diego 55,825 SOURCE: National Association of Realtors, Census Bureau

Most Underbuilt Counties in California 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 New Jobs vs. New Permits (2010-2015) 381,300 174,833 162,740 127,542 141,162 95,245 98,149 105,586 88,134 35,426 44,923 40,434 18,141 14,901 18,108 31,255 Jobs Permits 66,054 44,772 6,349 10,890 SOURCE: California Employment Development Department, Construction Industry Research Board

Underbuilding (New Jobs/New Permits) The More Underbuilding, the Higher the Price Growth CA Underbuilding and Price Growth (2010-2015) 12 10 8 6 4 2 0-40% -20% 0% 20% 40% 60% 80% 100% 120% -2 Price Growth (%) SERIES: Nonfarm Job Growth, New Housing Permits, Existing Median Prices SOURCE: CA EDD, C.A.R., Construction Industry Research Board

Tight Supply Also Pushed up Home Prices, as onethird of Homes Were Sold above the Asking Price 60% 50% 40% % of Sales above Asking Price 33% 32% 10% 9% 8% 7% 6% Median Price Discount & Weeks on Market Med. Price Discount Med. Weeks on MLS 16 14 12 10 30% 5% 8 20% 10% Long Run Average = 20% 4% 3% 2% 1% 0%, 2.1 weeks 6 4 2 0% 0% 0 SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

California Median Price at Its Highest Level in Nearly Seven Years California, Sep. 2016: $514,320, -2.3% MTM, +6.1% YTY $700,000 $600,000 P: May-07 $594,530 Sep-15: $484,670 Sep-16: $514,320 $500,000 $400,000 T: Feb-09 $245,230-59% from peak $300,000 $200,000 $100,000 $- SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Net Cash Gain to Sellers Highest since 2007 $250,000 $200,000 $175,000 $150,000 $100,000 $50,000 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q. What was the net cash gain or net loss to the seller as a result of this sale? SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Affordability Becomes Biggest Concern Decline in housing affordability 26% Lack of Inventory Inflated home prices 19% 18% Slow down in economic growth 11% Housing bubble Lending & financing Rising interest rates Policy & regulations 6.5% 6.2% 4.0% 1.7% Q: What is your biggest concern about the current real estate market? 0% 5% 10% 15% 20% 25% 30% SERIES: 2016 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Housing Affordability peaked q1 2012 prices v. low rates and income growth % OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME 80% 70% 60% 50% 40% 30% 20% 10% 0% CA US California vs. U.S. 1984-2016 Annual Quarterly 57% 31% SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Housing Affordability In CA: by county 2016-Q2: % able to purchase median-priced home 60 57 56 56 54 52 50 50 50 50 48 46 45 45 45 41 40 30 32 31 30 29 27 26 26 25 25 20 10 22 20 20 19 18 17 14 13 0 SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

But Affordability Is Not Just a Monthly Mortgage Payment Issue, It s Also a Down Payment Issue Highest Down Pmt. in $ Since 2005, but lowest down pmt. in % in last 7 yrs. $90,000 $80,000 Median Down Payment % of Down Payment to Price $78,000 25% $70,000 20% $60,000 $50,000 18% 15% $40,000 $30,000 10% $20,000 5% $10,000 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0% SERIES: 2016 Annual Housing Market Survey SOURCE: California Association of REALTORS

Home Prices Chasing Rent Growth Both outpacing growth in earnings, and suggests that it s a supply issue California Los Angeles 35.0% 30.0% 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 10.0% 5.0% 15.0% 10.0% 5.0% 0.0% 0.0% -5.0% -5.0% -10.0% 10 11 12 13 14 15 16-10.0% 10 11 12 13 14 15 16 Prices Rents Wages Prices Rents Wages SOURCE: California Association of REALTORS, Bureau of Labor Statistics, and RealFacts

San Francisco: Affordability & Jobs Drive Migration County Moved To/From Total Number Moved to San Francisco County Total Number Moved from San Francisco County Total Net Migration Alameda 3983 10345-6362 San Mateo 6161 7984-1823 Contra Costa 1856 2998-1142 Sonoma 557 1602-1045 Marin 1428 1918-490 Napa 0 243-243 Solano 796 815-19 Santa Clara 4041 2691 1350

Homeownership Rates California vs. U.S. 9.4% gap in 2015 80% CA US 70% 64% 60% 50% 54% 40% 30% 20% 10% 0% 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Regional Housing Market

Central Valley Sales 3.7% YTD 8.4% YTY Median Price $290,750 7.3% YTY UII 3.2 23.1 NA NA Months MTM Days Price Per Sq Ft Sales To List Ratio

2016 Central Valley YTD Sales

2016 Central Valley Median Prices YTY

Sacramento County

2,500 Sales of Existing Detached Homes Sacramento County, Sep. 2016: 1,609 Units, +1.2% YTD, +2.9% YTY 2,000 1,500 1,000 500 0 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Sales of Existing Detached Homes Sacramento County, 2015: 17,143 Units, Up 11.4% YTY 25,000 ANNUALLY 20,000 15,000 10,000 5,000 0 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

$450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Median Price of Existing Detached Homes Sacramento County, Sep. 2016: $325,380, Up 12.3% YTY SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Unsold Inventory Index Sacramento County, September 2016: 2.6 Months 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Note: The Unsold Inventory Index represents the number of months it would take to deplete the remaining inventory at the end of a particular month with the sales rate of the month in consideration. Inventory includes listings with Active, Pending, and Contingent (when available) statuses. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Folsom

Sales of Single Family Homes Folsom, September 2016: 94 Units +10.4% 2015, +1.2% 2016 YTD, +4.4% YTY SOURCE: Clarus Market Metrics

Median Price of Single Family Homes Folsom, September 2016: $466,000 Down 1.6% MTM, Up 6.8% YTY SOURCE: Clarus Market Metrics

For Sale Properties Folsom, September 2016: 263 Units -6.6% 2015, -9.4% 2016 YTD, -11.7% 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

Elk Grove

Sales of Single Family Homes Elk Grove, September 2016: 242 Units +9.7% 2015, +4.4% 2016 YTD, +22.8% YTY SOURCE: Clarus Market Metrics

Median Price of Single Family Homes Elk Grove, September 2016: $372,500 Up 2.6% MTM, Up 9.6% YTY SOURCE: Clarus Market Metrics

For Sale Properties Elk Grove, September 2016: 641 Units +0.9% 2015, -8.8% 2016 YTD, -8.9% 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

City of Sacramento

Sales of Single Family Homes City of Sacramento, September 2016: 809 Units +11.6% 2015, +0.7% 2016 YTD, +2.4% YTY SOURCE: Clarus Market Metrics

Median Price of Single Family Homes City of Sacramento, September 2016: $285,000 Down 1.7% MTM, Up 13.9% YTY SOURCE: Clarus Market Metrics

For Sale Properties City of Sacramento, September 2016: 2,561 Units -4.5% 2015, -7.1% 2016 YTD, +5.2% 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

2017 Forecast

U.S. Economic Outlook 2011 2012 2013 2014 2015 2016p 2017f US GDP 1.6% 2.2% 1.7% 2.4% 2.6% 1.5% 2.2% Nonfarm Job Growth 1.2% 1.7% 1.7% 1.9% 2.1% 1.8% 1.4% Unemployment 8.9% 8.1% 7.4% 6.2% 5.3% 4.9% 4.7% CPI 3.1% 2.1% 1.5% 1.6% 0.1% 1.4% 2.1% Real Disposable Income, % Change 2.5% 3.2% -1.4% 2.7% 3.4% 2.7% 2.7% 30-Yr FRM 4.5% 3.7% 4.0% 4.2% 3.9% 3.6% 4.0% SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

California Economic Outlook 2011 2012 2013 2014 2015 2016p 2017f Nonfarm Job Grow th Unemployment Rate Population Grow th Real Disposable Income, % Change 1.1% 2.4% 3.0% 2.2% 2.7% 2.3% 1.6% 11.8% 10.4% 8.9% 7.5% 6.2% 5.5% 5.3% 0.7% 0.7% 0.9% 0.9% 0.9% 1.0% 1.0% 3.5% 4.7% -1.1% 3.2% 3.6% 2.9% 3.5% SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

California Housing Market Outlook 2011 2012 2013 2014 2015 2016p 2017f SFH Resales (000s) 422.6 439.8 414.9 382.7 408.8 407.3 413.0 % Change 1.4% 4.1% -5.9% -7.8% 6.8% -0.4% 1.4% Median Price ($000s) $286.0 $319.3 $407.2 $446.9 $474.4 $503.9 $525.6 % Change -6.2% 11.6% 27.5% 9.8% 6.2% 6.2% 4.3% Housing Affordability Index 53% 51% 36% 30% 31% 33% 29% 30-Yr FRM 4.5% 3.7% 4.0% 4.2% 3.9% 3.6% 4.0% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Central Valley Housing Market Outlook 2014 2015 2016p 2017f SFH Resales % Change -7.1% 9.9% 3.7% 2.2% Median Price ($000s) $245.0 $265.6 $283.0 $294.6 Median Price % Change 13.0% 8.4% 6.6% 4.1% SERIES: Southern California Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Key Takeaways Both CA home sales and prices will be up slightly in 2017 Fundamental demand drivers (jobs; rates; household formation) are solid Housing affordability an insurmountable hurdle for many CA will see accelerating out-migration of Millennials in search of housing they can afford

Lack of Affordability Biggest Challenge Mortagage rate increase, 10% Recession, 6% Lack of inventory, 28% Lack of affordability, 56% Q2 - What will be the biggest challenge for the housing market in 2017?

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