Santa Cruz County AOR Seascape Golf Club October 7, 2016 Leslie Appleton-Young Chief Economist & Vice President

Santa Cruz County AOR Seascape Golf Club October 7, 2016 Leslie Appleton-Young Chief Economist & Vice President

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Cadence of Accountability How did I do with last year s forecast?

2016 Story US economic and job growth expanding CA economy out-preforming the nation Rates rising in response to Fed policy Millennials leaving the nest as job opportunities expand Listings & new units remain low Formerly owner-occupied units now rentals Affordability challenges for first time & repeat buyers Boomers aren t moving

2016 Forecast Report Card 2015 Actual 2016 Forecast 2016 Projected SFH Resales (000s) 408.8 433.0 407.3 % Change 6.8% 6.3% -0.4% Median Price ($000s) $474.4 $491.3 $503.9 % Change 6.2% 3.2% 6.2% 30-Yr FRM 3.9% 4.5% 3.6% Housing Affordability Index 31% 27% 33% U.S. Gross Domestic Product 2.4% 2.7% 1.5%

YTD 2016 CA sales flat compared to 2015 California, August 2016 Sales: 420,360 Units, -0.4% YTD, -2.2% YTY 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Aug-15: 429,900 Aug-16: 420,360 *Sales are seasonally adjusted and annualized SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

2016 prices highest since 2007 California, Aug. 2016: $526,580, +1.7% MTM, +5.8% YTY $700,000 $600,000 P: May-07 $594,530 Aug-15: $497,520 Aug-16: $526,580 $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

Peak vs. 6/16: Southern California Region Last Cyclical Peak Month Last Cyclical Peak Price Jun-16 Median %Chg From Peak Orange County Jun-07 $775,420 $759,490-2.1% San Diego County May-06 $622,380 $594,430-4.5% Ventura Couty Aug-06 $710,910 $674,310-5.1% CALIFORNIA May-07 $594,530 $519,440-12.6% Riverside County Jun-06 $431,710 $357,810-17.1% Los Angeles Metro May-07 $578,700 $477,230-17.5% Inland Empire Jun-06 $389,380 $319,100-18.0% Los Angeles County Sep-07 $625,810 $502,190-19.8% San Bernardino County Aug-06 $350,290 $245,220-30.0% SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Peak vs. 6/16 Median: Central Valley Region Last Cyclical Peak Month Last Cyclical Peak Price Jun-16 Median %Chg From Peak CALIFORNIA May-07 $594,530 $519,440-12.6% Madera County Feb-08 $275,000 $234,720-14.6% Sacramento County Aug-05 $394,450 $332,580-15.7% Placer County Aug-05 $527,990 $444,590-15.8% Kern (Bakersfield) County Jun-06 $299,920 $238,400-20.5% Kings County Mar-06 $268,050 $211,110-21.2% Tulare County Dec-05 $269,710 $211,820-21.5% Fresno County Jun-06 $313,510 $242,240-22.7% San Benito County May-05 $671,190 $511,500-23.8% Merced County Oct-05 $344,610 $207,580-39.8% SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Peak vs. 6/16 Median: Bay Area Region Last Cyclical Peak Month Last Cyclical Peak Price Jun-16 Median %Chg From Cyclical Peak San Francisco County May-07 $972,010 $1,350,000 38.9% San Mateo County Oct-07 $1,020,000 $1,306,250 28.1% Santa Clara County Apr-07 $865,000 $1,050,000 21.4% Alameda County May-07 $709,420 $803,000 13.2% San Francisco Bay Area May-07 $789,250 $841,960 6.7% Marin County Jun-07 $1,149,390 $1,218,500 6.0% Sonoma County Jan-06 $650,330 $608,000-6.5% CALIFORNIA May-07 $594,530 $519,440-12.6% Napa County Aug-06 $729,170 $619,000-15.1% Solano County Jun-06 $492,800 $390,000-20.9% Contra Costa County May-07 $923,150 $625,000-32.3% SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Peak vs. 6/16 Median: Santa Cruz Region Last Cyclical Peak Month Last Cyclical Peak Price Jun-16 Median %Chg From Cyclical Peak San Francisco County May-07 $972,010 $1,350,000 38.9% San Mateo County Oct-07 $1,020,000 $1,306,250 28.1% Santa Clara County Apr-07 $865,000 $1,050,000 21.4% Alameda County May-07 $709,420 $803,000 13.2% San Francisco Bay Area May-07 $789,250 $841,960 6.7% Marin County Jun-07 $1,149,390 $1,218,500 6.0% Sonoma County Jan-06 $650,330 $608,000-6.5% CALIFORNIA May-07 $594,530 $519,440-12.6% Santa Cruz County Aug-16 $780,000 $824,000 5.6% SERIES: Median Price of Existing Detached Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Don t Bother Commuting in Major Metros <1 hour 1-2 hours 2+ hours Impossible! Don't bother! from Palo Alto to San Francisco? 13% 52% 20% 15% from Riverside to Irvine? 12% 51% 23% 13% Q4 - What is the average commute time

Making Traffic Disappear is Most Desired Super Power Make traffic disappear 29% Flying 26% Instant mortgage approval 21% Invisibility 19% Super strength 4.9% Q12 - Which super power would you like to have? 0% 5% 10% 15% 20% 25% 30% 35%

Abundance of Uncertainty

BREXIT: Unexpected

Markets Don t Like Uncertainty Financial markets meltdown after the Brexit vote 2140 2120 Adjusted Closed S & P 500 Composite 2,113.32 2100 2080 2060-3.6% 2040 2020 2,037.30 2000 1980 SOURCE: Yahoo Finance

Jan-62 Jan-65 Jan-68 Jan-71 Jan-74 Jan-77 Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 US Treasuries in Demand 18 16 14 12 10 8 6 4 2 0 Treasury Yield - 10 Yr. Treasury Yield - 30 Yr. 06/24/16: 10 Yr. 1.57% 30 Yr. 2.43% SERIES: Treasury Yield 10 Yr., Treasury Yield 30 Yr. SOURCE: Yahoo Finance

Oil Prices: Unexpected Dollars per Barrel $160 $140 $120 $100 $80 $60 $40 $20 $0 SERIES: Crude Oil Prices: West Texas Intermediate SOURCE: U.S. Energy Information Administration

Fed Policy: Uncertain

Rates remain very attractive Today s rates: FRM 3.42% ARM 2.8% 6 5 MONTHLY WEEKLY 4 3 2 FRM ARM 1 0 SERIES: 30Yr FRM, 5Yr ARM SOURCE: Freddie Mac

Do you plan to leave the country if? [CATEGORY NAME] [VALUE] [CATEGORY NAME] [VALUE] [CATEGORY NAME] [VALUE]

Economic Outlook

Macro Economic Summary 1.2% 4.2% GDP 2016-Q2 5.0% Consumption 2016-Q2 1.7% Unemployment 2016-09 Job Growth 2016-07

ANNUAL PERCENT CHANGE, CHAIN-TYPE (2009) $ Slow Economic Growth Below 3% for 11Years US GDP 2015: 2.6%; 2016 Q1:.8% Q2: 1.4% 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

ANNUAL PERCENT CHANGE CA Jobs Growing Faster Than Nation 6 4 2 0-2 -4-6 -8 California US CA 2.3% US 1.7% SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

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

Silicon Valley Leads Job Growth August 2016: CA +2.3%, +378,000 (YTY) San Jose Inland Empire Stockton Fresno MSA Sacramento Orange San Francisco Oakland Modesto Bakersfield San Diego Los Angeles Ventura 0.7% 1.8% 1.7% 2.0% 2.7% 2.7% 2.6% 2.5% 2.4% 2.3% 2.3% 3.2% 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

California Job Changes by Industry August 2016: CA +2.3%, +378,000 (YTY) Educational Services Professional, Scientific & Technical Services Construction Leisure & Hospitality Real Estate & Rental & Leasing Health Care & Social Assistance Information Government Wholesale Trade Admistrative & Support & Waste Services Transportation, Warehousing & Utilities Retail Trade Finance & Insurance Durable Goods Nondurable Goods -0.8% -0.8% 0.3% 1.8% 1.8% 1.7% 1.6% 1.3% 3.7% 3.6% 3.3% 2.9% 2.7% 4.6% 6.3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

Unemployment Rates Near 8-year low September 2016: US 4.9% & 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 Job Gains by Region +378,000 last 12 months Nonfarm Employment (Thousands) Aug 2016 Aug 2015 Change % Change Southern California 9,007.4 8,824.1 183.3 2.1% Bay Area 3,574.8 3,542.4 32.4 0.9% Central Valley 2,171.5 2,119.4 52.1 2.5% Central Coast 534.4 527.2 7.2 1.4% North Central 143.7 140.9 2.8 2.0% CALIFORNIA 16,534.3 16,156.3 378.0 2.3% SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

Unemployment by Metro Area August 2016: California 5.5% Bakersfield Fresno MSA Modesto Stockton MSA Inland Empire Ventura Sacramento Los Angeles San Diego Oakland Orange County San Jose San Francisco 3.4% 5.8% 5.5% 5.3% 5.0% 4.7% 4.4% 4.1% 6.6% 8.0% 7.8% 8.7% 9.7% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

INDEX, 100=1985 Consumer Confidence: 9 Year High September 2016: 104.1 120 100 80 60 40 20 0 SERIES: Consumer Confidence SOURCE: The Conference Board

REALTORS CRE Outlook

The New Normal Lack of supply hinders sales High-end: discretionary & slowing Low/Moderate-end: demand continues unabated Urban coastal CA slowing Inland and Central and Northern CA growing Migration patterns mirror housing affordability and jobs Demographics is Destiny: Boomers aren t moving, even when they retire

Supply: Listings

Supply Remains an Issue; Unsold Inventory Stays Below the Norm August 2016: 3.4 Months, August 2015: 3.6 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

Inventory Tightest in the Bay Area 9.0 Bay Area So CA Central Valley 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 3.6 3.2 2.4 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 Tighter at the More Affordable Price Ranges Aug-16 Aug-15 $1,000K+ $750-1000K $500-749K $400-499K $300-399K $200-299K $0-199K 3.1 3.0 3.1 3.1 3.0 3.1 3.6 3.7 3.4 3.4 3.4 3.5 4.9 4.9 SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS 0 1 2 3 4 5 6

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

Fewer housing units being turned 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.

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

$ Billions Owners Investing in Staying Put? 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

Most Have Equity in their Home No, 8% Yes, 92% Do you have equity in your home? SERIES: 2016 Baby Boomer Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Majority Do Not Plan to Sell Home When they Retire Yes, 36% No, 64% Do you plan to sell your current home when you retire? SERIES: 2016 Baby Boomer Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Do you worry about your children not having the same opportunities to succeed as you did? About the same, 24% No, they will have have better opportunities, 24% Yes, they will have worse opportunities, 52% Do you worry about your children or grandchildren not having the same opportunities to succeed as you did? SERIES: 2016 Generations / Boomer Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Time to talk: ¾ Plan of have already Helped Children with Down Payment No, 23% Yes, I have already helped, 24% Yes, I am planning to help, 53% Are you planning to provide help for your children to buy a home by contributing to their down payment or mortgage payments? SERIES: 2016 Generations / Boomer Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

California s Single-Family Housing Stock 7,500,000 Owner-Occupied (left) Renter-Occupied (right) 3,000,000 7,000,000 2,500,000 6,500,000 2,000,000 1,500,000 6,000,000 1,000,000 5,500,000 500,000 5,000,000 2000 2003 2006 2009 2012 2015 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) 0

More Single Family Units Now Rentals 8,000,000 7,000,000 Potentially between 400,000 and 700,000 SF Rentals that Used to be Owner-Occupied 6,919,164 6,527,730 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 1,940,607 2,674,808 0 SF Owners 2000 2005 2010 2015 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)

Supply: New Houisng Units

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

What Would NIMBYs Rather Do? Fund Elon Musk s colony on Mars. (27%) Watch constant reruns of Keeping Up With The Kardashians. (25%) Cut off their right arm. (18%) Give away their first-born. (16%) Shop at Smart & Final. (13%) Q10 - What would NIMBYs rather do than allow new housing development?

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

Affordability

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

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

Wages v. Income Required to Qualify California $130,000 2015 Annual Mean Wage $126,560 $110,000 $90,000 $70,000 $72,360 $67,920 $93,550 $92,170 $101,260 $92,571 $50,000 $45,810 $30,000 $28,430 $10,000 -$10,000 Retail Salespersons Chefs and Head Cooks Elementary School Teachers Firefighters Police and Sherriff's Patrol Officers Computer Programmers Registered Nurses Software Developers (Applications) Min. Inc Required to Buy a Med. Home SOURCE: Bureau of Labor Statistics, C.A.R.

50% Share of First-Time Buyers remains Below Long-Run Average % First-Time Home Buyers Long Run Average 40% Long Run Average = 38% 30% 29.5% 20% 10% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SERIES: 2015 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Los Angeles: Net Exit to Inland Empire and Kern County County Moved To/From Total Number Moved to Los Angeles County Total Number Moved from Los Angeles County Total Net Migration Inland Empire 25,777 50,531-24,754 Kern 2,466 10,460-7,816 Orange 23,887 31,435-7,548 San Diego 8,916 7,240 1,676 Ventura 7,464 7,543-79

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

The median income in Oakland is $47,000, which translates to $1,175/month for rent, but the average monthly rent in Oakland is $3,000.

Demand & Desire for Homeownership

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

Millennials: American Dream is still Important 40% 35% 30% 25% 20% 15% 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% 75

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% 76

69% of Millennial renters would look into purchasing if knew about lower down-payments All Millennial Owners No, 31% Yes, 69% If You knew you could qualify with lower down-payment, would you start to look for a house? SERIES: 2016 Generations / Millennials Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Only 19% Know about FHA Loans Are you aware of FHA Loans? Yes, [VALUE] No, [VALUE] FHA backed loans only require a 3.5% down-payment. SERIES: 2016 Generations / Millennials Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

Student Loan Debt: 47% (34 or Under)

% of Loan borrowers Student Debt Delayed Decisions to Move out of Family Member s Home After College? SERIES: 2016 Student Loan Debt and Housing Report SOURCE: National Association of Realtors

2016: Market Conditions Annual Housing Market survey

Market Remained Very Competitive 80% 70% 60% 50% 40% 30% 20% 10% 0% % with Multiple Offers # of Multiple offers (Average) 53% 52% 4.0 4.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 7 6 5 4 3 2 1 0 SERIES: 2016 Housing Market Survey 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

Sellers - More than Half 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? Dropping 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

International Buyers Dropping 9% 8% 8% 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

Regional Housing Markets

City of Santa Cruz

Sales of Single Family Homes City of Santa Cruz, September 2016: 44 Units +23.6% 2015, -11.5% 2016 YTD, -31.3% YTY SOURCE: Clarus Market Metrics

Median Price of Single Family Homes City of Santa Cruz, September 2016: $872,500 Down 3.1% MTM, Up 6.3% YTY SOURCE: Clarus Market Metrics

For Sale Properties City of Santa Cruz, September 2016: 143 Units +12.5% 2015, -15.2% 2016 YTD, -25.5% 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

Watsonville

Sales of Single Family Homes Watsonville, September 2016: 22 Units +138.1% 2015, -11.2% 2016 YTD, -18.5% YTY SOURCE: Clarus Market Metrics

Median Price of Single Family Homes Watsonville, September 2016: $552,500 Down 1.7% MTM, Up 22.5% YTY SOURCE: Clarus Market Metrics

For Sale Properties Watsonville, September 2016: 90 Units +121.1% 2015, +3.5% 2016 YTD, -5.3% 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

Hollister

Sales of Single Family Homes Hollister, September 2016: 39 Units +10.1% 2015, +16.1% 2016 YTD, -2.5% YTY SOURCE: Clarus Market Metrics

Median Price of Single Family Homes Hollister, September 2016: $525,000 Down 2.4% MTM, Up 11.1% YTY SOURCE: Clarus Market Metrics

For Sale Properties Hollister, September 2016: 169 Units +9.2% 2015, +24.0% 2016 YTD, +22.5% 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 1.8% 2.3% 2.2% 2.4% 2.4% 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 Growth Unemployment Rate Population Growth 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

Varying Market Expectations for 2017 100% 90% 80% 70% 47% 31% 36% 62% 60% 50% 40% 30% 40% 44% 35% Up Flat Down 20% 10% 0% 35% 25% 29% 13% 3.0% Prices Sales Inventory Interest rates Q1 - What do you think will happen to the California real estate market in 2017?

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

Sales down for 2016 but Improve in 2017; Price will Grow Steadily this Year and Next Units (Thousand) Sales of Existing Detached Homes Price (Thousand) Median Price 700 600 $600 $500 $504 $526 500 400 300 200 413.0 407.3 $400 $300 $200 100 $100 0 2005 2007 2009 2011 2013 2015 2017f $0 2005 2007 2009 2011 2013 2015 2017f SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

CA: Dollar Volume Up 5.8% in 2016, Up 5.8% in 2017 $ 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 $194 $205 $217 20% 10% 0% -10% -20% $50 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p 2017f -30% -40% SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

2017 Challenges & Opportunities

Lack of Affordability Biggest Challenge Mortagage rate increase, 10% [CATEGORY NAME], 6% Lack of inventory, 28% [CATEGORY NAME], [VALUE] Q2 - What will be the biggest challenge for the housing market in 2017?

2017 Wild Cards Unexpected rise in rates Economic collapse Tech giants crumble Other Black Swans Hit to equities Global instability Outcome of November Election

2017 Opportunities Up your game Always a good option What business are YOU in? Educate first time-home buyers talk to their parents Become well versed on down payment assistance programs, debt management and improving credit to turn renters into buyers. Don t give up on international buyers Stay involved & stay current Get married!

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