2006 Real Estate Market Forecast Leslie Appleton-Young Vice President and Chief EconomistSlide 2
Economic ConditionsSlide 3
Recent Economic Headlines US occupations up 243,000 in February; reexamined additions of 170,000 in January and 145,000 in December Strong yet not blasting Rebound in wages Expect benchmark Fed Funds rate to go from 4.5% to 5.0% Strong efficiency increases Softer lodging segmentSlide 4
Gross Domestic Product 2004: 4.2% 2005 3.5% 2006 3.5% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $Slide 5
Gross Domestic Product 2005 Q4: +1.1% QUARTERLY PERCENT CHANGE, ANNUAL RATESlide 6
Employment Growth, California versus U.S. YEAR TO YEAR % CHANGESlide 7
Nonfarm Employment By Region SOURCE: CA Employment Development DivisionSlide 8
Consumer Confidence Index January 2006: 106.3 INDEX, 100=1985Slide 9
Consumer Spending 2005 Q4 1.1% QUARTERLY PERCENT CHANGESlide 10
U.S. Deals and Median Price ANNUAL RATESlide 11
Mortgage Origination Refinance versus Buy ORIGINATION (BIL $) 30-YR FIXED RATE MORTGAGE SOURCE: Mortgage Bankers AssociationSlide 12
The "Riches" Effect Higher land values changed over into money through: Trading "down"; Cash-out refi\'s; Home value advances Housing "cash" made (Source: Federal Reserve Board): Year Money % Disposable Income 2000 $204 B 2.8% 2001 $262B 3.5% 2002 $398 B 5.1% 2003 $439 B 5.4% 2004 $599 B 6.9% at the end of the day, this getting has energized buyer spending and it will moderate as lodging value increases moderate.Slide 13
Longer Tenure in Home? Property holders may stay in their present homes longer since they have: Cashed out and spent their exchange up value Concerned about "property charge stun" Love their low-rate contract But keep in mind that "Boomers" are acquiring riches from their folks and are keen on land for: Kids Parents Retirement/InvestmentSlide 14
Consumer Price Index January 2006: All Items 4.0% Y-T-Y; Core 2.1% Y-T-Y PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984Slide 15
Fed Funds and Mortgage Rates 2000-2006: 15 Fed increments since June 2004 SOURCE: Federal Home Loan Mortgage Corp.Slide 16
Mortgage Rates SOURCE: FHLMCSlide 17
Treasury Yield CurveSlide 18
Why are Rates so Low? Greenspan: It\'s a "Problem" Deflationary Structural Forces Global Competition: Wal-Mart Effect Increased customer Awareness: Internet Effect Productivity increases/Greater proficiency Global Labor power – off-shoring Foreign Central Banks and Pension reserves holding more $\'sSlide 19
ARMs as a Percent of All Mortgages Why isn\'t this lower? Source: Federal Housing Finance Board Source: Federal Housing Finance BoardSlide 20
New Loan Products and Risk Types of instruments Zero up front installment Interest-just Stated wage Option-ARM\'s Concerns Ability to assimilate rate modification Slower value development aheadSlide 21
National Economy Economic development in 2006 a moderate 3.5% The "Goldilocks Economy"? Joined by … Modest occupation development – strong yet not remarkable Inflation in line – Fed Priority Continued quality in Business Investment Consumer Spending level Growing Fiscal Stimulus: Katrina Strong Housing Market somewhat off 2005 pinnacleSlide 22
California Real Estate MarketSlide 23
California\'s Housing Cycles and Membership 1970-2006 THOUSANDSSlide 24
Sales of Existing Detached Homes and Pacific West Consumer Confidence California, January 2006 Sales: 500,474 Units, Down 24.1% Y-T-D, Down 24.1% Y-T-Y UNITS INDEX SOURCE: California Association of REALTORS®; The Conference BoardSlide 25
Median Price of Existing Detached Homes California, January 2006: $551,300, Up 13.8% Y-T-Y SOURCE: California Association of REALTORS®Slide 26
Unsold Inventory Index California, January 2006: 6.0 MONTHS Average Since 1/88: 6.4 months SOURCE: California Association of REALTORS®Slide 27
Median Time on the Market California Single-Family Homes, January 2006: 48.5 DAYS ON MARKET SOURCE: California Association of REALTORS®Slide 28
California\'s Million-Dollar Home Sales Increased 47% in 2005 YEAR Source: DataQuick Information Systems NUMBER OF HOMESSlide 29
Why are Home Prices Rising? Econ 101 Strong Demand Low Mortgage Rates Demographics: Baby Boomers Flight from option venture decisions Speculation? Confined Supply Constraints on new development Low stock of homes available to be purchasedSlide 30
Is There a Housing Bubble? Yes Virginia, there is an air pocket – a rise in the quantity of articles about the lodging bubble.Slide 31
BUBBLE? NO! Delicate LANDING? YESSlide 32
What is a Bubble? NASDAQ 1987-2005 MONTHLY AVERAGESlide 33
Median Price, Annual Percentage Change California versus U.S. Yearly PERCENTAGE CHANGESlide 34
California Median Price 1970-2005 Annual Percentage Change ANNUAL PERCENTAGE CHANGESlide 37
Southern California RegionSlide 38
Nonfarm Employment SOURCE: California Economic Development Dept.Slide 39
Nonfarm Employment Los Angeles County, January 2006: Up 1.3% Y-T Y-T-Y PERCENT CHANGE SOURCE: CA Employment Development DivisionSlide 40
Taxable Sales Los Angeles County ANNUAL PERCENT CHANGE SOURCE: CA State Board of EqualizationSlide 41
Sales of Existing Detached Homes and Pacific West Consumer Confidence Southern California January 2006 Sales: 8,823 Units, Down 19.5% Y-T-D, Down 19.5% Y-T-Y UNITS INDEX SOURCE: California Association of REALTORS®; The Conference BoardSlide 42
Sales of Existing Detached Homes SOURCE: California Association of REALTORS®Slide 43
Home Sales in Southern California Regions SOURCE: California Association of REALTORS®Slide 44
Median Price of Existing Detached Homes Southern California, January 2006: $531,043 Up 12.2%% Y-T-Y SOURCE: California Association of REALTORS®Slide 45
Median Price of Existing Detached Homes Southern California Regions SOURCE: California Association of REALTORS®Slide 46
Orange CountySlide 47
Sales of Existing Detached Homes and Pacific West Consumer Confidence Orange County, January 2006: 1,195 Units, Down 24.2% Y-T-D, Down 24.2% Y-T-Y UNITS INDEX SOURCE: California Association of REALTORS ® ; The Conference BoardSlide 48
Median Price of Existing Detached Homes Orange County, January 2006: $699,070, Up 10.2% Y-T-Y SOURCE: California Association of REALTORS ®Slide 49
Unsold Inventory Index Orange County, January 2006 : 8.9 MONTHS SOURCE: California Association of REALTORS®Slide 50
Median Time on the Market Orange County - Single-Family Homes, 2005 Q4: 37.3 days SOURCE: California Association of REALTORS ®Slide 51
New Housing Permits Orange County, January 2006: 1,137 Units, Up 298.9% Y-T-D SOURCE: Construction Industry Research BoardSlide 52
Sources of Population Growth Orange County (1981-2004) SOURCE: CA Department of Finance THOUSANDSSlide 53
Top 10 Home Buyer Surnames Orange County (2005) SOURCE: DataQuick Information SystemsSlide 54
Where are new OC families originating from? Los Angeles (19,522) Riverside (4,477) San Diego (3,336) San Bernardino (2,698) Santa Clara (970) Total approaching for 2004: 51,803 Total active for 2004: 58,935 Source: NAR Relocation Report 2004 – IRS Data; Item 187-06037Slide 55
2006 ForecastSlide 56
U.S. Financial Forecast SOURCE: California Association of REALTORS® e-expected, f-estimateSlide 57
U.S. Lodging Market Forecast SOURCE: National Association of REALTORS® **Existing home offers of single-family homes and townhouse/coopsSlide 58
California Economic Forecast SOURCE: California Association of REALTORS®Slide 59
California Housing Market Forecast SOURCE: California Association of REALTORS®Slide 60
2006 Forecast Risks Interest Rate Risk: Higher rates from: Unexpectedly high expansion Budget deficiency keep running up in rates Sell off of U.S. obligation by outside financial specialists and national banks Consumer Spending Risk: Weaker than anticipated, thwarting development and employment development Refi blast moderates; less value to tapSlide 61
2006 Market Opportunities Baby boomers – resigning and differentiating Singles – biggest offer of homebuyers Multi-social and foreigner purchasers – Latinos are quickest developing gathering of purchasers Condos/Infill in metro territories – driven by reasonableness or personal satisfaction issues Continued quality in section and mid-rangeSlide 62
County Economic Profiles Ultimate Information Source Based on information from: • C.A.R. Research and Surveys • U.S. Evaluation Bureau • California Department of Finance • Federal Home Loan Mortgage Corporation • Construction Industry Research Board • Dataquick Information Services The most recent financial information, lodging market patterns and demographic measurements from the California Association of REALTORS® Valuable Sales Tool Contains more than 20 simple to-peruse graphs covering: • Home resale movement and shopper certainty • Median home costs and home loan rates • Housing reasonableness list • Current monetary pointers • Foreclosure rates . . . what\'s more, significantly more! Accessible in 12-month membership or on a one-time premise. Conveyed by means of email in PowerPoint presentation position. For more data : email@example.com www.rebs.com 213.739.8217Slide 63
C.A.R. Research Products INTERNET versus Conventional BUYER From web use to purchaser fulfillment, an exhaustive examination of the home purchasing process. Part USE OF TECHNOLOGY SURVEY Highlights current innovation patterns and instruments connected to REALTORS ® achievement. Review OF CALIFORNIA HOME SELLERS Detailed data on the home offering process at the shopper level.Slide 64
C.A.R. Research Products STATE OF THE CALIFORNIA HOUSING MARKET Strategic promoting data created every year. All reports are likewise profit
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