Monetary and Lodging Market Gauge California Junior colleges Land Training Center October 27, 2006.


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Monetary and Housing Market Forecast California Community Colleges Real Estate Education Center October 27, 2006 Robert A. Kleinhenz, Ph.D. Vice president Economist California Association of REALTORS®

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Overview California Housing Market Local & Regional Outlook 2006 Forecast Market & Membership Buyers & Technology

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California Real Estate Market

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Current Market Conditions Sales down essentially from 2004-05 record Price gratefulness moderating all through 2006 Higher inventories than record lows of \'04-05

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Sales of Existing Homes & Consumer Confidence California, September \'06: 444,780 Units, Down 24.0% YTD, Down 31.7% YTY Cons Conf Index Sales of Homes 2+ yrs above 600,000 SOURCE: California Association of REALTORS®; The Conference Board

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Median Price of Existing Detached Homes California, September 2006: $553,050, Up 1.8% Y-T-Y SOURCE: California Association of REALTORS®

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Median Price, Annual Percentage Change California versus U.S. More noteworthy Price Volatility in California than US SOURCE: California Association of REALTORS®

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Market Drivers Little Changed in 2006 Rates higher yet at close record low levels Steady employment & salary development Equity riches impact of rehash purchasers Long-run supply requirements Higher stock levels & littler value picks up

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#1-Interest Rates

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Mortgage Rates SOURCE: Federal Home Loan Mortgage Corporation

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#2 - Economic Conditions

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National Economy 2006 Steady practical GDP development in 3-4% territory Inflation ~ 3%+ Solid, not remarkable, work development Low unemployment rate RESULT: 2006 economy looks much like 2005

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Gross Domestic Product Year 2005: +3.5%; 2006 Q3: +1.6% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $ Annual Quarterly

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Unemployment Rate California versus Joined States SOURCE: CA Employment Development Division

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Employment Growth, California versus U.S. YEAR TO YEAR % CHANGE

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Consumer Price Index August 2006: All Items 3.8% Y-T-Y; Core 2.8% Y-T-Y PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

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#3 - Supply Conditions: Inventory & Time on Market

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Unsold Inventory, 2000-Present California, September 2006: 7.0 MONTHS Average Since 1/88: 6.9 months SOURCE: California Association of REALTORS®

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Unsold Inventory Index, 1988-Present MONTHS SOURCE: California Association of REALTORS®

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Unsold Inventory Index versus Value Changes California, 1982-2005 Inventory underneath 7 mos. 13% avg cost increment SOURCE: California Association of REALTORS®

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Listings by Month, Selected Years California (1982-2005 Average=100) SOURCE: California Association of REALTORS®

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Median Time on the Market CA Single-Family Homes, September \'06: 53.9 DAYS ON MARKET SOURCE: California Association of REALTORS®

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#4 - Demand Conditions: Repeat Buyers Dominate Market

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Market Share of Repeat Homebuyers California SOURCE: California Association of REALTORS®

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#5 - Demand Conditions: Demand > Supply in Long Run

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New Housing Permits California, August 2006: 13,128 Units, Down 16.7% Y-T-D Household Growth: 220,000-250,000/yr SOURCE: Construction Industry Research Board

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Homeownership Rates California Vs. U.S. SOURCE: U.S, Census Bureau

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Market Drivers Little Changed in 2006 Rates higher yet at the same time at close record low levels Steady occupation & salary development Equity riches impact of rehash purchasers Long-run supply requirements Higher (however not exactly avg) stock levels Q: So why the lull in 2006?

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Q: So why the lull in 2006? Loan fee Expectations Change in Market Psychology Affordability Constraints

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Interest Rate Expectations 2002-2004 Expectations of enduring/falling rates Acceleration/deceleration in response to expected rate changes. 2005-2006 Fed raised rates with desires of further rate climbs. Contracting spread amongst short and long rates Uncertainty about future course of rates

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Federal Funds Rate versus 10-Year T-Bond SOURCE: Federal Home Loan Mortgage Corporation – 30-yr FRM Federal Reserve Board – 10-Year T-Bond

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Change in Market Psychology 2002-2005 Both purchasers & venders knew it was a blast market Brisk development in business sector 2006 Buyers anticipating that costs should tumble due to higher inventories Sellers still need $$ their neighbor received+ More market erosion, longer time on business sector

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Affordability 2004-2005 Increase being used of option credit items expanded the term of business sector rise Increased pool of potential purchasers too 2006 Buyer buying power apparently extended to breaking point Rates still close memorable lows, however rate increments have dissolved moderateness (regularly scheduled installment up 20%+ year-to-year)

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First-Time Buyer Housing Affordability Index, US versus CA % OF HOUSEHOLDS THAT CAN AFFORD ENTRY LEVEL HOME SOURCE: California Association of REALTORS®

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Bay Area & Surrounding Counties

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Nonfarm Employment Bay Area Region SOURCE: California Economic Development Dept.

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Sales of Existing Detached Homes and Pacific West Consumer Confidence Bay Area, September 2006: 3,293 Units, Down 19.6% Y-T-D, Down 23.8% Y-T-Y UNITS INDEX SOURCE: California Association of REALTORS®; The Conference Board

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Median Price of Existing Detached Homes Bay Area, September 2006: $725,870, Up 2.2% Y-T-Y SOURCE: California Association of REALTORS®

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Sales of Existing Detached Homes Bay Area Counties SOURCE: California Association of REALTORS®

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Median Price of Existing Detached Homes Bay Area Counties SOURCE: California Association of REALTORS®

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First-time Buyer Housing Affordability 2 nd Quarter 2006 SOURCE: California Association of REALTORS®

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Central Valley Region

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Nonfarm Employment Central Valley Region SOURCE: California Economic Development Dept.

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Sales of Existing Detached Homes and Pacific West Consumer Confidence Central Valley, September 2006 Sales: 3,189 Units, Down 32.6% Y-T-D, Down 39.7% Y-T-Y UNITS INDEX SOURCE: California Association of REALTORS®; The Conference Board

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Sales of Existing Detached Homes Central Valley Region SOURCE: California Association of REALTORS®

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Median Price of Existing Detached Homes Central Valley, September 2006: $348,960, Down 3.4% Y-T-Y SOURCE: California Association of REALTORS®

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Median Price of Existing Detached Homes Central Valley Regions SOURCE: California Association of REALTORS®

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First-time Buyer Housing Affordability 2 nd Quarter 2006 SOURCE: California Association of REALTORS®

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Southern California Region

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Nonfarm Employment SOURCE: California Economic Development Dept.

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Sales of Existing Detached Homes and Pacific West Consumer Confidence Southern California Sept 2006 Sales: 9,435 Units, Down 32.7% Y-T-Y, Down 22.9% Y-T-D UNITS INDEX SOURCE: California Association of REALTORS®; The Conference Board

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Sales of Existing Detached Homes SOURCE: California Association of REALTORS®

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Median Price of Existing Detached Homes Southern California, September 2006: $565,390 Up 5.2% Y-T-Y SOURCE: California Association of REALTORS®

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Median Price of Existing Detached Homes Southern California Regions SOURCE: California Association of REALTORS®

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Unsold Inventory Index Los Angeles County, September 2006 : 8.3 MONTHS SOURCE: California Association of REALTORS®

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Unsold Inventory Index Orange County, September 2006 : 10.3 MONTHS SOURCE: California Association of REALTORS®

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Unsold Inventory Index San Diego County, September 2006 : 9.8 MONTHS SOURCE: California Association of REALTORS®

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First-time Buyer Housing Affordability 2 nd Quarter 2006 SOURCE: California Association of REALTORS®

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Economic & Market Forecast

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U.S. Financial Forecast SOURCE: California Association of REALTORS®

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California Economic Forecast SOURCE: California Association of REALTORS®

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California Housing Market Forecast SOURCE: California Association of REALTORS®

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Membership versus Sales Membership takes after Sales with a 2-Yr Lag Sales Peaks: 1978, 1988, 2004-05 Membership: 1980, 1990, 2006?

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Productivity & Competition Average: 7.6 sides # of Members # of Sides Per Member Membership decays when sides/part falls beneath 6 SOURCE: C.A.R. Participation Records

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Estimated Gross Commission Per Member (Inflation Adjusted) Mem Inc > HH Inc 2006 SOURCE: California Association of REALTORS®

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Wild Cards Consumer brain science/assumptions in regards to: home costs loan costs Impact of non-conventional home loans Unexpected real downturn

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Mortgage Foreclosure Rates California DELINQUENCY RATE FORECLOSURE RATE SOURCE: Mortgage Bankers Association

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What Clients Need to Hear Large/far reaching value diminishes not expected Properties will be available longer Stabilizing financial conditions, yet blended news Little development in rates expected Buy home that addresses issues & needs In the long-run, California costs go up!

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Housing Cycles Sales Decline, But Market is Not in the Tank!! UNITS SOURCE: California Association of REALTORS®

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Rates Remain Near 40 Year Lows Federal Housing Finance Board Rate,1963-2007 ANNUAL AVERAGE SOURCE: FHFB, CAR

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5-Year Rate of Return on Median Price Home Purchased in Year Shown - Sold After 5 Years Annual Average: 11.3%

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Buyers & Technology .:tsli

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