Economic and Housing Market Forecast California Community Colleges

Economic and Housing Market Forecast California Community Colleges Real Estate Education Center February 23, 2007 Robert A. Kleinhenz, Ph.D. Deputy Chief Economist California Association of REALTORS® Overview • California Housing Market • Regional Outlook • 2007 Forecast California Real Estate Market Recent Headlines • “2006 Home Sales Fell After 4 Years of Impressive Gains” • “Southland Home Sales: Slowest January Since 1998, Stable Prices” • “California Foreclosure Activity Jumps Again” Recent Trends •Sales •2006 sales down significantly from ‘04-05 record •Seasonally adjusted sales stabilized in 2nd half of ‘06 •Price •Appreciation slowing throughout 2006 •From 14% YTY gain in Jan ’06 to 1.0%+ gain in Dec ‘06 •Inventories •Higher inventories than record lows of ‘04-05 •Levels stabilizing near long-run average in recent months Sales of Existing Homes & Consumer Confidence California, December 2006: 450,550 Units, Down 23.6% YTD, Down 15.3% YTY Sales of Homes Sales Existing Detached Homes Consumer Confidence Pacific West Region Cons Conf Index 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 160 2+ yrs above 600,000 140 120 100 80 60 40 20 0 SOURCE: California Association of REALTORS®; The Conference Board Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Long-Term Perspective 2006 Sales Were 10th Highest…Not A Repeat of the 1990s! UNITS 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 SOURCE: California Association of REALTORS® 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006e 2007f Median Price of Existing Detached Homes California, December 2006: $567,690, Up 3.7% Y-T-Y $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Aug-05 $567,320 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Jan-06 May-00 May-01 May-02 May-03 May-04 May-05 SOURCE: California Association of REALTORS® May-06 Sep-06 Median Prices - Mixed Picture Peak Month Peak Price Jun-05 $393,370 Aug-05 $363,680 Aug-05 $440,420 Aug-05 $394,450 Jan-06 $645,080 Apr-06 $729,370 May-06 $622,380 Jun-06 $732,250 Jun-06 $760,930 Jun-06 $620,540 Aug-06 $576,360 Aug-06 $710,910 Aug-06 $710,910 Nov-06 $590,790 Dec-06 $410,160 Successive Months of YTY Decline 8 6 5 6 7 4 of last 5 6 3 0 3 of last 4 0 3 3 0 0 Region Palm Springs/Lower Desert Central Valley Northern California Sacramento Northern Wine Country Orange County San Diego Monterey Region San Francisco San Luis Obispo CALIFORNIA Santa Clara Ventura Los Angeles Riverside San Bernardino Market Drivers 1. Mortgage rates 2. General economy 3. Inventory levels 4. Affordability #1 Mortgage Rates • Improvement During Last Half of 2006 • Increasing in January 2007 • Rates Edging Up in Near Future 10% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% SOURCE: Federal Home Loan Mortgage Corporation Mortgage Rates FRM ARM Federal Funds Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Rates Remain Near 40 Year Lows Federal Housing Finance Board Rate,1963-2007 ANNUAL AVERAGE 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007f 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 SOURCE: FHFB, CAR #2 Economic Conditions • Economy Moving Forward • No Recession • Fed Balancing Act: Inflation vs. Economic Growth Gross Domestic Product Year 2006: +3.4%; 2006 Q6: +3.5% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $ 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Annual Quarterly 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2006-Q1 2006-Q2 2006-Q3 2006-Q4 -3% 10% -4% 0% US-CA 2% 4% 6% 8% -2% SOURCE: CA Employment Development Division Unemployment Rate California vs. United States CA US Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Employment Growth, California vs. U.S. Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 California US -3 YEAR TO YEAR % CHANGE -2 0 1 2 3 4 5 -1 Consumer Price Index December 2006: All Items 2.6% Y-T-Y; Core 2.6% Y-T-Y PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% All Items Core Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Jan-00 Apr-00 Jul-00 Jan-02 Apr-02 Jul-02 Apr-06 Jul-06 Oct-06 Apr-04 Jul-04 #3 Supply Conditions • Listings, Inventory Levels, Time on Market Up Significantly in 2006 compared to 2004-05 • From Record/Near-Record Lows to Average Levels • Stabilizing Supply Conditions in 2nd Half of 2006 10 12 14 16 18 20 MONTHS 0 2 4 6 8 SOURCE: California Association of REALTORS® Unsold Inventory Index, 1988-Present California, December 2006: 6.8 Months LR Average: 6.9 months Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Listings by Month, Selected Years California (1982-2005 Average=100) 200 180 160 140 120 100 80 60 40 20 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1983 1992 2004 2005 2006 SOURCE: California Association of REALTORS® 100 10 20 30 40 50 60 70 80 90 DAYS ON MARKET 0 SOURCE: California Association of REALTORS® Median Time on the Market California Single-Family Homes, December ‘06: 72.9 days Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 #4 Affordability • Affordability Key to Health of Market • Market Hit Wall When Affordability Fell to Record Low • Steady/Lower Prices & Steady Interest Rates >>> Affordability Improves First-Time Buyer Housing Affordability Index, US vs CA % OF HOUSEHOLDS THAT CAN AFFORD ENTRY LEVEL HOME 100% CA 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% US Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 SOURCE: California Association of REALTORS® Q3 2006 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 $200 $400 $600 $800 Monthly Payment Adjusted for Inflation $2,600 $0 Apr-89 $2,106 SOURCE: DataQuick Information Systems Inflation Adjusted Monthly Payment Oct-05 $2,120 Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Q: So why the slowdown in 2006? •Interest Rate Expectations •Change in Market Psychology •Affordability Constraints •Drop in Investment/2nd Home Share Interest Rate Expectations 2002 thru 2004 •Expectations of steady/falling rates •Acceleration/deceleration of sales in reaction to expected rate changes. 2005 thru mid-2006 •Fed raised rates with expectations of further rate hikes….”hoarding behavior” •Shrinking spread between short and long rates •Uncertainty about future direction of rates Change in Market Psychology 2002 thru 2005 •Both buyers & sellers knew it was a boom market •Brisk movement in market First half of 2006 •Buyers expecting prices to tumble because of higher inventories •Sellers still want $$ their neighbor received+ •More market friction, longer time on market Affordability Constraints 2004 and 2005 •Increase in use of alternative loan products extended the duration of market upswing •Increased pool of potential buyers as well Late-2005 thru 2006 •Buyer purchasing power stretched to limit •Inflation-adjusted monthly payment hit record high in late-2005, surpassing prior record from 1989, and coinciding with decline in sales. Decline in Investor/2nd Home Activity •Slower price appreciation last year •Less home equity to convert to down payments •Lower chance of future price appreciation •Returns on alternative investments California Regions Nonfarm Employment By Region (Thousands) Southern California Bay Area Central Valley Central Coast North Central CALFORNIA Nonfarm Nonfarm Employment Employment December-06 December-05 8,532.1 3,263.1 2,023.7 503.5 141.0 15,089.2 8,426.5 3,209.2 2,001.2 496.5 138.5 14,918.9 Change 105.6 53.9 22.5 7 2.5 170.3 Percent Change 1.3% 1.7% 1.1% 1.4% 1.8% 1.1% SOURCE: CA Employment Development Division Annual Sales Index by Region 1998-2006 (1999 Sales = 100) Year 1999 = 100 170 160 150 140 130 120 110 100 90 80 70 60 50 SF Bay Central Valley So. California 1998 1999 2000 2001 2002 2003 2004 2005 2006e Bay Area Nonfarm Employment Bay Area Region Nonfarm Employment (Thousands) Dec 2006 Dec 2005 Change % Change San Francisco Oakland San Jose Napa/Solano Sonoma Total 976.5 1,074.3 891.9 131.8 188.6 3,263.1 957.9 1,056.7 875.9 129.4 189.3 3,209.2 18.6 17.6 16.0 2.4 -0.7 53.9 1.9% 1.7% 1.8% 1.9% -0.4% 1.7% SOURCE: California Economic Development Dept. Sales of Existing Detached Homes Bay Area Counties County Alameda Contra Costa Marin San Francisco San Mateo Santa Clara Santa Cruz Solano Sonoma Dec-06 Nov-06 Dec-05 M-t-M Y-t-Y Y-t-D 676 284 155 304 356 825 162 268 357 672 304 174 313 393 870 171 278 318 784 284 156 377 415 970 149 329 375 0.6% -6.6% -10.9% -2.9% -9.4% -5.2% -5.3% -3.6% 12.3% -13.8% 0.0% -0.6% -19.4% -14.2% -14.9% 8.7% -18.5% -4.8% -14.5% -17.4% -15.3% -9.7% -15.0% -23.3% -15.1% -27.9% -24.8% SOURCE: California Association of REALTORS® Median Price of Existing Detached Homes Bay Area, December 2006: $725,900, Up 1.8% Y-T-Y $800,000 $750,000 $700,000 $650,000 $600,000 $550,000 $500,000 $450,000 $400,000 $350,000 $300,000 SOURCE: California Association of REALTORS® Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Median Price of Existing Detached Homes Bay Area Counties County Alameda Contra Costa Marin San Francisco San Mateo Santa Clara Santa Cruz Solano Sonoma Dec-06 Nov-06 Dec-05 M-t-M Y-t-Y $ $ $ $ $ $ $ $ $ 669,896 740,216 934,090 822,034 830,000 738,000 710,000 457,954 614,884 $ $ $ $ $ $ $ $ $ 656,698 769,578 941,964 853,260 881,500 775,000 719,000 465,624 615,517 $ $ $ $ $ $ $ $ $ 664,361 688,271 978,722 823,063 820,000 734,950 742,000 480,081 620,752 2.0% -3.8% -0.8% -3.7% -5.8% -4.8% -1.3% -1.6% -0.1% 0.8% 7.5% -4.6% -0.1% 1.2% 0.4% -4.3% -4.6% -0.9% SOURCE: California Association of REALTORS® Supply Indicators Bay Area December 2006 Median Time on the Market 58.4 Days November 2006 52.1 Days December 2005 48.5 Days Unsold Inventory Index 2.0 Mos. 2.6 Mos. 1.4 Mos. Median Sales Price-toMedian List Price Ratio 101.2% 100.0% 95.5% SOURCE: California Association of REALTORS® First-time Buyer Housing Affordability 3rd Quarter 2006 United States Santa Clara California San Mateo Bay Area Alameda Marin Contra Costa Monterey/Santa Cruz San Francisco Sonoma 0 10 20 30 40 50 60 SOURCE: California Association of REALTORS® Central Valley Region Nonfarm Employment Central Valley Region Nonfarm Employment (Thousands) Dec 2006 Sacramento Merced Bakersfield Fresno Modesto Stockton Tulare Sutter-Yuba Total 912.5 60.3 232.2 295.6 161.5 212.4 108.6 40.6 2,023.7 Dec 2005 898.4 59.9 225.4 295.4 162.0 209.4 109.3 41.4 2,001.2 Change % Change 14.1 0.4 6.8 0.2 -0.5 3.0 -0.7 -0.8 22.5 1.6% 0.7% 3.0% 0.1% -0.3% 1.4% -0.6% -1.9% 1.1% SOURCE: California Economic Development Dept. Sales of Existing Detached Homes and Pacific West Consumer Confidence Central Valley, December 2006 Sales: 2,822 Units, Down 31.8% Y-T-D, Down 26.9% Y-T-Y UNITS INDEX 6,000 5,000 4,000 3,000 2,000 1,000 0 Sales Consumer Confidence 160 140 120 100 80 60 40 20 0 SOURCE: California Association of REALTORS®; The Conference Board Jan-98 Apr-98 Jul-98 Oct-98 Jan-99 Apr-99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Sales of Existing Detached Homes Central Valley Regions County Bakersfield Fresno Lodi Manteca Merced Modesto Oakdale Sacramento Stockton Tracy Turlock Nov-06 Oct-06 Nov-05 M-t-M Y-t-Y Y-t-D 345 469 34 87 66 365 41 968 204 100 65 398 528 42 102 77 424 42 1,075 271 103 78 506 614 61 144 139 502 34 1,282 400 136 88 -13.3% -11.2% -19.0% -14.7% -14.3% -13.9% -2.4% -10.0% -24.7% -2.9% -16.7% -31.8% -23.6% -44.3% -39.6% -52.5% -27.3% 20.6% -24.5% -49.0% -26.5% -26.1% -22.6% -24.4% -39.1% -38.9% -44.1% -33.6% -33.3% -35.2% -39.2% -33.6% -40.9% SOURCE: California Association of REALTORS® Median Price of Existing Detached Homes Central Valley, December 2006: $342,160, Down 3.8% Y-T-Y $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 SOURCE: California Association of REALTORS® Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Median Price of Existing Detached Homes Central Valley Regions County Bakersfield Fresno Lodi Manteca Merced Modesto Oakdale Sacramento Stockton Tracy Turlock Dec-06 Nov-06 Dec-05 M-t-M Y-t-Y $ $ $ $ $ $ $ $ $ $ $ 283,870 333,333 417,567 287,499 362,230 433,333 362,656 364,062 542,453 350,000 $ $ $ $ $ $ $ $ $ $ $ 282,236 353,333 413,461 316,667 354,761 477,272 364,999 355,434 525,510 354,687 $ $ $ $ $ $ $ $ $ $ $ 290,867 386,538 443,877 318,750 366,941 410,000 379,012 377,856 573,276 362,999 n.a. 0.6% -5.7% 1.0% -9.2% 2.1% -9.2% -0.6% 2.4% 3.2% -1.3% n.a. -2.4% -13.8% -5.9% -9.8% -1.3% 5.7% -4.3% -3.7% -5.4% -3.6% SOURCE: California Association of REALTORS® Housing Affordability December 2005 United States California Sacramento Fresno Central Valley Stanislaus Merced San Joaquin 0 5 10 15 20 25 30 35 40 45 50 SOURCE: California Association of REALTORS® Southern California Region Nonfarm Employment (Thousands) Los Angeles Orange County Riverside/SB San Diego Ventura Total Nonfarm Employment Dec 2006 4,119.6 1,524.1 1,275.3 1,312.0 301.1 8,532.1 Nonfarm Employment Dec 2005 4,072.5 1,509.2 1,246.0 1,302.2 296.6 8,426.5 Change 47.1 14.9 29.3 9.8 4.5 105.6 Percent Change 1.2% 1.0% 2.4% 0.8% 1.5% 1.3% SOURCE: California Economic Development Dept. Sales of Existing Detached Homes and Pacific West Consumer Confidence Southern California December 2006 Sales: 9,420 Units, Down 17.8% Y-T-Y, Down 22.6% Y-T-D UNITS Sales Consumer Confidence INDEX 18,000 16,000 14,000 12,000 10,000 160.0 140.0 120.0 100.0 80.0 8,000 6,000 4,000 2,000 0 60.0 40.0 20.0 0.0 SOURCE: California Association of REALTORS®; The Conference Board Jan-98 Apr-98 Jul-98 Oct-98 Jan-99 Apr-99 Jul-99 Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Sales of Existing Detached Homes County High Desert Los Angeles Orange Palm Springs Riverside/SB San Diego Sta. Barbara Area Ventura Dec-06 Nov-06 Dec-05 M-t-M Y-t-Y Y-t-D 735 3,759 1,339 470 991 1,564 159 403 821 3,616 1,263 393 1,047 1,329 146 468 1,205 4,396 1,458 608 1,475 1,624 157 530 -10.5% 4.0% 6.0% 19.6% -5.3% 17.7% 8.9% -13.9% -39.0% -14.5% -7.8% -22.7% -40.6% -3.6% 1.3% -24.0% -20.8% -20.2% -26.8% -10.0% -27.5% -21.0% -22.7% -28.8% SOURCE: California Association of REALTORS® Median Price of Existing Detached Homes Southern California, December 2006: $552,474 Up 5.4% Y-T-Y $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Jan-06 May-00 May-01 May-02 May-03 May-04 May-05 SOURCE: California Association of REALTORS® May-06 Sep-06 Median Price of Existing Detached Homes Southern California Regions County High Desert Los Angeles Orange Palm Springs Riverside/SB San Diego Sta. Barbara-So. Coast Sta. Barbara-North Cnty. Ventura Dec-06 Nov-06 Dec-05 M-t-M Y-t-Y $ 324,558 $ 584,601 $ 692,985 $ 369,090 $ 410,159 $ 585,974 $ 1,250,000 $ 431,707 $ 670,833 $ 332,344 $ 590,788 $ 699,205 $ 369,897 $ 401,455 $ 578,125 $ 1,089,000 $ 435,555 $ 663,762 $ 320,490 $ 552,762 $ 702,291 $ 369,333 $ 394,787 $ 603,679 $ 1,200,000 $ 468,888 $ 675,675 -2.3% -1.0% -0.9% -0.2% 2.2% 1.4% 14.8% -0.9% 1.1% 1.3% 5.8% -1.3% -0.1% 3.9% -2.9% 4.2% -7.9% -0.7% SOURCE: California Association of REALTORS® Median Price of Existing Detached Homes Los Angeles County, December 2006: $584,600, Up 5.8% Y-T-Y $700,000 $600,000 $500,000 $400,000 $300,000 May-91 $229,260 $200,000 $100,000 $0 Dec-96 $163,370 May-01 $232,712 SOURCE: California Association of REALTORS® Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Supply Indicators Southern California December 2006 November 2006 December 2005 Median Time on the Market 75.9 Days 73.4 Days 40.0 Days Unsold Inventory Index 8.0 Mos. 8.6 Mos. 3.9 Mos. Median Sales Price-toMedian List Price Ratio 104.6% 97.5% 90.4% SOURCE: California Association of REALTORS® Economic & Market Forecast U.S. Economic Forecast 2002 US GDP Nonfarm Job Growth Unemployment CPI Real Disposable Income 1.6% 2003 2.7% 2004 4.2% 1.1% 5.5% 2.7% 3.4% 2005 3.5% 1.6% 5.1% 3.4% 1.2% 2006e 2007f 3.3% 1.3% 4.6% 2.6% 3.3% 2.9% 1.0% 4.8% 2.5% 3.6% -1.1% -0.3% 5.8% 1.6% 3.1% 6.0% 2.3% 2.4% SOURCE: California Association of REALTORS® California Economic Forecast 2002 Nonfarm Job Growth Unemployment Rate Population Growth Real Disposable Personal Income, % Change -0.7% 6.7% 1.8% 2003 -0.3% 6.8% 1.7% 2004 1.1% 6.2% 1.4% 2005 1.5% 5.4% 1.4% 2006e 1.1% 4.8% 1.2% 2007f 1.1% 4.9% 1.2% 3.0% 2.0% 3.7% 2.9% 3.4% 3.1% SOURCE: California Association of REALTORS® California Housing Market Forecast 2002 SFH Resales (thousands) % Change 2003 601.8 5.1% $372.7 17.9% 5.8% 3.8% 2004 624.7 3.8% $450.8 20.9% 5.8% 3.9% 2005 625.0 0.04% $524.0 16.2% 5.9% 4.5% 2006e 481.2 -23.0% $560.7 7.0% 6.4% 5.5% 2007f 447.5 -7.0% $550.0 -2.0% 6.6% 5.5% 572.6 13.6% Median Price $316.1 ($ thousands) % Change 20.5% 6.5% 4.6% 30-Yr FRM 1-Yr ARM SOURCE: California Association of REALTORS® Wild Cards •Consumer psychology/expectations regarding: • home prices • interest rates •Impact of non-traditional mortgages •Unexpected major downturn Mortgage Foreclosure Rates California DELINQUENCY RATE 7% FORECLOSURE RATE 2.5% Delinquency Rate 6% Foreclosure Rate 2.0% 5% 4% 3% 2% 0.5% 1% 0% 0.0% 1.5% 1.0% SOURCE: Mortgage Bankers Association Q1/74 Q1/75 Q1/76 Q1/77 Q1/78 Q1/79 Q1/80 Q1/81 Q1/82 Q1/83 Q1/84 Q1/85 Q1/86 Q1/87 Q1/88 Q1/89 Q1/90 Q1/91 Q1/92 Q1/93 Q1/94 Q1/95 Q1/96 Q1/97 Q1/98 Q1/99 Q1/00 Q1/01 Q1/02 Q1/03 Q1/04 Q1/05 Q1/06 5-Year Rate of Return on Median Price Home Purchased in Year Shown - Sold After 5 Years 35% 30% 25% 20% 15% 10% 5% 0% Annual Average: 11.3% 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 -5% 2000 Industry & Membership Outlook Membership vs Sales Membership follows Sales with a 2-Yr Lag Membership 650,000 600,000 550,000 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Home Sales Sales Peaks: 1978, 1988, 2004-05 Membership: 1980, 1990, 2006 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 C.A.R. Membership C.A.R. Membership Counts Status Renewals New Total 2003 103,110 33,867 136,977 2004 119,529 41,716 161,245 2005 142,566 51,366 193,932 2006 162,593 46,866 209,459 2007f 155,000 30,000 185,000 C.A.R. Membership Percentage Changes Status Renewals New Total 2003-04 2004-05 2005-06 2006-07 15.9% 19.3% 14.0% -4.7% 23.2% 23.1% -8.8% -36.0% 17.7% 20.3% 8.0% -11.7% Productivity & Competition Average: 7.6 sides # of Members # of Sides Per Member Membership 240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Sides Per Member 12 Membership declines when sides/member falls below 6 10 8 6 4 2 0 SOURCE: C.A.R. Membership Records 2007F 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Members & Technology Tenure of Working in Real Estate 2004 50% 40% 30% 20% 10% 0% 0 to 5 Years 6 to 7 Years 8 to 10 Years 2006 11 to 15 Years 16 to 20 Years Over 20 Years Q: How long have you been LICENSED TO SELL real estate? Median Age of REALTORS® Years 70 60 50 Yrs 50 40 30 20 10 1987 1988 1989 1990 1991 1993 2000 2002 2004 Q: What is your age? 2006 0 Ethnic Background - Members Vs Statewide Population*2006 Member Profile CA Population White/Non-Hispanic Asian/Pacific Islander Hispanic/Latin American African American Other 0% 20% 40% 60% 80% 100% * 2000 US Census Q: Which of the following BEST describes your racial/ethnic background? Importance of Technology in Real Estate -Importance Rating2004 10 9 8 7 6 5 4 or Less 13.6% 10.4% 17.6% 15.9% 11.1% 13.4% 4.0% 4.9% 5.8% 13.6% 3.3% 2.0% 2006 44.6% 39.8% 10 pt. Scale – 10 = “Extremely Important” 1 = “Not At All Important” Q: Please rate the following questions on a 10 point scale: The importance of technology with respect to your real estate business. REALTORS® Rate Themselves -Technological Knowledge Historical TrendSavvy 90% 80% 70% 60% Extremely Savvy 26% 23% 8% 28% 29% 50% 40% 30% 52% 20% 10% 0% 2002 44% 54% 52% 50% 2003 2004 2005 2006 Q: Overall, how would you rate yourself in your technological knowledge? Most Important Technology Upgrade -In The Last 12 MonthsDigital camera None New computer Specialized real estate software Wireless, handheld Internet device (i.e. Blackberry, Treo) PDA New Printer Hands free ear piece for phone Wireless laptop computer Personal web site 20% 18% 17% 16% 15% 6% 4% 4% 1% 1% Q: What do you consider to be your most important technology upgrade or purchase in the last 12 months? Usage Of Technological Tools Point Scale, 5 is use all the time, 1 is never use 2006 E-mail Office Web page Web surfing/browsing Contact Management System WINForms® Scanner Real Estate Software (not WINForms®) Personal Web page GPS Navigation System Wireless Internet Handheld Wireless Internet device PDA Blogging Podcasting Instant Messaging Video 4.3 4.1 4.1 3.9 3.8 3.5 3.4 3.0 2.6 1.9 1.6 1.5 1.5 1.4 1.4 1.3 Q: Please rate how frequently you use the following technology tools on a five-point scale where five is all the time and one is never? REALTORS® Use of the Internet 2003 2004 2005 2006 E-mail MLS Access Check your or others listings on the Internet Marketing, farming Access web site for your brokerage Access work files Real estate or business related research Personal web page Access Do Not Call Registry 95% 93% 83% 10% 63% 36% 58% 0% 0% 92% 91% 83% 70% 63% 36% 60% 0% 17% 97% 95% 94% 84% 74% 67% 61% 21% 3% 96% 93% 91% 87% 73% 73% 58% 23% 3% Q: For what purposes do you use the Internet in your residential real estate business? Where Marketing Dollars Are Spent Print advertising 79% About the same for online and print advertising Online advertising 12% 10% Q: Did you spend more of your marketing expense on (READ)? Percent of Internet Users in the U.S. Internet Users 80% 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 Broadband % 2004 2005 2006 Source: Pew Internet & American Life Project Percent of Adults Reading Newspapers % of Adult Reading Sunday Paper 70% 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 65% % of Adults Reading Daily Paper 57% 55% 50% 2004 2005 2006 Source: Pew Internet & American Life Project Resistance from Sellers on Online Advertising 2006 5 (Absoluate Resistance) 4 3 (Moderate Resistance) 2 1 (No Resistance) 0% 1% 8% 10% 81% Q: How much resistance do you receive from home sellers for using online advertising to sell their property? Source of Real Estate Transactions Affinity Programs, 1.1% Internet Marketing, 7.4% Floor Calls, 10.9% Repeat Business, 25.7% Referrals, 43.9% Farming, 11.1% Q: About what percentage of your real estate transactions come from the following six sources…? REALTORS® Professional Training -Course/Seminar Topics2004 Motivational Seminars CE & Lic Renewal Mktg & Bus Dev Strategies RE Economics & Finance Org & Bus Mgmt Efficiency & Time Mgmt Other Planning (LT/ST) None 2006 0% 10% 20% 30% 40% 50% 60% 70% Q: What were the general topics of the courses and/or seminars you attended in the last 12 mos.? Most Challenging Part of the Business Process -Historical Trend2002 31.0% 47.4% 35.4% 11.9% 9.0% 10.5% 13.0% 7.1% 2004 35.6% 45.5% 33.2% 13.3% 10.9% 10.3% 11.3% 9.5% 2006 45.5% 34.8% 29.1% 18.8% 11.0% 10.3% 9.1% 8.9% Professional Marketing Working With Buyers Working With Sellers Product/Service Marketing Document Familiarity Contract Familiarity Closing Escrow Q: What part(s) of the business process do you find the most challenging? Where Are The Eyeballs? Property Listing Sites: – Google Base – Propsmart.com – Trulia.com Home Value Estimators – RealEstateABC.com – HomeValues.com – Zillow.com Online Classified Ads Sites: – Craigslist – Oodle – LiveDeal Thank You robertk@car.org