Southwest LA AOR
November 8, 2011
Leslie Appleton-Young, Chief Economist

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Overview
US and California Economies
California Housing Market
Regional & Local Markets
2011 Annual Market Survey
2012 Housing Market Forecast

2011: A Year of Wild Cards
Oil Price Spikes
Political
Change on
Capitol
Hill
Arab Uprising
Debt Limit
Ceiling &
Downgrade of US Debt
Sovereign
Debt
Crisis in
EuroZone
Stock
Market
Volatility

4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
8%
7%
6%
5%
2010: 2.8%; 2011 Q3: 2.5%
ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $
ANNUAL
2009 Largest Annual Drop since 1938 (-3.4%)
QTRLY

Percent Change
3.0
2.5
0.5
0.0
-0.5
2.0
1.5
1.0
-1.0
-1.5
Consumption Fixed Nonres.
Investment
SOURCE: US Dept of Commerce,
Bureau of Economic Analysis
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Net Exports Government

Performance Targets for National Economy
Unemployment
Current Target
This Year -
Projected
6% 9.0%
1.7% US GDP
Nonfarm Job
Growth
CPI
3% or higher
3%+ or
400K+/mo
2.5%
1.0%
3.2%
SOURCE: California Association of REALTORS®

Consumers Pulling Back
Home Equity & Reverse Wealth Effect
Consumer Spending 2011 Q3: 2.4%
8%
6%
4%
2%
0%
-2%
-4%
QUARTERLY PERCENT CHANGE
SOURCE: US Dept of Commerce, Bureau of Economic Analysis

40%
35%
30%
25%
20%
15%
10%
5%
0%
CA Underwater Mortgages
Negative Equity Share in CA Near Negative Equity Share in CA
30,2%
0,046
SOURCE: CoreLogic

8%
6%
4%
2%
0%
Unemployment Stubbornly High
September 2011
California (11.9%) vs. United States (9.1%)
14%
CA US
12%
10%
SOURCE: CA Employment Development Division

Los Angeles County, September 2011: 12.2%
15%
13%
11%
9%
7%
5%
3%
1%
-1%
SOURCE: CA Employment Development Division

500,000
400,000
300,000
200,000
100,000
0
-100,000
-200,000
-300,000
-400,000
-500,000
-600,000
-700,000
-800,000
-900,000
U.S. Job Growth: Flat in August
Month-to-Month Changes
Recession Job Losses: 8.4 million
Since Jan’10: +1.8 million
SOURCE: US Dept of Labor, Bureau of Labor Statistics

Month-to-Month Changes
Recession Job Losses: 1 million
Since Jan’10: +170,000
100000
80000
60000
40000
20000
0
-20000
-40000
-60000
-80000
-100000
-120000
-140000
-160000
SOURCE: CA Employment Development Division

Nonfarm Employment By Region
(Thousands)
Southern California
Bay Area
Central Valley
Central Coast
North Central
CALIFORNIA
Nonfarm Nonfarm
Employment Employment
Sep-10
7,684.1
Sep-11
7,763.6
Change
79.5
Percent
Change
1.0%
3,028.4
3,062.9
34.5
1.1%
1,842.6
460.6
127.9
13,847.9
1,844.7
464.9
129.2
14,098.5
2.1
4.3
1.3
250.6
0.1%
0.9%
1.0%
1.8%
SOURCE: CA Employment Development Division

Los Angeles County, September 2011: Up 0.8% YTY
Y-T-Y PERCENT CHANGE
2%
0%
-2%
-4%
-6%
-8%
SOURCE: CA Employment Development Division

Where are California’s Jobs?
Employment Trends:
Construction & Financial Sectors Biggest Losers
Industry 2005 Jul-11
Year to
Date
Mining and Logging
Construction
Manufacturing
Trade, Transportation & Utilities
Information
Financial Activities 920,300 755,800 -164,500
Professional & Business Services 2,160,700 2,136,200 -24,500
Educational & Health Services 1,593,400 1,837,000 243,600
Leisure & Hospitality
23,600
905,300
27,600
567,300
4,000
-338,000
1,502,600 1,257,600 -245,000
2,822,100 2,641,500 -180,600
473,600 455,400 -18,200
Other Services
Government
TOTAL
1,475,200 1,531,600 56,400
505,500 484,500 -21,000
2,420,200 2,380,200 -40,000
14,802,500 14,074,700 -727,800
SOURCE: California Association of REALTORS®

CA New Housing Permits
2010: 44,601 units, +22.5% YTY; Aug 2011: +2.6% YTD
300,000
250,000
200,000
150,000
100,000
50,000
0
Single Family Multi-Family
SOURCE: CBIA

Consumer Confidence Slipping Again
October 2011: 39.8
160
140
INDEX, 100=1985
120
100
80
60
40
20

Crisis of Confidence :
Small Business Optimism Down
Source: National Federation of Independent Business

Consumer Price Index
September 2011: All Items +3.9% YTY; Core +2.0% YTY
4%
2%
0%
-2%
-4%
PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984
16%
14%
All Items
Core
12%
10%
8%
6%

6,00%
5,00%
4,00%
3,00%
2,00%
1,00%
0,00%
Mortgage Rates @ Historical Lows
Debt Down Grade Ignited Flight to Quality
FRM ARM
MONTHLY WEEKLY

5%
4%
3%
2%
1%
0%
10%
9%
8%
7%
6%
Classic Liquidity Trap: Consumers Deleveraging
Low Rates and Low Borrowing
FRM
ARM
Federal Funds
SOURCE: Federal Home Loan Mortgage Corporation

US Deficit Highest in Decades
2010: 11% of GDP (Revenues – Expenses)
Deficit as a % of GDP
4,0%
2,0%
0,0%
-2,0%
-4,0%
-6,0%
-8,0%
-10,0%
-12,0%
Source: US Treasury, BEA, compiled by C.A.R.
Note: Positive = Surplus

US Debt Jumped as Government
Responded to Financial Crisis
2010: 93% of GDP
100,0%
90,0%
80,0%
70,0%
60,0%
50,0%
40,0%
30,0%
20,0%
10,0%
0,0%
Source: US Treasury, compiled by C.A.R.
Debt as a % of GDP

Obama Jobs Proposal
What:
$450 Billion stimulus: Tax cuts ($250B) and infrastructure spending ($200B)
Why:
Economy is stalled/Avoid double-dip
Zero job growth in August/high unemployment
Stabilize confidence: consumer, business, investor
How:
Increase taxes on the rich
Entitlement Reform
Tax Reform

Obama Mortgage Refinance Proposal
“HARP II”
What:
Make it easier for homeowners who are significantly underwater AND not behind on their payments to refi at today’s low rates. Mortgage sold to Fannie or Freddie on or before May 31, 2009
Help 1 million homeowners to refinance)
Why:
Housing market is stalled / Consumers leery of spending
How: Modify the Home Affordable Refi Program
Eliminates 125% cap
Waives some GSE fees if loan term reduced
Eliminates appraisals & extensive underwriting
Modifies Reps and Warranties

Refinance vs. Purchase
ORIGINATION (BIL $) 30-YR FIXED RATE MORTGAGE
12.0% 900
800
700
600
500
400
300
200
100
0
Refinance Originations (Bil $)
Purchase Originations (Bil $)
Fixed Rate Mortgage 10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Source: Mortgage Bankers Association of America

Trustee Sales in Anaheim
Scheduled for 10/7/10

1872 W. Admiral, 92801
• 3 bed, 2.5 ba, built in
1982
• Purchased in Sept 2005 for $594,000 with 30% down.
• In April 2006, added a second for $57,000.
• In Oct 2006, refinanced the second into a new second for $100,000.
• Defaulted in 2010
• Zestimate of current value
= $364,000.

1572 W. Orangewood, 92802
• 3 bd, 2 ba, 2,016 sq ft built in 1977.
• Purchased in June 2003 for $455,000 with 30% down.
• March 2004: added a second for $75,000; added a third for $90,500; added a fourth for
$80,000.
• Within one year of purchase, the property had
$565,000 in debt on it!
• Defaulted in 2010.
• Zestimate of current value
• = $442,000.

• 3 bd, 2 ba, 1,314 sq ft built in 1956.
• Sold for $568,000 in
2005 and went into default
• Purchased as REO in
2007 for $417,000 with zero down..
• Defaulted in 2010.
• Zestimate of current value = $367,500.
8871 Regal, 92804

2414 E. Underhill, 92806
• 3 bd, 2 ba, 1,459 sq ft built in 1957.
• Purchased for $640,000 in July 2006 with piggyback financing:
$500,000 first and
$140,000 second, i.e. zero down.
• Defaulted in 2010.
• Zestimate of current value = $387,000.

Excessive borrowing against home equity is the untold part of the foreclosure story.
“House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis” by Mian and
Sufi:
:
•

Federal Issues – Critical Concerns
High-cost Loan Limit - expires 10/1/11
Future of Fannie and Freddie in flux - Increase guarantee fee likely
FHA targeted for market share drop
Tax Reform on the horizon – MID?
QRM (Qualified Residential Mortgage)
20% Down – Is the future of the 30 year mortgage in doubt?

U.S. Economic Outlook
2005 2006
2008 2009 2010 2011f 2012f
3.1% 2.7% 2.0% 0.0% -2.6% 2.9% 1.7% 2.0% US GDP
Nonfarm Job
Growth
Unemployment
1.7% 1.8% 1.1% -0.6% -4.4% -0.7% 1.0% 0.9%
5.1% 4.6% 4.6% 5.8% 9.3% 9.6% 9.0% 8.9%
CPI 3.4% 3.2% 2.8% 3.8% -0.4% 1.6% 3.2% 2.3%
Real Disposable
Income, %
Change
1.3% 4.0%
Forecast Date: September 2011
SOURCE: California Association of REALTORS®
2.2% 0.5% 0.9% 1.4% 1.7% 1.5%

California Economic Outlook
2005 2006
2008 2009 2010 2011f 2012f
Nonfarm Job
Growth
Unemployment
Rate
1.8%
5.4%
1.7%
4.9%
0.8%
5.4%
-1.3% -6.0% -1.4%
7.2%
1.5% 2.1%
11.4% 12.4% 12.0% 11.2%
Population
Growth
1.2% 1.1% 1.1% 1.2% 1.1% 0.9% 0.9% 0.9%
Real Disposable
Income, %
Change
1.3% 3.4% 1.5% 0.1% -2.2% 1.6% 1.5% 2.0%
Forecast Date: September 2011
SOURCE: California Association of REALTORS®

California Sales of Existing Homes and Median Price
Housing Cycle Comparisons 1970- 2011
Sales of Existing Detached Homes Median Price UNITS/MEDIAN PRICE $
700,000
-44%
600,000
500,000
400,000
300,000
200,000
100,000
0
-61%
-25%
SOURCE: California Association of REALTORS®

Sales of Existing Detached Homes and Consumer Confidence
• California, September 2011 Sales: 487,940 Units, Up 0.4% YTD, Up 4.1% YTY
Sales Consumer Confidence UNITS
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
100
80
60
40
20
0
INDEX
160
140
120
SOURCE: California Association of REALTORS®; The Conference Board
*Sales are seasonally adjusted and annualized

California, September 2011: $287,440, Down 8.3% YTY
P: May-07
$594,530
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
T: Feb-09
$245,230
-59% from peak
SOURCE: California Association of REALTORS®

California’s Million-Dollar Home Sales
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2,718
4,271
3,773
3,362
2,890
2,298
2,522
2,017
2,651
3,762
5,366
8,906
13,101
10,658
15,703
20,595
18,621
24,436
22,529
36,990
42,506
54,773
50,010
Number of Homes
Source: DataQuick Information Systems

MONTHS
20
10
8
6
4
2
0
18
16
14
12
Unsold Inventory Index
California, September 2011: 5.1 Months
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Unsold Inventory Index: Sept 2011
(By Price Range: Months)
Price Range (Thousand) Sep-10 Aug-11 Sep-11
$1,000K+
$750-1000K
$500-750K
$300-500K
$0-300K
11.1
6.8
6.3
5.6
5.1
9.1
6.2
5.6
5.2
4.6
10.0
6.1
6.0
5.4
4.7
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Share of Distressed Sales to Total Sales
60%
Aug-10 Jul-11 Aug-11
40%
20%
24,7% 25,2%
24,4%
19,3%
17,5%
18,9%
44,5%
42,9%
43,7%
0%
REOs
SOURCE: California Association of REALTORS®
Short Sales Distressed Sales

Tight Supply of Inventory for REO Sales
SOURCE: California Association of REALTORS®

REO & Short Sales: Southern California
(Percent of Total Sales)
100% Sept 2011
80% Short Sales
REO Sales
60%
15%
25%
40%
26%
24%
20%
20%
12%
0%
Los Angeles
Orange
35%
Riverside
50%
San
Bernardino
SOURCE: California Association of REALTORS®
8%
17%
San Diego

100%
80%
REO & Short Sales: Central Valley
(Percent of Total Sales)
Sept 2011
Short Sales
REO Sales
60% 12%
21%
50% 26%
40%
51%
20% 40%
37%
23%
0%
Madera
Merced
San Benito
Sacramento
SOURCE: California Association of REALTORS®
23%
37%
Kern

REO & Short Sales: Bay Area
(Percent of Total Sales)
100%
80%
60%
40%
20%
0%
Sept 2011
Short Sales
REO Sales
31%
27%
16%
19%
24%
Marin
Napa
13%
13%
22%
12%
San
Mateo
Santa
Clara
42%
22%
26%
Solano
Sonoma
SOURCE: California Association of REALTORS®

100%
REO & Short Sales: Rest of California
(Percent of Total Sales)
Sept 2011
80%
Short Sales
REOs
60%
40%
20%
0%
17% 9%
18%
37%
25%
5%
14%
49%
27%
31%
16%
15%
25%
16%
25% 30%
8%
33%
8%
51%
SOURCE: California Association of REALTORS®

California Foreclosure Inventory, September 2011
SOURCE: ForeclosureRadar.com

Foreclosures
6
4
2
0
THOUSANDS
14
12
10
8
SOURCE: Real Estate Research Council

Los Angeles
Preforeclosure: 3,403 • Auction: 4,247 • Bank Owned: 1,211
Source: ForeclosureRadar.com as of 11/4/11.

Los Angeles
Preforeclosure: 3,403
Source: ForeclosureRadar.com as of 11/4/11.

Los Angeles
Auction: 4,247
Source: ForeclosureRadar.com as of 11/4/11.

Los Angeles
Bank Owned: 1,211
Source: ForeclosureRadar.com as of 11/4/11.

Inglewood
Preforeclosure: 278 • Auction: 300 • Bank Owned: 125
Source: ForeclosureRadar.com as of 11/4/11.

Sales of Residential Homes
Los Angeles, October 2011: 687 Units
Down 14.4% MTM, Down 2.1% YTY
SOURCE: Clarus Market Metrics

Median Price of Residential Homes
Los Angeles, October 2011: $300,000
Down 11.4% MTM, Down 8.7% YTY
SOURCE: Clarus Market Metrics

For Sale Properties
Los Angeles, October 2011: 6,729 Units
Down 5.6% MTM, Down 23.6% YTY
SOURCE: Clarus Market Metrics

Months Supply of Inventory
Los Angeles, October 2011: 3.9 Months
SOURCE: Clarus Market Metrics

Sales of Residential Homes
Inglewood, October 2011: 53 Units
, Up 3.9% MTM, Up 17.8% YTY
SOURCE: Clarus Market Metrics

Median Price of Residential Homes
Inglewood, October 2011: $240,000
Down 3.2% MTM, Up 1.7% YTY
SOURCE: Clarus Market Metrics

SOURCE: Clarus Market Metrics
For Sale Properties
Inglewood, October 2011: 323 Units
Down 7.4% MTM, Down 12.9% YTY

Months Supply of Inventory
Inglewood, October 2011: 3.3 Months
SOURCE: Clarus Market Metrics

Equity vs. REO vs. Short Sales
Share of Total Sales
Median Home Price
Square Footage
Price / SF
Sales-to-List Price Ratio
% of Sales With Multiple Offers
Avg. Number of Offers
% of All Cash Sales
Days on MLS
Days in Escrow
Equity Sales REO Sales Short Sales
58.7% 19.7% 20.2%
$431,000 $240,000 $287,000
1,783 1,500 1,600
$250
95.9%
$112
98.0%
$175
95.9%
35.2%
3.0
25.5%
67
35
58.3%
3.0
34.0%
50
35
57.5%
3.6
23.3%
141
45

1 in 3 Sellers Sold Because They
Were in Distress
35%
30%
25%
20%
Sold due to foreclosure/Short sale/Default 30%
15%
10%
5%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Q. What was the single most important reason for selling/buying the property?

Net Cash to Sellers
Median
$250 000
$200 000
$150 000
$100 000
$50 000
$75 000
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Q. What was the net cash gain or net loss to the seller as a result of this sale?

Proportion of Sellers Planning to
Repurchase
80%
70%
60%
50%
40%
30%
20%
10%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Q. Is the seller planning on purchasing another home?

Reasons Sellers Not Planning to
Buy Another Home
Seller is a lender/bank
Seller prefers to have less financial obligation
Poor credit background
Lack of cash for down payment
Out of work/unemployment
Decide to live with family/friends
Waiting for market to bottom
5.7%
10.9%
4.9%
4.7%
2.7%
11.4%
19.8%
0% 10% 20% 30% 40% 50%
Q. Why is the seller not planning to purchase another home?

Reasons For Selling
All Home Sellers
Foreclosure/Short
Sale/Default
Change in Family Status
Retirement/Move to
Retirement Community
Investment/ Tax
Consderations
Desired Better Location
Desired Smaller Home
Changed Jobs
Desired Larger Home
Other
0% 5% 10% 15% 20%
Q. What was the single most important reason for selling/buying the property?
25% 30% 35%

Cash Sales on the Rise
% of All Sales
30%
25%
20%
15%
10%
5%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

25%
20%
15%
10%
5%
0%
Investments & Second/
Vacation Homes
Investment/Rental Property Vacation/Second Home
7%
17%

10%
8%
6%
4%
8%
2%
0%
2008
Q. Was the buyer a foreign buyer?
Foreign Buyers
% of Foreign Buyers
6%
2009
5%
2010
6%
2011

SFH Resales
(000s)
% Change
Median Price
($000s)
% Change
Forecast Progress Report
2010
Projected
October
2010
492.0
-10.0%
$306.5
11.5%
2010 Actual
491.5
-10.1%
$303.1
10.2%
2011
Forecast
October
2010
502.0
2.0%
$312.5
2.0%
2011
Projected
491.1
-0.1%
$291.0
-4.0%
Forecast Date: September 2011 vs October 2010
Source: CALIFORNIA ASSOCIATION OF REALTORS®

California Housing Market Outlook
2005 2006 2007 2008 2009 2010 2011f 2012f
SFH Resales
(000s)
625.0
477.5
346.9
441.8
546.9
491.5
491.1
496.2
0.03% -23.6% -27.3% 27.3% 23.8% -10.1% -0.1% 1.0% % Change
Median
Price
($000s)
% Change
30-Yr FRM
1-Yr ARM
$522.7 $556.4 $560.3 $348.5 $275.0 $303.1 $291.0 $296.0
16.0%
5.9%
4.5%
6.5%
6.4%
5.5%
0.7%
6.3%
5.6%
-37.8% -21.1% 10.2%
6.0%
5.2%
5.1%
4.7%
4.7%
3.5%
-4.0%
4.5%
3.0%
1.7%
4.7%
3.1%
Forecast Date: September 2011
Source: CALIFORNIA ASSOCIATION OF REALTORS®

Direction of Home Prices: Sellers
Skeptical; Buyers Hopeful
Down Flat Unsure Up
100%
80%
60%
40%
20%
0%
Sellers Buyers
Q: Do you think home prices in your neighborhood will go up, down or stay flat in one year, five years and 10 years?

Real Estate: It’s Time To Buy Again
“
stocks. Don't bet on
.
After four years of
home prices, the
asset class in America is
.”
SOURCE: “Real estate: It’s time to buy again” Fortune Magazine’s 3/28/11 article written by Shawn Tully

8 in 10 Americans Agree Buying a Home is the Best Investment One Can Make
SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”

8 in 10 Renters Would Like to
Buy in the Future
“…renters are hardly immune to the allure of homeownership, even in the face of the five-year decline in prices. Asked if they rent out of choice or because they cannot afford to buy a home, just
24% say they rent out of choice .”
SOURCE: Pew Research Center’s “Home Sweet Home. Still. Five Years After the Bubble Burst”