2013 California Housing Market Update and San Diego Area

2013 CALIFORNIA HOUSING MARKET OUTLOOK

California Community Colleges Real Estate Educator’s Conference February 22, 2013Sara Sutachan, Manager of Broker and Real Estate Finance Outreach

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THE ECONOMY

Signs of General Economic Recovery

1. Fiscal cliff (and recession “relapse”) avoided 2. December Jobs report exceeded expectations3. Unemployment rate at 7.8%4. Fed will keep rates low until U = 6.5% 5. “QE” (Quantitative Easing) continues6. Euro-zone still holding it together despite

stagnant/negative growth

“Fiscal Cliff Agreement”

1. Tax Rates on income and capital gains/dividends higher for individuals making $400K or households making $450K

2. Estate tax increases for individual estates over $5M and family estates over $10m

3. 2% payroll tax cut expired as scheduled4. LT unemployment benefits extended for 1 year5. Mortgage debt forgiveness extended for 1 year6. AMT patch for middle class7. “Pease Limitation” on itemized deductions reinstituted

for $250 AGI or couples making $300 AGI (above limit X 3%)

GDP: Sub-Par Growth, Sluggish Recovery 2012: 2.2%; 2012 Q4: -0.1%

ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $

ANNUALLY QUARTERLY

2009 Largest Annual Drop since 1938 (-3.4%)

Personal Consumption2012 Q4: 2.2%

6%QUARTERLY PERCENT CHANGE

SOURCE: US Dept of Commerce, Bureau of Economic Analysis

Consumers Weary, De-Leveraging Consumer Confidence Reflects Economic Realities

January 2013: 58.6

INDEX, 100=1985

Unemployment Rates Coming DownCalifornia (9.8%) vs. United States (7.8%)

14% US-CA CA US

SOURCE: CA Employment Development Division

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12-1,000,000

-800,000

-600,000

-400,000

-200,000

200,000

400,000

600,000

800,000

Only 54% of Lost Jobs Replaced to Date

U.S. Jobs: Month to Month ChangesRecession Job Losses: 8.8 million

Since Jan’10: +4.5 million

CA Employment By RegionStrongest Regional Economy: SF Bay Area

Nov 2012 Nov 2011 Change % ChangeSouthern California 8,026.9 7,902.1 124.8 1.6%Bay Area 3,197.6 3,104.3 93.3 3.0%Central Valley 1,877.9 1,858.1 19.8 1.1%Central Coast 491.8 477.5 14.3 3.0%North Central 129.5 127.2 2.3 1.8%CALIFORNIA 14,406.4 14,137.8 268.6 1.9%

(Thousands)Nonfarm Employment (Thousands)

SoCal Regions:Employment

Oct 2012 Oct 2011 Change % ChangeLos Angeles 3,885.3 3,827.5 57.8 1.5%Orange County 1,404.4 1,383.9 20.5 1.5%Riverside/SB 1,144.2 1,136.9 7.3 0.6%San Diego 1,261.6 1,238.1 23.5 1.9%Ventura 279.0 275.0 4.0 1.5%Southern California Total 7,974.5 7,861.4 113.1 1.4%

(Thousands)

Nonfarm Employment (Thousands)

SOURCE: California Economic Development Dept.

CPI : Inflation a No Show – For NowDecember 2012: All Items +1.7% YTY; Core +1.9% YTY

6% All Items Core

PERCENT CHANGE FROM A YEAR AGO

SOURCE: U.S. Bureau of Labor Statistics

2013: The Year of the “Political Economy”

1. Fiscal Cliff Averted but Tax and Spend Decisions Await – 60 Day Deadline

2. Tax Reform: Mortgage Interest DeductibilityMortgage Debt Forgiveness

3. Future of Fannie and Freddie4. Future of FHA

Fiscal Cliff Averted: But in 60 days automaticspending cuts will be back unless….

Source: Office of Management & Budget2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e

Receipts Outlays

Federal Budget Receipts & Outlays as Percentage of GDP

Signs of U.S. Housing Recovery

1. Prices have bottomed! 2. Home equity up 20% last year to $7.71Trillion as

rising prices begin to reverse negative equity 3. New and Existing Home Sales at four- year highs 4. Low inventory across the board5. Housing starts at four-year high6. Threat of shadow inventory fading as

delinquencies, foreclosures decline7. Foreclosure starts at 6 year low

Mortgage Rates @ 50 Year Lows

8% FRM ARM Federal Funds

SOURCE: Federal Home Loan Mortgage Corporation

CA Prices Still Below Trend LineSpells Opportunity

(1970-2013)19

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

CaliforniaCA Price TrendUS

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Housing Affordability at Record HighsQ

80% CA US

% OF HOUSEHOLDS THAT CAN BUY

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

But there a few issues…

1. Mortgage rates are low but credit is tight2. “Defensive” Lending is prevalent3. Appraisals lagging today’s market4. Listings are scarce:

• Underwater homeowners are stuck• Investors are renting instead of flipping• Some sellers still don’t get it

Fannie & Freddie are the Market Today87% of loans are purchased by the GSE’s

Source: LPS CoreLogic

FHA Pricing Changes: 175bps Upfront Fees + 135bps MIP

Pricing ChangesEffective Date

Action New Insurance Premium

Mortgage Letter

Date Announced

FHA Share Primary MI

05-Apr-10 Increase up front MIP

225bps ML 2010-12 21-Jan-10 69.8%

04-Oct-10 Raise Upfront MIP

100 bps ML 2010-28 01-Sep-10 63.1%

Lower annual MIP

0 bps to 90 bps

18-Apr-11 Increases annual MIP by 25 bps

25 bps to 115 bps

ML 2011-10 14-Feb-11 61.3%

09-Apr-12 Raise annual MIP 10 bps

35 bps to 125 bps

ML 2012-04 06-Mar-12 45.6%

Add 25 bps for FHA jumbo

60 bps to 150 bps

Source: Inside FHA Lending

FHA Price Changes Cont…Pricing ChangesEffective Date

Action New Insurance Premium

Mortgage Letter

Date Announced

Add 25 bps for FHA jumbo

60 bps to 150 bps

Upfront MIP increased 75 bps

175 bps

11-Jun-12 Lower MIP for streamlined refi

55bps ML 2012-04

06-Mar-12 42.3%

Lower annual MIP for streamlined refi

01-Apr-13 Raise annual MIP 10 bps

45 bps to 155 bps

ML 2013-04

31-Jan-13

FHA Underwriting ChangesUnderwritingChanges

Effective Date

Action Mortgage Letter

Date Announced

27-May-10 Allows streamlined refinances to be processed in TOTAL scorecard

ML 2010-19 27-May-10 69.8%

07-Sep-10 Eliminates combined LTV ratio limits implemented in 2007

ML 2010-24 06-Aug-10 66.3%

07-Sep-10 Eliminates requirement that sum of all liens be less than max loan limit

ML 2010-36 22-Oct-10 66.3%

04-Oct-10 Limits LTV ratios for borrowers with FICO scores below 580

ML 2010-29 03-Sep-10 63.1%

14-Feb-11 Clarifies FHA refinance mortgages must be current month before closing

ML 2011-11 14-Feb-11 61.5%

FHA Underwriting Changes Cont…

UnderwritingChanges

Effective Date

Action Mortgage Letter

Date Announced

Clarifies net tangible benefit for FHA streamlined refinances

11-Sep-11 Clarifies annual MIP is zero for 15-year mortgages with LTV below 78%

ML 2011-35 53.1%

13-Mar-12 Various changes in FHA refi program for underwater mortgages

ML 2012-05 13-Mar-12 47.9%

01-Apr-13 Requires manual underwriting if FICO below 620 and DTI over 43%

ML 2013-05 31-Jan-13

Average Credit Score Increased 26 points since 2005 For Purchase Loans

2005 2006 2007 2008 2009 2010 2011 2012*700

745AVERAGE FICO PURCHASE LOANS

SOURCE: CoreLogic *2012 through Feb

What Private Capital Investors Are Pursuing Today: Transparency!

Source: Sequoia Mortgage Trust 2013-2

Fico Range # Loans WA FICO WA LTV % WA CLTV % % Total Balance660-679 7 669 59 65 1.3680-699 8 692 67 68 1.6700-719 19 711 62 63 2.5720-739 73 731 66 68 8.9740-759 86 751 63 65 10.1760-779 186 771 65 68 24.5780-799 277 790 61 63 36.3800-819 119 805 62 65 14.5820-850 2 823 69 69 0.3Grand Total 777 773 63 65 100

Credit Score Distribution of Latest Sequoia Mortgage Trust (SEMT)

Share of Underwater Mortgages Dropping as Prices Rise and Short Sales Close

SOURCE: CoreLogic

Q4-2009

Q1-2010

Q2-2010

Q3-2010

Q4-2010

Q1-2011

Q2-2011

Q3-2011

Q4-2011

Q1-2012

Q2-2012

Q3-2012

Negative Equity Share in CA Near Negative Equity Share in CA

29% of CA Mortgages are Underwater15.6% over 125% LTV

3.6% 3.0% 2.6% 2.3% 2.0%

7.3% 7.1%

Loan-To-Value

SOURCE: CoreLogic

THE CALIFORNIA RESIDENTIAL REAL ESTATE MARKET

THOUSANDS

C.A.R. Membership Off 50,000+ From Peak

100,000

200,000

300,000

400,000

500,000

600,000

700,000

50,000

100,000

150,000

200,000

250,000

Home Sales Membership1970-2011

Dollar Volume of Sales Slowly Improving Up 16.5% in 2012, Up 7.0% in 2013

2005 2006 2007 2008 2009 2010 2011 2012p 2013f$0

$154 $150 $150 $142 $166 $178

$ Volume of Sales Percent Change

% Change$ in Billion

Sales of Existing Detached Homes and Pacific West Consumer ConfidenceCalifornia, January 2013 Sales: 491,720 Units, Down 3.9% YTD, Down 3.9% YTY

100,000

200,000

300,000

400,000

500,000

600,000

700,000

140Sales Consumer Confidence

SOURCE: California Association of REALTORS®; The Conference Board

*Sales are seasonally adjusted and annualized

INDEXUNITS

History of CA Housing Recovery in One Slide! Share of Equity, RE and Short Sales 2009 - 2012

70%63.6%

Equity Sales Short Sale REO

SOURCE: California Association of REALTORS®

Median Price of Existing Detached HomesCalifornia, January : $337,040, Up 24.1% YTY

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000 P: May-07$594,530

T: Feb-09$245,230-59% frompeak

November OctoberCore Logic Home Price Index 7.1% (f) 6.3%Zillow Home Value Index 5.2% 4.7%Radar Logic Home Price Index NA* 6.9%Existing-Homes, Median Sales Price 10.1% 11.1%New Homes, Median Sales Price 15.3% 5.7%Trulia Asking Price Index 3.8% 3.6%

3rd Quarter 2nd QuarterFHFA Quarterly House Price Index 4.0% 2.0%Case-Shiller Home Price Index 0.3% (f) 1.2%

Year Over Year % IncreaseHome Price Measure

National Home Price Measures:Prices Have Hit Bottom and Are Rising

(f) – Forecast* Data available 1/24/13.

Trough vs. Current Price – January 2013Region Trough

MonthTrough Price

Jan-13 Median

% Chg From Trough

Monterey Region Mar-09 $241,025 $399,073 65.6%Palm Springs/Lower Desert Apr-09 $150,140 $228,930 52.5%Santa Clara Feb-09 $445,000 $652,500 46.6%San Francisco Bay Area Feb-09 $378,520 $548,890 45.0%Los Angeles May-09 $248,850 $349,720 40.5%Riverside/San Bernardino Apr-09 $150,860 $207,530 37.6%CALIFORNIA Feb-09 $245,230 $337,040 37.4%Orange County Jan-09 $442,170 $566,500 28.1%High Desert May-09 $106,210 $132,660 24.9%Sacramento Jan-12 $162,290 $201,010 23.9%Ventura Feb-09 $359,630 $440,670 22.5%San Luis Obispo Feb-11 $328,750 $398,980 21.4%San Diego Mar-09 $326,832 $390,890 19.6%Northern Wine Country Nov-11 $310,570 $367,672 18.4%Northern California Jan-12 $210,280 NA NA

Unsold Inventory IndexCalifornia, January 2013: 3.5 Months

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.

Price Range (Thousand) Jan-13 Dec-13 Jan-13

$1,000K+ 9.0 4.4 13.8$750-1000K 5.0 2.9 8.8$500-750K 3.4 2.3 7.0$300-500K 3.1 2.3 5.9$0-300K 3.0 2.4 5.0

Unsold Inventory Index (Months)

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.

Equity Sales REO Sales Short Sales0

Tight Supply of Inventory, Especially for REO Sales

California: December 2012

Extremely Low Levels of Active Listings at the State Level

Equity Sales REO Sales Short Sales0

1.00.7

Shadow Inventory

The CA Foreclosure Funnel:

9.9 Million Homes

7.4 Million Mortgages

2.1 Million Underwater

.com/CAR

613,000/18,000 = 34 months of Inventory

435,000 Delinquent

117,000 in Foreclosure

61,000 Bank Owned

18,000 Distressed Sales

.com/CAR

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

10,000

20,000

30,000

40,000

50,000

60,000

70,000 Notice of Trustee Sale - Counts Notice of Defaults - Counts

California Foreclosure Filings, Jan. 2013NTS: 9356 , -64.6% YTD • NOD: 4,748, -76.4% YTD

SOURCE: ForeclosureRadar.com

6 Month Average:

NTSs: 15,142

NODs: 12,542

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

10,000

15,000

20,000

25,000

30,000 REOs Sold to 3rd Party Cancellations

California Foreclosure Outcomes, Jan. 2013REO: -67.9% YTD • 3rd Party: -34.6% YTD • Cancel: +18.1% YTD

SOURCE: ForeclosureRadar.com

6 Month Average:

REO: 4,544

3rd Party: 3,063

Cancelled: 14,007

• Preforeclosure: 817 • Auction: 963 • Bank Owned: 248

901 Camino Del Rio South, 10 Mile Radius

Source: ForeclosureRadar.com as of 02/19/13.

• Preforeclosure: 28 • Auction: 36 • Bank Owned: 9Lemon Grove

• Preforeclosure: 6 • Auction: 9 • Bank Owned: 0Coronado

• Preforeclosure: 848 • Auction: 1,014 • Bank Owned: 253San Diego

REGIONAL/LOCAL REAL ESTATE MARKETS

LEMON GROVE

Sales of Single Family Homes• Lemon Grove, January 2013: 19 Units • Up 72.7% MTM, Up 58.3% YTY

SOURCE: Clarus Market Metrics

Median Price of Single Family Homes• Lemon Grove, January 2013: $290,000• Up 22.6% MTM, Up 14.2% YTY

For Sale Properties• Lemon Grove, January 2013: 54 Units• Down 18.2% MTM, Down 48.1% 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.

Month’s Supply of Inventory • Lemon Grove, January 2013: 1.9 Months

Note: “Month’s Supply of Inventory” 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 “For Sale” on the last day of the month in question. The inventory figure is then divided by the number of properties that went Under Contract during the month.

CORONADO

Sales of Single Family Homes• Coronado, January 2013: 4 Units • Down 66.7% MTM, Down 75.0% YTY

Median Price of Single Family Homes• Coronado, January 2013: $1,337,500• Down 3.6% MTM, Up 7.6% YTY

For Sale Properties• Coronado, January 2013: 110 Units• Down 2.7% MTM, Up 4.8% YTY

Month’s Supply of Inventory • Coronado, January 2013: 5.4 Months

SAN DIEGO

Sales of Single Family Homes• San Diego, January 2013: 464 Units • Down 30.4% MTM, Up 2.9% YTY

Median Price of Single Family Homes• San Diego, January 2013: $430,000• Down 6.5% MTM, Up 16.2% YTY

For Sale Properties• San Diego, January 2013: 1,949 Units• Down 0.4% MTM, Down 39.5% YTY

Month’s Supply of Inventory • San Diego, January 2013: 1.5 Months

CALIFORNIA HOUSING MARKET FORECAST

Forecast Report Card

Source: CALIFORNIA ASSOCIATION OF REALTORS®

Forecast Date: October 2012 vs. September 2011

2011 Projected

September 2011 2011 Actual2012 Forecasted September 2011

2012 Projected

SFH Resales (000s) 491.1 497.9 496.2 523.3

% Change -0.1% 1.1% 1.0% 5.1%Median Price ($000s) $291.0 $286.0 $296.0 $317.0

% Change -4.0% -6.2% 1.7% 10.9%

California Housing Market Outlook

Indicator 2008 2009 2010 2011 2012p 2013f

SFH Resales (000s) 441.81 546.86 492.29 497.86 523.25 530

% Change 27.3% 23.8% -10.0% 1.1% 5.1% 1.3%Median Price ($000s) 348.5$ 275.0$ 305.0$ 286.0$ 317.0$ 335.0$

% Change -37.8% -21.1% 10.9% -6.2% 10.9% 5.7%

30-Yr FRM 6.0% 5.1% 4.7% 4.5% 3.8% 4.0%

1-Yr ARM 5.2% 4.7% 3.5% 3.0% 2.8% 2.8%

Recovery Will Continue in 2013, with Both Sales and the Median Price Up

Units (Thousand)

100,000

200,000

300,000

400,000

500,000

600,000

700,000

523,250.0530,000.0

Sales of Existing Detached Homes

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$317,020

$335,000

Median PricePrice

(Thousand)

When will CA Start Building Again? 2012(p): 52,000 units, Up 10.4% from 2011

2005 2006 2007 2008 2009 2010 2011 2012P 0

50,000

100,000

150,000

200,000

250,000

Single Family Multi-Family

Household Growth: 220,000-250,000/yr.

SOURCE: Construction Industry Research Board

CLOSING THOUGHTS

Presentation Take - Aways

1. Worst of the recession is over but recovery will continue to be sluggish

2. Tax and spend debate critical next 60 days3. Rates low until Unemployment rate reaches 6.5% 4. Global Wild Cards: Euro Zone Crisis/ Recession,

China & India, Trading Partners5. Biggest Policy Issues: Future of Fannie, Freddie &

THANK YOU AND PLEASE STAY INFORMED!

WWW.CAR.ORG/MARKETDATA

SARAS@CAR.ORG

2013 California Housing Market Update and San Diego Area

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