2006 Real Estate Market Forecast Leslie Appleton-Young Vice President and Chief Economist.
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Transcript of 2006 Real Estate Market Forecast Leslie Appleton-Young Vice President and Chief Economist.
2006 Real Estate Market Forecast
Leslie Appleton-Young
Vice President and Chief Economist
Overview
• Economic Conditions• California Housing Market• California Commercial Market • Regional Real Estate Markets
– Southern California– Bay Area– Central Valley
• 2006 Forecast
Economic Conditions
-3%
-2%
-1%
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2004: 4.2% 2005 3.4% 2006 3.6%ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $
Gross Domestic Product
• Will dampen growth in the short-term but does not pose a more persistent threat to the economy
• GDP will lose .5% in 2005 Q3,1% in 2005 Q4• Higher energy prices will cost consumers
$50 Billion• $25B in insurance payments and $??? B in
Government Aid sent to region• Budget deficit will increase $10 B this year;
$10-15B next year; more in 2007+
Hurricane Katrina
PERCENT CHANGE FROM A YEAR AGO
0%
2%
4%
6%
8%
10%
12%
14%
16%
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All Items
Core
Consumer Price IndexInflation August 2005: 3.6% Y-T-Y; 2.2% Core
Dollars per Barrel of West Texas Intermediate, Adjusted by CPI (1982-84=100, SA)
0
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Crude Oil
Crude Oil Adjusted by CPI
Crude Oil Prices
Employment Growth, California vs. U.S.
YEAR TO YEAR % CHANGE
-3
-2
-1
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California US
Nonfarm Employment By Region
SOURCE: CA Employment Development Division
Nonfarm NonfarmEmployment Employment Percent
July-05 July-04 Change ChangeSouthern California 8,217.9 8,112.5 105.4 1.3%Bay Area 3,154.4 3,127.7 26.7 0.9%Central Valley 1,855.3 1,825.5 29.7 1.6%Central Coast 493.0 486.4 6.6 1.4%North Central 136.7 133.9 2.8 2.1%CALFORNIA 14,783.4 14,593.7 189.7 1.3%
(Thousands)
INDEX, 100=1985
40
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80
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110
120
130
140
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Consumer Confidence IndexAugust 2005: 103.2
QUARTERLY PERCENT CHANGE
-4
-3
-2
-1
0
1
2
3
4
5
6
7
1Q
-19
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1Q
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1Q
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1Q
-20
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1Q
-20
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Personal Consumption2005 Q2: +3.0%
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000
7,000,000
7,500,0001
98
9
19
90
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20
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p
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$80,000
$90,000
$100,000
$110,000
$120,000
$130,000
$140,000
$150,000
$160,000
$170,000
$180,000
$190,000
$200,000
$210,000
$220,000Existing Home Sales Median Home Price
ANNUAL RATE
US Sales and Median Price
0
100
200
300
400
500
600
700
800
900
Q1
/90
Q4
/90
Q3
/91
Q2
/92
Q1
/93
Q4
/93
Q3
/94
Q2
/95
Q1
/96
Q4
/96
Q3
/97
Q2
/98
Q1
/99
Q4
/99
Q3
/00
Q2
/01
Q1
/02
Q4
/02
Q3
/03
Q2
/04
Q1
/05
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%Refinance Originations (Bil $)Purchase Originations (Bil $)Fixed Rate Mortgage
ORIGINATION (BIL $) 30-YR FIXED RATE MORTGAGE
SOURCE: Mortgage Bankers Association
Mortgage Origination
Source: Mortgage Bankers Association of America
Refinance vs. Purchase
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q1
/90
Q4
/90
Q3
/91
Q2
/92
Q1
/93
Q4
/93
Q3
/94
Q2
/95
Q1
/96
Q4
/96
Q3
/97
Q2
/98
Q1
/99
Q4
/99
Q3
/00
Q2
/01
Q1
/02
Q4
/02
Q3
/03
Q2
/04
Q1
/05
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%Refinance Share (%) Purchase Share (%)Fixed Rate Mortgage
30- YR FIXED RATE MORTGAGEREFINANCE/PURCHASE SHARE
SOURCE: Mortgage Bankers Association
Mortgage OriginationRefinance Share vs. Purchase Share
Source: Mortgage Bankers Association of America
Home Prices, Mortgage Rates and Consumer Spending
• Over $200 B per year in spending power has been added from the growth of borrowing against rising home prices.
• Home equity loans increase from $552 Billion in 2001 to $881 Billion in 2004
• Home equity cash out refis grew from $92 Billion 1996-1999 to $400 Billion 2002-2004
• This borrowing has fueled consumer spending and it will slow as housing price gains moderate.
0%
1%
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3%
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FRM
ARM
Federal Funds Target
Fed Funds and Mortgage Rates2000-2005
SOURCE: Federal Home Loan Mortgage Corp.
Treasury Yield Curve
1.641.87
2.47
3.37
4.15
4.94
4.24 4.45
3.78
3.51
4.034.11 4.42
4.13
3.47
3.763.86
3.92
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
3 m
on
th
6 m
on
th
2 ye
ar
5 ye
ar
10 y
ear
30 y
ear
13-Sep-04
12-Aug-05
13-Sep-05`
Why are Rates so Low? Greenspan: It’s a “Conundrum”
• Deflationary Structural Forces • Global Competition: Wal-Mart Effect• Increased consumer Awareness:
Internet Effect• Productivity gains/Greater efficiency• Global Labor force – off-shoring• Foreign Central Banks and Pension
funds holding more $’s
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ARMs as a Percent of All MortgagesWhy isn’t this lower?
Source: Federal Housing Finance Board
Source: Federal Housing Finance Board
New Loan Products and Risk
• Types of instruments– Zero down-payment– Interest-only – Stated income– Option-ARM’s
• Concerns– Ability to absorb rate adjustments– Slower equity growth ahead
• Economic growth in 2006 a moderate 3.6%• The “Goldilocks Economy”?• Accompanied by …
– Modest job growth – solid but not outstanding– Inflation in check – Fed Priority– Continued strength in Business Investment – Consumer Spending flat– Growing Fiscal Stimulus: Katrina– Strong Housing Market slightly off 2005 peak
National Economy
California Real Estate Market
THOUSANDS
0
100,000
200,000
300,000
400,000
500,000
600,000
700,0001970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006f 0
50,000
100,000
150,000
200,000
250,000
Home Sales Membership
California’s Housing Cycles and Membership1970-2006
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Jan
-00
Ap
r-00
Ju
l-00
Oct-
00
Jan
-01
Ap
r-01
Ju
l-01
Oct-
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Jan
-02
Ap
r-02
Ju
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Oct-
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Jan
-03
Ap
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Ju
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Oct-
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Jan
-04
Ap
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Ju
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Oct-
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Jan
-05
Ap
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0
20
40
60
80
100
120
140
160
Sales Consumer Confidence INDEXUNITS
Sales of Existing Detached Homes and Pacific West Consumer Confidence
California, July 2005 Sales: 647,913 Units, Up 3.3% Y-T-D, Up 1.3% Y-T-Y
SOURCE: California Association of REALTORS®; The Conference Board
Median Price of Existing Detached HomesCalifornia, July 2005: $540,900, Up 17.1% Y-T-Y
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000J
an
-90
Ju
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-93
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-96
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SOURCE: California Association of REALTORS®
California’s Million-Dollar Home Sales
33,10719,080
13,8719,501
11,364
7,5535,366
3,7622,651
2,0172,5222,2982,890
3,3623,773
4,2712,718
0
5000
10000
15000
20000
25000
30000
35000
19881989199019911992199319941995199619971998199920002001200220032004
Source: DataQuick Information Systems
YEAR
NUMBER OF HOMES
Unsold Inventory IndexCalifornia - July 2005 : 3.2 months of supply
0
2
4
6
8
10
12
14
16
18
20
Jan
-88
Sep
-91
May-9
5
Jan
-99
Sep
-02
Unsold Inventory Index Long Run Average 6.3 Months
SOURCE: California Association of REALTORS®
MONTHS
0
20
40
60
80
100
120
140
160
180
200
220
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
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94
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95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
Sales Index (1989=100) Listings Index (Jun 1989=100)
1989 = 100
LR Average Listings = 1.5 times sales
Sales Index vs. Listings Index
Why are Home Prices Rising?Econ 101
• Strong Demand– Low Mortgage Rates– Demographics: Baby Boomers – Flight from alternative investment
choices– Speculation?
• Restricted Supply– Constraints on new construction– Low inventory of homes for sale
Yes Virginia, there is a bubble – a bubble in the number of articles about the housing bubble.
Is There a Housing Bubble?
BUBBLE? NO!SOFT LANDING? YES
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Ja
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MONTHLY AVERAGE
What is a Bubble?
NASDAQ 1987-2005
Median Price, Annual Percentage ChangeCalifornia vs. U.S.
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
YEAR
California US
AN
NU
AL
PE
RC
EN
TA
GE
CH
AN
GE
California Median Price 1970-2005Annual Percentage Change
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
YEAR
AN
NU
AL
PE
RC
EN
TA
GE
CH
AN
GE
Annual Housing Market Survey2005-2006: Market in Transition
0
2.1
0%
1%
2%
3%
4%
5%
6%
7%19
86
1988
1990
1992
1994
1996
1998
2000
2002
2004
0
2
4
6
8
10
12
14
16Med. Price DiscountMed. Weeks on MLS
Median Price Discount And Weeks On Market
Q. What was the original list sales price of the property? What was the final sales price of the property? How many weeks did the property remain on the MLS?
$220,643
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Median Net Cash To Sellers
Q. What was the net cash gain or net loss to the seller as a result of this sale?
72.2%
19.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1997 1998 1999 2000 2001 2002 2003 2004 2005
Single-Fam ily Detached Condo/Tow nhom e
Type of Residence
Note: Figures do not total 100% due to “other” types of homes sold.
Q. What type of residence was purchased?
25.9%
50.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1997 1998 1999 2000 2001 2002 2003 2004 2005
Single-Family Detached Condo/Townhome
Proportion of First-Time Homebuyers(Single-Family Detached vs. Condo/Townhome)
Q. Was the buyer a first-time buyer?
Proportion of First-Time Homebuyers
California
30.5%
0%
10%
20%
30%
40%
50%
60%
81 83 85 87 89 91 93 95 97 99 01 03 05
Q. Was the buyer a first-time buyer?
Median Downpayment
First-Time Homebuyers Vs. Repeat Homebuyer
$25,000
$119,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
1997 1998 1999 2000 2001 2002 2003 2004 2005
First-Time Buyers Repeat Buyers
Q. What was the amount of downpayment?
Median Downpayment
Single-Family Detached Vs. Condo/Townhomes
$96,800
$47,750
$0
$20,000
$40,000
$60,000
$80,000
$100,000
1997 1998 1999 2000 2001 2002 2003 2004 2005
Single-Family Detached Condo/Townhome
Q. What was the amount of downpayment?
0%
20%
40%
60%
80%
100%
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
FRM ARM Other
Types Of New First Mortgages
Proportion of Transactions With Second Mortgages
38.1%
0%
10%
20%
30%
40%
50%
60%
81 83 85 87 89 91 93 95 97 99 01 03 05
Q. In addition to the first mortgage or assumption, was there a second mortgage?
California’s Housing Crisis
Housing Affordability IndexCalifornia Vs. U.S.
0%
10%
20%
30%
40%
50%
60%
70%
Jan
-88
Ju
l-88
Jan
-89
Ju
l-89
Jan
-90
Ju
l-90
Jan
-91
Ju
l-91
Jan
-92
Ju
l-92
Jan
-93
Ju
l-93
Jan
-94
Ju
l-94
Jan
-95
Ju
l-95
Jan
-96
Ju
l-96
Jan
-97
Ju
l-97
Jan
-98
Ju
l-98
Jan
-99
Ju
l-99
Jan
-00
Ju
l-00
Jan
-01
Ju
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Jan
-02
Ju
l-02
Jan
-03
Ju
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Jan
-04
Ju
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Jan
-05
Ju
l-05
US-CA CA US
SOURCE: California Association of REALTORS®
% OF HOUSEHOLDS THAT CAN BUY
California vs. U.S. Median Prices1970-2004
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
California
US
SOURCE: California Association of REALTORS®
California vs. U.S. Household Income1980 - 2004
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,0001
98
0
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
California
US
SOURCE: U.S. Census Bureau, CA Dept of Finance
CURRENT DOLLARS
Homeownership Rates
California (59.7%) vs. U.S. (69.0%)
50%
55%
60%
65%
70%
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
CA US
Sources of Population GrowthCalifornia 1981-2004
-200
0
200
400
600
800
1000
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
20
00
20
01
20
02
20
03
20
04
Net Migration Natural Increase
SOURCE: CA Dept. of Finance
THOUSANDS
New Housing Permits: CA
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005p
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
Single Family Multi-Family Housing Needs
SOURCES: CAR; Construction Industry Research Board; CSHP
California’s Commercial Market
Commercial Outlook
Apartments– Favorable demographics in Southern Cal– Los Angeles & Inland Empire two of strongest US
markets– Gradually increasing stability in Bay Area and
Sacramento
Commercial Outlook
Office– Improving vacancy rates with economic expansion
and creation of jobs– Ventura, Orange, Inland Empire, & S.D. among
strongest US markets– Gradual absorption of capacity in Bay Area
Commercial Outlook
Industrial– Better in Southern California than Bay Area– Powerhouse in Inland Empire
Commercial Outlook
Retail– Good fundamentals across markets of the state– San Francisco, San Diego, San Jose, Ventura,
Oakland, and Sacramento in US Top 10 for lowest vacancy rates.
Regional Market:
Southern California
Nonfarm EmploymentSouthern California
SOURCE: California Economic Development Dept.
Nonfarm NonfarmEmployment Employment Percent
Jul 2005 Jul 2004 Change Change
Los Angeles 4,001.7 3,961.0 40.7 1.0%
Orange County 1,488.9 1,464.0 24.9 1.7%
Riverside/SB 1,163.6 1,144.5 19.1 1.7%
San Diego 1,277.3 1,258.4 18.9 1.5%
Ventura 286.4 284.6 1.8 0.6%
Total 8,217.9 8,112.5 105.4 1.3%
(Thousands)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Jan
-98
Ap
r-98
Ju
l-98
Oct-
98
Jan
-99
Ap
r-99
Ju
l-99
Oct-
99
Jan
-00
Ap
r-00
Ju
l-00
Oct-
00
Jan
-01
Ap
r-01
Ju
l-01
Oct-
01
Jan
-02
Ap
r-02
Ju
l-02
Oct-
02
Jan
-03
Ap
r-03
Ju
l-03
Oct-
03
Jan
-04
Ap
r-04
Ju
l-04
Oct-
04
Jan
-05
Ap
r-05
Ju
l-05
0
20
40
60
80
100
120
140
160UNITS
Sales of Existing Detached HomesSouthern California July 2005 Sales: 13,214 Units, Down 2.0% Y-T-D, -3.6% Y-T-Y
SOURCE: California Association of REALTORS®; The Conference Board
-10.8%
10.4%
-4.2%
5.7%
1.6%0.5%
-2.0%
15.1%
0.8%
20.2%
12.8%
-30%
-20%
-10%
0%
10%
20%
30%1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005p
PERCENT CHANGE IN SALES
Annual Percent Change in Sales
Southern California – Existing Homes
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,00019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
p
Median Home Price
Southern California, 1990-2005
ANNUAL MEDIAN SALES PRICE
-10%
0%
10%
20%
30%
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
p
Annual Percent Change in Home Price
Southern California, 1990-2005
PERCENT CHANGE IN PRICE
High Desert 298,946$ 290,506$ 234,523$ 2.9% 27.5%Los Angeles 543,888$ 518,276$ 451,547$ 4.9% 20.4%
706,824$ 702,400$ 648,588$ 0.6% 9.0%Palm Springs 371,394$ 393,366$ 340,251$ -5.6% 9.2%
384,906$ 373,858$ 317,815$ 3.0% 21.1%616,053$ 614,125$ 582,492$ 0.3% 5.8%
1,325,000$ 1,250,000$ 1,049,000$ 6.0% 26.3%Sta. Barbara-North Cnty. 462,686$ 463,380$ 389,609$ -0.1% 18.8%
694,689$ 685,759$ 626,506$ 1.3% 10.9%Ventura
Sta. Barbara-So. Coast
Y-t-Y
San Diego
County Jul-05 Jun-05 Jul-04 M-t-M
Orange
Riverside/SB
Median Home PriceSouthern California Regions
SOURCE: California Association of REALTORS®
Supply Indicators
SOURCE: California Association of REALTORS®
Southern California
89.4%
3.0 Mos.
25.8 Days
June2005
91.0%89.3%Median Sales Price-to-Median List Price Ratio
3.4 Mos.3.6 Mos.Unsold Inventory Index
21.4 Days26.6 DaysMedian Time on the Market
July2004
July2005
Housing AffordabilityJuly 2005
0 5 10 15 20 25 30 35 40 45 50
United States
California
High Desert
Riverside-San Bernardino
Los Angeles
Ventura
Santa Barbara
Palm Springs
Orange County
San Diego
SOURCE: California Association of REALTORS®
New Housing Permits: Southern California
Need:110,000 units
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,00067
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
2001
2003
2005p
2007
2009
Single Family Multi-Family
SOURCES: CAR; Construction Industry Research Board; CCSCE
Nonresidential Permits, Valuations
7 Southern California Counties (1989-2004)$$ MILLIONS
SOURCE:U.S. Real Estate Research Council of Northern California
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
1989 1991 1993 1995 1997 1999 2001 2003
Industrial BldgsRetail BldgsOffice BldgsOther(Gap to Non Res Total)
Regional Market:
Bay Area
Nonfarm EmploymentBay Area Region
SOURCE: California Economic Development Dept.
Jul 2005 Jul 2004 Change % Change
San Francisco 945.2 937.0 8.2 0.9%
Oakland 1,035.1 1,019.2 15.9 1.6%
San Jose 863.6 862.9 0.7 0.1%
Napa/Solano 127.0 125.9 1.1 0.9%
Sonoma 183.5 182.7 0.8 0.4%
Total 3,154.4 3,127.7 26.7 0.9%
Nonfarm Employment (Thousands)
Nonfarm Employment
SOURCE: CA Employment Development Division
Y-T-Y PERCENT CHANGE
Santa Clara County, July 2005: Up 0.1% Y-T-Y
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Jan
-91
Ju
l-91
Jan
-92
Ju
l-92
Jan
-93
Ju
l-93
Jan
-94
Ju
l-94
Jan
-95
Ju
l-95
Jan
-96
Ju
l-96
Jan
-97
Ju
l-97
Jan
-98
Ju
l-98
Jan
-99
Ju
l-99
Jan
-00
Ju
l-00
Jan
-01
Ju
l-01
Jan
-02
Ju
l-02
Jan
-03
Ju
l-03
Jan
-04
Ju
l-04
Jan
-05
Ju
l-05
Nonfarm EmploymentSanta Clara vs.California
SOURCE: CA Employment Development Division
SANTA CLARA CA
0
200
400
600
800
1,000
1,200
Jan
-98
Ju
l-98
Jan
-99
Ju
l-99
Jan
-00
Ju
l-00
Jan
-01
Ju
l-01
Jan
-02
Ju
l-02
Jan
-03
Ju
l-03
Jan
-04
Ju
l-04
Jan
-05
Ju
l-05
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Santa Clara CA
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan
-98
Ap
r-98
Ju
l-98
Oct-
98
Jan
-99
Ap
r-99
Ju
l-99
Oct-
99
Jan
-00
Ap
r-00
Ju
l-00
Oct-
00
Jan
-01
Ap
r-01
Ju
l-01
Oct-
01
Jan
-02
Ap
r-02
Ju
l-02
Oct-
02
Jan
-03
Ap
r-03
Ju
l-03
Oct-
03
Jan
-04
Ap
r-04
Ju
l-04
Oct-
04
Jan
-05
Ap
r-05
Ju
l-05
SOURCE: California Association of REALTORS®; The Conference Board
UNITS
Sales of Existing Detached HomesBay Area, July 2005: 4,549 Units, Down 10.6% Y-T-D, Down 16.3% Y-T-Y
-11.9%
25.1%
6.3%7.1%
-8.1%
17.7%
-10.6%
6.3%
-21.3%
15.8%
11.2%
-30%
-20%
-10%
0%
10%
20%
30%1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 Y
TD
PERCENT CHANGE IN SALES
Annual Percent Change in Sales
Bay Area – Existing Homes
Median Home Price in Bay Area Counties
Alameda 672,981$ 676,673$ 595,273$ -0.5% 13.1%Contra Costa 690,814$ 697,719$ 656,474$ -1.0% 5.2%Marin 1,006,410$ 1,040,816$ 879,120$ -3.3% 14.5%San Francisco 854,316$ 860,641$ 720,121$ -0.7% 18.6%San Mateo 880,000$ 900,000$ 770,000$ -2.2% 14.3%Santa Clara 750,000$ 760,000$ 640,000$ -1.3% 17.2%Santa Cruz 759,000$ 793,000$ 635,000$ -4.3% 19.5%Solano 473,999$ 474,752$ 386,770$ -0.2% 22.6%Sonoma 644,292$ 645,944$ 513,889$ -0.3% 25.4%
Jul-04 M-t-M Y-t-YCounty Jul-05 Jun-05
SOURCE: California Association of REALTORS®
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
$650,000
$700,000
$750,0001990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 Y
TD
Median Home Price
Bay Area, 1990-2005
ANNUAL MEDIAN SALES PRICE
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
$650,000
$700,000
$750,000
$800,000Jan
-00
Ap
r-00
Ju
l-00
Oct-
00
Jan
-01
Ap
r-01
Ju
l-01
Oct-
01
Jan
-02
Ap
r-02
Ju
l-02
Oct-
02
Jan
-03
Ap
r-03
Ju
l-03
Oct-
03
Jan
-04
Ap
r-04
Ju
l-04
Oct-
04
Jan
-05
Ap
r-05
Ju
l-05
Median Price of Existing Detached HomesBay Area, July 2005: $724,890, Up 11.3% Y-T-Y
SOURCE: California Association of REALTORS®
-10%
0%
10%
20%
30%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 Y
TD
Annual Percent Change in Home Price
Bay Area, 1990-2005
PERCENT CHANGE IN PRICE
SOURCE: California Association of REALTORS®
Supply IndicatorsBay Area
SOURCE: California Association of REALTORS®
July2005
June2005
July2004
Median Time on the Market
39.4 Days 38.0 Days 41.3 Days
Unsold Inventory Index 1.7 Mos. 1.5 Mos. 1.1 Mos.
Median Sales Price-to-Median List Price Ratio
92.4% 96.0% 98.8%
0 5 10 15 20 25 30 35 40 45 50
United States
California
Santa Clara
San Mateo
Alameda
Bay Area
Marin
Sonoma
Monterey/Santa Cruz
San Francisco
Contra Costa
Housing AffordabilityJuly 2005
SOURCE: California Association of REALTORS®
New Housing Permits: SF Bay Area
Need 34,600 units
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
67
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
2001
2003
2005
2007
2009
Single Family Multi-Family
SOURCES: CAR; Construction Industry Research Board; CCSCE
Non-Residential Permits Valuations
9 Bay-Area Counties (1989-2004)SOURCE:U.S. Real Estate Research Council of Northern CaliforniaMILLIONS OF DOLLARS
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Industrial BldgsRetail BldgsOffice BldgsOther(Gap to Non Res Total)
Regional Market:
Central Valley
Nonfarm EmploymentCentral Valley Region
SOURCE: California Economic Development Dept.
Jul 2005 Jul 2004 Change % Change
Sacramento 867.4 856.5 10.9 1.3%
Merced 55.9 55.5 0.4 0.7%
Bakersfield 214.1 209.5 4.6 2.2%
Fresno 292.2 286.1 6.1 2.1%
Modesto 161.1 160.2 0.9 0.6%
Stockton 206.4 202.2 4.2 2.1%
Tulare 17.9 17.4 0.5 2.6%
Sutter-Yuba 40.3 38.1 2.2 5.8%
Total 1,855.3 1,825.5 29.8 1.6%
Nonfarm Employment (Thousands)
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan
-98
Ap
r-98
Ju
l-98
Oct-
98
Jan
-99
Ap
r-99
Ju
l-99
Oct-
99
Jan
-00
Ap
r-00
Ju
l-00
Oct-
00
Jan
-01
Ap
r-01
Ju
l-01
Oct-
01
Jan
-02
Ap
r-02
Ju
l-02
Oct-
02
Jan
-03
Ap
r-03
Ju
l-03
Oct-
03
Jan
-04
Ap
r-04
Ju
l-04
Oct-
04
Jan
-05
Ap
r-05
Ju
l-05
UNITS
Sales of Existing Detached HomesCentral Valley, July 2005 Sales: 4,765 Units, Down 2.9% Y-T-D, Down 0.3% Y-T-Y
SOURCE: California Association of REALTORS®; The Conference Board
-12.3%
11.2%
26.1%
4.0%
20.9%
11.7%10.3%
16.4%
-2.9%
27.1%
-0.8%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 Y
TD
PERCENT CHANGE IN SALES
Annual Percent Change in Sales
Central Valley – Existing Homes
$279,526
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,0001990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005 Y
TD
Median Home Price
Central Valley, 1990-2005
ANNUAL MEDIAN SALES PRICE
24.00%
-10%
0%
10%
20%
30%
40%
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Q2
SOURCE: California Association of REALTORS®
Annual Percent Change in Home Price
Central Valley, 1990-2005
PERCENT CHANGE IN PRICE
Median Home Price in Central Valley Regions
SOURCE: California Association of REALTORS®
-$ -$ 191,076$ n.a. n.a.295,025$ 298,635$ 241,145$ -1.2% 22.3%362,903$ 358,823$ 291,378$ 1.1% 24.5%435,577$ 408,088$ 327,059$ 6.7% 33.2%325,842$ 326,811$ 228,977$ -0.3% 42.3%345,975$ 336,730$ 255,027$ 2.7% 35.7%364,285$ 345,454$ 279,999$ 5.5% 30.1%387,812$ 381,993$ 322,289$ 1.5% 20.3%361,080$ 344,852$ 261,342$ 4.7% 38.2%525,240$ 527,273$ 430,808$ -0.4% 21.9%360,317$ 351,724$ 266,875$ 2.4% 35.0%
Y-t-Y
Merced
County
Lodi
Jul-05 Jun-05 Jul-04 M-t-M
Bakersfield
Fresno
Tracy
Turlock
Manteca
Oakdale
Sacramento
Stockton
Modesto
0 5 10 15 20 25 30 35 40 45 50
United States
California
Stanislaus
Fresno
Central Valley
Sacramento
Merced
San Joaquin
Housing AffordabilityJuly 2005
SOURCE: California Association of REALTORS®
Nonresidential Permits Valuations
Sacramento County (1989-2004)
SOURCE:U.S. Real Estate Research Council of Northern CaliforniaMILLIONS OF DOLLARS
0
100
200
300
400
500
600
700
800
1989 1991 1993 1995 1997 1999 2001 2003
Industrial BldgsRetail BldgsOffice BldgsOther(Gap to Non Res Total)
2006 Forecast
2006 U.S. Economic Forecast
SOURCE: California Association of REALTORS®
2001 2002 2003 2004 2005e 2006f
US GDP 0.8% 1.6% 2.7% 4.2% 3.4% 3.6%
Nonfarm Jobs % 0.03% -1.1% -0.3% 1.1% 1.6% 1.4%
Unemployment 4.7% 5.8% 6.0% 5.5% 5.2% 5.1%
CPI 2.8% 1.6% 2.3% 2.7% 3.5% 2.5%
30-Year 7.0% 6.5% 5.8% 5.8% 5.8% 6.4%
1-Year ARM 5.8% 4.6% 3.8% 3.9% 4.4% 5.1%
2006 U.S. Housing Market Forecast
SOURCE: National Association of REALTORS®
2001 2002 2003 2004 2005e 2006f
US Resales (millions)
5.30 5.57 6.18 6.78 7.02 6.80
% Change 3.1% 5.1% 11.0% 9.7% 3.4% -3.1%
Median Price ($_thousands)
$147.8 $158.2 $169.5 $185.2 $205.1 $215.5
% Change 6.3% 7.0% 7.1% 9.3% 10.7% 5.1%
2006 California Economic Forecast
SOURCE: California Association of REALTORS®
2001 2002 2003 2004 2005e 2006f
Nonfarm Job Growth
0.8% -1.0% -0.5% 1.0% 1.7% 1.5%
Unemployment Rate
5.4% 6.7% 6.7% 6.1% 5.4% 5.3%
Population Growth
1.7% 1.5% 1.5% 1.5% 1.5% 1.5%
Real Personal Income, % Change
0.4% 0.2% 2.0% 3.2% 3.9% 3.6%
2006 California Housing Market Forecast
SOURCE: California Association of REALTORS®
2001 2002 2003 2004 2005e 2006f
SFH Resales
503,990 572,550 601,770 624,740 643,480 630,610
% Change -5.9% 13.6% 5.1% 3.8% 3.0% -2.0%
Median Price
$262,350 $316,130 $372,720 $450,990 $523,150 $575,500
% Change 8.7% 20.5% 17.9% 21.0% 16.0% 10.0%
Housing Afford. 34% 29% 27% 20% 17% 15%30-Yr FRM 7.0% 6.5% 5.8% 5.8% 5.8% 6.4%
1-Yr ARM 5.8% 4.6% 3.8% 3.9% 4.4% 5.1%
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
700,0001990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005p
2006f
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000Existing Home Sales Median Home Price
SOURCE: California Association of REALTORS®
Sales and Median Home Price
California, 1990-2006
ANNUAL MEDIAN SALES PRICESALES ACTIVITIES
• Market in Transition• Bay Area and So Cal Coastal areas median
price up 6-12% • Central Valley and Inland Empire growing most
rapidly; median price up 10-18%• No Bubble – Soft landing
Forecast Summary
2006 Forecast Risks
• Interest Rate Risk: Higher rates from:– Unexpectedly high inflation– Budget deficit run up in rates– Sell off of U.S. debt by foreign investors and
central banks• Consumer Spending Risk: Weaker than expected,
hindering expansion and job growth– Refi boom slows; less equity to tap
• Baby boomers – retiring and diversifying• Singles – larger share of homebuyers • Condos/Infill in metro areas – affordability and quality of life issues• Continued strength in entry- and mid-range• Multi-cultural and immigrant buyers• Internet marketing – reaching Gen X• Life-long Learning – explore new productivity tools – Relay,
Wireless, Tablet, Research etc.
2006 Market Opportunities
Thank You
