2019-02 Monthly Housing Market Webinar

February Housing Market Update
March 19, 2019

Jordan G. Levine
Deputy Chief Economist
Overview
Why It Isn’t As Bad As You’ve Heard

• Economic fundamentals solid
• Sales Bounced Back Modestly
• Listings Growth Decelerating
• Price Growth Stabilizing
Why We Shouldn’t Pop the Champagne
• Sales Still Falling From Last Year
• Price Growth Poised For Slower Growth
• Affordability has eroded a LOT
• Market Much Less Competitive
2019 Will Be Tough, But Not A Disaster
Economic Update
Economic Fundamentals Remain Strong
2.6% 2.8% 2.2%
GDP 2018-Q4 Consumption Core CPI

2018-Q4 January 2019
4.0% 1.9%
Unemployment Job Growth

January 2019 January 2019
Unemployment Lowest in 40+ Years
Unemployment Rate 8.6%
Kings
14 California U.S. Merced
6.6%
12 Yuba City
Modesto
10 Monterey
Shasta
8
Santa Cruz
6 Ventura
Sacramento
4
San Diego
2 Orange County
Napa
0 South Bay
Jan-76
Jan-89
Jan-02
Jan-15
Nov-86
May-80
Jul-82
Sep-84
May-93
Jul-95
Sep-97
Sep-10
Nov-99
Nov-12
Mar-78
Mar-91
Mar-04
May-06
Jul-08
Mar-17 San Francisco 2.1%

0% 2% 4% 6% 8% 10%
Sales Bounce Modestly
Sales Highest in 6 Months
California, February 2019 Sales: 399,080 Units, -9.0% YTD, -5.6% YTY
700,000
600,000
Feb-18: Feb-19:
422,910 399,080
500,000
400,000
300,000
200,000
100,000
SERIES: Sales of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized
Sales Trending Downward Prior to Drop
20%
15% Avg. year-over-year

% chg. = -8.5%
10%
5%
0%
-5%
-10% Last 4+ consecutive mo. with decline:

Avg. year-over-year % chg. = -1.9%
-15%
*Sales are seasonally adjusted and annualized

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
Sales Declined in All Price Segments
February 2019 (YTY% Chg.) Share by Price Segment
0% 0% 5% 10% 15% 20% 25% 30%
-0.3%
$0 - $199k 5.9%
-5% -3.6%
-4.2% -5.6% $200 - $299k 14.9%
-6.4%
-10%
$300 - $399k 16.3%
-11.4%
-15% $400 - $499k 14.4%
$500 - $749k 24.0%

-20%
-19.5%
$750 - $999k 10.4%
-25% -23.1%
$1,000 - $1,999k 10.9%
$2,000k+ 3.2%
SERIES: Sales of Existing Detached Homes

Bay Area Sales Still down but Had the Smallest
Decline since Oct 2018
Bay Area 6 per. Mov. Avg. (Bay Area)
30%
20%
10%
YoY % chg.
0%
-5.8%
-10%
-20%
-30%
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
May-10
May-11
May-12
May-13
May-14
May-15
May-16
May-17
May-18
Sep-18
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are not seasonally adjusted and annualized
So. California Sales Declined, but Drop Less
than 10% for the1st Time in 4 Months
YoY % chg. So CA 6 per. Mov. Avg. (So CA)
40%
30%
20%
10%
0%
-9.6%
-10%
-20%
-30%

Central Valley Sales Continues to Decline,
but Decrease at a Slower Pace
YoY % chg. Central Valley 6 per. Mov. Avg. (Central Valley)
30%
20%
10%
0%
-6.3%
-10%
-20%
-30%
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
May-10
May-11
May-12
May-13
May-14
May-15
May-16
May-17
May-18
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Listings Decelerating
Inventory Index Highest in Three Years
February 2018: 3.9 Months; February 2019: 4.6 Months
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
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.
SERIES: Unsold Inventory Index of Existing Single Family Homes

Active Listings Had Smallest Growth in Six
Months
Year-over-Year % Chg
40%
30%
19.2%
20%
10%
0%
-10%
-20%
SERIES: Active Listing of Existing Single Family Homes

Housing Supply Improved in Most Segments
Feb 2019
Active Listing
40%
31.3%
30% 25.9%
22.1%
18.0% 19.2%
20% 14.3%
9.3%
10%
0%
-10%
-9.0%
-20%
SERIES: Active Listings of Existing Single Family Homes

Inventory Improved as Sales Continued to Fall
9.0 Bay Area So CA Central Valley
8.0
7.0
6.0
5.0 5.3
4.0 3.8
3.3
3.0
2.0
1.0
0.0
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.

Active Listings Increased in All Regions
Feb-18 Feb-19
30,000
26,946
25,000
22,379
20,000
Active Listings
15,000
10,000 9,383
8,078
5,593
5,000 3,941
2,092 2,225
0
San Francisco Bay Area Southern California Central Valley Central Coast

Active Listings Increased in All Regions
Feb 2019
Sales Active Listings

50%
41.9%
40%
Year-to-Year % Chg
30%
20.4%
20% 16.2%
10% 6.4%
0%
-4.4% -3.8%
-10% -6.3%
-9.6%
-20%
San Francisco Bay Southern California Central Valley Central Coast
Area
SERIES: Sales and Listings of Existing Single Family Homes

Inventory Index Highest in Millions
California Unsold Inventory Index by Segment
18
15.8
16
14
12 11.5
10
8.3
8 7.0
6.1 6.3
6 5.2 5.1 5.4
4.3 4.4 4.6 4.6
4.0 4.0 3.9 3.9
4 3.43.7 3.4 3.4 3.6
2
0
Feb-18 Feb-19
Prices Still Growing
Home Prices Grow At Very Modest Pace
California, February 2019: $534,140, -0.6% MTM, +2.2% YTY Feb-19:
P:May-07
$700,000 $534,140
$594,530 Feb-18:
$522,440
$600,000
$500,000
T: Feb-09
$245,230
$400,000 -59% from
peak
$300,000
$200,000
$100,000
$-
SERIES: Median Price of Existing Single Family Homes

Median Price
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$0
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07

SERIES: Median Price of Existing Condos/Townhomes
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Condo
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Condos Had First Dip since April 2012
Sep-16
Feb-17
Jul-17
Dec-17
Feb-18:
$454,500
May-18
Oct-18
Feb-19:
$450,000
List Price Suggests More Modest Growth
California Median Sales vs. List Price Growth
Sales Price Growth Lags List Price Growth by 4-6 Months
40%
30%
YTY% Chg. in Price
20%
10% 2.9%
0%
-10%
-20%
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jul-15
Jul-12
Jul-13
Jul-14
Jul-16
Jul-17
Jul-18
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Listing Price Sales Price
SERIES: Sales to List Ratio of Existing Single Family Homes

Price Growth by Region
Existing SFR Price Growth, February 2019
7.0%
6.0% 5.7%
5.0%
4.0%
3.2%
3.0%
2.0% 1.4%
1.0%
0.0%
-1.0%
-0.9%
-2.0%
-3.0% -2.3%
Los Angeles Central Coast Central Valley Inland Empire S.F. Bay Area
Metropolitan Area
Bay Area Price vs. Price/Sq. Ft: Shifting Mix
Feb 2019
Median Price (YTY% Chg.) Median Price/Sq. Ft. (YTY% Chg.)
20%
12.5%
10% 6.5% 6.8%
5.2%
3.4%
1.7%
0%
-1.2%
-5.9% -6.1% -4.7% -4.9%
-10% -8.4% -7.1%
-9.2%
-12.4% -11.5%
-13.0%
-15.4%
-20%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2,650,615 6,669,522
2,737,014 6,750,089
2,560,405 6,674,010
2,674,808 6,527,730
Signs of Investors Jumping Ship?
2,633,238 6,368,348
2,578,966 6,618,323
2,487,949 6,523,696
California Single-Family Housing Stock
Renter-Occupied
2,478,430 6,489,607
2,222,589 6,618,373
2,281,491 6,696,502
2,080,618 6,793,440
Owner-Occupied
2,053,107 6,754,095
1,958,648 6,820,133
1,940,607 6,919,164
1,768,833 6,877,251
1,787,309 6,824,802
1,776,303 6,377,572
1,754,913 6,472,732
1,883,210 6,295,466
9,000,000
7,000,000
8,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
10,000,000
SoCal Price vs. Price/Sq. Ft: Shifting Mix Here?
Feb 2019
8% 7.3%
7%
6%
4.8%
5%
4% 3.5% 3.5% 3.3%
3% 2.7%
1.4% 1.8%
2% 0.9% 0.9%
1% 0.0%
0%
-1%
-2%
-1.6%
-3%

Central Coast Price vs. Price/Sq. Ft
Feb 2019
20% 15.9%
15%
10% 6.6%
4.3%
5%
0.7% 0.0%
0%
-5% -2.1%
-10%
-15%
-14.6%
-20% -17.8%

Central Valley Price vs. Price/Sq. Ft
Feb 2019
30% 28.0%
25%
20%
15% 10.2%
10.1%
10% 7.6% 4.2% 8.2%
5.9% 4.9% 4.8% 3.2% 5.9%
4.5% 3.7% 3.9% 3.3%
5% 2.8% 0.6% 2.9% 2.8%
1.3% 1.6% 0.4% 1.4%
0%
-0.5%
-5%

Supply Problems Have
Become Demand Issues
Is It a Good Time to Buy or Sell?
Do you think it’s a good time to buy a Do you think it’s a good time to sell a
home in California? home in California?
57% 56% 53%

51% 48% 50%
46%
22% 21% 27% 25% 22% 25% 24%
Do you think it’s a good time to buy a home in California? (n=300) SERIES: 2018/2019 Google Consumer Poll
Do you think it’s a good time to sell a home in California? (n=300)
Housing Affordability Peaked at Q1 2012
California, 1984-2018
80%
Annual Quarterly
% OF HOUSEHOLDS THAT CAN BUY A
70%
60%
54%
MEDIAN-PRICED
50%
HOME
40%
30%
28%
20%
10%
0%
CA US
SERIES: Housing Affordability Index of Traditional Buyers
Housing Affordability Down Significantly
2018-Q4: % able to purchase median-priced home
70% 66%
53%
60%
54%
50%
40%
30% 28%
20%
12%
10%
0%
SERIES: Housing Affordability Index of Traditional Buyers

Less Competition
Highlights Weak Demand
DAYS ON MARKET
0
10
20
30
40
50
70
80
60
Jan-05
Sep-05
May-06
Jan-07
Sep-07
May-08
Jan-09
Sep-09
May-10
Jan-11
Sep-11
May-12
Jan-13
Sep-13
May-14
Median Days on Market
Jan-15
Sep-15
May-16
Jan-17
Sep-17
May-18
Jan-19
Sales-to-List Price Ratio

90%
94%
96%
98%
100%
92%
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Market Looking Less Competitive
Jul-13
Sales/List Ratio
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
10%
15%
20%
25%
35%
40%
45%
50%
30%
0%
5%
1/1/2010
4/1/2010
7/1/2010
10/1/2010
1/1/2011
4/1/2011
7/1/2011
10/1/2011
1/1/2012
4/1/2012
7/1/2012
10/1/2012
1/1/2013
4/1/2013
7/1/2013
10/1/2013
1/1/2014
Share Reduced 4/1/2014
7/1/2014
10/1/2014
1/1/2015
4/1/2015
7/1/2015
10/1/2015
1/1/2016
Reduced-Price Listings in California
Median Reduction
4/1/2016
7/1/2016
10/1/2016
1/1/2017
4/1/2017
7/1/2017
10/1/2017
1/1/2018
4/1/2018
7/1/2018
10/1/2018
More Actives Coming Down From List
1/1/2019
0%
2%
3%
4%
5%
33.40%7%
8%
9%
1%
6%
4.0%
10%
Rural Counties Seeing More Reductions
Reduced-Price Listings by County
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Despite All This,
Room For Optimism
Perspective is Everything
• Rates still low: 4.5% 30-Year Fixed Rate Mortgage
20
• Likely won’t rise as fast 18
• Homeownership still the dream 16

14
15.6
• Buyers overestimate 12
downpayments 10
• Would jump in if they could 8
6
• Don’t know about FHA loans
4
• Economy still going strong 2
0
• List prices are still growing
1971-04-02
1974-04-02
1977-04-02
1980-04-02
1983-04-02
1986-04-02
1989-04-02
1992-04-02
1995-04-02
1998-04-02
2001-04-02
2004-04-02
2007-04-02
2010-04-02
2013-04-02
2016-04-02
• Rising rates motivate buyers
Also, We Know How to
Fix This…
California Is Not Building Enough
2018: 114,370 (57,346 sf, 57,024 mf )
350000
2019f: 111,080 (54,056 sf, 57,024 mf)
300000 CA HCD Projected

Single Family Multi-Family Housing Needs:
250000 180,000/yr.
200000
150000
100000
50000
SERIES: California New Housing Permits

SOURCE: Construction Industry Research Board
New Building Not Keeping Pace w/Economy
California New Jobs vs. New Construction
2010-2018
1,424,208
845,833
379,967 386,467
183,111
134,437 111,792
28,670
SoCal Bay Area Central Valley Central Coast

New Jobs Permits
SERIES: Nonfarm Job Growth & New Housing Permits

SOURCE: CA EDD, Construction Industry Research Board
Less housing per capita than other
Ratio of Housing Units Added to
Population Added Housing Units Added Population Added
1,000 People Number Units per 1,000 People
Arizona 1,101 Arizona 416,330 Arizona 378
Nevada 559 Nevada 202,332 Nevada 362
New York 1,090 New York 379,019 New York 348
Washington 1,142 Washington 374,157 Washington 328
Oregon 533 Oregon 174,466 Oregon 327
Texas 5,592 Texas 1,728,257 Texas 309
California 3,971 California 1,072,121 California 270

+40%
SOURCE: U.S. Census Bureau, C.A.R.

~880K People Left Since Recession Ended
California Net Domestic Migration
0
-20,000 -11,405
-25,498
-40,000
-60,000 -54,023
-80,000
-76,180
-100,000
-104,712
-120,000 -115,491
-140,000
-160,000
-159,421
-169,336 -165,828
-180,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
The Forecast
U.S. Economic Outlook
2013 2014 2015 2016 2017 2018p 2019f
US GDP 1.7% 2.4% 2.6% 1.6% 2.3% 3.0% 2.4%
Nonfarm Job Growth 1.7% 1.9% 2.1% 1.8% 1.4% 1.6% 1.3%
Unemployment 7.4% 6.2% 5.3% 4.9% 4.4% 3.9% 3.7%
CPI 1.5% 1.6% 0.1% 1.4% 2.0% 2.5% 2.4%
Real Disposable Income, % Change -1.4% 2.7% 3.4% 2.7% 2.1% 2.8% 2.6%
30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2%
SERIES: U.S. Economic Outlook

CA Housing Market Outlook
2019 2019 2019

2013 2014 2015 2016 2017 2018p
Likely Best Worst
SFH Resales (000s) 414.9 382.7 409.4 417.7 424.1 410.5 371.1 396.8 347.3
% Change -5.9% -7.8% 7.0% 2.0% 1.5% -3.2% -6.9% -3.3% -10.4%
Median Price ($000s) $407.2 $446.9 $476.3 $502.3 $538.0 $575.8 $574.5 $593.4 $534.4
% Change 27.5% 9.8% 6.6% 5.4% 7.2% 7.0% -0.2% 3.1% -6.5%
Housing Affordability
36% 30% 31% 31% 29% 28% 26% 25% 30%
Index
30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2% 5.2% 5.2%
SERIES: CA Housing Market Outlook

Conclusion
Putting it all Together
• Economy still going strong • Supply issues have become a
• People still want to own homes demand problem – Migration
• Still demand for housing • Signs of a shift
• Sales weak at bottom
• More listings for REALTORS® • Inventory not snapped up
• RE moving relatively quick • Sellers starting to reduce prices
• Rising rates get folks off fence • Rising rates DO hurt
• Rates won’t go up as fast
• Market not as competitive • Market to soften in ’19
• Buyers can start to negotiate • Focus on Selling Ownership

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February Housing Market Update

March 19, 2019

Why It Isn’t As Bad As You’ve Heard

2.6% 2.8% 2.2%

GDP 2018-Q4 Consumption Core CPI

Unemployment Job Growth

Mar-17 San Francisco 2.1%

SERIES: Sales of Existing Single Family Homes

15% Avg. year-over-year

-10% Last 4+ consecutive mo. with decline:

*Sales are seasonally adjusted and annualized

SERIES: Sales of Existing Single Family Homes

$500 - $749k 24.0%

SERIES: Sales of Existing Detached Homes

SERIES: Sales of Existing Single Family Homes

SERIES: Unsold Inventory Index of Existing Single Family Homes

SERIES: Active Listing of Existing Single Family Homes

SERIES: Active Listings of Existing Single Family Homes

SERIES: Unsold Inventory Index of Existing Single Family Homes

SERIES: Active Listings of Existing Single Family Homes

Sales Active Listings

SERIES: Sales and Listings of Existing Single Family Homes

SERIES: Median Price of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SERIES: Sales to List Ratio of Existing Single Family Homes

SERIES: Active Listings of Existing Single Family Homes

SERIES: Active Listings of Existing Single Family Homes

SERIES: Active Listings of Existing Single Family Homes

SERIES: Active Listings of Existing Single Family Homes

57% 56% 53%

22% 21% 27% 25% 22% 25% 24%

SERIES: Housing Affordability Index of Traditional Buyers

Sales-to-List Price Ratio

• Homeownership still the dream 16

300000 CA HCD Projected

SERIES: California New Housing Permits

SoCal Bay Area Central Valley Central Coast

SERIES: Nonfarm Job Growth & New Housing Permits

Arizona 1,101 Arizona 416,330 Arizona 378

Nevada 559 Nevada 202,332 Nevada 362

New York 1,090 New York 379,019 New York 348

Washington 1,142 Washington 374,157 Washington 328

Oregon 533 Oregon 174,466 Oregon 327

Texas 5,592 Texas 1,728,257 Texas 309

California 3,971 California 1,072,121 California 270

SOURCE: U.S. Census Bureau, C.A.R.

2013 2014 2015 2016 2017 2018p 2019f

US GDP 1.7% 2.4% 2.6% 1.6% 2.3% 3.0% 2.4%

Unemployment 7.4% 6.2% 5.3% 4.9% 4.4% 3.9% 3.7%

CPI 1.5% 1.6% 0.1% 1.4% 2.0% 2.5% 2.4%

30-Yr FRM 4.0% 4.2% 3.9% 3.6% 4.0% 4.7% 5.2%

SERIES: U.S. Economic Outlook

2019 2019 2019

SERIES: CA Housing Market Outlook

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