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2006 Real Estate Market Forecast. Leslie Appleton-Young Vice President and Chief Economist. Economic Conditions. Recent Economic Headlines. US jobs up 243,000 in February; revised gains of 170,000 in January and 145,000 in December Strong but not booming Rebound in wages

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2006 real estate market forecast

2006 Real Estate Market Forecast

Leslie Appleton-Young

Vice President and Chief Economist

recent economic headlines
Recent Economic Headlines
  • US jobs up 243,000 in February; revised gains of 170,000 in January and 145,000 in December
  • Strong but not booming
  • Rebound in wages
  • Expect benchmark Fed Funds rate to go from 4.5% to 5.0%
  • Strong productivity gains
  • Softer housing sector
gross domestic product
Gross Domestic Product
  • 2004: 4.2% 2005 3.5% 2006 3.5%

ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $

gross domestic product5
Gross Domestic Product
  • 2005 Q4: +1.1%

QUARTERLY PERCENT CHANGE, ANNUAL RATE

nonfarm employment by region
Nonfarm Employment By Region

SOURCE: CA Employment Development Division

consumer confidence index
Consumer Confidence Index
  • January 2006: 106.3

INDEX, 100=1985

consumer spending
Consumer Spending
  • 2005 Q4 1.1%

QUARTERLY PERCENT CHANGE

mortgage origination
Mortgage Origination

Refinance vs. Purchase

ORIGINATION (BIL $)

30-YR FIXED RATE MORTGAGE

SOURCE: Mortgage Bankers Association

the wealth effect
The “Wealth” Effect
  • Higher real estate values converted into cash through: Trading “down”; Cash-out refi’s; Home equity loans
  • Housing “money” created (Source: Federal Reserve Board):
  • Year Money % Disposable Income
  • 2000 $204 B 2.8%
  • 2001 $262B 3.5%
  • 2002 $398 B 5.1%
  • 2003 $439 B 5.4%
  • 2004 $599 B 6.9%
  • In other words, this borrowing has fueled consumer spending and it will slow as housing price gains moderate.
longer tenure in home
Longer Tenure in Home?
  • Homeowners may stay in their current homes longer because they have:
    • Cashed out and spent their trade-up equity
    • Concerned about “property tax shock”
    • Love their low-rate mortgage
    • But don’t forget that “Boomers” are inheriting wealth from their parents and are interested in real estate for:
      • Kids
      • Parents
      • Retirement/Investment
consumer price index
Consumer Price Index
  • January 2006: All Items 4.0% Y-T-Y; Core 2.1% Y-T-Y

PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984

fed funds and mortgage rates
Fed Funds and Mortgage Rates
  • 2000-2006: 15 Fed increases since June 2004

SOURCE: Federal Home Loan Mortgage Corp.

mortgage rates
Mortgage Rates

SOURCE: FHLMC

slide18

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
arms as a percent of all mortgages why isn t this lower
ARMs as a Percent of All MortgagesWhy isn’t this lower?

Source: Federal Housing Finance Board

Source: Federal Housing Finance Board

slide20

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
national economy
National Economy
  • Economic growth in 2006 a moderate 3.5%
  • 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
sales of existing detached homes and pacific west consumer confidence
Sales of Existing Detached Homes and Pacific West Consumer Confidence
  • California, January 2006 Sales: 500,474 Units, Down 24.1% Y-T-D, Down 24.1% Y-T-Y

UNITS

INDEX

SOURCE: California Association of REALTORS®;

The Conference Board

median price of existing detached homes
Median Price of Existing Detached Homes
  • California, January 2006: $551,300, Up 13.8% Y-T-Y

SOURCE: California Association of REALTORS®

unsold inventory index
Unsold Inventory Index
  • California, January 2006: 6.0 Months

MONTHS

Average Since 1/88: 6.4 months

SOURCE: California Association of REALTORS®

median time on the market
Median Time on the Market
  • California Single-Family Homes, January 2006: 48.5 days

DAYS ON MARKET

SOURCE: California Association of REALTORS®

california s million dollar home sales increased 47 in 2005
California’s Million-Dollar Home Sales Increased 47% in 2005

YEAR

Source: DataQuick Information Systems

NUMBER OF HOMES

slide29

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
slide30

Is There a Housing Bubble?

Yes Virginia, there is a bubble – a bubble in the number of articles about the housing bubble.

slide31

BUBBLE? NO!

SOFT LANDING? YES

median price annual percentage change
Median Price, Annual Percentage Change
  • California vs. U.S.

ANNUAL PERCENTAGE CHANGE

california median price 1970 2005
California Median Price 1970-2005
  • Annual Percentage Change

ANNUAL PERCENTAGE CHANGE

nonfarm employment
Nonfarm Employment

SOURCE: California Economic Development Dept.

nonfarm employment39
Nonfarm Employment
  • Los Angeles County, January 2006: Up 1.3% Y-T-Y

Y-T-Y PERCENT CHANGE

SOURCE: CA Employment Development Division

taxable sales
Taxable Sales
  • Los Angeles County

ANNUAL PERCENT CHANGE

SOURCE: CA State Board of Equalization

sales of existing detached homes and pacific west consumer confidence41
Sales of Existing Detached Homes and Pacific West Consumer Confidence
  • Southern California January 2006 Sales: 8,823 Units, Down 19.5% Y-T-D, Down 19.5% Y-T-Y

UNITS

INDEX

SOURCE: California Association of REALTORS®;

The Conference Board

sales of existing detached homes
Sales of Existing Detached Homes

SOURCE: California Association of REALTORS®

home sales in southern california regions
Home Sales in Southern California Regions

SOURCE: California Association of REALTORS®

median price of existing detached homes44
Median Price of Existing Detached Homes
  • Southern California, January 2006: $531,043 Up 12.2%% Y-T-Y

SOURCE: California Association of REALTORS®

median price of existing detached homes45
Median Price of Existing Detached Homes
  • Southern California Regions

SOURCE: California Association of REALTORS®

sales of existing detached homes and pacific west consumer confidence47
Sales of Existing Detached Homes and Pacific West Consumer Confidence
  • Orange County, January 2006: 1,195 Units, Down 24.2% Y-T-D, Down 24.2% Y-T-Y

UNITS

INDEX

SOURCE: California Association of REALTORS®;

The Conference Board

median price of existing detached homes48
Median Price of Existing Detached Homes
  • Orange County, January 2006: $699,070, Up 10.2% Y-T-Y

SOURCE: California Association of REALTORS®

unsold inventory index49
Unsold Inventory Index
  • Orange County, January 2006: 8.9 Months

MONTHS

SOURCE: California Association of REALTORS®

median time on the market50
Median Time on the Market
  • Orange County - Single-Family Homes, 2005 Q4: 37.3 days

SOURCE: California Association of REALTORS®

new housing permits
New Housing Permits
  • Orange County, January 2006: 1,137 Units, Up 298.9% Y-T-D

SOURCE: Construction Industry Research Board

sources of population growth
Sources of Population Growth
  • Orange County (1981-2004)

SOURCE: CA Department of Finance

THOUSANDS

top 10 home buyer surnames
Top 10 Home Buyer Surnames
  • Orange County (2005)

SOURCE: DataQuick Information Systems

slide54

Where are new OC households coming from?

  • Los Angeles (19,522)
  • Riverside (4,477)
  • San Diego (3,336)
  • San Bernardino (2,698)
  • Santa Clara (970)
  • Total incoming for 2004: 51,803
  • Total outgoing for 2004: 58,935

Source: NAR Relocation Report 2004 – IRS Data; Item 187-06037

u s economic forecast
U.S. Economic Forecast

SOURCE: California Association of REALTORS®

e-expected, f-forecast

u s housing market forecast
U.S. Housing Market Forecast

SOURCE: National Association of REALTORS®

**Existing home sales of single-family homes and condo/coops

california economic forecast
California Economic Forecast

SOURCE: California Association of REALTORS®

california housing market forecast
California Housing Market Forecast

SOURCE: California Association of REALTORS®

2006 forecast risks
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
2006 market opportunities
2006 Market Opportunities
  • Baby boomers – retiring and diversifying
  • Singles – largest share of homebuyers
  • Multi-cultural and immigrant buyers – Latinos are fastest growing group of buyers
  • Condos/Infill in metro areas – driven by affordability or quality of life issues
  • Continued strength in entry- and mid-range
county economic profiles
County Economic Profiles

Ultimate Information Source

Based on data from:

• C.A.R. Research and Surveys

• U.S. Census Bureau

• California Department of Finance

• Federal Home Loan Mortgage Corporation

• Construction Industry Research Board

• Dataquick Information Services

The latest economic data, housing market trends and demographic statistics from the California Association of REALTORS®

Valuable Sales Tool

Contains over 20 easy-to-read charts covering:

• Home resale activity and consumer confidence

• Median home prices and mortgage rates

• Housing affordability index

• Current economic indicators

• Foreclosure rates

. . . and much more!

Available in 12-month subscription

or on a one-time basis.

Delivered via e-mail in PowerPoint

presentation format.

For more information:

[email protected]

www.rebs.com

213.739.8217

c a r research products
C.A.R. Research Products
  • INTERNET vs. TRADITIONAL BUYER
    • From internet use to buyer satisfaction, a thorough investigation of the home buying process.

MEMBER USE OF TECHNOLOGY SURVEY

  • Highlights current technology trends and tools linked to REALTORS® success.

SURVEY OF CALIFORNIA HOME SELLERS

  • Detailed information on the home selling process at the consumer level.
c a r research products64
C.A.R. Research Products

STATE OF THE CALIFORNIA HOUSING MARKET

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All reports are also available in electronic PDF file onwww.rebsreports.com

2005 SURVEY OF TOP PRODUCERS

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MEMBER PRICE:$24.95

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consumers are looking at these sites are you
Consumers are looking at these sites – are you?
  • www.zillow.com
  • www.Trulia.com
  • www.redfin.com
  • www.Movoto.com
  • www.PropertyShark.com
  • www.HomeThinking.com
  • www.HomePages.com
  • www.onboardllc.com
  • www.move.com
satisfaction with real estate agent s response time
Satisfaction With Real Estate Agent’sResponse Time

Mean Score On A 5-point Scale

5 Is “Exceedingly Surpassed Expectations” And 1 Is “Fell Way Below Expectations”

satisfaction with aspects of home buying process
Satisfaction With Aspects Of Home Buying Process

Mean Score On A 5-point Scale. 5 Is “Most Satisfied” And 1 Is “Least Satisfied”

satisfaction with aspects of home buying process how well real estate agent kept client informed
Satisfaction With Aspects of Home Buying Process:How Well Real Estate Agent Kept Client Informed
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