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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 l.jpg

2006 Real Estate Market Forecast

Leslie Appleton-Young

Vice President and Chief Economist



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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


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Gross Domestic Product

  • 2004: 4.2% 2005 3.5% 2006 3.5%

ANNUAL PERCENT CHANGE, CHAIN-TYPE (2000) $


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Gross Domestic Product

  • 2005 Q4: +1.1%

QUARTERLY PERCENT CHANGE, ANNUAL RATE



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Nonfarm Employment By Region

SOURCE: CA Employment Development Division


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Consumer Confidence Index

  • January 2006: 106.3

INDEX, 100=1985


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Consumer Spending

  • 2005 Q4 1.1%

QUARTERLY PERCENT CHANGE



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Mortgage Origination

Refinance vs. Purchase

ORIGINATION (BIL $)

30-YR FIXED RATE MORTGAGE

SOURCE: Mortgage Bankers Association


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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.


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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


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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


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Fed Funds and Mortgage Rates

  • 2000-2006: 15 Fed increases since June 2004

SOURCE: Federal Home Loan Mortgage Corp.


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Mortgage Rates

SOURCE: FHLMC



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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


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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


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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




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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


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Median Price of Existing Detached Homes Confidence

  • California, January 2006: $551,300, Up 13.8% Y-T-Y

SOURCE: California Association of REALTORS®


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Unsold Inventory Index Confidence

  • California, January 2006: 6.0 Months

MONTHS

Average Since 1/88: 6.4 months

SOURCE: California Association of REALTORS®


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Median Time on the Market Confidence

  • California Single-Family Homes, January 2006: 48.5 days

DAYS ON MARKET

SOURCE: California Association of REALTORS®


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California’s Million-Dollar Home Sales Confidence Increased 47% in 2005

YEAR

Source: DataQuick Information Systems

NUMBER OF HOMES


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Why are Home Prices Rising? Confidence

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


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Is There a Housing Bubble? Confidence

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


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BUBBLE? NO! Confidence

SOFT LANDING? YES


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What is a Bubble? ConfidenceNASDAQ 1987-2005

MONTHLY AVERAGE


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Median Price, Annual Percentage Change Confidence

  • California vs. U.S.

ANNUAL PERCENTAGE CHANGE


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California Median Price 1970-2005 Confidence

  • Annual Percentage Change

ANNUAL PERCENTAGE CHANGE



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Nonfarm Employment Confidence

SOURCE: California Economic Development Dept.


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Nonfarm Employment Confidence

  • Los Angeles County, January 2006: Up 1.3% Y-T-Y

Y-T-Y PERCENT CHANGE

SOURCE: CA Employment Development Division


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Taxable Sales Confidence

  • Los Angeles County

ANNUAL PERCENT CHANGE

SOURCE: CA State Board of Equalization


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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


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Sales of Existing Detached Homes Confidence

SOURCE: California Association of REALTORS®


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Home Sales in Southern California Regions Confidence

SOURCE: California Association of REALTORS®


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Median Price of Existing Detached Homes Confidence

  • Southern California, January 2006: $531,043 Up 12.2%% Y-T-Y

SOURCE: California Association of REALTORS®


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Median Price of Existing Detached Homes Confidence

  • Southern California Regions

SOURCE: California Association of REALTORS®


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Orange County Confidence


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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


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Median Price of Existing Detached Homes Confidence

  • Orange County, January 2006: $699,070, Up 10.2% Y-T-Y

SOURCE: California Association of REALTORS®


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Unsold Inventory Index Confidence

  • Orange County, January 2006: 8.9 Months

MONTHS

SOURCE: California Association of REALTORS®


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Median Time on the Market Confidence

  • Orange County - Single-Family Homes, 2005 Q4: 37.3 days

SOURCE: California Association of REALTORS®


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New Housing Permits Confidence

  • Orange County, January 2006: 1,137 Units, Up 298.9% Y-T-D

SOURCE: Construction Industry Research Board


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Sources of Population Growth Confidence

  • Orange County (1981-2004)

SOURCE: CA Department of Finance

THOUSANDS


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Top 10 Home Buyer Surnames Confidence

  • Orange County (2005)

SOURCE: DataQuick Information Systems


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Where are new OC households coming from? Confidence

  • 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


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2006 Forecast Confidence


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U.S. Economic Forecast Confidence

SOURCE: California Association of REALTORS®

e-expected, f-forecast


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U.S. Housing Market Forecast Confidence

SOURCE: National Association of REALTORS®

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


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California Economic Forecast Confidence

SOURCE: California Association of REALTORS®


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California Housing Market Forecast Confidence

SOURCE: California Association of REALTORS®


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2006 Forecast Risks Confidence

  • 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


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2006 Market Opportunities Confidence

  • 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


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County Economic Profiles Confidence

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


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C.A.R. Research Products Confidence

  • 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.


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C.A.R. Research Products Confidence

STATE OF THE CALIFORNIA HOUSING MARKET

  • Strategic marketing information produced annually.

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

2005 SURVEY OF TOP PRODUCERS

  • Advice and innovative strategies used by successful REALTORS®.

MEMBER PROFILE

  • Evaluates REALTOR® business practices and personal characteristics.

-

MEMBER PRICE:$24.95

NON-MEMBER PRICE: $49.95


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Consumers are looking at these sites – Confidenceare 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



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Weeks Spent Investigating ConfidenceBefore Contacting Agent




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Distance Between Previous Residence and Prior To PurchaseNew Residence (Miles)



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How Did You First See The Home You Purchased? Buying Process

89% saw home on the Internet


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Internet Site Where You Buying ProcessFound Your Real Estate Agent



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Agent’s Online Presence Used In Home Purchase




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Typical response time Real Estate Agent?Expected from Agent


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Satisfaction With Real Estate Agent’s Real Estate Agent?Response Time

Mean Score On A 5-point Scale

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


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If You Were to Use a Real Estate Agent, Real Estate Agent?Would You Use the Same Agent?


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Satisfaction With Aspects Of Home Buying Process Real Estate Agent?

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



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Satisfaction With Aspects of Home Buying Process: Real Estate Agent?How Well Real Estate Agent Kept Client Informed



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From the bookshelf… Real Estate Agent?



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Thank You Real Estate Agent?


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