2010 California Real Estate Market Forecast: C.a.r. Vice President And Chief Economist

2010 California Real Estate Market Forecast Leslie Appleton-Young C.A.R. Vice President and Chief Economist

US and California Economic Conditions

Historic Fiscal Stimulus Fiscal Policy: “Spend Now – Worry Later” To date: $3 trillion in government spending MBS purchases ($693 billion) TARP ($372 billion) Obama stimulus package ($304 billion) Cash for Clunkers First-time Buyer Tax Credit Extension of Unemployment Benefits Tax Cuts Result: Federal budget deficit will reach 1.6 trillion this year

Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Mortgage Rates and Monetary Policy “Whatever it Takes”

10%

9%

8%

7%

6%

5%

4%

3% FRM

2% ARM

1% Federal Funds

0%

SOURCE: Federal Home Loan Mortgage Corporation

30-Year FRM vs. 10-Year T-Bond Above-Average Risk Premiums Associated With Mortgage Loans 10% 9%

Lower spread in 2009 - FED purchases from Fannie and Freddie

8%

FRM

7% 6%

10-Year T-Bond

5%

Risk Prem

4% 3% 2% 1% Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

0%

SOURCE: Federal Home Loan Mortgage Corporation – 30-yr FRM Federal Reserve Board – 10-Year T-Bond

Average. Risk Premium: 1.6%

14%

Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Consumer Price Index

August 2009: All Items -1.4% YTY; Core 1.5% YTY

PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984 16%

All Items

Core

12%

10%

8%

6%

4%

2%

0%

-2%

-4%

Gross Domestic Product 2008: +0.4%; 2009P -2.6%; Q2: -0.7% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $

5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6%

ANNUAL

QTRLY

-4

SOURCE: US Dept of Commerce, Bureau of Economic Analysis

1Q-2009

1Q-2008

1Q-2007

1Q-2006

1Q-2005

1Q-2004

1Q-2003

1Q-2002

1Q-2001

1Q-2000

1Q-1999

1Q-1998

1Q-1997

1Q-1996

1Q-1995

1Q-1994

1Q-1993

1Q-1992

1Q-1991

1Q-1990

Personal Consumption 2009 Q2: -0.87%

QUARTERLY PERCENT CHANGE

8

6

4

2

0

-2

SOURCES: BEA S&P 500

Q1-2008

Q1-2006

Q1-2004

Q1-2002

Q1-2000

Q1-1998

Q1-1996

Q1-1994

Q1-1992

Q1-1990

Q1-1988

Q1-1986

Q1-1984

Q1-1982

Q1-1980

Q1-1978

Q1-1976

Q1-1974

Q1-1972

Q1-1970

Q1-1968

Q1-1966

Q1-1964

Q1-1962

Q1-1960

U.S. Savings Rate: 1960 – 2009 Is increase Permanent or Temporary?

14%

12%

10%

8%

6%

4%

2%

0%

-2%

Consumer Behavior: Permanent Change or Temporary Hiatus From Spending? “Credit

impaired lower income consumers can’t spend the way they used to and wealth impaired affluent consumers won’t.” UCLA Forecast 9/09

20 Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

August 2009: 54.5

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

Jan-91

Jan-90

Jan-89

Jan-88

Consumer Confidence Index: Better…Sort Of September 2009: 53.1

INDEX, 100=1985 160

150

140

130

120

110

100

90 80

70

60

50

40

30

Jan-87 Jul-87 Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Dow Jones Stock Price and Consumer Confidence 30 Industrial Index vs. Consumer Confidence Index 1987-2009 DJI Monthly Avg. 16,000

Dow Jones 30 Industrials Consumer Confidence Index Cons. Conf.

0 160

14,000 140

12,000 120

10,000 100

8,000 80

6,000 60

4,000 40

2,000 20

0

Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Retail Sales

2009 August - 6.0% YTY

PERCENT CHANGE FROM A YEAR AGO 15%

Retail Sales 6 per. Mov. Avg. (Retail Sales)

10%

5%

0%

-5%

-10%

-15%

Unemployment Rate California (8/09 12.2%) vs. United States (9/09 9.8%) 14% 12% 10%

US-CA

8% 6% 4% 2% 0% -2% SOURCE: -4%CA Employment Development Division

CA

US

-3

-6 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Employment Growth, California vs. U.S. 8/09 CA: -4-9% YTY 9/09 US: -4.2% YTY

YEAR TO YEAR % CHANGE 6

5

4

3

2

1

0

-1

-2

-4 California

SOURCE: CA Employment Development Division US

-5

Nonfarm Employment By Region

(Thousands) Southern California Bay Area Central Valley Central Coast North Central CALIFORNIA

Nonfarm Nonfarm Employment Employment Aug-09 Aug-08 Change 7,918.8 3,088.7 1,906.2 478.0 131.6 14,234.1

SOURCE: CA Employment Development Division

8,289.4 3,243.6 1,990.4 492.0 137.9 14,975.6

-370.6 -154.9 -84.2 -14 -6.3 -741.5

Percent Change -4.5% -4.8% -4.2% -2.8% -4.6% -5.0%

-5%

-10%

-20%

-15%

SOURCE: CA EDD, LAEDC Health Care

Educ Svcs

Prof Sci & Tech Svcs

2009

Real Estate Rental/ Leasing

Fin & Ins

2008

Trans & Util

Retail

Wholesale

Manufacturing

Construction

Total Nonfarm

Employment by Sector

YTY % Changes in California 2008-2010

% Change

5% 2010

0%

New Housing Permits California, 1988-2009: Down 48.8% YTD 300,000 Single Family

Multi-Family

250,000 200,000 150,000 100,000 50,000

005

004

003

002

001

000

999

998

997

996

995

SOURCE: Construction Industry Research Board

994

993

992

991

990

989

988

0

Distressed Commercial RE Growing

billions

Distressed properties include those that are in bankruptcy, foreclosures, those that have received lender forbearance, or lender REO.

Commercial Debt Crisis Ahead

billions

Commercial MBS Market

billions

California Real Estate Market

California’s Housing Cycles and Membership 1970-2009 THOUSANDS

Home Sales

Membership

700,000

250,000

600,000

200,000

500,000 400,000

150,000

300,000

100,000

200,000 50,000

100,000

0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

0

Sales Hit Bottom in 2007, Up in 2008 & 2009 California Sales of Existing Homes and Median Price UNITS/MEDIAN PRICE $

Sales of Existing Detached Homes

Median Price

700,000

-44%

600,000 500,000

-25%

-61%

400,000 300,000 200,000 100,000

SOURCE: California Association of REALTORS®

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0

Dollar Volume of Sales Peaked in ’05 Down 55% Thru ‘09 $ in Billion

$ Volume of Sales

% Change

Percent Change

400

50%

350

37%

300

24%

250

224

200 129

282

30%

266

26% 194

16%

181

10% 152

132

20%

-55% 146

148 1%

-4%

100

-22% -27% 2007

2006

2005

-10%

-30% 2010F

SOURCE: California Association of REALTORS®

2004

2003

2002

2001

2000

0

0%

-20%

-19%

2008

50

2009P

150

2%

40%

327

Sales of Existing Detached Homes and Pacific West Consumer Confidence

California, August 2009 Sales: 526,970 Units, Up 38.2% YTD, Up 9.0% YTY UNITS

Sales

Consumer Confidence

INDEX

700,000

160

600,000

140 120

500,000

100

400,000

80 300,000

60

200,000

40

100,000

20 0 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

0

SOURCE: California Association of REALTORS®; The Conference Board *Sales are seasonally adjusted and annualized

Median Price of Existing Detached Homes California, August 2009: $292,960, Down 16.9% YTY $700,000

P: May-07 $594,530

$600,000

T: Feb-09 $245,170 -59% from peak

$500,000 $400,000 $300,000 $200,000 $100,000

SOURCE: California Association of REALTORS®

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

Jan-06

Jul-05

Jan-05

Jul-04

Jan-04

Jul-03

Jan-03

Jul-02

Jan-02

Jul-01

Jan-01

Jul-00

Jan-00

$0

Sales By Price Range October 2004 – present Under 500

500 to 999

1 Mil +

Credit Freeze: 8/2007

90% 80% 70% 60% 50% 40% 30% 20% 10%

07

04

01

10

07

04

01

10

07

SOURCE: Mortgage Bankers Association, C.A.R.

04

01

10

07

04

01

10

0%

California vs U.S. Median Prices 1970-2009 1970: CA $24,640 US $23,000 2009: CA $271,000 US $172,600 $600,000

California US CA Price Trend

$500,000 $400,000 $300,000 $200,000 $100,000

SOURCE: California Association of REALTORS®

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

$0

Peak vs Current Price - August 2009 Region High Desert Monterey Region Riverside/San Bernardino Palm Springs/Lower Desert Sacramento CALIFORNIA Northern Wine Country Los Angeles Northern California San Diego San Luis Obispo San Francisco Bay Area Santa Clara Ventura Orange County SOURCE: California Association of REALTORS®

Peak Peak Price Month Apr-06 $334,860 Aug-07 $798,210 Jan-07 $415,160 Jun-05 $393,370 Aug-05 $394,450 May-07 $594,530 Jan-06 $645,080 Aug-07 $605,300 Aug-05 $440,420 May-06 $622,380 Jun-06 $620,540 May-07 $853,910 Apr-07 $868,410 Aug-06 $710,910 Apr-07 $747,260

Aug-09 % Chg Median From Peak $111,770 -66.6% $298,940 -62.5% $166,600 -59.9% $169,080 -57.0% $192,050 -51.3% $292,960 -50.7% $347,920 -46.1% $339,980 -43.8% $255,600 -42.0% $375,710 -39.6% $382,560 -38.4% $531,580 -37.7% $555,000 -36.1% $466,200 -34.4% $499,440 -33.2%

Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Unsold Inventory Index

California, August 2009: 4.3 Months

MONTHS

20

18

16

14

12

10

8

6

4

2

0

SOURCE: California Association of REALTORS®

Unsold Inventory Index (Months)

Price Range (Thousand) Aug-09 Jul-09 Aug-08 $1,000K+ $750-1000K $500-750K $300-500K $0-300K Total

SOURCE: California Association of REALTORS®

12.8 6.1 4.2 3.9 2.9 4.3

9.6 5.2 3.9 3.5 3.1 3.9

10.8 7.6 6.5 6.3 6.4 7.0

Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Unsold Inventory Index: Over & Under $500K 35

UII - Over $500k UII - Under $500k

30

25

20

15

10

5

0

SOURCE: California Association of REALTORS®

Regional Markets

Home Sales in Northern California 450 400 Aug-08

350

Aug-09

300 250 200 150 100 50 0 Chico

Paradise Humboldt

SOURCE: California Association of of REALTORS® SOURCE: California Association REALTORS®

Lake County

Placer County

Shasta

Siskiyou County

Tahoe Sierra

Median Price of Existing Detached Homes Northern California

Region Chico Humboldt Lake County Paradise Placer County Shasta County Siskiyou County Tahoe Sierra

Aug-09

Jul-09

Aug-08

M-t-M

Y-t-Y

$ 271,428 $ 295,237 $ 291,176 -8.1% -6.8% $ 230,405 $ 280,128 $ 296,153 -17.8% -22.2% $ 145,833 $ 160,000 $ 218,750 -8.9% -33.3% $ 174,999 $ 172,499 $ 195,999 1.4% -10.7% $ 309,406 $ 301,770 $ 346,575 2.5% -10.7% $ 203,125 $ 198,499 $ 231,632 2.3% -12.3% $ 170,000 $ 166,666 $ 208,333 2.0% -18.4% $ 547,619 $ 551,136 $ 687,499 -0.6% -20.3%

SOURCE: California Association of REALTORS® SOURCE: California Association of REALTORS®

Home Sales in Northern Wine Country Aug-08 Aug-09

500 450 400 350 300 250 200 150 100 50 0 Mendocino SOURCE: California Association of REALTORS®

Napa

Sonoma

Median Price of Existing Detached Homes Northern Wine Country

Region Mendocino Napa Sonoma

Aug-09

Jul-09

Aug-08

$ 218,750 $ 337,096 $ 361,792

$ 258,333 $ 369,642 $ 365,966

$ 322,222 $ 455,882 $ 382,945

SOURCE: California Association of REALTORS®

M-t-M

Y-t-Y

-15.3% -8.8% -1.1%

-32.1% -26.1% -5.5%

Home Sales in Bay Area Counties 1000 900

Aug-08 Aug-09

800 700 600 500 400 300 200 100 0 Alameda Contra Costa

Marin

San San Mateo Santa Francisco Clara

SOURCE: California Association of REALTORS®

Santa Cruz

Solano Sonoma

Median Price of Existing Detached Homes Bay Area Counties

County Alameda Contra Costa Marin San Francisco San Mateo Santa Clara Santa Cruz Solano Sonoma

Aug-09

$ $ $ $ $ $ $ $ $

447,802 627,747 835,000 655,405 672,500 555,000 500,000 210,577 361,792

SOURCE: California Association of REALTORS®

Jul-09

$ $ $ $ $ $ $ $ $

450,515 628,099 762,500 704,645 755,000 587,000 535,000 209,066 365,966

Aug-08

$ $ $ $ $ $ $ $ $

514,974 701,298 929,999 789,773 787,500 650,000 582,000 267,592 382,945

M-t-M

Y-t-Y

-0.6% -0.1% 9.5% -7.0% -10.9% -5.5% -6.5% 0.7% -1.1%

-13.0% -10.5% -10.2% -17.0% -14.6% -14.6% -14.1% -21.3% -5.5%

Home Sales in Central Valley Region 2000 Aug-08 Aug-09

1800 1600 1400 1200 1000 800 600 400 200 0

d

o

ld

SOURCE: California Association of REALTORS®

Median Price of Existing Detached Homes Central Valley Regions County Bakersfield Fresno Merced Sacramento

Aug-09

$ $ $ $

133,250 $ 149,047 $ 107,586 $ 192,047 $

SOURCE: California Association of REALTORS®

Jul-09

133,750 146,707 110,571 183,835

Jul-08

$ $ $ $

180,000 189,506 134,761 220,894

M-t-M

-0.4% 1.6% -2.7% 4.5%

Y-t-Y

-26.0% -21.3% -20.2% -13.1%

Home Sales in Central Coast Region 400

Aug-08 Aug-09

350 300 250 200 150 100 50 0 MontereyAtascadero

Paso Robles

SOURCE: California Association of of REALTORS® SOURCE: California Association REALTORS®

Pismo Coast

San Luis Lompoc Obispo Valley

Santa Barbara

Santa Maria

Median Price of Existing Detached Homes Region

Aug-09

Monterey

$

Atascadero Paso Robles Pismo Coast San Luis Obispo

$ $ $ $

Lompoc Valley Santa Barbara Santa Maria

$ $ $

Jul-09

Aug-08

M-t-M

Y-t-Y

Monterey County 235,000 $ 230,000 $ 302,000 2.2% -22.2% San Luis Obispo County 372,727 $ 343,750 $ 391,666 8.4% -4.8% 309,375 $ 338,235 $ 341,176 -8.5% -9.3% 433,333 $ 500,000 $ 531,250 -13.3% -18.4% 512,500 $ 468,749 $ 515,625 9.3% -0.6% Santa Barbara County 208,333 $ 188,000 $ 291,666 10.8% -28.6% 828,750 $ 882,500 $ 1,000,000 -6.1% -17.1% 250,000 $ 257,895 $ 262,500 -3.1% -4.8%

SOURCE: California Association of of REALTORS® SOURCE: California Association REALTORS®

Home Sales in Southern California Regions 4500 4000 3500 3000 2500 2000 1500 1000 SOURCE: California Association of REALTORS® 500

Aug-08 Aug-09

Median Price of Existing Detached Homes Southern California Regions

County High Desert Los Angeles Orange Palm Springs Riverside/SB San Diego Sta. Barbara-So. Coast Sta. Barbara-North Cnty. Ventura

Aug-09

$ $ $ $ $ $ $ $ $

111,771 339,982 499,437 169,076 166,601 375,706 828,750 244,047 466,197

SOURCE: California Association of REALTORS®

Jul-09

$ $ $ $ $ $ $ $ $

110,653 339,432 500,212 163,077 165,465 372,645 882,500 243,477 456,435

Aug-08

$ 169,203 $ 394,869 $ 511,268 $ 221,944 $ 225,394 $ 388,712 $ 1,000,000 $ 266,666 $ 478,408

M-t-M

1.0% 0.2% -0.2% 3.7% 0.7% 0.8% -6.1% 0.2% 2.1%

Y-t-Y

-33.9% -13.9% -2.3% -23.8% -26.1% -3.3% -17.1% -8.5% -2.6%

A Tale of Two Markets: San Mateo & Hayward San Mateo, Sep 2009: Median Price: $698,000 Down 15% YTY 54 SF Det Units Sold, Up 26% YTY 2.0 Months of Supply, Down 45% YTY 206 Properties For Sale, Down 20% YTY 173 NODs, 119 Foreclosures, 42 REOS

Hayward, Sep 2009: Median Price: $280,000 Down 12% YTY 116 SF Det Units Sold, Down 13% YTY 1.0 Month of Supply, Down 77% YTY 391 Properties For Sale, Down 65% YTY 895 NODs, 811 Foreclosures, 324 REOS

Source: ForeclosureRadar.com, C.A.R.

A Tale of Two Markets: Pleasanton & Brentwood

Brentwood, Sep 2009: Median Price: $283,600 Down 19% YTY 70 SF Det Units Sold, Down 33% YTY 1.2 Months of Supply, Down 74% YTY 322 Properties For Sale, Down 46% YTY 476 NODs, 424 Foreclosures, 190 REOS

Pleasanton, Sep 2009: Median Price: $685,000, Down 13% YTY 63 SF Det Units Sold, Up 91% YTY 3.0 Months of Supply, Down 55% YTY 239 Properties For Sale, Down 34% YTY 165 NODs, 97 Foreclosures, 29 REOS Source: ForeclosureRadar.com, C.A.R.

A Tale of Two Markets: Walnut Creek & Concord Concord, Sep 2009: Median Price: $290,000, Down 16% YTY 66 SF Det Units Sold, Down 35% YTY 1.0 Month of Supply, Down 72% YTY 283 Properties For Sale, Down 52% YTY 605 NODs, 413 Foreclosures, 239 REOS

Walnut Creek, Sep 2009: Median Price: $650,000 Down 13% YTY 39 SF Det Units Sold, Up 18% YTY 3.0 Months of Supply, Down 34% YTY 216 Properties For Sale, Down 19% YTY 207 NODs, 132 Foreclosures, 59 REOS Source: ForeclosureRadar.com, C.A.R.

A Tale of Two Markets: Laguna Beach & Temecula Laguna Beach, Sep 2009: Median Price: $1,370,000, -20% YTY 29 SF Det Units Sold, Up 142% YTY 12.0 Months of Supply, Down 48% YTY 388 Properties For Sale, Up 2% YTY 75 NODs, 52 Foreclosures, 14 REOS

Source: ForeclosureRadar.com, C.A.R.

Temecula, Sep 2009: Median Price: $270,000 Down 7% YTY 153 SF Det Units Sold, Down 19% YTY 1.0 Months of Supply, Down 80% YTY 667 Properties For Sale, Down 56% YTY 845 NODs, 821 Foreclosures, 276 REOS

A Tale of Two Markets: Santa Barbara & Santa Maria

Santa Maria, Sep 2009: Median Price: $262,750 Up 2% YTY 64 SF Det Units Sold, Down 36% YTY 2.0 Months of Supply, Down 69% YTY 2208 Properties For Sale, Down 65% YTY 432 NODs, 432 Foreclosures, 180 REOS

Source: ForeclosureRadar.com, C.A.R.

Santa Barbara, Sep 2009: Median Price: $760,200, Down 26% YTY 54 SF Det Units Sold, Down 4% YTY 7.0 Months of Supply, Down 36% YTY 463 Properties For Sale, Down 4% YTY 147 NODs, 139 Foreclosures, 48 REOS

Year-to-Year Percent Change in Sales By Price Interval Under 500

500 to 999

1 Mil +

Total

300% 250% 200% 150% 100% 50%

-100%

SOURCE: California Association of REALTORS® SOURCE: Mortgage Bankers Association, C.A.R.

2009.07

2009.04

2009.01

2008.10

2008.07

2008.04

2008.01

2007.10

2007.07

2007.04

2007.01

2006.10

2006.07

2006.04

2006.01

-50%

2005.10

0%

Year-to-Year Percent Change in Median Price Within Price Interval Under 500

500 to 999

1 Mil +

15%

10%

5%

-10%

-15%

SOURCE: California Association of REALTORS® SOURCE: Mortgage Bankers Association, C.A.R.

2009.07

2009.04

2009.01

2008.10

2008.07

2008.04

2008.01

2007.10

2007.07

2007.04

2007.01

2006.10

2006.07

2006.04

2006.01

-5%

2005.10

0%

Distressed Sales to Total Sales Ratio (Aug 2009)

100% 80%

66%

60% 40%

51% 36%

73%

78% 80%

56% 58%

40% 41%

26%

SOURCE: California Association of REALTORS®

Riverside/San Bernardino

Solano

Kern

Sacramento

Los Angeles

Napa

Sonoma

Orange

San Luis Obispo

Marin

0%

Mendocino

20%

Distressed Sales to Total Sales Ratio County/Region

Mar-09

Jun-09

Jul-09

Aug-09

Marin San Luis Obispo Mendocino Orange Sonoma Napa Los Angeles Sacramento Kern Solano Riverside/San Bernardino

33.1% 50.5% 41.9% 56.7% 67.1% 69.4% 69.2% 70.5% 83.5% 88.4% 87.1%

21.6% 41.8% 51.1% 44.5% 56.6% 51.9% 61.2% 70.6% 76.9% 84.0% 83.5%

26.9% 38.4% 40.0% 40.6% 46.8% 52.0% 58.9% 65.9% 73.7% 83.3% 82.2%

26.4% 35.5% 40.0% 41.4% 51.3% 55.7% 57.6% 66.4% 72.9% 78.1% 79.5%

SOURCE: California Association of REALTORS®

Distressed Sales vs. Non Distressed Sales NonDistressed

Distressed Median Home Price

$250,000

$485,000

$154

$277

68.1%

44.7%

6.1

4.0

22.4%

17.1%

Number of Days on MLS

43

50

Number of Days in Escrow

45

35

68.9%

17.9%

-$100,000

$85,000

Price/SF Percent of Sales with Multiple Offers Number of Offers (Average) Percent of All Cash Sales

Percent of Sales with Net Cash Loss Net Cash Gain/Net Cash Loss to Seller

Source: C.A.R. 2009 Housing Market Survey

Percent of Distressed Properties 2008

2009

30%

26.8%

19.5%

20%

14.4% 11.1% 10% 5.0%

5.3%

Q. Was the property purchased/sold as a foreclosure, REO, short sale, or none of the above?

Source: C.A.R. 2009 Housing Market Survey

0%

2009 Housing Market Survey

Median Price Discount And Weeks On Market 4.6%, 6.4 weeks

8%

Med. Price Discount Med. Weeks on MLS

7%

16 14

0%

0

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?

2008

2 2006

1% 2004

4

2002

2%

2000

6

1998

3%

1996

8

1994

4%

1992

10

1990

5%

1988

12

1986

6%

Percent with Price Discount Selling price below listing price 100% 80%

69%

Long Run Average = 68%

60% 40% 20%

Q. What was the original list sales price of the property? What was the final sales price of the property?

20 08

20 06

20 04

20 02

20 00

19 98

19 96

19 94

19 92

0%

Median Net Cash To Sellers 2005: $220K 2009: $50K $240,000

$220,640

$220,000 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000

$50,000

$60,000 $40,000 $20,000

Q. What was the net cash gain or net loss to the seller as a result of this sale?

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

$0

Sellers Reporting a Net Cash Loss Percent of All Sellers

35%

32.9%

30% 25% 20% 15%

Long Run Average = 9.3%

10% 5%

19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09

0%

Q. What was the net cash gain or net loss to the seller as a result of this sale?

Proportion of Home Sellers Planning to Repurchase 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% on purchasing Q. Is the seller planning another home? 89 90 91

92 93 94 95 96 97 98 00 01 02 03 04 05 06 07

Proportion of First-Time Homebuyers California 60% % First-Time Hom e Buyers

Long Run Average

50%

47.0%

38.6%

40% 30% 20% 10% 0%

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 Q. Was the buyer a first-time buyer?

FHA and VA Mortgages (First Mortgage) 40% FHA

35%

VA 4.7%

30% 25% 20% 32.0%

15% 10% 5% 0% 2001

2002

2003

Q. Please indicate the type of mortgage

2004

2005

2006

2007

2008

2009

FHA vs. Conventional (New First Mortgages)

FHA Median Home Price

Conventional

$261,500

$455,000

$9,888

$92,000

3.5%

20.0%

Share of All Home Sales Percent of Mortgages with Distressed Property

32.0% 62.6%

63.3% 37.4%

Percent of First-Time Buyers

75.8%

40.2%

Median Down Payment (Dollar) Median Down Payment (% to Price)

Multiple Offers: Over 1/2 homes sold 2009 had multiple offers 60% %with M ultiple Offers

50%

# of M ultiple offers (Average)

55.4% 5.14

6 5

40%

4

30%

3

20%

2

10%

1

0%

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Percent of Buyers with Zero Down Payment First-Time Buyers vs. Repeat Buyers All Hom buyers Repeat Buyers

50%

First-Tim e Buyers

40% 30% 20% 5.0%

10%

3.7% 2.8%

0% 1998

2000

2002

2004

2006

2008

Percent of All Cash Sales

20 09

20 07 20 08

20 06

20 05

20 03 20 04

20 02

20 01

19.6%

19 99 20 00

19 98

22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Buyer Use of Property (All Homes) Investm ent/Rental Property

Vacation/Second Hom e

20% 15%

5.2%

10%

12.1% 5% 0% 1998

2000

2002

2004

2006

2008

Buyer Use of Property (Single-Family Detached Homes) Investm ent/Rental Property

Vacation/Second Hom e

15%

4.1% 10%

10.2%

5%

0% 1998

2000

2002

2004

2006

2008

Buyer Use of Property (Condos/Townhomes) Investm ent/Rental Property

Vacation/Second Hom e

30% 25%

10.6%

20% 15% 10%

16.3%

5% 0% 1998

2000

2002

2004

2006

2008

Sellers Are Reacting to Financial Stress 80%

The Role of Market Conditions In the Decision to Sell

70% 60% 55% 50%

2006

2007

2008

2009

42%

40% 30%

30% 20% 10% 0%

20% 16% 14% 3%

7% 0%

Desired Desired larger homebetter/other location

SOURCE: C.A.R. 2009 Survey of Home Sellers

16%15% 5% 0%

19%

18%

20%

8% 0%0%

0%0%

0%0%

Mortgage Moved to Job loss Trouble payment rental to making went up save money mortgage (reindex) payments Signs of Distress in 2008-2009

While Buyers See Opportunities … The Role Of Market Conditions In The Decision To Buy

Price decreases motivated us

67%

Low interest rates helped us move to a better location, neighborhood

39%

Likelihood that interest rates will move up motivated us Low interest rates helped us buy a larger home Moved to an area where it was more affordable SOURCE: C.A.R. 2009 Survey of Home Buyers

22% 10% 9%

The Bottom Line: Great Time to be a First Time Buyer

First-time Buyer Housing Affordability Index California Vs. U.S. 2000-2009 % OF HOUSEHOLDS THAT CAN BUY

100%

CA

US

90% 80% 70% 60% 50% 40% 30% 20% 10%

SOURCE: California Association of REALTORS®

2009 Q1

2008 Q3

2008 Q1

2007 Q3

2007 Q1

2006 Q3

2006 Q1

2005 Q3

2005 Q1

2004 Q3

2004 Q1

2003 Q3

2003 Q1

2002 Q3

2002 Q1

2001 Q3

2001 Q1

2000 Q3

2000 Q1

0%

Federal First-Time Buyer Tax Credit • Legislation Passed February 2009 • Retroactive to January 1, 2009 • Extended/modified version of 2008 Tax Credit – Current expiration November 30, 2009 – 6 month extension under deliberation • National Impact – 1.4 million families in US (IRS) • California Results – 39% of first-timers would not have bought in 2009 w/o tax credit (C.A.R. Survey)

Bought Home Regardless of Federal First-Time Home Buyer Tax Credit? Yes

No

Unsure 51% 39%

Total (N = 200) 11% 31% Income Under $100K (N = 96)

52% 17% 68%

Income $100K and over (N = 104)

26% 6%

Q. Would you have bought a home if there were not a Federal First-Time Home Buyer Tax Credit, or if you knew you did not qualify for the credit? CAR Telephone Survey 2009

Level of Difficulty to Obtain Financing (All Buyers) Mean = 8.1 Median = 9

35%

31%

Scale: “1” = very easy, “10” = very difficult

30%

27%

25% 20% 15% 10%

8%

9%

6

7

10%

5%

5% 0%

9%

0%

0%

0%

1

2

3

4

5

Q. Please rate how easy of difficult it was to obtain financing on a scale of 1 to 10, with 1 being very easy and 10 being very difficult.

8

9

10

Reasons Why Property Fell Out of Escrow All Homes

Buyers could not secure a mortgage 36.5

Buyer changed mind 5.6%

Buyer did not have down payment Seller decided not to sell Other

0.0%

Q. Do you know why the property fell out of escrow previously?

22.0%

Buyers Who Know the Terms of Their Loan Yes

2%

76%

First-Time Buyers

Regular Market Sales

68%

REO

22%

2% 1%

88%

Short Sale

19%

2%

81%

Repeat Buyers

Q. Do you know the term of your loan?

Unsure

79%

All Buyers

0%

No

17%

30% 3% 9%

93%

20%

40%

7%

60%

80%

100%

FHA Loans in CA # of Total Loans in CA & US CA Total

CA Endorsements 20000

US Total

US Endorsements 200000

CA Tops All States with a 10% Market Share of all FHA Lending in US

18000 16000 14000

180000 160000 140000

(Source: Inside FHA Lending)

12000

120000

10000

100000

8000

80000

6000

60000

4000

40000

2000

20000

Source: HUD

May-09

Mar-09

Jan-09

Nov-08

Aug-08

Jun-08

Apr-08

Feb-08

Dec-07

Oct-07

Aug-07

Jun-07

Apr-07

Feb-07

Dec-06

0 Oct-06

0

CA Mortgage Foreclosure & Delinquency Rates California: Q2-2009, NSA Delinquency Rate - CA

10%

Foreclosure Rate - CA

9.4%

9% 8% 7% 6%

5.8%

Delinquencies: Long Run Average: 4.1%

5% 4% 3% Foreclosure Rate: Long Run Average: 1.0%

2% 1%

SOURCE: Mortgage Bankers Association

Q1-2009

Q4-2007

Q3-2006

Q2-2005

Q1-2004

Q4-2002

Q3-2001

Q2-2000

Q1-1999

Q4-1997

Q3-1996

Q2-1995

Q1-1994

Q4-1992

Q3-1991

Q2-1990

Q1-1989

Q4-1987

Q3-1986

Q2-1985

Q1-1984

Q4-1982

Q3-1981

Q2-1980

Q1-1979

0%

California Subprime & Alt A Loans As of May 2009 As of May 2009

Sub-Prime

Alt-A

345,505

632,215

Loans as Share of All Housing Units

3%

5%

ARMs As Share of All Loans in Category

66%

70%

226,997

440,022

84.6%

46.9%

…To Reset Next 1-11 Months

7.9%

5.2%

…To Reset Next 12-23 Months

2.4%

7.4%

…To Reset Next 24+ Months

5.0%

40.4%

Number of All Loans in Category

Number of ARMs Percent of ARMs… …Already Reset

SOURCE: FirstAmerican CoreLogic, LoanPerformance Data, U.S. Census Bureau, and Federal Reserve Bank of New York, compiled by C.A.R.

NODs & Trustees Deeds Filed in California 2005 - 2009

NODs

No. of Defaults or TDs

Trustee Deeds 135,431

140000

124,562 120000 100000 80000 60000 40000 20000

Source: DataQuick Information Systems

2009.2

2009.1

2008.4

2008.3

2008.2

2008.1

2007.4

2007.3

2007.2

2007.1

2006.4

2006.3

2006.2

2006.1

2005.4

2005.3

0

Government Intervention California Foreclosure Activity 09/06 - present Notice of Defaults - Counts Notice of Trustee Sale REO 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09

0

SOURCE: ForeclosureRadar.com

Government Intervention California Foreclosure Activity 2008 - present Notice of Defaults - Counts Notice of Trustee Sale REO 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

March 4, 2009: Making Home Affordable/HAMP

February 20, 2009: CA Foreclosure Prevention Act

September 18, 2008: Paulson asks For TARP Funds

SOURCE: ForeclosureRadar.com

February 11 2009: Frank’s Moratorium Request

Aug-09

Jul-09

Jun-09

May-09

Apr-09

Mar-09

Feb-09

Jan-09

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-08

Jun-08

May-08

Apr-08

Mar-08

Feb-08

Jan-08

September 2008: CA SB 1137 Takes Effect

2010 Forecast

Wild Cards

• First-time Buyer Tax Credit • Additional Stimulus – Job Creation Prerequisite to Sustainable Growth • Foreclosure Pipeline • Commercial Defaults – Impact on Credit Market • Inflation - Will Fed monetize the deficit? • H1N1 (Stock tip: Purell)

U.S. Economy 2004

2005

2006

2007

2008

2009f

2010f

US GDP

3.6%

3.1%

2.7%

2.1%

0.4%

-2.6%

1.9%

Nonfarm Job Growth

1.1%

1.7%

1.8%

1.1%

-0.4% -3.7% -1.0%

Unemployment

5.5%

5.1%

4.6%

4.6%

5.8%

9.3% 10.0%

CPI

2.7%

3.4%

3.2%

2.8%

3.8%

-0.5%

1.9%

Real Disposable Income, % 3.4% Change

1.3%

4.0%

2.2%

0.5%

0.8%

2.1%

Forecast Date: October 2009

SOURCE: California Association of REALTORS®

California Economy 2004

2005

2006

2007

Nonfarm Job Growth

1.0%

1.8%

1.7%

0.8% -1.2% -4.3% -1.1%

Unemployment Rate

6.2%

5.4%

4.9%

5.4%

7.2% 11.6% 12.1%

Population Growth

1.4%

1.2%

1.1%

1.1%

1.2%

Real Disposable Income, % Change

3.6%

1.3%

3.4%

1.5%

0.1% -0.4% 0.1%

Forecast Date: October 2009 SOURCE: California Association of REALTORS®

2008 2009f 2010f

1.1%

1.1%

2009 Forecast vs. Actual

California Housing Market Forecast

2003

2004

2005

2006

2007

2008e

2009f

SFH Resales (000s)

601.8

624.7

625.0

477.5

353.3

395.6

445.0

% Change

5.1%

3.8%

0.04% -23.6% -26.0% 12.0% 12.5%

Median Price $372.7 $450.8 $524.0 $556.6 $558.1 $381.0 358.0 ($000s) % Change

17.9% 20.9% 16.2%

6.2%

0.3%

30-Yr FRM

5.8%

5.8%

5.9%

6.4%

6.3%

5.9%

6.2%

1-Yr ARM

3.8%

3.9%

4.5%

5.5%

5.6%

5.2%

5.3%

Forecast Date: October 2008 SOURCE: California Association of REALTORS®

-31.7% -6.0%

2010 California Houisng Market Forecast

California Housing Market Outlook 2003

2004

2005

2006

2007

2008 2009F 2010F

SFH Resales 601.8 624.7 (000s)

625.0

477.5

346.9

439.8

% Change

5.1%

540.0

527.5

3.8% 0.03% -23.6% -27.3% 26.8% 22.8% -2.3%

Median Price $371.5 $450.8 $522.7 $556.4 $560.3 $346.4 $271.0 $280.0 ($000s) % Change

17.5% 21.3% 16.0% 6.5%

0.7% -38.2% -21.8% 3.3%

30-Yr FRM

5.8%

5.8%

5.9%

6.4%

6.3%

6.0%

5.2%

5.6%

1-Yr ARM

3.8%

3.9%

4.5%

5.5%

5.6%

5.2%

4.8%

5.2%

Forecast Date: October 2009 Source: CALIFORNIA ASSOCIATION OF REALTORS®

Market Opportunities

• First time buyers: Growing share of the market • Connect with past clients: Valuable information to share • Educate clients: What is Responsible Homeownership? • Educate yourself: Professional Development is Critical • Listen to your clients