It’s The Economy, Stupid

February 29, 2012

With your host… Gene Wunderlich

Sovereign Debt

Crisis in EuroZone

Oil Price Spikes

2011: A Year of Economic Wild Cards

Arab Spring

Political Change

on Capitol

Hill

Debt Limit Ceiling &

Downgrade of US Debt

Stock Market

Volatility

• Federal Economic Policy • Regulations • Unemployment • Foreclosures • Mortgage Interest Deduction • Strategic Foreclosures

• Lenders • Short Sales • Interest Rates • Inflation • Shadow Inventory • Global Economy

Consumer Confidence? Highest Since April

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40

60

80

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120

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160

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November 2011: 64.5

INDEX, 100=1985

Overall, 62 percent of those surveyed say they’re optimistic about what 2012 will bring for the country, according to the Associated Press-GfK survey. And for themselves and their families, Americans are even more positive, with 78 percent telling pollsters they are personally hopeful about the year ahead.

-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Q1-

09Q

3-09

Q1-

10Q

3-10

Q1-

11Q

3-11

2010: 2.8%; 2011 Q1: 0.4% Q2: 1.0% 2011 Q3: 2.5%

ANNUAL QTRLY

2009 Largest Annual Drop since 1938 (-3.4%)

Gross Domestic Product: Stall Speed

SOURCE: CA Employment Development Division

0%

2%

4%

6%

8%

10%

12%

14%

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

CA US

Unemployment Stubbornly High December 2011

California (11.1%) vs. United States (8.5%)

How Many Years to Get Job Market Back to Normal?

Jobs added per month Assumed new jobs needed for growing population per month

How many years?

100,000 100,000 Treading water and never back to normal

200,000 100,000 6.3 years

300,000 100,000 3.2 years

400,000 100,000 2.1 years

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Sales of Existing Detached Homes Median Price

-61% -25%

-44%

California Sales of Existing Homes and Median Price

Housing Cycle Comparisons 1970- 2011

California Association of REALTORS®

California vs. U.S. Median Price

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

US Median Price CA Median Price

Housing Affordability: Records Highs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1

2000

Q3

2000

Q1

2001

Q3

2001

Q1

2002

Q3

2002

Q1

2003

Q3

2003

Q1

2004

Q3

2004

Q1

2005

Q3

2005

Q1

2006

Q3

2006

Q1

2007

Q3

2007

Q1

2008

Q3

2008

Q1

2009

Q3

2009

Q1

2010

Q3

2010

Q1

2011

CA US

% OF HOUSEHOLDS THAT CAN BUY

California Association of REALTORS®

California Vs. U.S.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00% 20

09.0

1

2009

.04

2009

.07

2009

.10

2010

.01

2010

.04

2010

.07

2010

.10

2011

.01

2011

.04

2011

.07

8.4.

11

8.25

.11

9.15

.11

FRM ARM

MONTHLY

WEEKLY

Mortgage Rates @ Historical Lows

Median Price & Affordability Index

0

50,000

100,000

150,000

200,000

250,000

300,00019

88

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Single Family Multi-Family

2009: 36,200 2010: 39,000 2011: ??

Average 1988-09: 138,000

SOURCE: CBIA. Forecast: C.A. R.

CA New Housing Permits: Opportunity

CA Underwater Mortgages: Reverse Wealth Effect

30.2%

4.6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Q4-2009

Q1-2010

Q2-2010

Q3-2010

Q4-2010

Q1-2011

Q2-2011

Negative Equity Share in CA Near Negative Equity Share in CA

0

1000

2000

3000

4000

5000

6000

7000

8000

2004 2005 2006 2007 200 2009 2010 2011

6227

5889

4216

2676

6585

5203

7529

7458

Southwest California

Regional Sales by Year

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

2004 2005 2006 2007 200 2009 2010 2011

$389,389

$437,364

$489,712

$444,988

$287,873

$234,992

$238,701

$235,628

Southwest California

Regional Median Price by Year

Your median home is worth $636 bucks more than it was two years ago. (But 52% less than is was 5 years ago.)

Sales by Type

2012 Preview : State Accelerated 3% withholding

4% flat tax – including services

Point of sale mandates

Mortgage interest deduction

40+ ballot propositions

Taxes, taxes, Texas

Federal Issues – Critical Concerns

• High-cost Loan Limits - expired 10/1/11 (except

FHA)

• Future of Fannie and Freddie? FHA?

• Tax Reform on the horizon

Mortgage Interest Deduction?

Capital Gains?

• QRM (Qualified Residential Mortgage) 20% Down

Is the future of the 30 year mortgage in doubt?

2012 – What’s Ahead • Stable to increasing home sales • Stable median price • Declining inventory of resale homes • Rising rents • Lack of new home inventory • Compelling affordability • Record low interest rates

Pent up demand

It’s Time To Buy Again

SOURCE: “Real estate: It’s time to buy again” Fortune Magazine’s 3/28/11 article written by Shawn Tully

“Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.”

Houses are another attractive investment at current prices, Buffett said. He added he might buy a couple hundred thousand homes if only he could figure out a way to manage them effectively. He said he isn’t very handy. 2/27/12

Warren Buffett says:

Jimmy Buffett says: The weather is here, wish you were beautiful

The skies are too clear, life's easy today. The beer is too cold, the daiquiri's too fruitiful

There's no place like home when it's this far away

Thank You.

GAD@SRCAR.ORG

Any questions?