2012 ANNUAL HOUSING MARKET SURVEY

Methodology

• C.A.R. has conducted the Annual Housing Market Survey since 1981. The questions and methodology have stayed essentially the same throughout that time. • The survey was mailed to a random sample of 15,000 REALTORS® throughout California. The sample represented the geographical distribution of C.A.R. membership across the state. The survey asked REALTORS® to provide information from their most recent sales transaction that closed escrow in the second quarter of 2012. • The survey instrument was a seven-page questionnaire with both multiple choice and open-ended questions. There were 932 valid survey responses, equivalent to a response rate of 6.2 percent. The margin of error for this survey was +/- 3.2 percent at a 95 percent confidence level.

CA Unsold Inventory: Nearing Record Lows

September 2012: 3.7 Months

MONTHS 18 16 14 12 10 8 6 4 2 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

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.

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

Supply Shortage Creates More Market Competition

•

Share of home sales with multiple offers is the highest in at least the last 12 years 60% 50% 40% 30% 20% 10% 0% 2005

% with Multiple Offers

2007

# of Multiple offers (Average)

57% 6 5 4 4,2 3 2 1 0 2009 2011

Market Competition Leads to Fewer Sales with Price Discount 100% 80% 60% 40% 20% 0% % of Sales with Price Discount Long Run Average = 68% 59% 2005 2006 2007 2008 2009 2010 2011 2012 10% 9% 8% 7% 6% 5% Median Price Discount & Weeks on Market

Med. Price Discount Med. Weeks on MLS

2.1%, 5 weeks 16 14 12 10 8 4% 3% 6 4 2% 2 1% 0% 2005 2006 2007 2008 2009 2010 2011 2012 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?

More Buyers Are Purchasing with Cash % of All Cash Sales

30% 30% •

Almost one-third of buyers paid with all cash

•

The share of all cash buyers has been on the rise since 2006

25% 20% 15% 10% 5% 0%

Equity Sales vs. REO vs. Short Sales (2012)

Share of Total Sales Median Home Price Square Footage Price / SF Sales-to-List Price Ratio % of Sales With Multiple Offers Avg. Number of Offers % of All Cash Sales Days on MLS Days in Escrow

Equity Sales

64.7% $448,000 1,750 $243 97.3% 50.9% 4.0

27.3

32 35

REO Sales

12.3% $185,000 1,500 $116 100.0% 70.8% 4.2

43.1% 30 45

Short Sales

21.7% $235,000 1,600 $154 99.9% 66.1% 4.3

26.7% 90 50

Equity Sales (2011 vs. 2012)

Share of Total Sales Median Home Price Square Footage Price / SF Sales-to-List Price Ratio % of Sales With Multiple Offers Avg. Number of Offers % of All Cash Sales Days on MLS Days in Escrow

2012

64.7% $448,000 1,750 $243 97.3% 50.9% 4.0

27.3% 32 35

2011

58.7% $431,000 1,783 $250 95.9% 35.2% 3.0

25.5% 67 35

REO Sales (2011 vs. 2012)

Share of Total Sales Median Home Price Square Footage Price / SF Sales-to-List Price Ratio % of Sales With Multiple Offers Avg. Number of Offers % of All Cash Sales Days on MLS Days in Escrow

2012

12.3% $185,000 1,500 $116 100.0% 70.8% 4.2

43.1% 30 45

2011

19.7% $189,500 1,500 $112 98.0% 58.3% 4.3

34.0% 50 35

Short Sales (2011 vs. 2012)

Share of Total Sales Median Home Price Square Footage Price / SF Sales-to-List Price Ratio % of Sales With Multiple Offers Avg. Number of Offers % of All Cash Sales Days on MLS Days in Escrow

2012

21.7% $235,000 1,600 $154 99.9% 66.1% 4.3

26.7% 90 50

2011

20.2% $287,000 1,600 $175 95.9% 57.5% 3.6

23.3% 141 45

Share of International Buyers

9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 7,8% 6,0% 5,3% 5,7% 5,8% 2008 2009 2010 2011 2012 Q. Was the buyer an international buyer – a person who was a citizen of another country who wished to purchase residential real estate in the U.S.?

Country of International Buyer

• China (39.1%) • Canada (13.0%) • India (8.7%) • Mexico (8.7%)

One of Five REALTORS® Worked with an International Buyer in the Past 12 Months % Who Sold to International Buyers

90%

# of Properties Sold to International Buyers in the Last 12 Months

79% 80% 70% 60% 50% 40% 30% 20% 10% 0% 9% 5% 3% 1% 3% 0 1 2 3 4 5+

# of Properties

Q. How many properties have you sold to an international buyer in the last 12 months?

25% 20% 15% 10% 5% 0%

Demand for Investment & Second/ Vacation Homes Dips Slightly, But Remains Strong

Vacation/Second Home Investment/Rental Property 7% 16%

For Those Who Purchased an Investment Property:

Investment to Flip Rental Property

Home Buyer Profile

(By Type of Sales)

Median Age of Buyers Median Household Income % of First Time Buyers % of International Buyers % Bought as Investment to Flip % Bought as Investment to Rent Median Down Payment % of Down Payment Equity Sales

45 $120,000 30.3%

REO Sales

40 $85,000 40.6%

Short Sales

40 $75,000 44.9% 6.7% 2.2% 8.8% $84,000 20.0% 3.7% 4.6% 19.3% $28,000 10.0% 4.9% 0.5% 23.5% $23,500 13.0%

Distressed Sales Have a Higher Share of First-Time Buyers Than Equity Sales All Sales Equity Sales REO Sales Short Sales

60% 50% 40% 30% 20% 10% 0% 2008 Q. Was the buyer a first-time buyer?

2009 2010 2011 45% 41% 30% 2012

Share of First-Time Buyers Remains Below Average But Improves from 2011

% First-Time Home Buyers Long Run Average 50% Long Run Average = 39% 40% 36% 30% 20% 10% 0% 2005 2006 Q. Was the buyer a first-time buyer?

2007 2008 2009 2010 2011 2012

First-time Buyer Housing Affordability Index

(California)

% OF HOUSEHOLDS THAT CAN BUY 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% SOURCE: California Association of REALTORS®

First-time Buyer HAI vs. Eff Interest Rates % OF HOUSEHOLDS THAT CAN BUY 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CA Eff Interest Rates 8,00% 7,00% 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% SOURCE: California Association of REALTORS®

First-time Buyer HAI vs. Entry Level Median Price % OF HOUSEHOLDS THAT CAN BUY 100% Entry Level Median Price 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CA $600 000 $500 000 $400 000 $300 000 $200 000 $100 000 $ SOURCE: California Association of REALTORS®

Reasons For Buying Desired Smaller Home; 3,0% Retirement/Move to Retirement Community; 3,0% Other; 9,0% Foreclosure/Short Sale/Default; 4,0% Tired of Renting; 25,0% Changed Jobs; 4,0% Desired Larger Home; 14,0% Change in Family Status; 6,0% Desired Better Location; 15,0% Investment/ Tax Considerations; 18,0%

Q. What was the single most important reason for buying the property?

Reasons For Buying

First Time Homebuyers Vs. Repeat Homebuyers First-Time Buyers

0% 10% Tired of Renting Desired Larger Home Investment/ Tax Considerations Desired Better Location Change in Family Status Changed Jobs Foreclosure/Short Sale/Default Desired Smaller Home Retirement/Move to Retirement Community Other

Repeat Buyers

20% 30% 40% 50% 60%

Q. What was the single most important reason for selling/buying the property?

Median Down Payment

First-Time Homebuyers Vs. Repeat Homebuyers First-Time Buyers $140 000 $120 000 $100 000 $80 000 $60 000 $40 000 $20 000 $0 2005 2006 Q. What was the amount of downpayment?

2007 2008 Repeat Buyers 2009 2010 $100 000 $20 500 2011 2012

The Median Down Payment Up 24 Percent from 2011, As Home Prices Increase

Median Down Payment % of Down Payment to Price $90 000 25% $80 000 $70 000 $60 000 $50 000 $40 000 $30 000 $20 000 $10 000 20% $65 000 20% 15% 10% 5% $0 2005 2006 2007 2008 2009 2010 2011 2012 Q. What was the amount of downpayment?

0%

Cash Source for Down Payment

First-Time Buyer vs. Repeat Buyer Personal savings Proceeds from sale of previous residence Borrowed or gift from relatives Sale of personal assets other than real property Inheritance Proceeds from sale or refi of another property Other First-time Buyers 68.9% 0.0% 20.3% 4.5% 1.4% 0.0% 4.8% Repeat Buyers 53.2% 17.4% 5.0% 12.9% 3.8% 3.8% 4.0% All Buyers 59.0% 11.1% 10.5% 9.7% 2.9% 2.2% 4.6% Q. What was the source of the cash the buyer used for a downpayment or to purchase the residence?

Repeat Buyers Rely on Personal Savings As Down Payment

Sale of Previous Residence Savings 60% 50% 40% 30% 53% 20% 10% 17% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q. What was the source of the cash the buyer used for a down payment or to purchase the residence?

Percent of Buyers with Zero Down Payment

50% 40% 30% 20% 10% 0% All Hombuyers First-Time Buyers Repeat Buyers 7,4% 4,6% 1,8%

Proportion of Transactions With Second Mortgages Percent of Home Sales with Second Mortgage

50% 40% 30% 20% 10% 1,8% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q. In addition to the first mortgage or assumption, was there a second mortgage?

Percent of Buyers with Second Mortgage

First-Time Buyers Repeat Buyers 70% 60% 50% 40% 30% 20% 10% 0% 2005 2006 2007 2008 2009 2010 2011 2012

Share of FHA Still Significantly Higher than 2007, But Was the Lowest in 4 Years

(First Mortgage) FHA VA 40% 30% 20% 10% 4% 24% 0% 2005 2006 2007 2008 2009 2010 2011 2012 Q. Please indicate the type of mortgage

FHA vs. Conventional

(New First Mortgage)

Median Home Price Median Down Payment (Dollar) Median Down Payment (% to Price) Share of All Home Sales Percent of Mortgages with Distressed Property Percent of First-Time Buyers FHA

$250,000 $8,820 3.5% 23.5% 50.0% 76.6%

Conventional

$456,000 $100,000 20.0% 72.7% 26.9% 34.3%

Seller Household Formation

Equity vs. REO vs. Short Sales

Single Married Couple with Dependents Married Couple without Dependents 2 or More Individuals (Related or Unrelated) Banks/Lending Institutions Other Total Equity Sales

29.3% 27.1% 26.1% 10.6% 0.6% 6.3% 100.0%

REO Sales

0.9% 0.9% 0.0% 0.0% 98.2% 0.0% 100.0%

Short Sales

27.6% 39.1% 19.9% 9.6% 0.6% 3.2% 100.0%

Home Seller Profile

(By Type of Sales)

Median Age of Sellers Median Household Income Years Seller Lived in Home Percent of Sales with Net Cash Loss Median Net Cash Gain/Net Cash Loss to Seller Equity Sales

58 $110,000 10 23.7% $50,000

Short Sales

45 $65,500 7 71.9% $-110,000

As Sellers with Net Cash Loss Hit a Record High …

35%

33,5%

30% 25% 20% 15%

Long Run Average = 12.3%

10% 5% 0% 2005 2006 2007 2008 2009 2010 Q. What was the net cash gain or net loss to the seller as a result of this sale?

2011 2012

The Median Net Cash Gain to Sellers Reaches a Record Low in 2012 $250 000 $200 000 $150 000 $100 000 $50 000 $0 2005 2007 2009

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

2011 $25 000

8 7 2 1 0 6 5 4 3

Years Owned Home Before Selling All Sellers 7,0

Desired Larger Home; 7,1% Reasons For Selling Other; 11,9% Foreclosure/Short Sale/Default; 26,5% Changed Jobs; 3,8% Desired Smaller Home; 6,3% Change in Family Status; 13,3% Desired Better Location; 9,9% Investment/ Tax Considerations; 10,2% Retirement/Move to Retirement Community; 11,0%

Q. What was the single most important reason for selling the property?

More than a Quarter of Sellers Sold Because Their Properties Were in Distressed Status % of Homes Sold Due to Foreclosure/ Short Sale/Default

35% 30% 25% 20% 15% 10% 5% 0% 2005 2006 2007 2008 2009 2010 Q. What was the single most important reason for selling/buying the property?

2011

26,5%

2012

Reasons For Selling Home

Equity vs. REO vs. Short Sales Foreclosure/Short Sale/Default Change in Family Status Retirement/Move to Retirement Community Investment/ Tax Considerations Desired Better Location Desired Smaller Home Changed Jobs Desired Larger Home Other Equity Sales 2% 17% 16% 13% 14% 9% 5% 10% 15% REO Sales 97% 0% 0% 3% 0% 0% 0% 0% 0% Short Sales 85% 1% 1% 1% 2% 1% 1% 1% 7% All Sales 27% 13% 11% 10% 10% 6% 4% 7% 12% Q. What was the single most important reason for selling the property?

More Sellers Are Planning to Buy Another Home As the Market Slowly Recovers

80% 70% 60% 50% 40% 30% 20% 10% 0% 40% 2005 2006 2007 2008 2009 2010 2011 2012 Q. Is the seller planning on purchasing another home?

Location of Seller’s New Home

Within the same county In another county in California In another state Out of US Don't Know/Not sure Total

2005

38% 23% 31%

2006

41% 18% 28%

2007

37% 24% 29%

2008

45% 17% 27%

2009

47% 21% 19%

2010

42% 21% 20%

2011 2012

49% 19% 20% 49% 18% 22% 1% 7% 2% 11% 1% 9% 1% 10% 2% 12% 1% 16% 1% 10% 1% 10% 100% 100% 100% 100% 100% 100% 100% 100%

For Those Who Do Not Plan to Repurchase, Here Are Their Top 5 Reasons: 5% 10% Seller is a lender/bank 0% Seller prefers to have less financial obligation Poor credit background 15% 15,3% 20% 14,4% 8,8% Lack of cash for down payment 8,6% Decide to live with family/friends 8,1%

Reasons Sellers Not Planning to Buy Another Home

Seller is a lender/bank Seller prefers to have less financial obligation Poor credit background Lack of cash for down payment Out of work/unemployment Decide to live with family/friends Waiting for market to bottom Other Total Equity Sales REO Sales Short Sales 0% 20% 88% 0% 3% 12% 0% 6% 3% 3% 31% 17% 3% 11% 1% 57% 100% 0% 0% 0% 6% 100% 10% 9% 0% 19% 100% Q. Why is the seller not planning to purchase another home?

Top Reasons Under “Other” for Equity Sellers Not Planning to Buy Another Home 5% 10% Seller Has Another Home 0% Moved to Retirement Facility/Nursing Home Deceased 12,0% 15% 15,8% 20% 11,0% Inheritance 3,4% Seller Is a Builder 3,4%

Property Fallen Out of Escrow

50% Equity Sales REO Sales Short Sales 45,3% 40% 30% 20% 10% 25,7% 19,0% Q. Had the property fallen out of escrow prior to this sale ?

0% 2008 2009 2010 2011 2012

Reasons Why Property Fell Out of Escrow Buyer changed mind and decided not to buy Buyer could not secure a mortgage - because of his/her credit background - because the appraised value was too low Lender's delay in approving the short sale Buyer could not come up with the down payment Seller decided not to sell Lender's delay in approving the REO sale Other Total 2008

33% 33% NA NA NA 11% 1% NA 22% 100%

2009

37% 41% NA NA NA 6% 0% NA 18% 100%

2010

44% 30% NA NA NA 5% 1% NA 20% 100%

2011

51% 19% 14% 5% 9% 4% 1% 1% 16% 100%

2012

42% 21% 14% 7% 13% 5% 1% 0% 18% 100% Q. Do you know why the property fell out of escrow previously ?

$3 500 % needs Repair $3 000 $2 500

Repair Costs/Price Adjustments

Median Repair Costs/Price Adjustment 60% $3 000 50% 44% 40% $2 000 30% $1 500 20% $1 000 10% $500 $0 2005 2006 2007 2008 2009 2010 2011 2012 Q. Did the seller repair items, make adjustments to the purchase price, or make any other concessions during escrow due to discovered defects? 0%

How Client Found Their Agent Recommendations of Friends Client was Friend/Relative/Neighbor Represented Them in Previous Home Transaction Referral from Business Associates Web page/Internet/Socia Media Open House Yard Signs Door-to-Door Farming Listing Agent for Home Purchased Direct Mail Marketing Print Ads/Newspaper & Magazine Relocation Referral Telephone Marketing Other 0% 5% 10% 15% 20% 25% 30%

Q. How did your client find and select you to represent them?

Buyers Have More “Skin” in the Game

% of buyers with 20+% down payment % of buyers with zero down payment % of cash buyers % of home buyers with a second mortgage % of buyer with ARM

2006

43.2% 21.1% 11.0% 43.4% 32.6%

2012

54.4% 4.6% 30.0% 1.8% 3.5%

Less Likelihood to Default as Monthly Payment Is More Affordable

Average mortgage rate (FRM)

2006

6.4% Median home price for existing single-family homes $556,430 Median household income for home buyers Housing Affordability Index $100,000 12.0%

2012

3.7% $319,340 $100,000 51.0%