THE IMPACTOF INVESTORS ON CALIFORNIA S HOUSING MARKET. Presented by Carmen Hirciag, MBA Senior Research Analyst

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1 THE IMPACTOF INVESTORS ON CALIFORNIA S HOUSING MARKET Presented by Carmen Hirciag, MBA Senior Research Analyst

2 WHAT S GOING ON INTHE CA REAL ESTATE MARKET?

3 Sales of Existing Detached Homes 500, , , , , , , , ,000 50, , , ,030 - Jun-13 Dec-13 Jun-14 SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS *Sales are seasonally adjusted and annualized

4 Median Price of Existing Detached Homes $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $428,620 $465,960 $457,160 $- Jun-13 Dec-13 Jun-14 SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

5 Underwater Mortgages Down 40% Negative Equity Share in CA in CA 35% 30% 25% 20% 15% 10% 5% 0% SERIES: Underwater Mortgages SOURCE: CoreLogic

6 HousingAffordability Index % OF HOUSEHOLDS THAT CAN BUY 60% 50% 40% 30% 20% 10% 0% SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

7 Mortgage Foreclosure & Delinquency Rates California: Q % Delinquency Rate Foreclosure Rate 10% 8% 6% Delinquencies: Long Run Average: 4.5% 4% 2% Foreclosure Rate: Long Run Average: 1.3% 0% SERIES: Mortgage Foreclosure & Delinquency Rates SOURCE: Mortgage Bankers Association

8 Unsold Inventory Index By Price Range California Jun-13 Jun-14 $1,000K $ K $ K $ K $ K $ K $0-199K 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. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

9 Change in Inventory by Price Range (Year-to-Year) Jun-14 40% 35.9% 30.4% 31.5% 30% 27.6% 23.7% 20% 10% 12.5% 0% -10% -6.1% SERIES: Inventory of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

10 INVESTOR MARKET OVERVIEW

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12 CA Investor Business Declined 45% 40% 39% 35% 30% 32% 25% 20% 15% 10% 5% 0% Q: How many investor transactions did you close in the past 12 months? Q: How many total transactions did you close in the past 12 months?

13 Most REALTORS Have 5 or Fewer InvestorClients 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 20% 16% 17% 15% 9% 7% Number of Investor Clients Q: How many investor clients do you currently have?

14 Number of InvestorClients Down Average Q: How many investor clients do you currently have?

15 Most REALTORS Had 5 or Fewer InvestorTransactions 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 19% 17% 17% 14% 11% 9% 8% Number of Investor Transactions Q: How many investor transactions did you close in the past 12 months?

16 Number of InvestorTransactions Down Average Q: How many investor transactions did you close in the past 12 months? 2014

17 Average (All)ClosedTransactions: % 35% 30% 23% 25% 20% 19% 13% 15% 12% 10% 5% 0% Number of Total Transactions Q: How many total transactions did you close in the past 12 months? 31+

18 LAST INVESTOR BUYER TRANSACTION

19 Buyers Dominate InvestmentTransactions 100% 90% 23% 30% 80% 70% 60% Sellers 50% Buyers 40% 77% 70% 30% 20% 10% 0% 2013 Q: Who did you represent? 2014

20 Single Family Homes Dominate Investor Market 90% 80% 80% 73% 70% 60% 50% % % 20% 14% 13% 10% 12% 1% 1% 0% Single family home Multifamily Q: What type of property did your investor client purchase? Bulk sale 6% Other

21 MajorityTransactions Not Distressed Foreclosure 12% Shortsale 18% Equity / regular / traditional 70% Q: Was the property a(n)?

22 79% of SalesWere Single Units 4.2% Number of Units % % 2-5 0% 2% 4% 6% 8% 10% Q: How many units did the property have in your last investor transaction? 12% 14% 16%

23 Slightly Fewer Property Units PerTransaction Q: How many units did the property have in your last investor transaction? 2014

24 Majority oftransactions Listed Below $500k 50% 40% 30% 37% 20% 40% 16% 10% 8% 0% $250k or less Q: What was the initial/listing price? $251k-$500k $501k-$1,000k Listing Price $1,000k+

25 Initial Listing Price Higher Median List Price $350,000 $307,500 $322,500 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $ Q: What was the initial listing price? 2014

26 Majority oftransactions Sold Below $500k 40% 37% 30% 39% 16% 20% 8% 10% 0% $250 or less Q: What was the final sale price? $ $501-$1,000 Sale Price (In Thousands) $1,000+

27 Final Sale Price Higher Median Sale Price $350,000 $292,000 $320,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $ Q: What was the final sale price? 2014

28 Median Listing Price > Sale Price Median Price $322,500 $320,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Listing Sale

29 TransactionCost: $10k or Less for Nearly ½ Investors 40% 36% 35% 30% 30% 25% 20% 15% 10% 16% 9% 9% 5% 1% 0% $0-1 $1-10 $10-50 $ $100-1,000 Transaction Cost (In Thousands) Q: How much did it cost to purchase the property? $1,000+

30 TransactionCost Higher Median Cost $12,000 $12,000 $9,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ Q: How much did it cost to purchase the property? 2014

31 MedianTransactionCost Relative to Sale Price is Highest in $500k+ Price Range $900, % $800,000 $700,000 $600,000 $500, % $400,000 Median Transaction Cost $300,000 $200,000 Median Sale Price 5.2% $100,000 $0 $250 or less $ $500+ Sale Price (In Thousands)

32 Median Days on Market: % Days on Market % % % % % 10% 20% Q: How many days was the property on the market? 69% 30% 40% 50% 60% 70%

33 Days on Market Unchanged Median Days on Market Q: How many days was the property on the market?

34 Majority Investors Rented Properties 100% 90% 7% 14% 80% 70% 60% 50% 73% 58% Rental 40% Flip 30% 20% 10% Other 20% 28% 0% 2013 Q: What was the intended use of the property? 2014

35 Most Investors Made Minor or No Repairs None Minor cosmetic 18% % % 20% Major cosmetic 51% 22% 39% 40% Major remodeling 22% 60% Q: What type of rehabilitation/remodeling was done to the property? 80% 9% 17% 100%

36 Majority Spent < $30k on Remodeling 20% 15% 10% 5% 0% 13% 6% 11% 16% 16% 5% 4% 12% 7% 3% 1% Remodeling Cost Q: How much did your client invest in rehabilitating/remodeling the property?

37 Median RemodelingCost Increased $15,000 $16,000 $14,000 $12,000 $10,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ Q: How much did your client invest in rehabilitating/remodeling the property?

38 Median RehabCost Ratio is Highest in Lower Sale Price Range 6.3% $800,000 $700,000 $600,000 $500, % $400,000 $300,000 $200,000 Median Sale Price Median Rehab Cost 6.5% $100,000 $0 $250 or less $ $500+ Sale Price (In Thousands)

39 Top 5 Reasons for Buying Now profit potential 58% good price 43% location 26% personal 21% low interest rates 14% 0% 10% 20% Q: What motivated your client to buy now? (multiple response) 30% 40% 50% 60% 70%

40 Most InvestorsOwn Other Properties 2% # P 100+ r o o f p e O r 6-10 t t 2-5 h i 1 e e None r s 3% 2% 17% 47% 12% 17% 0% 10% 20% Q: How many other investment properties does your client own? 30% 40% 50%

41 InvestorsOwn More Other Properties 9.0 Average Q: How many other investment properties does your client own? 2014

42 Most PropertiesWere Found on MLS MLS 62% 21% My listing Other 6% Client found property 4% Directly from seller 4% Another agent's private listing 2% 0% Q: How did you find the property for your client? 20% 40% 60% 80%

43 Future Price Predictions Positive 100% 90% 80% 70% 6% 20% 1% 16% 8% 3% 60% Don't know 50% Flat 40% Down 30% 73% 74% In one year In five years Up 20% 10% 0% Q: Do you think real estate prices in the neighborhood where the property is located will go up down or stay flat?

44 More than 1/2 Intend to Keep Property < 6Years 40% 37% 35% 30% 28% 25% 20% 18% 15% 12% 10% 6% 5% 0% Less than Years Q: How many years does your client intend to keep the property?

45 Intended Length of Ownership Unchanged MedianYears Q: How many years does your client intend to keep the property? 2014

46 >2/3 Properties Managed by Owner 100% 90% 80% 8% 11% 27% 22% 70% 60% Other 50% Property manager 40% 30% 67% 69% % 10% 0% Q: Who will manage the property? Owner

47 FINANCING

48 More than 2/3 Paid Cash Obtained financing 33% All cash 67% Q: How did your client pay for the property?

49 Most Cash Funds from Savings Personal savings 45% Proceeds from previous sale 26% 15% Private investors 0% 10% 20% Q: What was the source of the cash funds in your last investor transaction? 30% 40% 50%

50 Majority Financing from Bank 86% Bank loan 6% Private investors 1% 1031 exchange 8% Other 0% 20% 40% Q: What was the source of the financing in your last investor transaction? 60% 80% 100%

51 BuyersOverwhelminglyOpted for Fixed Rate Loans 87% Fixed 86% 9% Adjustable % Other % 0% 20% Q: What type of loan did your client acquire? 40% 60% 80% 100%

52 ¾ of BuyersAcquired 30-year Loans 100% 90% 80% 70% 60% 50% 76% 76% 15 years 40% Other 30% 20% 10% 0% 30 years 11% 8% 9% 6% Q: What is the duration of the loan?

53 Most Investors Didn t HaveTroubleObtaining Financing 40% 35% 34% 30% 25% 20% 15% 10% 5% 14% 12% 4% 9% 5% 7% 0% Q: Please rate how difficult it was for your last investor client to obtain financing. 7% 1% 4%

54 Difficulty of Obtaining Financing Declined Average Q: Please rate how difficult it was for your last investor client to obtain financing. 2014

55 Average Down Payment Declined 30% 25% 20% 15% 30% 24% 10% 5% 0% Q: How much was the down payment (as a percentage of the sale price) in your last investor transaction?

56 Average Expected Rate of Return Down 19% 17% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2013 Q: What is the expected rate of return on the property investment? 2014

57 CLIENT AGENT RELATIONSHIP

58 Many REALTORS Getting Repeat Business 36% Previous client Client found me online 14% Refferal 14% 12% Friend Prior dealings with my brokerage 6% "For Sale" sign 6% Relative 3% Client responded to my ad 2% 9% Other 0% Q: How did you find your client? 5% 10% 15% 20% 25% 30% 35% 40%

59 Majority Found Property in < 8Weeks 50% 41% 40% 30% 21% 20% 20% 10% 7% 0% Weeks Q: How many weeks did you spend looking for a property with your client? % 12+

60 Investors Finding Properties Faster Average 12 # of Weeks Q: How many weeks did you spend looking for a property with your client? 2014

61 MajorityViewed < 6 Properties 59% 60% 50% 40% 30% 24% 20% 17% 10% 0% Number of Properties Q: How many properties did you view with your client prior to the client making a purchase?

62 InvestorsViewed Fewer Properties Average # of Properties Q: How many properties did you view with your client prior to the client making a purchase?

63 Nearly 2/3 Investors MadeOffers onother Properties 40% 37% 35% 30% 25% 19% 20% 13% 15% 11% 10% 7% 5% 5% 8% 0% None Number of Offers Q: How many offers did your client make on other properties?

64 Fewer MultipleOffers in Average Offers Q: How many offers did your client make on other properties?

65 Investment Properties Received 3.3Offers onaverage 25% 23% 21% 20% 18% 15% 16% 10% 8% 5% 6% 0% Number of Offers Q: How many offers did the property purchased by your last investor client receive, including that of your buyer?

66 INVESTOR DEMOGRAPHICS

67 Most Investors are Individuals 3% 1% 2% 19% Individual LLC LLP Corp Other 75% Q: Was your client a(n)?

68 Majority of Individual Investors are Male 80% 70% 75% 60% 50% 40% 30% 25% 20% 10% 0% Male Q: What was the client s gender? Female

69 Average Individual Investor is 51YearsOld 40.0% 24.7% 20.0% 10.0% 30.2% 27.2% 30.0% 1.2% 7.4% 9.3% 0.0% 25 or under Age Q: What was the client s age at the time the transaction closed?

70 Average Individual InvestorAge Rises Average Age Q: What was the client s age at the time the transaction closed? 2014

71 ¾ of Individual Investors are Married 4% 23% Married Single 73% Q: What was the client s marital status at the time the transaction closed? Other

72 Most Individual Investors have Higher Education 30% 25% 20% 15% 10% 5% 0% 29% 23% 1% 2% 4% 8% 6% Q: What was the highest level of education your client had completed at the time the transaction closed?

73 Fewer Minority Investors in % 90% 80% 70% 44% 56% 60% Caucasian/White Asian 50% 40% 30% 20% 10% 0% Hispanic/Latino Other 26% 10% 13% 7% African American/Black 16% 1% 2013 Q: How would you describe your client s ethnic background? 9% %

74 Majority Earn > $200kAnnually 30% 30% 25% 20% 15% 20% 16% 12% 14% 10% 5% 8% 0% Annual Income/Revenue (In Thousands) Q: What is your client s annual income/revenue?

75 MedianAnnual Income/Revenue Higher Median Income/Revenue $200,000 $200,000 $160,000 $150,000 $100,000 $50,000 $ Q: What is your client s annual income/revenue?

76 Fewer Foreign Investors in 2014 Foreigners 37% 34% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2013 Q: What is your client s country of origin? 2014

77 > 1/3 Investors are Foreigners China 7% Unsure 6% Mexico 4% Taiwan 2% India 2% 1% Germany 1% Japan 0% Q: What is your client s country of origin? 2% 4% 6% 8%

78 KEY CONCLUSIONS & OPPORTUNITIES

79 Investor is IdealClient Pay cash Not emotional about properties Less time searching for properties More affluent Need property managers Own other properties Well educated

80 How to Access Investor Info.

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