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					Housing Market Update
           May 24, 2011
  Wayne Yamano, Vice President
                                 1
Who is John Burns Real Estate Consulting?
 Independent research and consulting firm focused on the housing
 We help Investors, Builders/Developers, Lenders, and Building
  Product Manufacturers make smart decisions
 We analyze 80 Metros each month, in 10 major regions.
Our research clients receive:
 Monthly reports
 Survey Results
 Insight from the Experts
 Webinars
 White Papers
 Introductions
 And much more…

                                                               2
                Today’s Agenda

1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments




                                 3
                    Prices heading down
•   Builders dropped prices in 7 of 9 regions in 1Q11
•   CA showed the most severe declines
•   Prices have been under more pressure in 2Q11
                            Average Change In Net Prices
                                In 1st Quarter 2011

          Northeast                                                                               0.6%
               Texas                                                                           0.2%
          Southeast                                                         -1.0%
             Florida                                                    -1.2%
              Nation                                                -1.4%
           Midwest                                             -1.7%
         Northwest                                          -1.9%
          Southwest                                       -2.1%
        S. California               -3.6%
        N. California       -4.2%

                    -5.0%           -4.0%        -3.0%          -2.0%           -1.0%   0.0%          1.0%

         Source: John Burns Real Estate Consulting independent survey. NSA April 2011

                                                                                                             4
                                   All builders hurting
                         New Home Price Decline in Builders' Markets*
                                                             (Last 3 Months)




                                                  MHO
                                  MDC




                                                                          PHM

                                                                                  MTH




                                                                                                                  HOV

                                                                                                                          NVR
                                          KBH




                                                                                                          BZH
                                                                                          TOL
                                                          LEN

                                                                  DHI




                                                                                                  RYL
                          SPF

                 0.0%




                                                                                                                          -0.2%
                                                                                                                  -0.6%
                                                                                                          -0.7%
                                                                                                  -0.7%
                                                                                          -0.8%
                 -0.5%




                                                                                  -0.9%
                                                                          -0.9%
                                                                  -0.9%
% Price Change




                                                          -1.1%
                                                  -1.2%

                 -1.0%
                                                                                          Builder Wtd. Avg. = -0.9%
                                          -1.4%
                                  -1.6%




                 -1.5%
                          -1.9%




                 -2.0%

   * Average new home price declines weighted by builders' geographic exposure.
    Source: John Burns Real Estate Consulting, April 2011


                                                                                                                                  5
Spring selling season disappointing




                                      6
                Today’s Agenda

1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments




                                 7
Excess Vacancy = 3.1 million units (2.4%)
   •       From 2000 to 2010:
         •    Total housing stock grew by 15.8 million
         •    Households only grew by 11.2 million
         •    Vacancy increased from 9.0% to 11.4%
                                              Excess Vacancy
       3,500,000                                                                                   3.5%
                           Excess Vacancy (Left Axis)
       3,000,000                                                                                   3.0%
                           Excess Vacancy Rate (Right Axis)
       2,500,000                                                                                   2.5%

       2,000,000                                                                                   2.0%

       1,500,000                                                                                   1.5%

       1,000,000                                                                                   1.0%

        500,000                                                                                    0.5%

              0                                                                                    0.0%
                    2000




                                   2002


                                           2003


                                                  2004




                                                                2006


                                                                       2007


                                                                              2008




                                                                                            2010
                            2001




                                                         2005




                                                                                     2009
       Source: John Burns Real Estate Consulting, May 2011

                                                                                                          8
          CA not so bad


             Oak: 3.3%
             Sac: 2.7%
   CA         SD: 2.3%
 Excess
Vacancy       OC: 1.8%
 = 2.2%
              LA: 1.7%
              SF: 1.5%
            Riv-SB: 0.7%



                           9
      U.S. back to equilibrium in 2015
•   Construction averaging 1.03MM/yr through 2015
•   Household growth averaging 1.46MM/yr through 2015
                                                     Excess Vacancy
      3,500,000
      3,000,000
                                                                                                                        OC: 2012
      2,500,000                                                                                                         LA: 2014
      2,000,000
                                                                                                                        SF: 2014
      1,500,000
      1,000,000                                                                                                         SD: 2014
       500,000                                                                                                          Riv-SB: 2015
             0
       -500,000
                                                                                                                        Oak: 2015
                                                                                                                        Sac: 2016

                                                                                                2011P

                                                                                                        2012P

                                                                                                                2013P

                                                                                                                         2014P

                                                                                                                                 2015P
                  2000




                                                      2005

                                                             2006

                                                                    2007

                                                                           2008

                                                                                  2009

                                                                                         2010
                         2001

                                2002

                                       2003

                                              2004




      Source: John Burns Real Estate Consulting, May 2011


                                                                                                                                         10
    Pent-up household growth = 3.4MM
•   HH growth slowed to 1.0%/yr in 2000s, after 2 decades of
    1.4%/yr growth
•   HH growth should have averaged 1.3%/yr in 2000s, based on
    demographics and normal headship rates
                              Annual HH Growth rate
            3.0%
                                 2.4%
            2.5%

            2.0%     1.8%

            1.5%                            1.4%       1.4%            1.3%
                                                               1.0%                Expected
            1.0%
                                                                                 Theoretical
            0.5%
                                                                                  Household
                                                                                 Growth Rate
            0.0%
                      1970       1980       1990       2000    2010   2010(Th)
           Source: John Burns Real Estate Consulting, Census


                                                                                         11
More young adults living with parents

•   1.5 million more young adults living with their
    parents today than in 2000
                        25 to 34 Year Olds Living with their Parents
                  6.0                                         Number (Left Axis)                 16%
                  5.5                                         Percentage (Right Axis)            14%
                  5.0                                                                            12%
                  4.5                                                                            10%
       Millions




                  4.0                                                                            8%
                  3.5                                                                            6%
                  3.0                                                                            4%
                  2.5                                                                            2%
                  2.0                                                                            0%
                        1983   1986   1989   1992   1995   1998   2001    2004     2007   2010
         Sources: US Census Bureau, JBREC



                                                                                                       12
                Today’s Agenda

1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments




                                 13
                              Is the worst behind us?
Based on our forecasts:
• 50% of the Foreclosure Notices have been filed
• Only 30% of the distressed homes have been sold
                                      Foreclosure Starts & Distressed Sales
            3.5
 Millions




                                                                                                     Foreclosure Starts
            3.0               2.9
                                          2.6                                                        Distressed Sales
                                                      2.5
            2.5   2.3
                                                                  2.0 1.9         2.0
            2.0                                             1.8
                                                                                              1.7
                                    1.5
            1.5                                 1.3                         1.3                           1.3
                                                                                        1.1
            1.0         0.9                                                                         0.9         0.9 1.0

            0.5

            0.0
                   2008        2009        2010       2011P       2012P     2013P       2014P       2015P       2016P
Source: John Burns Real Estate Consulting, April 2011


                                                                                                                          14
     U.S. Shadow Inventory = 10 months
•        Central CA markets have most shadow
•        Coastal Bay area has least shadow
                                         CA Metros: Shadow Inventory
                                      Shadow        Resale    Shadow    Estimated     Current        JBREC
                                     Inventory      Sales     Months of   Metro       Median     Affordability
                                              3,6
    Metro                          (base case)    (10-yr Avg) Supply Delinquency %2    Price        Index™
    Bakersfield, CA                    16,932       12,020       17       19.9%       $115,000         0.0
    Fresno, CA                         14,968       10,588       17       16.9%       $145,000         0.0
    Los Angeles, CA (MDiv)            114,741       98,127       14       12.4%       $340,000         1.2
    Merced, CA                          6,094        3,476       21       26.1%       $113,000         0.7
    Modesto, CA                        12,957        7,885       20       22.1%       $137,000         0.2
    Monterey, CA                        5,164        4,253       15       14.1%       $223,500         0.7
    Oakland, CA (MDiv)                 43,896       38,804       14       12.7%       $321,000         0.9
    Orange County, CA (MDiv)           33,302       38,739       10        9.0%       $470,000         4.4
    Riverside-San Bernardino, CA       95,058       73,585       16       20.7%       $175,500         1.2
    Sacramento, CA                     47,704       36,329       16       16.5%       $195,000         0.4
    San Diego, CA                      41,011       40,628       12       11.9%       $362,000         2.9
    San Francisco, CA (MDiv)           13,307       18,542        9        6.5%       $651,000         1.0
    San Jose, CA                       17,503       24,188        9        7.9%       $515,000         1.9
    Santa Barbara, CA                   4,626        4,262       13       11.4%       $331,500         0.3
    Santa Rosa, CA                      6,782        7,467       11       10.7%       $325,000         1.0
    Stockton, CA                       16,213       10,341       19       21.4%       $156,500         0.5
    Vallejo-Fairfield, CA              10,253        7,643       16       18.3%       $195,000         0.2
    Ventura, CA                        10,852       12,008       11       10.3%       $410,000         4.0
    Visalia-Porterville, CA             6,660        4,389       18       16.0%       $122,000         0.4

                                                                                                             15
    Distressed sales to take larger share
•    Distressed sales:
    • 27% of sales in 2010
    • Forecasted to be 36%-37% of sales in 2011-2013
    • Typically 6%-7% of sales
                                                    Resale Sales Volume
               8
                                                                                      Distressed
               7                                0.44
                                           0.44      0.42
                                                                                      Non-Distressed
               6                    0.42                                              "Normal" Non-Distressed Sales
                             0.41                           0.58
               5   0.30 0.37
    Millions




                                                                                                 1.67 1.29 0.95
                                                                   0.87 1.50 1.33 1.80 1.91 1.96
               4
                                            6.64 6.05
               3                  5.76 6.34
                   4.87 4.96 5.22                     5.08
               2                                                   4.05 3.66 3.58                     3.86 4.15
                                                                                  3.20 3.29 3.44 3.63
               1
               0
                   2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011P 2012P 2013P 2014P 2015P 2016P
    Source: John Burns Real Estate Consulting, April 2011


                                                                                                                      16
                Today’s Agenda

1. Current State of Housing
2. Excess Housing Vacancy
3. Shadow Inventory
4. For-Sale Vs. Apartments




                                 17
Scale tipping towards rental demand




                                      18
Apartment fundamentals surging




                                 19
            Rents rising as prices falling
•   Apartments rents have been rising since beginning of 2010
•   For-sale housing has never been this cheap compared to
    apartment rents
                                    After-Tax Housing Costs vs Asking Rents
                                 (Annual Averages of All Markets Represented)
      $1,600
                                                                         AVG After-Tax Cost of Homeownership
      $1,500
                                                                         AVG Asking Rent
      $1,400
      $1,300
      $1,200
      $1,100
      $1,000
       $900
       $800




                                                                                           Current

                                                                                                     2011P

                                                                                                             2012P

                                                                                                                     2013P
                 2001

                        2002

                               2003

                                      2004

                                             2005

                                                    2006

                                                           2007

                                                                  2008

                                                                            2009

                                                                                   2010
     Source: JBREC Market Monitor; RealFacts, Reis (2010Q4) 81 markets (Current through 2010Q4)


                                                                                                                             20
   Rents rising as prices falling
San Francisco            Oakland



  San Jose              Sacramento



Los Angeles            Orange County



                                       21
…so why is the for-sale market so weak?
•    Prospective buyer pool is lousy!
    • FICO scores too low
    • No $ for down payment




                                        22
Construction will return as: 1) we add jobs, 2) vacancy is filled, and 3)
builders can find ways to make $$$.
                                                    U.S. Residential Permits
2,500,000
                2,218,900                                                                                 2,155,300

2,000,000
                                                      1,769,400

                                                                                                                  YoY SA: -20.5%
1,500,000
                                                                                                                            1,279,000   2010 to 2015
1,000,000
                                                                                                                                        MF: +173%
                                                                                                                                         SF: +72%
                                                                     1991: 948,800
  500,000
                                       1981: 985,500
                                                                                                                  2011P: 626,500
          0




               Current
                 1970
                 1971
                 1972
                 1973
                 1974
                 1975
                 1976
                 1977
                 1978
                 1979
                 1980
                 1981
                 1982
                 1983
                 1984
                 1985
                 1986
                 1987
                 1988
                 1989
                 1990
                 1991
                 1992
                 1993
                 1994
                 1995
                 1996
                 1997
                 1998
                 1999
                 2000
                 2001
                 2002
                 2003
                 2004
                 2005
                 2006
                 2007
                 2008
                 2009
                 2010
                2011P
                2012P
                2013P
                2014P
                2015P
                          Single Family                         Multifamily                     Recession Years
Sources: John Burns R.E. Consulting, Census Bureau for history and JBREC for forecast (Pub: Apr/11),NSA, Current=SA,(Data: Feb/11)



                                                                                    23
• High Demand: Census Bureau says population will grow by 3.2
  million per year and they will need to live somewhere.
                        Recovery Timeline
Job         Housing        Demand         Rents and     Construction
Growth      Vacancies      Exceeds        Home prices   Returns to
            Filled         Supply         Rise          Normal
• Recovery is Underway: Rents and home prices have stabilized in
  many of the best middle class neighborhoods today.
• Full Construction Recovery Will Take 6+ Years: It will take years
  to reach 1.7 million+ construction starts due to land locations
  and feasibility



                                     24
Make great decisions with great analysis




                Wayne Yamano
         wyamano@realestateconsulting.com
                 (949) 870-1200

                                            25

				
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