1

Houston Market Health Analysis• Forecasts• Supply & Demand• Price Trends

Houston Dominates 2013 Top MPC RankingsHousing 13 of the Top 50 Master Planned Communities of 2013

Building MarketIntelligence

2

Year in Review2013 was a very interesting year for housing and can be characterized by three periods:

1. January through May boom. Sales were so strong that flippers returned to the market. Home builders pushed prices high enough to intentionally slow sales because their construction crews couldn’t keep up with the pace of sales and were worried about running out of lots.

2. June through August pause. The Fed’s hint that it would start tapering gave rise to a spike in mortgage rates that put an end to the flippers and euphoria. This was a real positive for housing’s long-term prospects but a real negative for builder stock prices, which made the builders more cautious. The builders who pushed prices heaviest in May had to give some of the price increases back later in the year.

3. September through December slowdown. The fiscal cliff debate scared everyone and exacerbated the normal seasonal slowdown.

BY JOHN BURNS, CEO

What 2013 Tells Us About The Future

3

2014 Executive Outlook2014 is off to a strong start, but executives are still cautious because of:

• The debt ceiling debate. Rather than solve the problem, elected officials kicked the can down the road until February. The last thing the industry needs is another fiscal cliff scare at the beginning of the spring selling season.

• FHA changes. FHA’s significant loan limit reductions will eliminate FHA financing in a number of new home projects in 18 of the top MSAs, leaving builders to wonder just how many sales will be lost.

• Government policies. Janet Yellen as the new Fed Chair and Mel Watt as the new FHFA Director are viewed positively, but the impact of the QM implementation on January 10 brought another market uncertainty. The Fed’s unwinding of their huge securities-buying strategy also makes everyone nervous.

All in all, 2013 was a much better year than most people planned, with more price appreciation than expected and lower sales volumes. Our February 2013 forecast was for:

• 9.3% resale price appreciation, and it looks like the actual will come in around 10.4%.

• 472K new home sales (a growth of 29%), and the first 11 months of this year have averaged 434K (18% growth).

In 2014, we expect less price appreciation and similar volume growth. Stay tuned!

John Burns, CEO(949) 870-1210

jburns@realestateconsulting.com

Our Business as a Leading IndicatorOur business had a great year in 2013 and should give you some insight as to what to look forward to in 2014 and beyond.

• Look east for volume. Feasibility studies in our offices in Georgia, Virginia, Illinois, Florida, Chicago, and Texas flourished as construction ramped in the East much faster than it ramped in the West.

• More IPOs and M&A. We were involved in 24 deals that involved companies eventually going public or buying other companies. Some of those deals did not make it to the finish line, but many are likely to reemerge if the market picks back up as expected. Most of the action was near the coasts, which kept our California and New England offices extremely busy. We updated our Best Practices Compliance Certification to give our clients utmost confidence of confidentiality heading into 2014.

• New master-planned communities. Money is finally flowing to future supply, based on the huge number of future MPCs we consulted on in 2013. This “surge” in supply will barely replace the existing MPCs that will sell out, so we expect housing demand to exceed supply for the foreseeable future. Expect the first wave of MPCs to maximize the odds of success by doing a lot of consumer research up front, choosing the right amenity package, and dictating builder architecture.

• Expensive land means detailed product and premium analysis. Land prices rose substantially (our finished lot index showed a 26% increase through Q3 2013), which is causing the new land owners to plan carefully to make sure they minimize mistakes. We partnered with 26 builder/developers and Zillow to survey 27,000 recent home shoppers on what they are looking for in their next home, and we are working with our partners and others to pick everything from exteriors to standard plumbing fixtures.

• Smarter building products and service companies. Materials and service providers are back and raising prices with a vengeance. Many of the building products companies have vowed never to get so removed from the consumer and builder again and are spending a lot of money to stay on top of changing market conditions. Since the building products companies will do well even if rates rise (presumably giving rise to more remodeling), they have a very confident outlook on the future.

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This market summary was authored by Sean Fergus, Research. Local insight was provided by Paige Shipp, Consulting.

For further information, please contact Sean at sfergus@realestateconsulting.comor Paige at pshipp@realestateconsulting.com.

Houston Analysis• New homes sales activity very strong. Solid traffic

and sales activity continued in Houston’s new home communities over the past month, with many communities performing exceptionally well in the 4–6 range, up from about 3 homes per community the previous month. Builders report traffic is solid to very busy.

• Available finished lots are still an issue. Most builder representatives we spoke with said that lack of finished lots in desirable locations is something they struggle with or anticipate being a problem. This is already disrupting sales volume Builders said they could have sold more homes if more lots were available.

• Fortunately, more finished lots are in the pipeline. Almost every month builders and developers announce a new 1,000-lot-plus master-planned community in an effort to close the gap between the supply of finished lots and builders’ demand. The latest is Hillwood Communities’ Pomona, south of Houston in Manvel, Brazoria County, a partnership between Hillwood (a Perot Company) and local builder McGuyer Homebuilders. Hillwood has been aggressively acquiring large parcels for new master-planned developments throughout the state.

• New home prices are gradually rising, and incentives are stable. Most communities report some price increases so far this year, generally by 1% to 3%. Incentives remain relatively stable at most new home communities.

• Employment growth is still strong. New jobs continue to fuel demand and are largely responsible for making Houston number-one metro area for home starts over the past year. Occidental Petroleum, which is focused on drilling in West Texas’ Permian Basin, is relocating its headquarters to Houston from Louisiana.

Houston, Texas March 2014Analysis

Sean FergusManagerResearch

Paige ShippSr. ManagerConsulting

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See Terms & Conditions of Use and Disclaimers. Distribution to Non-Clients is Prohibited © 2014 www.realestateconsulting.com

March 2014 Market Trends

Houston, TX

Current Market Conditions: Warm

An Objective Measure Comparing the Market’s Demand, Supply, and Affordability Fundamentals to History Improving markets (rising prices and rising construction) make the market riskier and vice versa.

Housing Cycle Risk Index

Consultant’s Corner: Houston

Warm

DEC

FEB

CU

RR

ENT

MAR

JAN

2013 hJan i

2012 h

2011 h

2010 h

2009g

*Based on a three-month average

Great fundamentals;Very low risk

Above averagefundamentals;

Low risk

Averagefundamentals;

Medium risk

Below averagefundamentals;

High risk

Poor fundamentalsVery high risk

Current Fundamentals:

Demand Supply Affordability

Very Low Risk, Weakening*

Current Market Conditions: Warm

See Terms & Conditions of Use and Disclaimers. Distribution to Non-Clients is Prohibited © 2014 www.realestateconsulting.com

March 2014 Market Trends

Houston, TX

Current Market Conditions: Warm

An Objective Measure Comparing the Market’s Demand, Supply, and Affordability Fundamentals to History Improving markets (rising prices and rising construction) make the market riskier and vice versa.

Housing Cycle Risk Index

Consultant’s Corner: Houston

Warm

DEC

FEB

CU

RR

ENT

MAR

JAN

2013 hJan i

2012 h

2011 h

2010 h

2009g

*Based on a three-month average

Great fundamentals;Very low risk

Above averagefundamentals;

Low risk

Averagefundamentals;

Medium risk

Below averagefundamentals;

High risk

Poor fundamentalsVery high risk

Current Fundamentals:

Demand Supply Affordability

Very Low Risk, Weakening*

See Terms & Conditions of Use and Disclaimers. Distribution to Non-Clients is Prohibited © 2014 www.realestateconsulting.com

March 2014 Market Trends

Houston, TX

Current Market Conditions: Warm

An Objective Measure Comparing the Market’s Demand, Supply, and Affordability Fundamentals to History Improving markets (rising prices and rising construction) make the market riskier and vice versa.

Housing Cycle Risk Index

Consultant’s Corner: Houston

Warm

DEC

FEB

CU

RR

ENT

MAR

JAN

2013 hJan i

2012 h

2011 h

2010 h

2009g

*Based on a three-month average

Great fundamentals;Very low risk

Above averagefundamentals;

Low risk

Averagefundamentals;

Medium risk

Below averagefundamentals;

High risk

Poor fundamentalsVery high risk

Current Fundamentals:

Demand Supply Affordability

Very Low Risk, Weakening*

Housing Cycle Risk Index

Market TrendsHouston, Texas March 2014

“ “New jobs continue to fuel demand and are largely responsible for making Houston number-one metro area for home

starts over the past year.

6

125

130

135

140

145

150Houston, TX

Burns Home Value Index B Resale Sales - 12-Month Totals

55,000

60,000

65,000

70,000

75,000

80,000

85,000

B(2) Resale Estimated Months of Supply A-

Housing Cycle Risk Index™

A+ AA‐ B+ B B‐C+ C C‐ D+ D D‐ F

B+ Employment Growth - YoY

80,000

90,000

100,000

110,000

120,000W&S Growth: 81,100 (3.0%)

B New Home Supply C+(1)

Metric Current Month Ago Change % ChangeBurns Home Value Index 147.3 147.1 0.2 0.1%

Housing Cycle Risk Index B+ A- n/a n/a

Resale Sales (12-Months) 80,999 80,826 173 0.2%

Employment Growth 81,100 82,000 -900 -1.1%

Resale Est. Months of Supply 2.7 2.6 0.1 3.8%

Single Family Permits 34,657 34,507 150 0.4%

Houston, TX

March 2014Key StatsPrice Trend and Cyclical Risk Demand Supply

Arrows indicate change from what was reported last month. Values may have been revised.

Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

(1)

(2) Resale Sales Volume grade is based on a ratio of sales to the number of households.

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 3

Key StatisticsPrice Trend and Cyclical Risk

125

130

135

140

145

150Houston, TX

Burns Home Value Index B Resale Sales - 12-Month Totals

55,000

60,000

65,000

70,000

75,000

80,000

85,000

B(2) Resale Estimated Months of Supply A-

Housing Cycle Risk Index™

A+ AA‐ B+ B B‐C+ C C‐ D+ D D‐ F

B+ Employment Growth - YoY

80,000

90,000

100,000

110,000

120,000W&S Growth: 81,100 (3.0%)

B New Home Supply C+(1)

Metric Current Month Ago Change % ChangeBurns Home Value Index 147.3 147.1 0.2 0.1%

Housing Cycle Risk Index B+ A- n/a n/a

Resale Sales (12-Months) 80,999 80,826 173 0.2%

Employment Growth 81,100 82,000 -900 -1.1%

Resale Est. Months of Supply 2.7 2.6 0.1 3.8%

Single Family Permits 34,657 34,507 150 0.4%

Houston, TX

March 2014Key StatsPrice Trend and Cyclical Risk Demand Supply

Arrows indicate change from what was reported last month. Values may have been revised.

Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

(1)

(2) Resale Sales Volume grade is based on a ratio of sales to the number of households.

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 3

125

130

135

140

145

150Houston, TX

Burns Home Value Index B Resale Sales - 12-Month Totals

55,000

60,000

65,000

70,000

75,000

80,000

85,000

B(2) Resale Estimated Months of Supply A-

Housing Cycle Risk Index™

A+ AA‐ B+ B B‐C+ C C‐ D+ D D‐ F

B+ Employment Growth - YoY

80,000

90,000

100,000

110,000

120,000W&S Growth: 81,100 (3.0%)

B New Home Supply C+(1)

Metric Current Month Ago Change % ChangeBurns Home Value Index 147.3 147.1 0.2 0.1%

Housing Cycle Risk Index B+ A- n/a n/a

Resale Sales (12-Months) 80,999 80,826 173 0.2%

Employment Growth 81,100 82,000 -900 -1.1%

Resale Est. Months of Supply 2.7 2.6 0.1 3.8%

Single Family Permits 34,657 34,507 150 0.4%

Houston, TX

March 2014Key StatsPrice Trend and Cyclical Risk Demand Supply

Arrows indicate change from what was reported last month. Values may have been revised.

Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

(1)

(2) Resale Sales Volume grade is based on a ratio of sales to the number of households.

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 3

Demand

125

130

135

140

145

150Houston, TX

Burns Home Value Index B Resale Sales - 12-Month Totals

55,000

60,000

65,000

70,000

75,000

80,000

85,000

B(2) Resale Estimated Months of Supply A-

Housing Cycle Risk Index™

A+ AA‐ B+ B B‐C+ C C‐ D+ D D‐ F

B+ Employment Growth - YoY

80,000

90,000

100,000

110,000

120,000W&S Growth: 81,100 (3.0%)

B New Home Supply C+(1)

Metric Current Month Ago Change % ChangeBurns Home Value Index 147.3 147.1 0.2 0.1%

Housing Cycle Risk Index B+ A- n/a n/a

Resale Sales (12-Months) 80,999 80,826 173 0.2%

Employment Growth 81,100 82,000 -900 -1.1%

Resale Est. Months of Supply 2.7 2.6 0.1 3.8%

Single Family Permits 34,657 34,507 150 0.4%

Houston, TX

March 2014Key StatsPrice Trend and Cyclical Risk Demand Supply

Arrows indicate change from what was reported last month. Values may have been revised.

Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

(1)

(2) Resale Sales Volume grade is based on a ratio of sales to the number of households.

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 3

125

130

135

140

145

150Houston, TX

Burns Home Value Index B Resale Sales - 12-Month Totals

55,000

60,000

65,000

70,000

75,000

80,000

85,000

B(2) Resale Estimated Months of Supply A-

Housing Cycle Risk Index™

A+ AA‐ B+ B B‐C+ C C‐ D+ D D‐ F

B+ Employment Growth - YoY

80,000

90,000

100,000

110,000

120,000W&S Growth: 81,100 (3.0%)

B New Home Supply C+(1)

Metric Current Month Ago Change % ChangeBurns Home Value Index 147.3 147.1 0.2 0.1%

Housing Cycle Risk Index B+ A- n/a n/a

Resale Sales (12-Months) 80,999 80,826 173 0.2%

Employment Growth 81,100 82,000 -900 -1.1%

Resale Est. Months of Supply 2.7 2.6 0.1 3.8%

Single Family Permits 34,657 34,507 150 0.4%

Houston, TX

March 2014Key StatsPrice Trend and Cyclical Risk Demand Supply

Arrows indicate change from what was reported last month. Values may have been revised.

Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

(1)

(2) Resale Sales Volume grade is based on a ratio of sales to the number of households.

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 3

Supply

125

130

135

140

145

150Houston, TX

Burns Home Value Index B Resale Sales - 12-Month Totals

55,000

60,000

65,000

70,000

75,000

80,000

85,000

B(2) Resale Estimated Months of Supply A-

Housing Cycle Risk Index™

A+ AA‐ B+ B B‐C+ C C‐ D+ D D‐ F

B+ Employment Growth - YoY

80,000

90,000

100,000

110,000

120,000W&S Growth: 81,100 (3.0%)

B New Home Supply C+(1)

Metric Current Month Ago Change % ChangeBurns Home Value Index 147.3 147.1 0.2 0.1%

Housing Cycle Risk Index B+ A- n/a n/a

Resale Sales (12-Months) 80,999 80,826 173 0.2%

Employment Growth 81,100 82,000 -900 -1.1%

Resale Est. Months of Supply 2.7 2.6 0.1 3.8%

Single Family Permits 34,657 34,507 150 0.4%

Houston, TX

March 2014Key StatsPrice Trend and Cyclical Risk Demand Supply

Arrows indicate change from what was reported last month. Values may have been revised.

Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

(1)

(2) Resale Sales Volume grade is based on a ratio of sales to the number of households.

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 3

125

130

135

140

145

150Houston, TX

Burns Home Value Index B Resale Sales - 12-Month Totals

55,000

60,000

65,000

70,000

75,000

80,000

85,000

B(2) Resale Estimated Months of Supply A-

Housing Cycle Risk Index™

A+ AA‐ B+ B B‐C+ C C‐ D+ D D‐ F

B+ Employment Growth - YoY

80,000

90,000

100,000

110,000

120,000W&S Growth: 81,100 (3.0%)

B New Home Supply C+(1)

Metric Current Month Ago Change % ChangeBurns Home Value Index 147.3 147.1 0.2 0.1%

Housing Cycle Risk Index B+ A- n/a n/a

Resale Sales (12-Months) 80,999 80,826 173 0.2%

Employment Growth 81,100 82,000 -900 -1.1%

Resale Est. Months of Supply 2.7 2.6 0.1 3.8%

Single Family Permits 34,657 34,507 150 0.4%

Houston, TX

March 2014Key StatsPrice Trend and Cyclical Risk Demand Supply

Arrows indicate change from what was reported last month. Values may have been revised.

Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

(1)

(2) Resale Sales Volume grade is based on a ratio of sales to the number of households.

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 3

1. Historically low permits are considered an ‘A’ because supply levels are low, which is a positive characteristic for a market.

2. Resale Sales Volume grade is based on a ratio of sales to the number of households.

Arrows indicate change from what was reported last month. Values may have been revised

Houston, Texas March 2014

7

Price Trend and Affordability

-2%

0%

2%

4%

6%

8%

10%Houston, TX

Burns Home Value Index YoY Growth %

Current YoY Change: 7.5%

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P7.0% 5.0% 3.9% 2.0% -1.0%

Annual Resale Home Sales

20,000

40,000

60,000

80,000

100,000

Current YoY Change: 16.4%

2014P 2015P 2016P 2017P 2018P1.7% 2.7% 1.1% -3.6% -2.6%

Employment Growth to Permit Ratio (E/P)

-5.0

-3.0

-1.0

1.0

3.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Cur

rent

2014

P20

15P

2016

P20

17P

2018

P

Chart scale cropped at -5 to better illustrate the variations between years

Current E/P Ratio: 1.55

2014P 2015P 2016P 2017P 2018P1.7 1.6 1.6 1.0 0.7

Employment Growth - YoY

-100,000

-50,000

0

50,000

100,000

150,000

Current YoY Change: 3%

2014P 2015P 2016P 2017P 2018P3.3% 3.1% 3.3% 1.8% 1.1%

New Home Supply

Current YoY Change: 17.9%

2014P 2015P 2016P 2017P 2018P13.0% 12.8% 13.6% -10.0% -11.1%

Houston, TX

March 2014Key ForecastsPrice Trend and Affordability Demand Supply

Burns Affordability Index

0.0

2.0

4.0

6.0

8.0

10.0Overpriced Market

Underpriced Market

Current BAI: 3.7

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P5.2 5.4 5.7 5.8 5.8

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 4

-2%

0%

2%

4%

6%

8%

10%Houston, TX

Burns Home Value Index YoY Growth %

Current YoY Change: 7.5%

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P7.0% 5.0% 3.9% 2.0% -1.0%

Annual Resale Home Sales

20,000

40,000

60,000

80,000

100,000

Current YoY Change: 16.4%

2014P 2015P 2016P 2017P 2018P1.7% 2.7% 1.1% -3.6% -2.6%

Employment Growth to Permit Ratio (E/P)

-5.0

-3.0

-1.0

1.0

3.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Cur

rent

2014

P20

15P

2016

P20

17P

2018

P

Chart scale cropped at -5 to better illustrate the variations between years

Current E/P Ratio: 1.55

2014P 2015P 2016P 2017P 2018P1.7 1.6 1.6 1.0 0.7

Employment Growth - YoY

-100,000

-50,000

0

50,000

100,000

150,000

Current YoY Change: 3%

2014P 2015P 2016P 2017P 2018P3.3% 3.1% 3.3% 1.8% 1.1%

New Home Supply

Current YoY Change: 17.9%

2014P 2015P 2016P 2017P 2018P13.0% 12.8% 13.6% -10.0% -11.1%

Houston, TX

March 2014Key ForecastsPrice Trend and Affordability Demand Supply

Burns Affordability Index

0.0

2.0

4.0

6.0

8.0

10.0Overpriced Market

Underpriced Market

Current BAI: 3.7

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P5.2 5.4 5.7 5.8 5.8

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 4

Key Forecasts

Demand

-2%

0%

2%

4%

6%

8%

10%Houston, TX

Burns Home Value Index YoY Growth %

Current YoY Change: 7.5%

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P7.0% 5.0% 3.9% 2.0% -1.0%

Annual Resale Home Sales

20,000

40,000

60,000

80,000

100,000

Current YoY Change: 16.4%

2014P 2015P 2016P 2017P 2018P1.7% 2.7% 1.1% -3.6% -2.6%

Employment Growth to Permit Ratio (E/P)

-5.0

-3.0

-1.0

1.0

3.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Cur

rent

2014

P20

15P

2016

P20

17P

2018

P

Chart scale cropped at -5 to better illustrate the variations between years

Current E/P Ratio: 1.55

2014P 2015P 2016P 2017P 2018P1.7 1.6 1.6 1.0 0.7

Employment Growth - YoY

-100,000

-50,000

0

50,000

100,000

150,000

Current YoY Change: 3%

2014P 2015P 2016P 2017P 2018P3.3% 3.1% 3.3% 1.8% 1.1%

New Home Supply

Current YoY Change: 17.9%

2014P 2015P 2016P 2017P 2018P13.0% 12.8% 13.6% -10.0% -11.1%

Houston, TX

March 2014Key ForecastsPrice Trend and Affordability Demand Supply

Burns Affordability Index

0.0

2.0

4.0

6.0

8.0

10.0Overpriced Market

Underpriced Market

Current BAI: 3.7

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P5.2 5.4 5.7 5.8 5.8

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 4

-2%

0%

2%

4%

6%

8%

10%Houston, TX

Burns Home Value Index YoY Growth %

Current YoY Change: 7.5%

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P7.0% 5.0% 3.9% 2.0% -1.0%

Annual Resale Home Sales

20,000

40,000

60,000

80,000

100,000

Current YoY Change: 16.4%

2014P 2015P 2016P 2017P 2018P1.7% 2.7% 1.1% -3.6% -2.6%

Employment Growth to Permit Ratio (E/P)

-5.0

-3.0

-1.0

1.0

3.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Cur

rent

2014

P20

15P

2016

P20

17P

2018

P

Chart scale cropped at -5 to better illustrate the variations between years

Current E/P Ratio: 1.55

2014P 2015P 2016P 2017P 2018P1.7 1.6 1.6 1.0 0.7

Employment Growth - YoY

-100,000

-50,000

0

50,000

100,000

150,000

Current YoY Change: 3%

2014P 2015P 2016P 2017P 2018P3.3% 3.1% 3.3% 1.8% 1.1%

New Home Supply

Current YoY Change: 17.9%

2014P 2015P 2016P 2017P 2018P13.0% 12.8% 13.6% -10.0% -11.1%

Houston, TX

March 2014Key ForecastsPrice Trend and Affordability Demand Supply

Burns Affordability Index

0.0

2.0

4.0

6.0

8.0

10.0Overpriced Market

Underpriced Market

Current BAI: 3.7

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P5.2 5.4 5.7 5.8 5.8

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 4

Supply

-2%

0%

2%

4%

6%

8%

10%Houston, TX

Burns Home Value Index YoY Growth %

Current YoY Change: 7.5%

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P7.0% 5.0% 3.9% 2.0% -1.0%

Annual Resale Home Sales

20,000

40,000

60,000

80,000

100,000

Current YoY Change: 16.4%

2014P 2015P 2016P 2017P 2018P1.7% 2.7% 1.1% -3.6% -2.6%

Employment Growth to Permit Ratio (E/P)

-5.0

-3.0

-1.0

1.0

3.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Cur

rent

2014

P20

15P

2016

P20

17P

2018

P

Chart scale cropped at -5 to better illustrate the variations between years

Current E/P Ratio: 1.55

2014P 2015P 2016P 2017P 2018P1.7 1.6 1.6 1.0 0.7

Employment Growth - YoY

-100,000

-50,000

0

50,000

100,000

150,000

Current YoY Change: 3%

2014P 2015P 2016P 2017P 2018P3.3% 3.1% 3.3% 1.8% 1.1%

New Home Supply

Current YoY Change: 17.9%

2014P 2015P 2016P 2017P 2018P13.0% 12.8% 13.6% -10.0% -11.1%

Houston, TX

March 2014Key ForecastsPrice Trend and Affordability Demand Supply

Burns Affordability Index

0.0

2.0

4.0

6.0

8.0

10.0Overpriced Market

Underpriced Market

Current BAI: 3.7

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P5.2 5.4 5.7 5.8 5.8

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 4

-2%

0%

2%

4%

6%

8%

10%Houston, TX

Burns Home Value Index YoY Growth %

Current YoY Change: 7.5%

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P7.0% 5.0% 3.9% 2.0% -1.0%

Annual Resale Home Sales

20,000

40,000

60,000

80,000

100,000

Current YoY Change: 16.4%

2014P 2015P 2016P 2017P 2018P1.7% 2.7% 1.1% -3.6% -2.6%

Employment Growth to Permit Ratio (E/P)

-5.0

-3.0

-1.0

1.0

3.0

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Cur

rent

2014

P20

15P

2016

P20

17P

2018

P

Chart scale cropped at -5 to better illustrate the variations between years

Current E/P Ratio: 1.55

2014P 2015P 2016P 2017P 2018P1.7 1.6 1.6 1.0 0.7

Employment Growth - YoY

-100,000

-50,000

0

50,000

100,000

150,000

Current YoY Change: 3%

2014P 2015P 2016P 2017P 2018P3.3% 3.1% 3.3% 1.8% 1.1%

New Home Supply

Current YoY Change: 17.9%

2014P 2015P 2016P 2017P 2018P13.0% 12.8% 13.6% -10.0% -11.1%

Houston, TX

March 2014Key ForecastsPrice Trend and Affordability Demand Supply

Burns Affordability Index

0.0

2.0

4.0

6.0

8.0

10.0Overpriced Market

Underpriced Market

Current BAI: 3.7

Dec-14P Dec-15P Dec-16P Dec-17P Dec-18P5.2 5.4 5.7 5.8 5.8

www.realestateconsulting.comActual results will vary from projections and the variation can be significant. We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014 Market Data Page 4Actual results will vary from projections and the variation can be significant.

We assume no liability for the use of any of the data or projections in this report. Projections as of: Mar. 2014

Houston, Texas March 2014

8

Consulting Studies

CONSULTING SERVICES > Strategic direction & planning > Home builder operations &

assessment > Demand analysis > Consumer research & focus groups > Economic analysis & forecasting > Litigation support & expert witness > Financial modeling > Project & product positioning

PROPRIETARY INDICESHousing Cycle Risk Index™: Our index of housing demand, supply and affordability fundamentals has foretold home price appreciation and depreciation by 1-3 years.

Burns Home Value Index™: Our home price index is 5 months more current than Case-Shiller and helped investors make decisions months ahead of the price increases that happened mid-year 2012.

Burns Finished Lot Value Index™: Our land value index helps investors understand home builder market value in relation to book value.

Burns Affordability Index™: Our index is the only measure that allows you to compare affordability across geographies over time.

RESEARCH SERVICES > Home builder, regional, metro

market, apartment, and building product manufacturer analysis & forecast

> Exclusive client events > Public builder call summaries > Weekly insight > Presentations & webinars > Consumer research > Proprietary surveys

We are a leading US real estate research firm offering published research, custom consulting, and advisory services with a laser-sharp focus on the housing industry. We provide clarity and direction in the age of information overload to help our clients make better decisions in their business pursuits.

Our team of more than 45 experienced housing analysts is heavily networked with builders, developers, and investors and is generating new relationships across the country everyday.

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Housing Cycle Risk Index™

9

• Delayed lot deliveries slowed builders’ sales. The spike in demand for finished lots in late 2012 and early 2013 left developers scrambling to deliver. Bottlenecks emerged in planning and approval processes, as engineers and jurisdiction offices were overwhelmed and labor shortages slowed site work. Some local developers still lack development financing, which slowed their progress. Without enough lots to build on, builders’ sales declined. Brambleton in Washington, DC and The Woodlands in Houston both report lower 2013 home sales, yet demand remains strong.

• Builders intentionally limited sales and raised prices in the first half of 2013. Many California, Southwest, Florida, and Texas builders were restricting sales and bumping prices regularly in the first half of 2013. In some cases, the builders were rationing lots they couldn’t replace.

• New home sales cooled in the second half of 2013. Our proprietary builder survey has revealed slowing sales and weaker pricing beyond seasonal expectations since September. The impact of the government shutdown in October was especially significant in the Northeast corridor from Baltimore to Virginia Beach. However, no region was immune to the pause in the housing market as buyers assessed the impacts of higher rates and home prices.

Many new master-planned communities join our top 50 ranking. Each of the master-planned communities in the top ten have been in our ranking before; however, over 20% of our top 50 communities are new to the ranking this year. We expect that some of these new communities will rise in the ranking as they gain momentum and older communities reach completion. Next year’s master-planned community ranking will surely bring a new round of conclusions and perhaps some surprises.

Tracking builder activity can yield timely insights. We identified a small but growing trend of MPC developers who do not track the builders’ activity in their community. As the housing recovery progresses, developers who are not tracking builders’ sales and inventory will not have a good read on when to develop more lots. In addition, these developers are more likely to miss the early signs of weakening home prices when sales slow and inventory rises.

The top 50 master-planned communities (MPCs) in the country accounted for 5.4% of 2013 new home sales. There were 23,463 new home sales in the top 50 master-planned communities in the country in 2013—a 12% increase over 2012.

To complete this analysis we connected with developer representatives at more than 100 master-planned communities nationwide.

Everything is bigger in Texas, including its master-planned communities, and 2013 was no exception. This year’s list of top 50 masterplans included 17 from the state of Texas (one-third of all entries) and 13 from Houston alone. There were nine Florida masterplans in the top 50 in 2013, seven California communities, four Phoenix communities, and four Washington, DC masterplans. And while Las Vegas was represented by just three masterplans, all of them were in the nation’s top 20.

• Newland Communities has five of the nation’s top 50 in 2013, the most of any individual developer. The San Diego-based developer’s masterplans were located in four different metro areas, easily making them the most geographically diversified developer in the country. Houston-based Johnson Development was represented by four masterplans in the top 50, and Sunrise, FL-based GL Homes and Shea Homes in Walnut, CA both had three.

Waning lot supplies and development delays contributed to lower sales in some communities. 2013 sales were lower than 2012 volume in 13 of the top 50 master-planned communities, or 26% of the communities. Reduced sales were most common in Houston, Phoenix, Las Vegas, and Washington, DC, while most Florida and Southern California MPCs enjoyed increased sales. Our conversations with the community developers revealed several factors that slowed new home sales:

• Some communities are winding down. Examples of former “hot” master-planned communities that are nearly out of lots include Telfair on Houston’s southwest side, Otay Ranch on San Diego’s south side, and Power Ranch in Phoenix. New home sales declined by 62-75% in these communities in 2013, and they no longer appear in our top 50 ranking. Several Northern California communities similarly dropped from the top 50 this year.

Capture Rate For Top Master-Planned Communities of 20135% KEN PERLMAN, Senior Vice President

JODY KAHN, Senior Vice President

Detailed rankings can be found on the next page.

10

21 32t

22 N/A

23 26

24 50t

25 34

1 1

2 2

3 4

4 5

5 10t

6 7

7 6

8 3

9 8

10 13

11 10t

12 14

13 28

14 16

15 N/A

16 24

17 18

18 N/A

19 15

20 31

3,419 2,851

1,444 1,434

854 982

841 948

838 508

791 605

726 760

649 1,007

618 573

600 500

570 508

566 471

509 301

475 441

464 304

457 308

445 387

378 190

373 466

372 282

20%

1%

-13%

-11%

65%

31%

-4%

-36%

8%

20%

12%

20%

69%

8%

53%

48%

15%

99%

-20%

32%

THE VILLAGES The Villages, FL (Central FL)

THE IRVINE RANCH1 Orange County, CA

CINCO RANCH Katy, TX (Houston)

MOUNTAIN'S EDGE Las Vegas, NV

NOCATEE Ponte Vedra, FL (Jacksonville)

RIVERSTONE Houston, TX

PROVIDENCE Las Vegas, NV

THE WOODLANDS Houston, TX

LAKEWOOD RANCH Sarasota, FL

ALAMO RANCH2 San Antonio, TX

STAPLETON Denver, CO

SUMMERLIN Las Vegas, NV

CROSS CREEK RANCH Houston, TX

LAKE NONA Orlando, FL

ALIANA Houston, TX

WOODFOREST Montgomery, TX (Houston)

SIENNA PLANTATION Houston, TX

CANYON LAKES WEST Cypress, TX (Houston)

BRAMBLETON Ashburn, VA (Washington)

VALENCIA Los Angeles, CA

Villages of Lake Sumter, LLC

The Irvine Company

Newland Communities

Focus Property Group

The PARC Group

Johnson Development Corp.

Focus Property Group

The Woodlands Development Company

Schroeder-Manatee Ranch, Inc.

Galo Properties

Forest City

The Howard Hughes Corporation

Johnson Development Corp.

Tavistock Group

Aliana Development Company

Johnson Development Corp.

Johnson Development Corp.

Land Tejas Companies

Soave Enterprises

FivePoint Communities

2013

20132012

Rank Increased 1Irvine includes Cypress Village, Portola Springs, Stonegate, Woodbury & Laguna Altura

Rank Declined2Estimate

2012

Project Name & Location

Rankings Developer Net Sales YOY%∆

TopMaster-Planned Communities of 2013

50

FIRETHORNE Houston, TX

RANCHO MISSION VIEJO San Juan Capistrano, CA

DAYBREAK Salt Lake City, UT

CANE BAY PLANTATION Charleston, SC

EAGLE SPRINGS Humble, TX (Houston)

JDC/Firethorne

Rancho Mission Viejo, LLC

Kennecott Land

Gramling Brothers Real Estate & Dev.

Newland Communities

361 280

360 0

353 304

341 214

321 277

29%

N/A

16%

59%

16%

11

20%

1%

-13%

-11%

65%

31%

-4%

-36%

8%

20%

12%

20%

69%

8%

53%

48%

15%

99%

-20%

32%

YOY%∆

29%

N/A

16%

59%

16%

26 47

27 N/A

28t 29t

28t 19t

30 22

31 29t

32 37

33 19t

34 N/A

35 48

36 N/A

37 40

38 N/A

39 39

40 N/A

41t 35t

41t 41

43t 42

43t N/A

45 35

2013

20132012 2012

Project Name & Location

46t N/A

46t N/A

48 38

49 N/A

50 12

Rankings Developer Net Sales YOY%∆

SOURCE: John Burns Real Estate Consulting, LLC, January 2014

WESTHEIMER LAKES Katy, TX (Houston)

RIVERSTONE Naples, FL

THE BRIDGES Delray Beach, FL (West Palm)

OAKHURST AT KINGSWOOD Houston, TX

HIGHLANDS RANCH2 Denver, CO

Land Tejas Companies

GL Homes

GL Homes

Friendswood Development

Shea Homes

230 159

230 188

225 245

224 221

220 507

45%

22%

-8%

1%

-57%

CANYON HILLS Lake Elsinore, CA (Riverside)

CRYSTAL FALLS Leander, TX (Austin)

VALENCIA RESERVE Palm Beach, FL

SHADOW CREEK RANCH Houston, TX

MOUNTAIN HOUSE Tracy, CA (Central Valley)

VISTANCIA Phoenix, AZ

THE MEADOWS Castle Rock, CO (Denver)

FISHHAWK RANCH Lithia, FL (Tampa)

STONE RIDGE Aldie, VA (Washington, DC)

ESTRELLA Goodyear, AZ (Phoenix)

DURBIN CROSSING2 Jacksonville, FL

TERAVISTA Round Rock, TX (Austin)

PAVILION PARK AT GREAT PARK Irvine, CA

HASTINGS FARMS Queens Creek, AZ (Phoenix)

ONE LOUDOUN Ashburn, VA (Washington, DC)

ST. CHARLES St. Charles, MD (Washington, DC)

VERRADO Buckeye, AZ (Phoenix)

HERITAGE WAKE FOREST Wake Forest, NC (Raleigh)

WESTRIDGE Dallas, TX

ROSEDALE Azusa, CA (Los Angeles)

Pardee Homes

The Lookout Development Group

GL Homes

Shadow Creek Ranch Development

Shea Homes

Sunbelt/Shea Homes

Castle Rock Development Company

Newland Communities

Van Metre Homes

Newland Communities

Durbin Crossing LLC/Durbin Crossing N. LLC

Newland Communities

Five Point Communities

William Lyon Homes

Miller & Smith/North American Seksui House, LLC

St. Charles Companies

DMB

Ammons Development Group

D.R. Horton

Brookfield/CDG/Starwood Capital

308 223

305 176

299 292

299 362

290 333

266 292

263 250

256 362

254 171

252 222

250 212

249 238

245 0

244 242

243 75

241 271

241 233

235 232

235 197

234 271

38%

73%

2%

-17%

-13%

-9%

5%

-29%

49%

14%

18%

5%

N/A

1%

224%

-11%

3%

1%

19%

-14%

TOTAL 23,463 20,875 12%

12

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DIR: (561) 998-5814

SAN DIEGO, CA4250 Executive Square | Suite 540La Jolla, California 92037

DIR: (858) 558-8384

WASHINGTON, DC11710 Plaza America Drive | Suite 2000Reston, Virginia 20190

DIR: (703) 447-7171

SACRAMENTO, CA7840 Madison Avenue | 187Fair Oaks, California 95628

DIR: (949) 870-1200

NEW ENGLAND155 Fleet Street | Suite 11Portsmouth, New Hampshire 03801

DIR: (603) 235-5760

DALLAS, TX5220 Spring Valley Road | Suite 215Dallas, Texas 75254

DIR: (214) 389-9003

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