National Housing OverviewNational Housing Overview•• July 2008July 2008

Greg DoyleGreg DoyleRegional Director Regional Director

HANLEY WOOD MARKET INTELLIGENCEHANLEY WOOD MARKET INTELLIGENCE

gdoyle@hanleywood.com gdoyle@hanleywood.com

626 831 8923626 831 8923626.831.8923626.831.8923

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What things feel like today…What things feel like today…What things feel like today…What things feel like today…

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Hanley Wood Market IntelligenceHanley Wood Market Intelligence

O f th l t l t t i f ti fiOne of the largest real estate information firms and data providers in the industry Tracks residential construction in 67 Core Base Statistical Areas (CBSA’s)Statistical Areas (CBSA’s)Publish Research in 75 of the Top Markets in the country.P id d t il d t d h i d k tProvides detailed trend, housing, and market performance data on over 35,000 subdivisions, representing over 4.4 million unitsOff t t i d t f b ildOffers a strategic advantage for builders, developers, financial institutions, manufacturers, commercial/retail developers, Real Estate related service organizationsrelated service organizations.

Credit and Financial Picture Credit and Financial Picture -- Loose Loose Underwriting Stoked Housing SalesUnderwriting Stoked Housing SalesUnderwriting Stoked Housing SalesUnderwriting Stoked Housing Sales

40%45%50%

25%30%35%40%

2001

10%15%20%25%

Peak

0%5%

10%

Subprime Alt-A IO-Neg Am No-LowDocumentation

Piggyback LoanInvestor ShareDocumentation

Source: Loan Performance, Zelman & Associates

New Forms Of Lending Sprang Up, Fueled the New Forms Of Lending Sprang Up, Fueled the Boom, and Then Quickly Subsided When Boom, and Then Quickly Subsided When

22 22

Performance Eroded BadlyPerformance Eroded Badly

14161820

14161820

68

1012

68

1012

024

2003 2004 2005 2006 2007 Q40246

2003 2004 2005 2006 2007 Q42003 2004 2005 2006 2007 Q42007

Interest Only Payment Option

2003 2004 2005 2006 2007 Q42007

SubprimeNotes: Shares of interest-only and payment-option loans are based on the number of originations of

i d b i l Sh f b i l f th d ll l f ll i i tiprime and subprime loans. Shares of subprime loans are of the dollar volume of all originations.

Sources: Joint Center For Housing Studies – Harvard University, First American CoreLogic, LoanPerformance data; Inside Mortgage Finance, 2008 Mortgage Market Statistical Annual, adjusted for inflation by the CPI-U for All Items.

3030--Year Mortgage Rates Have DroppedYear Mortgage Rates Have Dropped3030 Year Mortgage Rates Have DroppedYear Mortgage Rates Have Dropped

7.0%

6.5%

6.0%

5.5%

5.0%

Jan-05

Mar-05

May-05

Jul-0

5Sep

-05Nov-0

5Ja

n-06Mar-

06May

-06Ju

l-06

Sep-06

Nov-06

Jan-07

Mar-07

May-07

Jul-0

7Sep

-07Nov-0

7Ja

n-08Mar-

08May

-08

Source: Freddie Mac Primary Mortgage Market Survey

Fast Eroding Loan Performance Has Caused Fast Eroding Loan Performance Has Caused Major Mortgage Credit Pull BackMajor Mortgage Credit Pull Back

30 30All Subprime Loans60+ Day Delinquency Rates (Percent)

Adjustable-Rate Subprime Loans

15

20

25

20

25

5

10

15

5

10

15

0

2003

:1

2004

:1

2005

:1

2006

:1

2007

:1 0

5

6 Months 12 Months 18 Months

2 2 2 2 2

Interest-Only and Payment-Option LoansFixed LoansAdjustable Loans

2002 2003 20042005 2006 2007

Year of Origination:

Notes: Delinquency rates are the share of loans serviced that are at least 60 days past due. Delinquency rates on interest-only and payment-option products are averages of monthly data.

Source: Joint Center For Housing Studies – Harvard University, First American CoreLogic, LoanPerformance data; Mortgage Bankers Association, National Delinquency Survey.

Now Mortgage Loan Standards Have TightenedNow Mortgage Loan Standards Have Tightenedt U d t d L lt U d t d L l

(Net percent of lenders tightening standards for mortgages to individuals)

to Unprecedented Levelsto Unprecedented Levels

6070

2008:Q1 = 65.88

304050

01020

-20-10

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices

2007Q2 - 2007Q4 are Global Insight calculations

Housing Starts Housing Starts ggDisconnect from Job GrowthDisconnect from Job Growth

2500 7%Starts Increased

2000

2500

4%

5%

6%

7%Starts Increased

1000

1500

0%

1%2%

3%

500

-3%

-2%

-1%

0%

While Jobs DroppedWhile Jobs Dropped0 -4%

Total Housing Starts, SAAR, 000s (left axis) Non-Farm Employment Y-O-Y Change (right axis)

pppp

19651959 1975 1985 1995 2001 2005 2007 2008

Sources: U.S. Census Bureau, Bureau of Labor Statistics

Job Growth Weakens in Recent QuartersJob Growth Weakens in Recent QuartersJob Growth Weakens in Recent QuartersJob Growth Weakens in Recent Quarters

1Q08 = 0 35%1Q08 = 0 35%4%

1Q08 0.35%1Q08 0.35%Y-O-Y non-farm employment not seasonally adjusted

2%

0%

1 6% 1 5%-2%

90Q1

90Q4

91Q3

92Q2

93Q1

93Q4

94Q3

95Q2

96Q1

96Q4

97Q3

98Q2

99Q1

99Q4

00Q3

01Q2

02Q1

02Q4

03Q3

04Q2

05Q1

05Q4

06Q3

07Q2

08Q1

-1.6% -1.5%

Source: Hanley Wood Market Intelligence

Foreclosures Hit New HighsForeclosures Hit New Highs

(Percent of all home mortgage loans entering foreclosure)

Foreclosures Hit New HighsForeclosures Hit New Highs

1.2

( g g g )

2008:Q1 = Nearly 1 %

0.8

1.0

0.4

0.6

0.0

0.2

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Source: Mortgage Bankers Association

Consumer Confidence Dropped Consumer Confidence Dropped ppppWell Before New Home Sales CrestedWell Before New Home Sales Crested

CONSUMER ATTITUDES TOWARD HOME BUYING PEAK TWO YEARS BEFORE SALES DO

1,400 90%

PEAK TWO YEARS BEFORE SALES DO….

Confidence Peak Sales Peak

1,200

70%

80%

1,00060%

70%

800 50%

20012000 2002 2003 2005 2006 20072004 2008

New Home Sales, SAAR in 000s% of Consumers Who Think It's A Good Time To Buy

Sources: U.S. Census Bureau, University of Michigan / Reuters

New Home Sales Rose New Home Sales Rose Even As Affordability TankedEven As Affordability Tanked

…AS DOES AFFORDABILITY…

1,400

1,600

55%

60%Affordability Peak Sales Peak

1,000

1,200

45%

50%

600

800

35%

40%

20001999 2001 2002 2005 2006 20072003 2004 2008

New Home Sales, SAAR in 000s% Who Can Afford Median Priced Home

Sources: U.S. Census Bureau, University of Michigan / Reuters

New Home Inventory New Home Inventory yyHas PeakedHas Peaked

600

700

8

9

400

500

6

7

401 Total Inv. Hist. Avg.

200

300

4

5

5.1 Mos. Supply Hi t i l A

100 3

T l I A l i 000 (l f i )

Historical Avg.

20001999 2001 2002 2005 2006 20072003 2004 2008

Total Inventory, Actual in 000s (left axis)Months Supply, SAAR (right axis)

Source: U.S. Census Bureau

New Home Sales Have Yet to Find New Home Sales Have Yet to Find BottomBottomBottomBottom

GROSS SALES NET SALESYEAR-TO-DATE GROSS SALES NET SALES

2008 2007 CHANGE 2008 2007 CHANGE

Fresno, CA 1389 2106 -34.0% 1103 1665 -33.8%

Philadelphia Region 1323 2420 45 3% 1300 2327 44 1%

YEAR TO DATE MAY 2008

Philadelphia Region 1323 2420 -45.3% 1300 2327 -44.1%

Orange County, CA 583 1206 -51.7% 496 1044 -52.5%

Los Angeles – Ventura, CA 1465 3031 -51.7% 1210 2682 -54.9%

Sacramento 1622 3088 -47.5% 1348 2667 -49.5%

Central New Jersey 586 769 -23.8% 573 748 -23.4%

Seattle 2455 4372 -43 8% 2128 4229 -49 7%Seattle 2455 4372 -43.8% 2128 4229 -49.7%

Baltimore 977 1602 -39.0% 708 1391 -49.1%

Reno 753 1174 -35.9% 656 1010 -35.0%

Chicago 4003 10162 -60.6% 3708 9565 -61.2%

Source: Hanley Wood Market Intelligence

N H S l H Y t t Fi d B ttN H S l H Y t t Fi d B ttNew Home Sales Have Yet to Find BottomNew Home Sales Have Yet to Find Bottom

GROSS SALES NET SALESYEAR-TO-DATE2008 2007 CHANGE 2008 2007 CHANGE

Washington, DC 3069 5703 -46.2% 2333 4740 -50.8%

Denver 2345 4036 -41 9% 1828 3264 -44 0%

YEAR TO DATE MAY 2008

Denver 2345 4036 -41.9% 1828 3264 -44.0%

Tucson, AZ 1099 1817 -39.5% 756 1301 -41.9%

San Diego 878 2324 -62.2% 813 2077 -60.9%

Dallas-Fort Worth, TX 5201 9409 -44.7% 4697 8455 -44.4%

Colorado Springs, CO 719 958 -24.9% 599 807 -25.8%

Las Vegas, NV 3632 7137 -49.1% 2492 5360 -53.5%g ,

Phoenix 7524 14671 -48.7% 5234 10861 -51.8%

Central Valley, CA 850 1840 -53.8% 719 1506 -52.3%

Riverside-San B. 3047 5916 -48.5% 2232 5112 -56.3%

Source: Hanley Wood Market Intelligence

Existing SingleExisting Single--Family Home Inventory Family Home Inventory g gg g y yy yRemains Too HighRemains Too High

MonthsThousands

4200

4700

11121314

Months Supply At Current Sales Rate (right axis)

3200

3700

78910Historical Average: 6.1

2200

2700

34567

1200

1700

0123

Homes for Sale at End of Month (left axis)Historical Average: 2,167

1990 1992 19961994 1998 2000 20042002 2006 2008

Source: National Association of Realtors

19911990 1992

19931996

1997 20071994

1995 19991998 2000

20012004

20052002

20032006 2008

In The Most Glutted Markets, Surpluses Of Vacant ForIn The Most Glutted Markets, Surpluses Of Vacant For--sale Homes Exceed Two Percent Of The Owner Stocksale Homes Exceed Two Percent Of The Owner Stock

Vacant-For-Sale Units as a Share of Owner Stock

No Excess

Notes: Methodology is adapted from Freddie Mac. Oversupply is the difference between the t t ifi h t i 1999 2001 d th t i 2007 Th

0% to 1%

1% to 2%

2% to 3%

average state-specific homeowner vacancy rate in 1999-2001 and the rate in 2007. The oversupply in Alaska was 1.1% and in Hawaii 0.5%.

Sources: Joint Center For Housing Studies – Harvard University, US Census Bureau, Housing Vacancy Survey and 2006 American Community Survey.

Standing Inventory Retreats In Some Standing Inventory Retreats In Some MarketsMarketsMarketsMarkets

NEW HOME STANDING INVENTORY, ATTACHED AND DETACHED, Y-T-D % CHANGE IN MARCH 2008 OVER PREVIOUS YEARY T D % CHANGE IN MARCH 2008 OVER PREVIOUS YEAR

MARKET TOTAL STANDING INVENTORY % CHANGE FROM SAME PERIOD PREVIOUS YEAR

San Diego, CA 1463 -17.3%Baltimore MD 396 -16.6%Baltimore, MD 396 %

Washington, D.C. 1977 -32.7%Dallas-Fort Worth, TX 3220 -14.8%

Denver, CO 2405 26.9%Phoenix, AZ 5988 86.3%oe ,

Sacramento, CA 904 170.7%Riverside-San Bernardino, CA 2275 42.0%

Orange County, CA 286 -14.6%Las Vegas, NV 2373 1.7%g

Seattle, WA 2557 205.9%Central Valley, CA 432 -39.8%

Philadelphia Region 1498 232.9%LA-Ventura, CA 2882 270.0%

Source: Hanley Wood Market Intelligence

San Francisco – Bay Area, CA 2466 122.2%Chicago, IL 7094 45.9%

A phased look at how many Builders A phased look at how many Builders are dealing with the downturnare dealing with the downturn

Ph 1 dd St di I t

are dealing with the downturn…are dealing with the downturn…

Phase 1 – address Standing Inventory – Stop production of new homes– Work hard to sell off existing Standing Inventory

Hi h t l l f fi i l– Highest level of financial exposure– Some having success– Other still in middle of this effort

Phase 2 Builder Canceled Projects Sales HaltedPhase 2 - Builder Canceled Projects – Sales Halted– Projects are either cancelled or sales halted– Bankruptcy (some Chapter 11) some closing for good

Time to re group re think re plan– Time to re-group, re-think, re-planPhase 3 – Sell remaining lots or re-tool

– Builders that haven’t closed doors are either: • putting remaining project on the market and looking to sell to private• putting remaining project on the market and looking to sell to private

money/investors or other Builders• Working to amend their general plan, increase density, and make necessary

changes to enhance marketability of their product mix

Past Housing Cycles Past Housing Cycles –– What do we learn? What do we learn? D hi i lf?D hi i lf?Does history repeat itself?Does history repeat itself?

Housing starts, thousands

2500

3000Housing starts, thousands

1000

1500

2000

Housing Starts

0

500

1000

Recessions

May

-59

Feb-

61N

ov-6

2A

ug-6

4M

ay-6

6Fe

b-68

Nov

-69

Aug

-71

May

-73

Feb-

75N

ov-7

6A

ug-7

8M

ay-8

0Fe

b-82

Nov

-83

Aug

-85

May

-87

Feb-

89N

ov-9

0A

ug-9

2M

ay-9

4Fe

b-96

Nov

-97

Aug

-99

May

-01

Feb-

03N

ov-0

4A

ug-0

6M

ay-0

8

Recessions Total Housing Starts

Sources: Joint Center For Housing Studies – Harvard University , NBER, US Census Bureau

Once Recession Ends, Snap Back is Once Recession Ends, Snap Back is Strong and QuickStrong and Quick

Growth in Total Housing Starts Relative to Level in Last Quarter of Recession(%)

Strong and QuickStrong and Quick

30%

35%

Growth in Total Housing Starts Relative to Level in Last Quarter of Recession(%)

15%

20%

25%

5%

10%

15%

0% Apr 1960 Dec 1969 Nov 1963 Jan 1980 Jul 1981 Jul 1990 Mar 2001

Recessions

One Quarter Out of RecessionOne Quarter Out of Recession

Two Quarters Out of Recession

Sources: US Census Bureau; NBER

A few predictions from strong A few predictions from strong sourcessources

N ti l A i ti f H B ild (NAHB)

sources…sources…

National Association of Home Builders (NAHB) – Housing Starts bottom out – Q408 – 875,000 units– Flat through Q209

Sl l li bi t 950 000 it i Q309– Slowly climbing to 950,000 units in Q309– 1,000,000 starts by end of Q409

/ SMay/June 2008 Hanley Wood Survey– 1,200 nationwide builders, remodelers, concrete contractors,

architects and dealers75 percent believe the recovery will begin by next summer ‘09– 75 percent believe the recovery will begin by next summer 09 (remodelers and architects, both residential and commercial, are the most optimistic; big builders are the least optimistic).

– 90 percent of those optimists expect any growth in the market to be h b " li l " d " d "somewhere between "a little" and "moderate."

A few predictions from strong A few predictions from strong sourcessources

H d U i it J i t C t f H i St di

sources…sources…

Harvard University – Joint Center for Housing Studies– Moderate increases starting at mid to end of 2009.– Won’t see any significant change of pace or increases until 2010

Ivy Zelman – Zelman & Associates– Surveys Land Developers in over 30 of US top markets– Majority of respondents believe land trough to be 2008 values– Remainder believe it is 2009

How Does This Downturn How Does This Downturn Compare to Previous Ones?Compare to Previous Ones?The average downturn lasts 22 months.The average downturn lasts 22 months. This one has lasted more than 30… to dateThe average peak-to-bottom fall in new home sales is 37 5 percent We’ve already fallen 60sales is 37.5 percent. We ve already fallen 60 percent, but we started from a much higher peakNew-home inventory levels, at 9 months, are actually a little better than in previous downturnsactually a little better than in previous downturnsYear-round vacancies – rental plus for-sale – are at 2 million-plus, highest number in historyMortgage rates are much better than during previous downturnsConsumer confidence is where it usually is during a downturn – low

What needs to happen?What needs to happen?

T k d d

What needs to happen?What needs to happen?

To spark demand– Stabilizing home prices– Job creation

R li bl t f t– Reliable stream of mortgage credit

– Cause for optimism

To restore balance– Hold production below

demand until months supply pp y< 6

– Work-off excess inventory– Bring foreclosures to normal

levelslevels– Keep Housing Starts

between 1 to 1.5 million

National Housing OverviewNational Housing Overview•• July 2008July 2008

Greg DoyleGreg DoyleRegional Director Regional Director

HANLEY WOOD MARKET INTELLIGENCEHANLEY WOOD MARKET INTELLIGENCE

gdoyle@hanleywood.com gdoyle@hanleywood.com

626 831 8923626 831 8923626.831.8923626.831.8923

www.hanleywood.com

www.builderinfostore.com