san diego uli young leaders

www.sullivangroupadvisors.comPhone 858.523.1443

Prospects for a Housing Market Bottom in 2009?

For: ULI San Diego Young LeadersJune 2, 2009

SULLIVAN GROUP REAL ESTATE ADVISORSPeter Dennehy, Sr. Vice President

(858) 523-1443 [email protected]


AgendaI. The Big PictureII. The San Diego MarketIII. Discussion


I. THE BIG PICTURE


Is the Current Economy A New Phenomena?

Debt Threatens Democracy.Harper’s, 1940

Is the Country Swamped with Debt?Business Week, 1949

Never Have So Many Owed So Much.U.S. News & World Report, 1959

Time for a New Frugality.Time Magazine, 1973

Over the Ears in Debt.Time Magazine, 1987

Source: Time Magazine


‘90-’91 Recession

‘81-’82 Recession

‘01 Recession

GDP Growth is Declining12/07-? R

ecession

-8%-6%-4%-2%0%2%4%6%8%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

1Q 2009 = -5.7%1Q 2009 = -5.7%

2009* using 1st qtr. dataSource: Bureau of Economic Analysis, released May 29, 2009; Sullivan Group

www.sullivangroupadvisors.comPhone 858.523.144381-82 R

ecession

90-91 Recession

2001 Recession

So Unemployment is Increasing

2009* – AprilSource: Bureau of Labor Statistics; Sullivan Group

12/07-? Recession

3%4%5%6%7%8%9%

10%11%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Avg. 1980 to 2008 = 6.1% April 2009 = 8.9%

Avg. 1980 to 2008 = 6.1% April 2009 = 8.9%


90-91 Recession

2001 Recession

12/07-? Recession

81-82 Recession

4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2009* as of May 28Source: Freddie Mac; Sullivan Group

May 2009* = 4.91%

30-Year Fixed Rate Mortgages areHistorically Low


0

20

40

60

80

100

120

140

160

88-2

89-2

90-2

91-2

92-2

93-2

94-2

95-2

96-2

97-2

98-2

99-2

00-2

01-2

02-2

03-2

04-2

05-2

06-2

07-2

08-2

09-2

U.S. Consumer Confidence is Low, But Improving

2Q09* = 54.92Q09* = 54.9

*2nd Qtr 2009 as of MaySource: The Conference Board, released May 26, 2009; Sullivan Group

3-Year rough patch


U.S. Existing Home Sales: Stabilizing at Low Level

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

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

2009P seasonally adjusted rate using data through MarchSource: National Assn of Realtors; Economy.com; Sullivan Group

2005 = 6,171,667 Peak2009*= 4,123,3342005 = 6,171,667 Peak2009*= 4,123,334


0500,000

1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,000

Mar

-99

Sep-

99M

ar-0

0Se

p-00

Mar

-01

Sep-

01M

ar-0

2Se

p-02

Mar

-03

Sep-

03M

ar-0

4Se

p-04

Mar

-05

Sep-

05M

ar-0

6Se

p-06

Mar

-07

Sep-

07M

ar-0

8Se

p-08

Mar

-09

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Listings Months of Inventory

Source: National Assn. of Realtors; Sullivan Group

Months of supply was 10.7 months in April ‘08, but dropped to 9.6 months in April ‘09.

Resale Supply Has Leveled Recently.Can We Work Off More Supply in 2009?


New Home Sales Continue to Fall:Lowest in Two Generations

0

200

400

600

800

1,000

1,200

1,400

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Note: 2009 as of April Source: Census Bureau, released May 28, 2009; Sullivan Group

2005 = 1,283,000 Peak2008 = 485,0002009*= 352,000

2005 = 1,283,000 Peak2008 = 485,0002009*= 352,000

Stole demand from future


New Home Supply “Overhang”:Absolute Numbers Are Declining

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1963

1964

1965

1966

1967

1968

1969

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

Avg. Months of SupplySource: Census Bureau; Sullivan Group

April ‘09 = 10.1 MonthsApril ‘09 = 10.1 Months April 09 = 296,000 UnitsAug 06 Peak = 570,000 Units

April 09 = 296,000 UnitsAug 06 Peak = 570,000 Units


Starts Below 1991 and 1981 Levels

0250,000500,000750,000

1,000,0001,250,0001,500,0001,750,0002,000,0002,250,0002,500,000

1980

M1

1982

M1

1984

M1

1986

M1

1988

M1

1990

M1

1992

M1

1994

M1

1996

M1

1998

M1

2000

M1

2002

M1

2004

M1

2006

M1

2008

M1

Source: U.S. Census Bureau, SA annual rate, released May 27, 2009; Sullivan Group

April 2009 = 498,000

Peak Sep 2005 = 2,263,000

“v” “u”


U.S. Housing Rebound: Can It Start After 2009?

0.81.01.21.41.61.82.02.22.419

7019

7219

7419

7619

7819

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

1020

12

SF a

nd M

F H

ousi

ng S

tart

s

Million

Average 1970-2008

Source: U.S. Census Bureau; Sullivan Group


National Foreclosures Still High

437,498488,489

642,149

681,337

783,991

345,554

342,038

803,489850,460

0100,000200,000300,000400,000500,000600,000700,000800,000900,000

1,000,0001,100,000

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep-

08O

ct-0

8N

ov-0

8D

ec-0

8Ja

n-09

Feb-

09M

ar-0

9A

pr-0

9

Source: RealtyTrac, released May 13, 2009; Sullivan Group

Quarterly Data Monthly Data


III. THE SAN DIEGO MARKET


0

20

40

60

80

100

120

140

160

Jun-

97D

ec-9

7Ju

n-98

Dec

-98

Jun-

99D

ec-9

9Ju

n-00

Dec

-00

Jun-

01D

ec-0

1Ju

n-02

Dec

-02

Jun-

03D

ec-0

3Ju

n-04

Dec

-04

Jun-

05D

ec-0

5Ju

n-06

Dec

-06

Jun-

07D

ec-0

7Ju

n-08

Dec

-08

Inde

x of

Eco

nom

ic In

dica

tors

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

% C

hang

e in

Inde

x Fr

om P

rior Y

ear

Index of Economic Indicators% Change From Prior Year

April ’09 = 100.9Up 0.2 since last month

Index of Leading Economic IndicatorsSan Diego County

Source: University of San Diego; Sullivan Group


Data is year over year change; 2009ytd is the average of January through April.Source: California Employment Development Department; Sullivan Group

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000A

pr-8

6A

pr-8

7A

pr-8

8A

pr-8

9A

pr-9

0A

pr-9

1A

pr-9

2A

pr-9

3A

pr-9

4A

pr-9

5A

pr-9

6A

pr-9

7A

pr-9

8A

pr-9

9A

pr-0

0A

pr-0

1A

pr-0

2A

pr-0

3A

pr-0

4A

pr-0

5A

pr-0

6A

pr-0

7A

pr-0

8A

pr-0

9

2005 - 21,8002006 - 19,500 2007 - 7,2002008 - -9,6002009ytd- -8,150

2005 - 21,8002006 - 19,500 2007 - 7,2002008 - -9,6002009ytd- -8,150

Y-T-Y PERCENT CHANGE

San Diego Job Growth Negative


Job Losses Starting in Mid 2008

-50,000-45,000-40,000-35,000-30,000-25,000-20,000-15,000-10,000

-5,0000

5,00010,00015,00020,00025,000

Jan-

06M

ar-0

6M

ay-0

6Ju

l-06

Sep-

06N

ov-0

6Ja

n-07

Mar

-07

May

-07

Jul-0

7Se

p-07

Nov

-07

Jan-

08M

ar-0

8M

ay-0

8Ju

l-08

Sep-

08N

ov-0

8Ja

n-09

Mar

-09

Y-T-Y PERCENT CHANGE

2006 - 19,500 2007 - 7,2002008 - -9,6002009ytd- -8,150

2006 - 19,500 2007 - 7,2002008 - -9,6002009ytd- -8,150

Data is year over year change; 2009ytd is the average of January through April.Source: California Employment Development Department; Sullivan Group


Job Gain/Loss ComparisonMarch 2009 vs. March 2008

0.40%

-0.60%

-1.30%

-2.60%

-3.40% -3.50% -3.70% -3.90% -3.90% -4.00% -4.20%-4.80% -4.80%

-5.10% -5.20%

-6.60%-7.10%

-8.00%-7.00%-6.00%-5.00%-4.00%-3.00%-2.00%-1.00%0.00%1.00%2.00%3.00%4.00%

Austin

Housto

nDalla

sSalt L

ake C

itySan

Dieg

oSea

ttleDenve

rLos A

ngeles

SF/Oak

land

San Jose

Portlan

dOran

ge County

Tucson

Sacramento

Las Veg

asInlan

d EmpirePhoenix

Source: BLS; Sullivan Group


Note: US data as of Apr 2009 and San Diego as of Mar 2009Source: Bureau of Labor Statistics; Sullivan Group

0.01.02.03.04.05.06.07.08.09.0

10.0

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

United States San Diego

United States 8.9%San Diego 9.3%United States 8.9%San Diego 9.3%

Unemployment LevelUnited States vs. San Diego


San Diego’s Residential Permits are at the Lowest Level Since the 1940s

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

1948

1954

1960

1966

1972

1978

1984

1990

1996

2002

2008

Bui

ldin

g Pe

rmits

2004 15,5872005 14,306 -8%2006 9,194 -36%2007 7,461 -19% 2008 5,242 -30%2009P 3,000 -43%

2004 15,5872005 14,306 -8%2006 9,194 -36%2007 7,461 -19% 2008 5,242 -30%2009P 3,000 -43%

Note: 2009 is a projection using data through April Source: SOCDS; Sullivan Group

Long-term average - 17,000/yr


0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

Jan-

05 Mar

May Ju

lSe

p

Nov

Jan-

06 Mar

May Ju

l

Sep

Nov

Jan-

07 Mar

May Ju

lSe

pN

ov

Jan-

08 Mar

May Ju

lSe

p

Nov

Jan-

09 Mar

Attached Detached

2009ytdAttached 554Detached 501

2009ytdAttached 554Detached 501

San Diego Residential Permits: 2005-2009ytd

Source: Bureau of Labor Statistics; Sullivan Group


+/-34,000 Homes Sales in ’09: Good/Bad = Bad/Good?

2009P-Dataquick (resales) annualized data through April; Hanley Wood (new) annualized data through March.Source: Dataquick; Hanley Wood; Sullivan Group

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

P

New Existing

2005 58,953 -14%2006 42,253 -28%2007 32,872 -23% 2008 33,113 1%2009P 33,900 2%

2005 58,953 -14%2006 42,253 -28%2007 32,872 -23% 2008 33,113 1%2009P 33,900 2%

8 year Total Home Sales Average

51,734

8 year New Home Sales Average

9,873


San Diego County New Home Sales

02,0004,0006,0008,000

10,00012,00014,00016,000

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2009

Detached Attached2009P annualized using data from January through March.Source: Hanley Wood; Sullivan Group

2009P = ±2,0002009P = ±2,000


Case-Shiller: Prices Down 42% Since 2005

050

100150200250300

Jan-

87Ja

n-88

Jan-

89Ja

n-90

Jan-

91Ja

n-92

Jan-

93Ja

n-94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09

San Diego Composite of 10

March 2009San Diego 144.56Composite of 10 151.41

Composite of 10 includes Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, Washington DCSource: S&P/Case-Shiller; Sullivan Group


Median New Home Detached Price Also LowerSFD: -27%; ATT: 0% Vs. Peak

$0$100,000$200,000$300,000$400,000$500,000$600,000$700,000$800,000$900,000

$1,000,0004Q

884Q

894Q

904Q

914Q

924Q

934Q

944Q

954Q

964Q

974Q

984Q

994Q

004Q

014Q

024Q

034Q

044Q

054Q

064Q

074Q

08

Attached Detached

1st Qtr 2009Detached $640,000Attached $399,900

1st Qtr 2009Detached $640,000Attached $399,900

Source: Hanley Wood; Sullivan Group


Affordability Back to Late 1990s Level

0

10

20

30

40

50

60

70

1Q97

3Q97

1Q98

3Q98

1Q99

3Q99

1Q00

3Q00

1Q01

3Q01

1Q02

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

1st Qtr 2009 = 58.81st Qtr 2009 = 58.8

Note: 2Q02 through 3Q03 data not availableSource: NAHB Housing Opportunity Index, released May 18, 2009; Sullivan Group


Number of Active Home Projects is DecliningSan Diego: - 44% from Nov 2006

Source: Hanley Wood; Sullivan Group

050

100150200250300350400

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Act

ive

Proj

ects

02505007501,0001,2501,5001,7502,000

Tota

l Sal

es

Active Projects Sales

March 2009Active Projects – 194

Total Sales - 150

March 2009Active Projects – 194

Total Sales - 150

Active Projects348 in Nov 06194 in Mar 09


New Detached Inventory is Generally LowMarch 2009

0

100

200

300

400

500

600

San DiegoCounty

Central CoastalNorth

East InlandNorth

South Bay

Stan

ding

/Und

er C

onst

ruct

ion

Inve

ntor

y

0

2

4

6

8

10

12

Mon

ths

of In

vent

ory

Standing/Under Construction Inventory Months of InventorySource: Hanley Wood; Sullivan Group


Most New Attached Inventory in Central SubmarketMarch 2009

0

500

1,000

1,500

2,000

San DiegoCounty

Central CoastalNorth

East InlandNorth

South Bay

Stan

ding

/Und

er C

onst

ruct

ion

Inve

ntor

y

0

10

20

30

40

Mon

ths

of In

vent

ory

Standing/Under Construction Inventory Months of Inventory

85% of Attached Inventoryin Central Submarket

Source: Hanley Wood; Sullivan Group Real Estate Advisors


Improvement in Existing Sales Levels in ’09Lower Prices and REOS Stimulating Sales Activity

01,0002,0003,0004,0005,0006,000

Apr

-88

Apr

-89

Apr

-90

Apr

-91

Apr

-92

Apr

-93

Apr

-94

Apr

-95

Apr

-96

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Total Sales 12 per. Mov. Avg. (Total Sales)

Source: Dataquick; Sullivan Group


0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

Jan-

05M

ar-0

5M

ay-0

5Ju

l-05

Sep-

05N

ov-0

5Ja

n-06

Mar

-06

May

-06

Jul-0

6Se

p-06

Nov

-06

Jan-

07M

ar-0

7M

ay-0

7Ju

l-07

Sep-

07N

ov-0

7Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov

-08

Jan-

09M

ar-0

9

Total Existing Sales Volume Improved in 2008

MLS ‘08 vs. ‘072007 26,4032008 30,471% Change +15%

MLS ‘08 vs. ‘072007 26,4032008 30,471% Change +15%

Source: Dataquick; Sullivan Group


Active Resale Listings Have Declined Steadily

02,5005,0007,500

10,00012,50015,00017,50020,00022,500

2/13

/07

4/13

/07

6/13

/07

8/13

/07

10/1

3/07

12/1

3/07

2/13

/08

4/13

/08

6/13

/08

8/13

/08

10/1

3/08

12/1

3/08

2/13

/09

4/13

/09

SFD Listings Attached Listings Total Listings

May 28, 2009Attached 3,474Detached 6,093Total 9,567

May 28, 2009Attached 3,474Detached 6,093Total 9,567

Source: Zip Realty; Sullivan Group


There is a 3.9 Month Supply of Resale Units

02,5005,0007,500

10,00012,50015,00017,50020,00022,50025,000

Jan-

06M

ar-0

6M

ay-0

6Ju

l-06

Sep

-06

Nov

-06

Jan-

07M

ar-0

7M

ay-0

7Ju

l-07

Sep

-07

Nov

-07

Jan-

08M

ar-0

8M

ay-0

8Ju

l-08

Sep

-08

Nov

-08

Jan-

09M

ar-0

9

List

ings

05001,0001,5002,0002,5003,0003,5004,0004,5005,000

Tota

l Exi

stin

g Sa

les

Listings Total Existing SalesSource: Zip Realty; Dataquick; Sullivan Group

April 2009Listings 12,511Sales 3,194


Foreclosures Still at Record Levels in San Diego County

01,0002,0003,0004,0005,0006,0007,000

Q4/

89Q

4/90

Q4/

91Q

4/92

Q4/

93Q

4/94

Q4/

95Q

4/96

Q4/

97Q

4/98

Q4/

99Q

4/00

Q4/

01Q

4/02

Q4/

03Q

4/04

Q4/

05Q

4/06

Q4/

07Q

4/08

Peak 3Q08 = 6,4634Q08 = 3,837

Source: Real Estate Research Council; CAR; Sullivan Group


NOD’s Jumped Again in December ‘08

Source: InnoVest Resource Mgmt; Sullivan Group

0500

1,0001,5002,0002,5003,0003,5004,0004,500

Oct

-07

Nov

-07

Dec

-07

Jan-

08Fe

b-08

Mar

-08

Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep-

08O

ct-0

8N

ov-0

8D

ec-0

8Ja

n-09

Feb-

09M

ar-0

9A

pr-0

9


Foreclosures at Record Level of Transactions (April 2009 = 9.2%)

0

5,000

10,000

15,000

20,000

25,000

Jan-

91Ja

n-92

Jan-

93Ja

n-94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09

0%

5%

10%

15%

20%

25%

Trus

tee

Dee

ds a

s %

of A

ll D

eeds

All Deeds Notices of Default Trustee's Deed TD % of all Deeds

Source: InnoVest Resource Mgmt; Sullivan Group

Data reflects new state requirement which requires

lenders to contact homeowners 30 days prior to filing.


III. DISCUSSION


Prospects for a Housing Market Bottom in 2009?

For: ULI San Diego Young LeadersJune 2, 2009

SULLIVAN GROUP REAL ESTATE ADVISORSPeter Dennehy, Sr. Vice President

(858) 523-1443 [email protected]

san diego uli young leaders

Documents

realtors sullivan group

months of supply source

data source

time magazine phone

discussion phone

big picture phone

new home supply overhang

new home sales