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GLGi: National Housing Market Perspective

GLGi: National Housing Market Perspective. Tim Sullivan. August 30, 2007 New York City. Council Member Biography:

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GLGi: National Housing Market Perspective

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  1. GLGi: National Housing Market Perspective Tim Sullivan August 30, 2007 New York City

  2. Council Member Biography: Tim Sullivan is President of Sullivan Group Real Estate Advisors, a San Diego, California based real estate consulting firm that covers markets across the United States. Over the past 15 years, Tim has become a frequently known speaker at major industry events. From PCBC to ULI’s many venues to his company’s own Sullivan Seminars, Tim shares his breadth of industry knowledge with the nation’s housing market on an ongoing basis. He also writes for industry publications, such as Builder and Developer and Arizona Builder Magazine, directs nationwide housing tours, and is active in numerous industry associations. During his budding career, Tim was senior manager with KPMG Peat Marwick’s National Real Estate Consulting Group before serving as principal of Hanley Wood Market Intelligence’s (formerly The Meyers Group) Real Estate Consulting Practice for a decade. He has an MBA with a concentration in marketing and finance from San Diego State University, and a bachelor’s degree in economics from University of California, San Diego © 2007 Gerson Lehrman Group Inc., All Rights Reserved

  3. Table of Contents • National Trends • Key Comparisons Among States • Demand Factors • Consumer and Homebuilder Sentiment • Regional Housing Markets • Conclusions © 2007 Gerson Lehrman Group Inc., All Rights Reserved

  4. About GLG Institute GLG Institute (GLGiSM) is a professional organization focused on educating business and investment professionals through in-person meetings. It is designed to revolutionize the professional education market by putting the power of programming into the hands of the GLG community. GLGi hosts hundreds of Seminars worldwide each year. GLGi clients receive two seats to all Seminars in all Practice Areas. GLGi’s website enables clients to: • Propose Seminar topics, agenda items and locations • View and RSVP to scheduled and proposed Seminars • Receive a daily briefing with new posts on your favorite tickers, subject areas and from trusted Council Members • Share Seminar details with colleagues or friends © 2007 Gerson Lehrman Group Inc., All Rights Reserved

  5. Gerson Lehrman Group Contacts REAL ESTATE (RE) Justin Stein Director Gerson Lehrman Group + 1 212 750 1809 jstein@glgroup.com SALES Aaron Liberman Managing Director, Sales and Marketing Gerson Lehrman Group 212-984-3684 aliberman@glgroup.com Christine Ruane Senior Product Manager Gerson Lehrman Group 850 Third Avenue, 9th Floor New York, NY 10022 + 1 212 984 8505 cruane@glgroup.com © 2007 Gerson Lehrman Group Inc., All Rights Reserved

  6. IMPORTANT GLG INSTITUTE DISCLAIMER – By making contact with this/these Council Members and participating in this event, you specifically acknowledge, understand and agree that you must not seek out material non-public or confidential information from Council Members. You understand and agree that the information and material provided by Council Members is provided for your own insight and educational purposes and may not be redistributed or displayed in any form without the prior written consent of Gerson Lehrman Group. You agree to keep the material provided by Council Members for this event and the business information of Gerson Lehrman Group, including information about Council Members, confidential until such information becomes known to the public generally and except to the extent that disclosure may be required by law, regulation or legal process. You must respect any agreements they may have and understand the Council Members may be constrained by obligations or agreements in their ability to consult on certain topics and answer certain questions. Please note that Council Members do not provide investment advice, nor do they provide professional opinions. Council Members who are lawyers do not provide legal advice and no attorney-client relationship is established from their participation in this project. You acknowledge and agree that Gerson Lehrman Group does not screen and is not responsible for the content of materials produced by Council Members. You understand and agree that you will not hold Council Members or Gerson Lehrman Group liable for the accuracy or completeness of the information provided to you by the Council Members. You acknowledge and agree that Gerson Lehrman Group shall have no liability whatsoever arising from your attendance at the event or the actions or omissions of Council Members including, but not limited to claims by third parties relating to the actions or omissions of Council Members, and you agree to release Gerson Lehrman Group from any and all claims for lost profits and liabilities that result from your participation in this event or the information provided by Council Members, regardless of whether or not such liability arises is based in tort, contract, strict liability or otherwise. You acknowledge and agree that Gerson Lehrman Group shall not be liable for any incidental, consequential, punitive or special damages, or any other indirect damages, even if advised of the possibility of such damages arising from your attendance at the event or use of the information provided at this event. © 2007 Gerson Lehrman Group Inc., All Rights Reserved

  7. National Housing Market Perspective Gerson Lehrman Group August 29, 2007 SULLIVAN GROUP REAL ESTATE ADVISORSTim Sullivan (858) 523-0946 x277 t.sullivan@sgrea.com

  8. Sullivan Group Real Estate Advisors • Full Service Real Estate Advisory firm with Four Offices and 20 Full time Analysts • Feasibility, Urban Development and Strategic Planning • Repositioning and Market Opportunity Analysis

  9. Sullivan Group Real Estate AdvisorsWhat have we been up to? • 310 Studies in 2006 • 13 States(AZ, CA, CO, CT, FL, HI, NJ, NV, OK, PA, TX, UT, WA) • 50 Metro Areas

  10. Agenda • National Trends • Key Comparisons Among States • Demand Factors • Consumer and Homebuilder Sentiment • Regional Housing Markets • Conclusions

  11. National Trends

  12. The News is Confusing

  13. DOW JONES RALLIES ABOVE 13,000 Good

  14. IN 2005 HALF OF MINORITIES PURCHASED THEIR HOMES WITH SUBPRIME LOANS Bad

  15. GOOGLE'S 1Q PROFIT SKYROCKETS NEARLY 70% Good

  16. D.R. HORTON, BEAZER POST NET LOSSES AS SLUMP DEEPENS Bad

  17. Sales and permits are down but: • Corporate profits are up • Job growth is solid • Interest rates are stable(historically low) • Demographics are solid The Paradox

  18. The Positive Signs

  19. Gross Domestic Product (GDP) is Healthy 81-83 Recession 91-92 Recession 00-02 Recession 2Q07 = 3.4% Source: Bureau of Economic Analysis, released July 27, 2007; Sullivan Group

  20. Job Growth is Solid Nationwide 1.87 million new jobs since July 2006 2007* = 1.4% 81-83 Recession 91-92 Recession 00-02 Recession 2007* – July 2007 vs. July 2006Source: Bureau of Labor Statistics; Sullivan Group

  21. U.S. Unemployment Remains Low Avg. 1980 to 2006 = 6.2% July 2007 = 4.6% 81-83 Recession 91-92 Recession 00-02 Recession 2007* – July 2007Source: Bureau of Labor Statistics; Sullivan Group

  22. Initial Jobless Claims Remain in Check Data represents four-week moving average (below 300,000 is a positive) 81-83 Recession 91-92 Recession 00-02 Recession July 2007 309,000 Source: Department of Labor; Sullivan Group

  23. 30 Year Fixed Rate Mortgages areHistorically Low August 2007 = 6.62% 81-83 Recession 91-92 Recession 00-02 Recession What now? 2007* - August 16, 2007Source: Freddie Mac; Sullivan Group Real Estate Advisors

  24. Household Growth in the Next Decade Should Be Even Greater Than in the Last Largest growth in non-white households Source: Joint Center for Housing Studies of Harvard University

  25. The Reality

  26. New Home Sales Have Declined 36% Since Peaking in 2005 2006 = 1.05 Million 2007P= 824,000 Source: U.S. Census Bureau; Sullivan Group

  27. New Home Supply “Overhang” Grows:537,000 Unsold Units – June 2007 Avg. 6.5 months: 1963-1995Avg. 4.3 months: 1996-20057.8 months – June 2007 *2007 data is average of January through JuneSource: Census; Sullivan Group

  28. Typical Causes of Housing Market Slowdowns (i.e. Price Declines) 1990-1992 2005-? 2001-2003 *Addresses largest 75 metro areas by population. Source: Joint Center for Housing Studies of Harvard University

  29. Mortgage Market Concerns Reversed HMI Gains Made in Early 2007 Above 50 = Positive Sentiment & Below 50 = Negative Sentiment 8/07 = 22 Source: NAHB/Wells Fargo; Sullivan Group

  30. Key Comparisons Among States

  31. Residential Construction Levels Surged Between 2000 and 2005… Source: Census Bureau; Sullivan Group

  32. But Did Supply Get Ahead of Demand?(Employment to Permit Ratios) 2006 = 1.2 Employees Per HH Looming Supply “Overhang” Source: Census Bureau; BLS; Sullivan Group

  33. The Supply “Overhang” is Resulting in Supply-Side Corrections Today Source: Census Bureau; Sullivan Group

  34. Former “Boom” States Are Seeing Pull Backs in Price Appreciation Source: OFHEO; Sullivan Group

  35. Tightening Standards in the Subprime Lending Market is a Concern Source: 2005 Data CSFB; Sullivan Group

  36. Foreclosure Levels Are Down In 2007 Source: RealtyTrac; Sullivan Group

  37. Foreclosures Are Up In 2007 United States 2006 = 1,259,118 1st Half 2007 = 925,986 Source: RealtyTrac; Sullivan Group

  38. Conclusions • Pull back on construction levels should be viewed as a positive factor • Avoiding investment buyers and rapid price appreciation is paying dividends today • Tighter lending standards could negatively impact the large entry-level market • Inventory numbers (both new and existing) are a key trend to watch • Some states have more of a history of being cyclical in nature

  39. III. Demand Factors

  40. National Job Losses Were Related to Economic Restructuring, Not Corrections 7.74 million jobs since 2003 3Q07* = 1.4% 2001-03 downturn was a soft landing led by weakness in the technology sector 1988-91 downturn reflected fundamental restructuring of economy -1.4% -1.6% 3Q07 – prelim July 2007Source: Bureau of Labor Statistics, released August 3, 2007; Sullivan Group Real Estate Advisors

  41. Losses in Construction Sector Have Not Damaged Overall Job Growth Construction Industry Job Growth 2004: 242,000 2005: 301,000 2006: 118,000 (-61%) Source: U.S. Bureau of Labor Statistics: Current Employment Statistics (CES); Sullivan Group Real Estate Advisors

  42. Demographics are Helping Demand: The Boomer Will Drive Housing For 20 More Years 72 Million 83 Million 93 Million 99 Million 101 Million 102 Million Source: US Census: Interim projections consistent with Census 2000; Sullivan Group Real Estate Advisors

  43. And Product Planning Will Be Impacted by the Increase in Single Parent Households 1991 – 16 Million2005 – Almost 21 Million Source: US Census; Sullivan Group Real Estate Advisors

  44. Demand Was Also Generated by the Decline in Population Per Household Averages 1960s: 3.29 1970s: 2.96 1980s: 2.69 1990s: 2.64 2000+: 2.58 Source: US Census; Sullivan Group Real Estate Advisors

  45. As Interest Rates Fell, We Tapped DeeplyInto the Rental Pool for Qualified Homebuyers 8.5% interest rates in 19995.5% interest rates in 2003 Did we add 2 million more homeowners than we should have? Source: U.S. Census Bureau; Sullivan Group Real Estate Advisors

  46. IV. Consumer andHomebuilder Sentiment

  47. Consumer Confidence at Six-Year High 3Q07* = 112.6 Source: The Conference Board, prelim July data, released July 31, 2007; Sullivan Group Real Estate Advisors

  48. But How Does It Differ By Region?

  49. Regional Trends Similar But Numbers Vary Greatly 3Q07* Consumer Confidence Mountain Region = 138.0 W. South Central = 131.1 South Atlantic = 122.3 E. South Central = 115.6 Pacific Region = 111.5 Mid-Atlantic Region = 100.1 3Q07* – 112.6 Source: The Conference Board, released July 31, 2007; Sullivan Group Real Estate Advisors

  50. How does consumer perception differ from Homebuilder’s confidence about their own industry?

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