john burns\' latest: national housing overview

$: John Burns\' Latest: National Housing Overview$
www.realestateconsulting.com

“Trusted Analysis for Executive Decisions”

The U.S. Housing Market:The Facts

October, 2009

(949) 870-1210

[email protected]

http://www.fieldstone-homes.com/



Jody Kahn85 Industry M&A deals

Mollie CarmichaelSVP Lennar, Pulte, Irvine Co.

Don WalkerHome Builder Pres.

Steve Dutra20 yrs industry datamgmt.

Wayne Yamano10 yrs of analysis

Lisa Marquis Jackson18 years of industry reporting

2

Our experienced team stays on top of housing issues by:

• Buying and charting all of the data we can, by MSA.

• Analyzing all of the data for a diverse group of execs.

• Surveying those in the field who manage thousands of new home communities, and interviewing local expertise where we do not have offices.

• Investigating breaking news and legislation.

• Managing market research teams who visit thousands of communities each year as part of customized consulting assignments.

• Managing major portfolio valuation assignments.

• Interacting regularly with a diverse group of executive clients (builders, developers, lenders, private equity, hedge funds, regulators, etc.), and forecasting prices, sales, and starts by MSA using the best data and knowledge available.



Government Intervention Has Been Very Helpful to Home Sales

1. Housing: $8,000 Federal tax credit to buy a house.

2. Mortgage Rates: The lowest in history thanks to Fed intervention and Fannie / Freddie rescue.

3. Down payments: Only 3.5% required through the FHA, whose market share has grown from 2% to 23%.

4. Economy: $800 billion stimulus kicking in soon

Two Key Questions:1. What would have happened without the intervention above?2. What happens if any of the four programs get pulled?

3



Our View is a “W” Is Most Likely.

4

Temporary PeakTax Credit ExpirationRising Mortgage RatesRising REO Sales

Cyclical BottomJob Growth ReturnsBanks Lending on Balance Sheet



How Do We Make Sense of The Worst Economy in 51 Years and the Best Affordability in 37 Years?Demand is Weak, but Bottoming Out

1. Adults With Incomes: We’d like 2 million jobs / year (1.5%), but we have 5.7 million losses (-4.2%).

2. Home Buyers: We’d like 4.6% of Households to buy homes every year, and we have 4.6%.

Supply is Too High but Improving

3. New Home Supply: We need up to 1.7 million total homes constructed every year (1.3 mil new HH in normal times + 400K for replacement and 2nd homes). We exceeded this for 5 consecutive years, and have about 2 million more vacant homes than needed.

4. Resale Supply: We’d like less than 7 months of resale supply, but we have 9.4 months

Affordability is Fantastic

5. Payments: We’d like Payment / Income of 38% and we have 27%

6. Price: We’d like Price / Income of 3.7 and we have 3.3

5



1. Adults with incomes: Employment losses are significant and widespread.

Source: John Burns Real Estate Consulting Housing Industry Market Monitor, Sep 2009

6



Rising unemployment impacts the young and uneducated, who tend to rent, more severely.

7

Source: John Burns Real Estate Consulting Housing Industry Market Monitor, Sep. 2009



No signs of job growth soon. Look for temp hiring, more hours worked, and bank credit for businesses as early indicators.

-40%

-20%

0%

20%

40%

60%

80%

100%

1990

-Q2

1991

-Q2

1992

-Q2

1993

-Q2

1994

-Q2

1995

-Q2

1996

-Q2

1997

-Q2

1998

-Q2

1999

-Q2

2000

-Q2

2001

-Q2

2002

-Q2

2003

-Q2

2004

-Q2

2005

-Q2

2006

-Q2

2007

-Q2

2008

-Q2

2009

-Q2

Net % of Large U.S. Banks Reporting Tougher Standards of Business Loans

Large & Medium Firms

Small Firms

Source : Federal Reserve/Board of Governors updated through 2009Q3

-40%

-20%

0%

20%

40%

60%

80%

100%

2004

-Q4

2005

-Q1

2005

-Q2

2005

-Q3

2005

-Q4

2006

-Q1

2006

-Q2

2006

-Q3

2006

-Q4

2007

-Q1

2007

-Q2

2007

-Q3

2007

-Q4

2008

-Q1

2008

-Q2

2008

-Q3

2008

-Q4

2009

-Q1

2009

-Q2

2009

-Q3

Net % of Large U.S. Banks Reporting Tougher Standards of Business Loans

Large & Medium Firms

Small Firms

Source : Federal Reserve/Board of Governors updated through 2009Q3

33.0

33.5

34.0

34.5

35.0

35.5

36.0

Jan

-81

Jan

-82

Jan

-83

Jan

-84

Jan

-85

Jan

-86

Jan

-87

Jan

-88

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Recession Year Hours Per Week

U.S. Average Hours Worked Per Week

Source: Census Bureau, updated through July 2009; 33.1

32.9

33.0

33.1

33.2

33.3

33.4

33.5

33.6

33.7

33.8

33.9

Jan

-08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun

-08

Jul-

08

Aug

-08

Sep

-08

Oct

-08

No

v-08

Dec

-08

Jan

-09

Feb

-09

Mar

-09

Ap

r-09

May

-09

Jun

-09

Jul-

09

U.S. Average Hours Worked Per Week

Source: Census Bureau, updated through July 2009; 33.1

8

Source: John Burns Real Estate Consulting US Housing Forecast, Sep. 2009



2. Home Buyers: In CA and FL, resale sales are increasing rapidly from very low levels, while they are falling in Texas and elsewhere.


• Data Date: Jul 2009 / Pub: Sep 2009

9



Sales volumes are actually at historical norms, thanks to investors and government intervention.

10



New home sales per community is still less than half of norm.


11



3. New Home Supply: We have 2 million excess vacant homes- all added since 2002.


-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

1999

Q4

2000

Q1

2000

Q2

2000

Q3

2000

Q4

2001

Q1

2001

Q2

2001

Q3

2001

Q4

2002

Q1

2002

Q1

2002

Q2

2002

Q3

2002

Q4

2003

Q1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2006

Q1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

Excess Vacancy by Type

For Sale

Not For Sale

For Rent

Temporary / In Transition

Seasonal / Second Homes

Source : Census Bureau, data through 2009Q2

12



Homeowner vacancy has never been close to this high.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%Homeowner Vacancy Rate

Source: Census Bureau updated through 2009-Q2; 2.5%

Homeowner Vacancy Rate

1950s l 1960s l 1970s l 1980s l 1990s l 2000s


13



Houston’s 1983 downturn lasted 9 years.“L” or “U” Construction RecoveryConstruction in Houston fell 88% from 1983 to 1987, and stayed low through 1996.

V Price RecoveryHouston home prices fell 25% from 1983 – 1987, and did not recover full values until 1992.

14



So Cal’s 1990s downturn lasted 8 years.Similar to Current U.S. Job Losses:

So Cal lost 7% of its employment base from 1990 – 1994 and didn’t recover all the jobs until 1997

“L” Construction Recovery:So Cal construction remained very low for 8+ years.

“V” Price Recovery”:So Cal prices fell 22% from 1991 – 1995 and did not recover full values until 1999.

15



Forecasting a “U” at Low Levels: Single-family construction is at the bottom. Lack of construction financing will keep construction low.

1,033,100

1982: 548,667

1,077,600

1991: 751,000

1,682,000

2009P: 405,000

806,500

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

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

Crn

t(S

A)

2009

P20

10P

2011

P20

12P

2013

P

U.S. Single-Family Permits

Single Family Recession Years Long Term Average

Sources: John Burns Real Estate Consulting, Census Bureau for history and JBREC for forecast (Pub:Aug/2009) NSA, Current=SA, (Data: July/09)

YoY SA: -20.3%

Over-Supply

Under-Supply

Sources: John Burns Real Estate Consulting, Census Bureau for history and JBREC for forecast (Pub:Aug/2009) NSA, Current=SA, (Data: July/09)

YoY SA: -20.3%

LTA


16



4. Resale Supply: Listings are falling rapidly, but there are pent-up listings from Bank REO, future foreclosures and real people who want to move.



17



Listings are low in the West and high in FL.

18




Layoffs and Option ARM resets will keep foreclosure starts above 2 million through 2012.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,00020

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

P

2010

P

2011

P

2012

P

2013

P

2014

P

2015

P

2016

P

Num

ber o

f Loa

ns

U.S. Annual Foreclosure Forecast ComponentsEconomy-related Foreclosures (JBREC)

Foreclosures from ARM Resets (JBREC)

Baseline Foreclosures (JBREC)

Source: John Burns Real Estate Consulting


U.S. Foreclosure Starts (NoDs) Forecast



Most defaulted loans have not been taken REO.

Category Rate Number*30+ days Delinquent 3.68% 2,057,120 60-90 days Delinquent 1.68% 939,120 90+ days Delinquent 3.88% 2,168,920 In Foreclosure 4.30% 2,403,700

13.54% 7,568,860

Source: Mortgage Bankers Association

* Sample Size: 44.5 million, but number applied to all 55.9 million U.S. mortgages

LOAN DELINQUENCIES

20



It is taking 2 years from NoD to REO sale.

21

The typical Notice of Default date on REO homes sold in California in 9/09 was Q3 2006.



CA, FL, AZ, GA and NV loan delinquencies are out of control.

22

Quarterly Foreclosure Notices



At least 7 MSAs had more foreclosure notices than sales in the last year.

23



For example, Orange County CA has 40% more homes in Shadow Inventory than the total currently listed for sale.

24



Our best estimate is that future distressed sales will add about 8 to 9 months of supply to the OC market, assuming current sales pace.

05,000

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

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

Normal Listings

Distressed Listings

Orange County Listings Forecast

0

2

4

6

8

10

12

14

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

Normal Mos of Supply

Distressed Mos of Supply

Orange County Mos of Supply



5. Payments: Affordability is the best since we began tracking it by MSA in 1981.

25%

30%

35%

40%

45%

50%

55%

60%

65%

1981

Q1

1983

Q1

1985

Q1

1987

Q1

1989

Q1

1991

Q1

1993

Q1

1995

Q1

1997

Q1

1999

Q1

2001

Q1

2003

Q1

2005

Q1

2007

Q1

2009

Q1

Median Housing Cost to Income Ratio

Source: JBREC, NAR, updated through Jul 2009; 27.2%

0

1

2

3

4

5

6

7

8

9

10

1981

Q1

1983

Q1

1985

Q1

1987

Q1

1989

Q1

1991

Q1

1993

Q1

1995

Q1

1997

Q1

1999

Q1

2001

Q1

2003

Q1

2005

Q1

2007

Q1

2009

Q1

Housing Cycle Barometer

Source: JBREC, updated through Jul 2009; 0.7

26




Very few markets have an affordability problem (dark red only).





In fact, owning is now cheaper than renting in many markets.Phoenix Homeownership is $198 per month cheaper than renting

28




6. Price: Reports of price appreciation are wrong.A shift to low-priced homes in worse neighborhoods drove Q4 2008 – Q2 2009 prices down.

ORANGE COUNTYU.S.

-18%-16%-14%-12%-10%

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

Jul-

07A

ug-0

7S

ep-0

7O

ct-0

7N

ov-

07D

ec-0

7Ja

n-0

8F

eb-0

8M

ar-0

8A

pr-

08M

ay-0

8Ju

n-0

8Ju

l-08

Aug

-08

Sep

-08

Oct

-08

No

v-08

Dec

-08

Jan

-09

Feb

-09

Mar

-09

Ap

r-09

May

-09

Jun

-09

Jul-

09

Nominal Appreciation (NAR)

Real Appreciation (JBREC)

Single-Family Median Home Price, YOY Change

Source: NAR, updated through Jul, 2009; -14.6%

$60,000

$90,000

$120,000

$150,000

$180,000

$210,000

$240,000

$270,000

Jan

-81

Jan

-82

Jan

-83

Jan

-84

Jan

-85

Jan

-86

Jan

-87

Jan

-88

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Nominal Median (NAR)

Real Median - Current $ (JBREC)

Single-Family Median Home Price

Sources: NAR, JBREC, updated through Jul, 2009; $178,300

29




Orange County Example: From 7/08 – 5/09, the transaction volume shifted to the low priced zip codes, driving the median price down much more than true prices really fell. Today’s reported appreciation is due to a shift back.

30



The higher the price, the slower the sales.Demand / Supply ratio has improved at lower price points and worsened at higher price points.

31



During August, California and S. Florida new home prices turned positive for the first time since the downturn began.

Source: John Burns Real Estate Consulting, Sept 2009 survey of 1,855 new home communities.

32



Pricing Truth

So Cal: Most home values are stabilizing, but not in Riverside.

33



Pricing Truth

North Florida: Most home values are falling rapidly.

34



We rely on feedback from the ground each month to supplement stats with color on market conditions.

Comments From August 2009 Survey

35



Home prices are back to 2003 levels and likely headed to 2002 levels.

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Cur

rent

(c)

2009

P

2010

P

2011

P

2012

P

2013

P

Ind

exed

100

in

2000

U.S. National Home Price Indices

S&P/Case-Shiller National Price (b)

JBREC National Median Price with Forecasts

NAR Median Price RSF(a)

FHFA Purchase-Only Index (d)

Economy.com MSA rollup

John Burns R.E. Consulting, NAR, Economy.com MSA rollup, S&P/CS (Pub: Aug/09 Market Monitor)

(a) Monthly price values weighted by RSF NSA sales values. / (b) S&P/Case-Shiller U.S. National Home Price Index, Q1 of each year / (c) CS through 2009Q2 / (d) FHFA Purchase Only Index, Q1 of each year

Source: John Burns Real Estate Consulting Housing Industry Market Monitor, Aug. 2009

36



Price troughs are likely to vary by market.

37



A+When?Early Indicator: Housing Cycle GPA

• Helps us to “Call a bottom”• Leading indicator for Home Price Appreciation• Tracks market fundamentals:

– Demand: Need for housing from household and job growth, and demonstrated by sales activity

– Supply: New home construction and resale listings – Affordability: Consumers’ ability to qualify for a

loan– U.S. Economic Health: 60 other factors including

consumer confidence and stock market wealth

38



Housing Cycle GPAA

B

C

D

F

Housing Cycle GPA

GPA

risin

g fro

m

D to B

GPA falling from

B to D

Strategy:• Get Land Light• Get Debt Light• Take on JV Partners

Strategy:• Option land with fixed

takedown prices• IRR is higher the

longer you wait

Builder Strategy

39



-50%-40%-30%-20%-10%0%+10%+20%+30%+40%+50%+60%+70%

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

Curr

ent

Hou

sing

Cyc

le G

PA

Real

Pri

ce A

ppre

c YO

Y

Positive Real Apprec Negative Real Apprec Housing Cycle GPA

San Diego, CA Housing Cycle GPAA+AA-B+BB-C+CC-D+DD-F

San Diego, CA Housing Cycle GPA

Source: John Burns Real Estate Consulting (Data: Jul/09, Pub: Sep/09)

A+AA-B+BB-C+CC-D+DD-F

San Diego Housing Cycle GPA has historically been a 2 to 3-year leading indicator

40

3 yrs2 yrs

2 yrs 3 yrs



Housing Cycle GPA

LA

Chi

Atl

PhxDal

DC

IE

Phi

Min

OCSD

StL

NYTpa

Blt

Sea

Den

Oak

Mia

Edi

Por

Cin

Sac

FtWOrl

SAt

KC

Det

LV

Hou

Housing Cycle GPAA

B

C

D

FDo Nothing

Source: John Burns Real Estate Consulting (Data: Jul/09, Pub: Sep/09)*GPA Improving/Declining based on 6-mo change of 6-mo moving average

Market Type:NormalDemandSupplyAffordability

41



The economic health of the builder’s MSA makes a big difference.

Rank BuilderWtd Avg Housing

Cycle GPA#1 Brookfield Homes 1.10#2 Standard Pacific 0.93#3 Pulte 0.93#4 NVR 0.88#5 KB Home 0.88#6 Lennar 0.87#7 M.D.C. Holdings 0.85#8 Toll Brothers 0.84#9 Meritage 0.83

#10 Beazer 0.79#11 Technical Olympic USA 0.78#12 DR Horton 0.78#13 K Hovnanian 0.77#14 Ryland 0.76#15 WCI 0.74#16 Centex 0.69#17 M/I Homes 0.46#18 Orleans Homebuilders 0.45

Wtd Avg All Builders 0.81

Housing Cycle GPA

0.81

Housing Cycle GPA by BuilderWtd Avg Housing Cycle GPA Wtd Avg All Builders

Source: John Burns Real Estate Consulting (Data: Jul/09, Pub: Sep/09)

42


• All markets are bad today.• This could be very different in 2010.



CA, FL, NV and AZ concentrations have hurt Brookfield, WCI, SPF the most.

Toll, MDC, KB, PHM and LEN have been hit hard too.

TX and NC presence has provided less market volatility for MTH, NVR, RYL, DHI, CTX, HOV and BZH.

-$190,000

-$180,000

-$170,000

-$160,000

-$150,000

-$140,000

-$130,000

-$120,000

-$110,000

-$100,000

-$90,000

-$80,000

-$70,000

-$60,000

-$50,000

-$40,000

-$30,000

-$20,000

-$10,000

$0

Orle

ans

Hom

ebui

lder

sM

/I H

omes

Mer

itage

NV

RR

ylan

dT

echn

ical

Oly

mpi

c U

SAC

ente

xD

R H

orto

nK

Hov

nani

anB

eaze

rL

enna

rPu

lteK

B H

ome

M.D

.C. H

oldi

ngs

Tol

l Bro

ther

sSt

anda

rd P

acif

icW

CI

Bro

okfi

eld

Hom

es

3-year Market Price Appreciation

Source: See Methodology Section

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

Orle

ans

Hom

ebui

lder

s

Bro

okfi

eld

Hom

es

NV

R

K H

ovna

nian

Mer

itage

Cen

tex

Tol

l Bro

ther

s

Len

nar

DR

Hor

ton

Bea

zer

Ryl

and

KB

Hom

e

Tec

hnic

al O

lym

pic

USA

WC

I

M.D

.C. H

oldi

ngs

Stan

dard

Pac

ific

M/I

Hom

es

Pulte

7-year Market Price Appreciation

Source: See Methodology Section

43




Regional differences can make a huge difference in builder performance.

• MDC Holdings’ heavy concentration in the Southwest means their housing markets have:

• Dropped $24K/house more than others (last 3 yrs)

• A 1.3 % pt higher rate of job loss

• A 4.6 % pt greater decline in construction

Average of M.D.C. Holdings'sM.D.C. Holdings all Builders7 Rank8

PRICE OF MARKETWtd Ave Median Price of Market1 $176,612 $178,008 101-Year Market Price Appreciation1 -$48,755 -$37,734 151-Year Market Price Appreciation Rate1 -21.6% -17.5% 163-Year Market Price Appreciation2 -$92,084 -$68,070 143-Year Market Price Appreciation Rate2 -34.3% -27.7% 15

MARKETWtd Ave Payroll Employment Growth Rate1,3 -5.2% -3.9% 18Wtd Ave Employment/Permit Ratio1,6 -8.9 -8.5 12Wtd Ave Current/Peak Permits1,4 20.0% 24.6% 3Wtd Ave HCB™ (Affordability) Rating1,5 2.2 2.6 5

COMMUNITIESTotal Active 228 272 10Community Count 6 mo. Chg -8.4% -12.8%Community Count 12 mo. Chg -24.0% -22.2%

% Asset Community 1-Year Price 1-Year % Price

Region Allocation Count % of Total Appreciation¹ Appreciation¹

NORTHEAST 20% 37 16% -$51,601 -19%MIDWEST 0% 0 0% $0 0%SOUTHEAST 0% 0 0% $0 0%NORTHWEST 0% 0 0% $0 0%NORTHERN CA REGION 1% 2 1% -$72,875 -27%SOUTHWEST 66% 162 71% -$47,906 -23%TEXAS 0% 0 0% $0 0%SOUTHERN CALIFORNIA 7% 11 5% -$75,500 -23%NORTHERN FLORIDA 6% 16 7% -$29,375 -16%SOUTHERN FLORIDA 0% 0 0% $0 0%

Total / Wtd Ave 100% 228 100% -$48,755 -21.6%(1) Weighted (Wtd) averages are based on the number of communities that each builder has in each metro area. This could be somewhat misleading

because, in a normal market, a Pulte / Del Webb community could sell 1,000 homes per year and a neighborhood could sell 40 homes.

(2) Assumes that the land price was determined 3 years before the home was sold and that the builder was able to raise or lower prices by the same dollar

amount that the median home price increased or decreased in that market. We have the data to calc for 1- and 2-year assumptions too.

(3) Strong job growth is considered good.

(4) High permit levels are normally considered bad due to a plethora of supply. When the current market recovers, an increase in permits will be a good

sign since it will reflect increasing demand.

(5) Scale is 0 to 10. A low reading is good affordability, and a high reading is bad affordability. Most areas with exceptionally high HCBs experienced the greatest price

appreciation during the recent housing bubble. Even though prices have dropped significantly since then, affordability remains an issue in these markets.

(6) Ratio less than 1 indicates that supply exceeds demand.

(8) This builder's rank among the 18 public homebuilders tracked by JBREC (descending order: 1=highest, 18 lowest)

Weighted Average Market Condition Analysis

M.D.C. Holdings Regional Diversification

M.D.C. Holdings Peer Comparison

Exposure Appreciation

44




JB’s 4 year Theory of REO DispositionHousing Construction Loans were the first problems and will be sold first.

• Bid – Ask• Spread

Appraisal Received

45



Builders won’t pay more than book value, as book value exceeds market value.Raw Land is virtually worthless to builders right now.

46



Our portfolio valuation team is consistently finding values that are 50% below loan and original book value balance.

47

Nghd Lot and or ValuationDate Count Loan Count Information MarketsJan-08 51 3,300 43% of Loan Balance Arizona, SoCal, Central Cal, TexasJul-08 83 12,416 SoCal, CentralCal, NorCal,Nevada, ArizonaOct-08 53 5,300 44% of Loan Balance These were mostly SFD loans so = Equivalent NghdsOct-08 63 9,017 Arizona, CentralCal, Nevada, SoCal,Washington, PortlandJan-09 128 12,830 30% of Book Value 44% of Loan AmountFeb-09 31 2,839 41% of Loan Balance Oregon, WashingtonApr-09 74 9,233 FloridaApr-09 224 11,223 32% Loan Balance SoCal,CentralCal, NorCal, Arizona,Nevada, Colorado, Utah, NewMexico,Texas,Idaho, WashingtonMay-09 99 7,091 60% Loan balance SoCal, CentralCal,NorCal,Arizona,Colorado,Houston,Washington DCMay-09 169 15,328 46% of Book / 73% of Loan Balance SoCal, Central Cal, Utah, Texas, Arizona, Minnesota, Florida,Washington DCJul-09 181 21,323 SoCalJul-09 117 11,122 SoCal, Central Cal, TexasSep-09 62 9,283 SoCal, NorCal, Arizona, Houston, Austin, FloridaNov-09 154 10,910 SoCal, Central Cal, Utah, Texas, Arizona, Minnesota, Florida,Washington DC

1,489 141,215



Tampa submarket analysis shows the importance of looking beyond the metro level.

SubmarketGrades

A

B

C

D

F

48



Within various MSAs, the move up builders have better locations.

In better locations:• Land values fall a lesser

percentage (dollars may be more)

• Buyer demand returns first (near job centers and better schools)

• Home prices fall later in the cycle (less distress with more stable homeowner profile)

Rank BuilderWtd Avg

Submarket GPA#1 Toll Brothers 3.14#2 WCI 3.29#3 Technical Olympic USA 3.02#4 Orleans Homebuilders 3.27#5 Pulte 2.83#6 Meritage 2.72#7 Ryland 2.91#8 Centex 2.61#9 M/I Homes 2.61

#10 Brookfield Homes 2.53#11 Lennar 2.60#12 K Hovnanian 2.46#13 NVR 2.43#14 Beazer 2.58#15 Standard Pacific 2.52#16 DR Horton 2.38#17 KB Home 2.42#18 M.D.C. Holdings 2.13

Wtd Avg All Builders 2.65

Submarket Grade

0.81

Wtd Avg Housing Cycle GPA Wtd Avg All Builders

49




Community counts drive revenue.Way down: CTX, HOV, KB, PHM, RYL, LENFlat: DHI, NVR, TOL, MDC, SPF

100

200

300

400

500

600

700

800

900

1,000

1,100

Active Community Counts by BuilderPublic Builders with 100+ projects

Feb-09 Mar-09 Apr-09

May-09 Jun-09 Jul-09

50




M&A activity was high during the boom years, but some builders had better timing.

• Bad Timing: HOV and SPF dominated the 2005 transactions

• Poor Timing: LEN, MTH, TOL and KB were also acquisitive in 2003-2005

• Great timing: DHI acquisition binge ended in 2001, PHM and CTX in 2003, Ryland in 1998


51



M&A is a way to reduce SG&A as a % of revenue.SG&A has declined 58% from $12.1 billion peak to $5.1 billion per year, but continues its steady rise as % of revenue, from 10% in 2005 to almost 16% today.

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q

20092008200720062005

TLTM

Avg

SG

&A

(00

0)

SG&A

0%2%4%6%8%

10%12%14%16%18%

2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q

20092008200720062005

LTM

Avg

SG

&A

as

% o

f Rev

enue

SG&A as % of Revenue

52




Conclusions for Informed Investors• Prices of most homes are

declining or have stabilized temporarily.

• Demand for more housing is declining, not growing.• The excess vacancy will take years to fill.• A tsunami of distressed home sales will create a

buyer’s market, causing prices to fall.• Government intervention is helping a lot.• Government intervention will determine the extent

and timing of future price declines.

53


“Trusted Analysis for Executive Decisions” 54

Temporary PeakTax Credit ExpirationRising Mortgage RatesRising REO Sales

Cyclical BottomJob Growth ReturnsBanks Lending on Balance Sheet

The recovery shape will be determined by: 1) the rate of job growth, 2) the timing of REO sales, and 3) mortgage rates and terms.



About John Burns Real Estate Consulting Founded in 2001 by

John Burns20 professionals6 cities

North AmericaIrvine, CA (HQ)San Diego, CASacramento, CADallas, TXPalm Beach, FLPortsmouth, NH

Contact Tel (949) 870-1200Fax (949) 870-1299

[email protected]

The best decisions are made by those with the right information.

55

John Burns, President & CEOQ & A

john burns\' latest: national housing overview

Documents

housing market

housing issues

market share

real people

construction low

new home sales

home buyers

improvingnew home supply