Hexter Fair Economic Forecast 021909 Allen

DFW Real EstateDFW Real Estate“State of the Market”“State of the Market”

David L Fair & Britt FairDavid L Fair & Britt FairDavid L. Fair & Britt FairDavid L. Fair & Britt FairHexterHexter--Fair Title CompanyFair Title Company

February 19, 2009February 19, 2009

Roadmap of Today’s DiscussionRoadmap of Today’s Discussionp yp y

Current state of the DFW housing marketThe big difference between the DFW economy and housing market and those of y gthe rest of the USThe “ace in the hole” for housingThe ace in the hole for housingConclusions

“State of the Market” “State of the Market” The most important word is “certainty”

The current economic uncertainty keeps people/businesses fromThe current economic uncertainty keeps people/businesses from making big decisions, such as purchasing a home

Last month’s inauguration is first step to “certainty”Ongoing government intervention is another key to repairingOngoing government intervention is another key to repairing “certainty”

Bailouts of Wall Street firms (both the equity infusions and purchases of “bad assets”) to help keep liquidity in the marketbad assets”) to help keep liquidity in the marketInfusion in other areas (automakers, secondary mortgage market, etc.) trying to stimulate economy and maintain jobsForeclosure relief plan to help consumers is likely in next tranche ofForeclosure relief plan to help consumers is likely in next tranche of TARP money

Today’s MarketToday’s MarketNTREIS S lNTREIS S l YTD D ‘08YTD D ‘08NTREIS Sales NTREIS Sales –– YTD Dec‘08YTD Dec‘08

# of% Change vs Prior Average

% Change vs Prior

Average Days on

% Change vs Prior

# of

Salesvs. Prior

YearAverage

Sale Pricevs. Prior

YearDays on Market

vs. Prior Year

Allen 1,248 -19% $243,508 4% 82 19%McKinney 1,978 -22% $221,887 -2% 79 10%

210 14% $126 839 1% 91 1%Anna 210 -14% $126,839 -1% 91 -1%Melissa 114 -34% $180,638 -3% 112 -2%Fairview/Lucas 260 -8% $363,898 7% 93 18%Frisco 2,790 -10% $295,517 1% 89 16%Plano 3,429 -16% $274,276 -1% 68 24%Carrollton/F.Branch 1,647 -11% $191,783 6% 61 11%Richardson 1,025 -19% $172,970 -2% 63 13%Dallas Far N 938 26% $346 029 2% 75 34%Dallas Far N 938 -26% $346,029 2% 75 34%Dallas NE 572 -20% $252,695 2% 61 20%Dallas N 510 -28% $983,753 5% 102 44%Dallas E 2,096 -18% $252,360 -1% 77 20%Park Cities 658 -16% $1,221,166 0% 93 39%

Today’s Market, cont’dToday’s Market, cont’dDFW S l YTD D ’08 ( 1)DFW S l YTD D ’08 ( 1)DFW Sales YTD Dec’08 (page 1)DFW Sales YTD Dec’08 (page 1)

S l P i R# sales YTD

(12 2008)% change vs.

iSale Price Range (12 mos 2008) prior year$1 to $19,999 757 45%

$20,000 to $29,999 1225 40%$30,000 to $39,999 1669 32%$30,000 to $39,999 669 3 %$40,000 to $49,999 1998 12%$50,000 to $59,999 2042 0%$60,000 to $69,999 2429 -2%$ $$70,000 to $79,999 2,937 -7%$80,000 to $89,999 3,376 -14%$90,000 to $99,999 3,493 -15%

$100 000 to $109 999 3 350 -21%$100,000 to $109,999 3,350 -21%$110,000 to $119,999 4,051 -20%$120,000 to $129,999 4,488 -18%$130,000 to $139,999 4,125 -18%$140,000 to $149,999 3,661 -17%

Today’s Market, cont’dToday’s Market, cont’dDFW S l YTD D ’08 ( 2)DFW S l YTD D ’08 ( 2)DFW Sales YTD Dec’08 (page 2)DFW Sales YTD Dec’08 (page 2)

Sale Price Range# sales YTD

(12 mos 2008)% change vs.

prior yearg ( ) p y$150,000 to $159,999 3,354 -20%$160,000 to $169,999 3,109 -21%$170,000 to $179,999 2,775 -19%$180 000 to $189 999 2 429 -15%$180,000 to $189,999 2,429 -15%$190,000 to $199,999 1,975 -17%$200,000 to $249,999 7,323 -15%$250,000 to $299,999 4,777 -13%$300 000 t $399 999 4 921 18%$300,000 to $399,999 4,921 -18%$400,000 to $499,999 2,194 -17%$500,000 to $599,999 1,003 -18%$600,000 to $699,999 661 -17%$700,000 to $799,999 452 -18%$800,000 to $899,999 258 -27%$900,000 to $999,999 185 -20%$1 000 000 and more 822 -11%$1,000,000 and more 822 11%

Total 75,839 -14%

NTREIS Dollar Volume Since 2004NTREIS Dollar Volume Since 2004S o a o u e S ce 00S o a o u e S ce 00

Interest Rates Near Historic LowsInterest Rates Near Historic Lowste est ates ea sto c o ste est ates ea sto c o s

Conforming rates have fallen to 5% and belowConforming rates have fallen to 5% and below, down from over 6.4% as recently as HalloweenDecline in conforming rates driven by US Treasury’s

h f $50 billi i 4Q’08 d F d illpurchase of $50 billion in 4Q’08, and Fed will purchase $500 billion in first half of 2009

Many experts project these secondary market purchases y p p j y pby the US government will drive rates to 4.5% and belowRefi boom is currently underway, which then works its way through economy, but not as many people or homes will g y y p pqualify as in last refi boom

Jumbo rates have not fallen as fast as those of conforming loansconforming loans

Sep’07 Spike in “Jumbo Spread”Sep’07 Spike in “Jumbo Spread”

Source: Freddie Mac & HSH Associates

Spike in “Jumbo Spread”Spike in “Jumbo Spread”Sp e Ju bo Sp eadSp e Ju bo Sp ead

Spread between conforming and jumbo ratesSpread between conforming and jumbo rates continues to be much larger than normal

178 b d 2/18/09 b k t178 b.p. spread on 2/18/09, per bankrate.com (7.05% versus 5.27% conforming)

Increased spread likel slo ing do n someIncreased spread likely slowing down some qualified homebuyers in higher price rangesThe spread will eventually return to a more normal range with the return to “certainty”

Strong DFW economy keeps real Strong DFW economy keeps real g y pg y pestate values upestate values up

Strong job creationContinuing corporate and individual g prelocationsOil & gas industry especially in the BarnettOil & gas industry, especially in the Barnett Shale!

Barnett Shale created 83k jobs in 2007 andBarnett Shale created 83k jobs in 2007 and generated $8.2 billion into the local economy

Employment Changes Employment Changes -- 1/08 to 12/08, pg.11/08 to 12/08, pg.1p y gp y g / / , pg/ / , pgState Dec. 2007

Prelim Dec. 2008

Year/Year Change

Alabama 2,018,000 1,976,300 ‐41,700Arizona 2,659,300 2,543,900 ‐115,400Arkansas 1,206,400 1,187,700 ‐18,700California 15,171,000 14,913,600 ‐257,400Connecticut 1 706 500 1 677 200 29 300Connecticut 1,706,500 1,677,200 ‐29,300Florida 8,039,400 7,784,200 ‐255,200Georgia 4,159,700 4,041,300 ‐118,400Hawaii 626,000 612,600 ‐13,400Hawaii 626,000 612,600 13,400Idaho 657,300 628,800 ‐28,500Illinois 5,986,500 5,885,800 ‐100,700Indiana 2,994,900 2,883,000 ‐111,900Kentucky 1,880,000 1,843,200 ‐36,800Maine 619,800 608,100 ‐11,700Michigan 4,227,600 4,054,600 ‐173,000

Source: US Bureau of Labor StatisticsMinnesota 2,776,300 2,720,400 ‐55,900

Employment Changes Employment Changes -- 1/08 to 12/08, pg.21/08 to 12/08, pg.2p y gp y g / / , pg/ / , pgState Dec. 2007

Prelim Dec. 2008

Year/Year Change

Mississippi 1,154,600 1,128,400 ‐26,200N d 1 293 300 1 261 100 32 200Nevada 1,293,300 1,261,100 ‐32,200New York 8,781,100 8,661,200 ‐119,900North Carolina 4,187,700 4,067,500 ‐120,200Ohio 5 418 700 5 329 700 89 000Ohio 5,418,700 5,329,700 ‐89,000Oregon 1,740,600 1,695,200 ‐45,400Pennsylvania 5,808,300 5,732,100 ‐76,200Rhode Island 490,800 468,800 ‐22,000Rhode Island 490,800 468,800 22,000South Carolina 1,958,100 1,903,900 ‐54,200Tennessee 2,806,800 2,742,700 ‐64,100Texas 10,475,100 10,628,800 153,700Utah 1,264,800 1,237,700 ‐27,100Vermont 308,500 302,700 ‐5,800Washington 2,958,300 2,920,200 ‐38,100

Source: US Bureau of Labor StatisticsWisconsin 2,882,100 2,819,500 ‐62,600

Job creation 1/08 to 12/08Job creation 1/08 to 12/08/ // /US Metro AreasUS Metro Areas

12‐Month    Rank Metro Area J ob  Growth1 Hous ton‐S ugarland‐Baytown 57,300         2 Dallas ‐Fort Worth‐Arling ton 43,300           3 S an Antonio 14 9003 S an  Antonio 14,900         4 Washing ton‐Arling ton‐Alexandria 11,800         5 Aus tin‐Round  Rock 9,600           

h bRank Metro Area

12‐Month  J ob  Growth  Rate

1 Hous ton‐S ugarland‐Baytown 2.2%2 S an Antonio 1.8%2 S an  Antonio 1.8%3 Dallas ‐Fort Worth‐Arling ton 1.4%4 Aus tin‐Round  Rock 1.2%5 Virg inia Beach‐Norfolk‐Newport News 1.0%

Source: US Bureau of Labor Statistics

Positive signs in DFW housingPositive signs in DFW housingg gg g

6.0 months’ inventory on home resale listingsSix months is generally considered equilibriumg y q

Continued population growth offers supportDFW has only 3 1 months’ inventory of newDFW has only 3.1 months inventory of new home (finished and vacant) inventory

Builders have shown significant restraint inBuilders have shown significant restraint in keeping housing starts low

PMI U S Market Risk Index:PMI U S Market Risk Index:PMI U.S. Market Risk Index:PMI U.S. Market Risk Index:DFW steady despite US uncertaintyDFW steady despite US uncertainty

On 1/14/09, The PMI Group released a study which measures the riskiness of the 50 largest MSAs in the US

Risk measured as the % chance that home prices will beRisk measured as the % chance that home prices will be lower in 2 years

The 5 markets with the highest risk:g1. Riverside, CA: 99.9% chance of price decline2. Miami, FL : 99.9% chance of price decline3. Fort Lauderdale, FL: 99.8% chance of price decline4. Los Angeles, CA: 99.8% chance of price decline5 W t P l B h FL 99 6% h f i d li5. West Palm Beach, FL: 99.6% chance of price decline

PMI U S Market Risk Index continued:PMI U S Market Risk Index continued:PMI U.S. Market Risk Index, continued:PMI U.S. Market Risk Index, continued:DFW steady despite US uncertaintyDFW steady despite US uncertainty

The 5 MSAs with the lowest risk of a price decline in the next two years:

46.San Antonio : 1% chance 47 Pittsburgh PA: <1% chance47.Pittsburgh, PA: <1% chance48.Houston-Sugar Land-Baytown: <1% chance49 F t W th A li t 1% h49.Fort Worth-Arlington: <1% chance50.Dallas-Plano-Irving: <1% chance

S&P CaseS&P Case Shiller Index:Shiller Index:S&P CaseS&P Case--Shiller Index:Shiller Index:DFW flat relative to national price declinesDFW flat relative to national price declines

Monthly analysis of price changes in 20 major US marketsNovember’s price index released 1/27/08

Showed that NATIONAL prices had declined by a record 18.2% year over yearHowever, Dallas area had just a 3.3% price decline over that same period, which was the best of the 20 markets measured

Housing’s “Ace in the Hole”Housing’s “Ace in the Hole”

Inflation!!!Typically considered to be something badyp y g

In fact, the Fed’s mandate is "to promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates"moderate long-term interest rates

However, today’s economic environment is anything but typicalanything but typical

We are currently experiencing “DEFLATION”, which governments hate even more than inflation

Housing’s “Ace in the Hole”, cont’dHousing’s “Ace in the Hole”, cont’dHow inflation will ultimately loom over us

US leaders (Congress, President, Treasury Secretary, the Federal Reserve, etc.) doing everything possible to keep economy from

ll icollapsingOriginal $700 billion bailout

$350 billion for equity investments in banksRemaining $350 billion to make other investmentsRemaining $350 billion to make other investments

Tax rebate(s) of 2008Obama’s $800 billion “economic stimulus” approved this week

Fed’s balance sheet has ballooned by trillions of dollars in the last few ymonths from purchases of assets such as mortgagesThe same thing is happening in many nations across the globeGovernments are printing money and throwing it at the problem!!!p g y g p

Housing’s “Ace in the Hole”, cont’dHousing’s “Ace in the Hole”, cont’d

How inflation will help real estateThe value of commodities (gold, real estate, oil, t ) i ith t i i d l ietc.) rises without any increase in underlying

demandBecause real estate is typically purchased with theBecause real estate is typically purchased with the leverage of a mortgage, this inflation will provide a higher percentage return than other commodities

Such a rise will actually “bail out” manySuch a rise will actually “bail out” many homeowners who are “under water” on their mortgages, preventing future foreclosuresg g , p g

Housing’s “Ace in the Hole”, cont’dHousing’s “Ace in the Hole”, cont’d

Why governments might err toward inflationIndividuals on the brink of foreclosure get “bailed

t” ith t h i t d tiout” without anyone having to go on record voting for itBanks get bailed out because their distressedBanks get bailed out because their distressed assets gain in value before they have to be marked to marketAdditional benefit of minimizing impact of defined future payments (automaker pensions, Social Security national debt payments etc )Security, national debt payments, etc.)

Housing Market Crystal BallHousing Market Crystal BallHousing Market Crystal BallHousing Market Crystal BallSeasonal uptick starting now that February is here, with March as the unofficial start of the spring selling seasonas the unofficial start of the spring selling seasonRefi boom to continue through first half of 2009Construction to remain sluggish until summer

Building rebound date dependent on each neighborhood’s supply/demand

Obama’s “economic stimulus” to positively impact spring marketInflationary pressures toward the end of 2009 will make real estate in stable markets like DFW an excellent investmentAs “certainty” (from federal bailouts, interest rates, job security, y ( , , j y,inauguration, etc.) returns over the coming months, DFW residential market is poised to rebound in the spring of 2009

National market will not rebound until 2010

Today’s MarketToday’s MarketNTREIS S lNTREIS S l YTD J ‘09YTD J ‘09NTREIS Sales NTREIS Sales –– YTD Jan‘09YTD Jan‘09

# of % Change vs. Prior Average

% Change vs. Prior

Average Days on

% Change vs. Prior

Sales Yearg

Sale Price Yeary

Market YearAllen 53 -32% $230,924 -12% 99 -10%McKinney 83 -34% $219,710 -6% 79 -17%A 10 44% $156 583 41% 56 40%Anna 10 -44% $156,583 41% 56 -40%Melissa 2 -80% $267,500 44% 185 64%Fairview/Lucas 8 -38% $461,000 27% 69 -1%Frisco 115 -22% $259,670 -4% 75 -26%Plano 144 -30% $238,223 -8% 82 0%Carrollton/F.Branch 53 -48% $175,341 -1% 71 -1%Richardson 48 -9% $150,997 2% 85 25%Dallas Far N 46 12% $287 946 13% 69 20%Dallas Far N 46 -12% $287,946 -13% 69 -20%Dallas NE 21 -19% $212,429 -6% 63 3%Dallas N 14 -48% $976,146 4% 165 81%Dallas E 108 -18% $182,289 -21% 76 -4%Park Cities 21 -45% $1,132,289 4% 147 65%

Today’s Market, cont’dToday’s Market, cont’dDFW S l YTD J ’09 ( 1)DFW S l YTD J ’09 ( 1)DFW Sales YTD Jan’09 (page 1)DFW Sales YTD Jan’09 (page 1)

Sale Price Range# sales YTD (1 mos 2009)

% change vs. prior yearSale Price Range (1 mos 2009) prior year

$1 to $19,999 68 51%$20,000 to $29,999 100 2%$30,000 to $39,999 128 22%$ , $ ,$40,000 to $49,999 131 -11%$50,000 to $59,999 154 -1%$60,000 to $69,999 143 -4%$70,000 to $79,999 166 -19%$80,000 to $89,999 175 -26%$90,000 to $99,999 155 -35%

$100 000 to $109 999 143 27%$100,000 to $109,999 143 -27%$110,000 to $119,999 188 -30%$120,000 to $129,999 165 -45%$130,000 to $139,999 162 -36%$ , $ ,$140,000 to $149,999 155 -33%

Today’s Market, cont’dToday’s Market, cont’dDFW S l YTD J ’09 ( 2)DFW S l YTD J ’09 ( 2)DFW Sales YTD Jan’09 (page 2)DFW Sales YTD Jan’09 (page 2)

Sale Price Range# sales YTD (1 mos 2009)

% change vs. prior yearg

$150,000 to $159,999 152 -24%$160,000 to $169,999 97 -42%$170,000 to $179,999 122 -29%$180,000 to $189,999 92 -37%$180,000 to $189,999 92 37%$190,000 to $199,999 71 -42%$200,000 to $249,999 283 -32%$250,000 to $299,999 178 -29%$300 000 to $399 999 188 31%$300,000 to $399,999 188 -31%$400,000 to $499,999 91 -22%$500,000 to $599,999 31 -44%$600,000 to $699,999 11 -69%$ $$700,000 to $799,999 13 -43%$800,000 to $899,999 11 22%$900,000 to $999,999 8 -11%$1,000,000 and more 21 -51%, ,

Total 3,399 -27%