San Diego ULI Young Leaders

Prospects for a Housing
Market Bottom in 2009?

For: ULI San Diego Young Leaders
June 2, 2009

SULLIVAN GROUP REAL ESTATE ADVISORS
Peter Dennehy, Sr. Vice President
(858) 523-1443 x118
p.dennehy@sgrea.com
Phone 858.523.1443 www.sullivangroupadvisors.com

Agenda
I. The Big Picture
II. The San Diego Market
III. 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

GDP Growth is Declining
8% 1Q 2009 = -5.7%

12/07-? Recession
6%
‘81-’82 Recession

‘90-’91 Recession

‘01 Recession
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
2009* using 1st qtr. data
Source: Bureau of Economic Analysis, released May 29, 2009; Sullivan Group

So Unemployment is Increasing
Avg. 1980 to 2008 = 6.1%
Avg. 1980 to 2008 = 6.1%
11% April 2009 = 8.9%
April 2009 = 8.9%
10%

12/07-? Recession
81-82 Recession

90-91 Recession

2001 Recession
9%
8%
7%
6%
5%
4%
3%
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2009* – April
Source: Bureau of Labor Statistics; Sullivan Group

30-Year Fixed Rate Mortgages are
Historically Low
18.0% May 2009* = 4.91%
16.0%

12/07-? Recession
81-82 Recession

90-91 Recession

2001 Recession
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2009* as of May 28
Source: Freddie Mac; Sullivan Group

U.S. Consumer Confidence is Low, But Improving
160
3-Year rough patch 2Q09* = 54.9
140

120

100

80

60

40

20

0
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
*2nd Qtr 2009 as of May
Source: The Conference Board, released May 26, 2009; Sullivan Group

U.S. Existing Home Sales: Stabilizing at Low Level
7,000,000
2005 = 6,171,667 Peak
6,000,000
2009*= 4,123,334
5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0
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 March
Source: National Assn of Realtors; Economy.com; Sullivan Group

Resale Supply Has Leveled Recently.
Can We Work Off More Supply in 2009?
5,000,000 Months of supply was 10.7 12.0
4,500,000 months in April ‘08, but

4,000,000
dropped to 9.6 months in
April ‘09.
10.0
3,500,000 8.0
3,000,000
2,500,000 6.0
2,000,000
1,500,000 4.0
1,000,000 Listings Months of Inventory 2.0
500,000
0 0.0
Mar-99

Mar-00

Mar-01

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09
Sep-99

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08
Source: National Assn. of Realtors; Sullivan Group

New Home Sales Continue to Fall:
Lowest in Two Generations
1,400
2005 = 1,283,000 Peak
1,200
2008 = 485,000 Stole demand
1,000 2009*= 352,000 from future
800

600

400

200

0
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

New Home Supply “Overhang”:
Absolute Numbers Are Declining
12.0
April 09 = 296,000 Units
April ‘09 = 10.1 Months
10.0 Aug 06 Peak = 570,000 Units
06 Peak =

8.0

6.0

4.0

2.0

0.0
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 Supply
Source: Census Bureau; Sullivan Group

Starts Below 1991 and 1981 Levels
2,500,000 Peak Sep 2005 = 2,263,000
2,250,000
2,000,000 “v” “u”
1,750,000
1,500,000
1,250,000
1,000,000
750,000
500,000 April 2009 = 498,000
250,000
0
1980M1
1982M1
1984M1
1986M1
1988M1
1990M1
1992M1
1994M1
1996M1
1998M1
2000M1
2002M1
2004M1
2006M1
2008M1
Source: U.S. Census Bureau, SA annual rate, released May 27, 2009; Sullivan Group

U.S. Housing Rebound: Can It Start After 2009?
2.4 Million
SF and MF Housing Starts

2.2
Average 1970-2008
2.0
1.8
1.6
1.4
1.2
1.0
0.8
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: U.S. Census Bureau; Sullivan Group

National Foreclosures Still High
1,100,000
1,000,000 Quarterly Data Monthly Data
803,489
900,000 783,991 850,460

800,000
681,337
700,000 642,149

600,000
488,489
500,000 437,498
342,038
400,000 345,554
300,000
200,000
100,000
0
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
Apr-08

Jun-08

Aug-08

Oct-08

Feb-09
Sep-08

Dec-08

Apr-09
Jan-09
Jul-08

Nov-08

Mar-09
May-08

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

III. THE SAN DIEGO MARKET


Index of Leading Economic Indicators
San Diego County
April ’09 = 100.9
160 Up 0.2 since last month 10.00%

% Change in Index From Prior Year
140
Index of Economic Indicators

5.00%
120
0.00%
100

80 -5.00%

60 Index of Economic Indicators
-10.00%
% Change From Prior Year
40
-15.00%
20

0 -20.00%
Jun-97

Jun-98

Jun-99

Jun-00

Jun-01

Jun-02

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08
Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08
Source: University of San Diego; Sullivan Group

San Diego Job Growth Negative
2005 -
2005 - 21,800
21,800
80,000 2006 -
2006 - 19,500
19,500
Y-T-Y PERCENT CHANGE
2007 -
2007 - 7,200
7,200
60,000 2008 -
2008 - -9,600
-9,600
40,000 2009ytd- -8,150
2009ytd- -8,150

20,000
0
-20,000
-40,000
-60,000
Apr-86
Apr-87
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
Data is year over year change; 2009ytd is the average of January through April.
Source: California Employment Development Department; Sullivan Group

Job Losses Starting in Mid 2008
25,000 2006 -
2006 - 19,500
19,500
20,000 2007 -
2007 - 7,200
7,200
15,000 2008 -
2008 - -9,600
-9,600
10,000 2009ytd- -8,150
2009ytd- -8,150
5,000
0
-5,000 Y-T-Y PERCENT CHANGE
-10,000
-15,000
-20,000
-25,000
-30,000
-35,000
-40,000
-45,000
-50,000
May-06

May-07

May-08
Jan-06

Sep-06

Jan-07

Sep-07

Jan-08

Sep-08

Jan-09
Mar-06

Mar-07

Mar-08

Mar-09
Jul-06

Jul-07

Jul-08
Nov-06

Nov-07

Nov-08
Data is year over year change; 2009ytd is the average of January through April.
Source: California Employment Development Department; Sullivan Group

Job Gain/Loss Comparison
March 2009 vs. March 2008
4.00%
3.00%
2.00%
1.00% 0.40%

0.00%
-1.00% -0.60%
-1.30%
-2.00%
-3.00% -2.60%
-3.40% -3.50%
-4.00% -3.70%
-3.90% -3.90% -4.00%
-4.20%
-5.00% -4.80% -4.80%
-5.10% -5.20%
-6.00%
-7.00% -6.60%
-7.10%
-8.00%
es

re
nd

x
go
ity

to
tin

s

se

s
y
on

d
r

on
tle

ve

nt

ni
ga
la

an

pi
en
el

Jo
C

la
ie
us

at

cs
st

al

oe
ou
en

Em
Ve
ng

rtl
ak
D

am
ke
ou

Se
D
A

Tu
n

Ph
C
D

Po
A
n

/O

Sa

s
La
H

nd
cr
Sa

e

La
s

SF

ng

Sa
Lo
lt

la
Sa

ra

In
O

Source: BLS; Sullivan Group

Unemployment Level
United States vs. San Diego
10.0
9.0 United States
United States 8.9%
8.9%
8.0 San Diego
San Diego 9.3%
9.3%
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
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
Note: US data as of Apr 2009 and San Diego as of Mar 2009

San Diego’s Residential Permits are at the
Lowest Level Since the 1940s
2004
2004 15,587
15,587
50,000 Long-term average - 17,000/yr 2005
2005 14,306
14,306 -8%
-8%
45,000 2006
2006 9,194
9,194 -36%
-36%
Building Permits

40,000 2007
2007 7,461
7,461 -19%
-19%
2008
2008 5,242
5,242 -30%
-30%
35,000 2009P
2009P 3,000
3,000 -43%
-43%
30,000
25,000
20,000
15,000
10,000
5,000
0
1948

1954

1960

1966

1972

1978

1984

1990
1996

2002

2008
Note: 2009 is a projection using data through April
Source: SOCDS; Sullivan Group

San Diego Residential Permits: 2005-2009ytd
2,500
2,250 2009ytd
2009ytd
2,000
Attached
Attached 554
554
Detached
Detached 501
501
1,750
1,500
1,250
1,000
750
500
250
0
May

May

May

May
Sep

Sep

Sep

Sep
Mar

Mar

Mar

Mar

Mar
Nov

Nov

Nov

Nov
Jan-05

Jan-06

Jan-07

Jan-08

Jan-09
Jul

Jul

Jul

Jul
Attached Detached


+/-34,000 Homes Sales in ’09: Good/Bad = Bad/Good?
8 year Total Home
70,000 2005
2005 58,953
58,953 -14%
-14% Sales Average
2006
2006 42,253
42,253 -28%
-28% 51,734
60,000 2007
2007 32,872
32,872 -23%
-23%
2008
2008 33,113
33,113 1%
1%
50,000 2009P
2009P 33,900
33,900 2%
2%

40,000
8 year New Home
Sales Average
30,000 9,873

20,000

10,000

0

2009P
1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008
New Existing
2009P-Dataquick (resales) annualized data through April; Hanley Wood (new) annualized data through March.
Source: Dataquick; Hanley Wood; Sullivan Group

San Diego County New Home Sales
2009P = ±2,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2009
Detached Attached
2009P annualized using data from January through March.
Source: Hanley Wood; Sullivan Group

Case-Shiller: Prices Down 42% Since 2005
300
250 March 2009
San Diego 144.56
200 Composite of 10 151.41
150
100
50
0
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
San Diego Composite of 10
Composite of 10 includes Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego,
San Francisco, Washington DC
Source: S&P/Case-Shiller; Sullivan Group

Median New Home Detached Price Also Lower
SFD: -27%; ATT: 0% Vs. Peak
$1,000,000
$900,000 1st Qtr 2009
1st Qtr 2009
$800,000 Detached $640,000
Detached $640,000
$700,000 Attached $399,900
Attached $399,900
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
4Q88
4Q89
4Q90
4Q91
4Q92
4Q93
4Q94
4Q95
4Q96
4Q97
4Q98
4Q99
4Q00
4Q01
4Q02
4Q03
4Q04
4Q05
4Q06
4Q07
4Q08
Attached Detached

Affordability Back to Late 1990s Level
70 1st Qtr 2009 = 58.8
60
50
40
30
20
10
0
1Q97
3Q97
1Q98
3Q98
1Q99
3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
Note: 2Q02 through 3Q03 data not available
Source: NAHB Housing Opportunity Index, released May 18, 2009; Sullivan Group

Number of Active Home Projects is Declining
San Diego: - 44% from Nov 2006
Active Projects March 2009
March 2009
348 in Nov 06 Active Projects –– 194
Active Projects 194
400 194 in Mar 09 Total Sales - - 150
Total Sales 150
2,000
350 1,750
Active Projects

300 1,500

Total Sales
250 1,250
200 1,000
150 750
100 500
50 250
0 0
Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08
Jan-05

Jan-06

Jan-07

Jan-08

Jan-09
Jul-05

Jul-06

Jul-07

Jul-08
Active Projects Sales

New Detached Inventory is Generally Low
March 2009
600 12
Standing/Under Construction Inventory

500 10

Months of Inventory
400 8

300 6

200 4

100 2

0 0
San Diego Central Coastal East Inland South Bay
County North North

Standing/Under Construction Inventory Months of Inventory

Most New Attached Inventory in Central Submarket
March 2009
2,000 40
Standing/Under Construction Inventory

Months of Inventory
1,500 85% of Attached Inventory 30

in Central Submarket
1,000 20

500 10

0 0
San Diego Central Coastal East Inland South Bay
County North North

Standing/Under Construction Inventory Months of Inventory
Source: Hanley Wood; Sullivan Group Real Estate Advisors

Improvement in Existing Sales Levels in ’09
Lower Prices and REOS Stimulating Sales Activity
6,000
5,000
4,000
3,000
2,000
1,000
0
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

Total Existing Sales Volume Improved in 2008
5,000 MLS ‘08 vs. ‘07
MLS ‘08 vs. ‘07
4,500 2007
2007 26,403
26,403
4,000 2008
2008 30,471
30,471
3,500 % Change +15%
% Change +15%
3,000
2,500
2,000
1,500
1,000
500
0
Sep-05

Sep-06

Sep-07

Sep-08
Nov-05

Nov-06

Nov-07

Nov-08
Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09
Mar-05

Mar-06

Mar-07

Mar-08

Mar-09
May-05

May-06

May-07

May-08
Source: Dataquick; Sullivan Group

Active Resale Listings Have Declined Steadily
May 28, 2009
May 28, 2009
22,500 Attached
Attached 3,474
3,474
20,000 Detached
Detached 6,093
6,093
Total
Total 9,567
9,567
17,500
15,000
12,500
10,000
7,500
5,000
2,500
0
2/13/07

4/13/07

6/13/07

8/13/07

10/13/07

12/13/07

2/13/08

4/13/08

6/13/08

8/13/08

10/13/08

12/13/08

2/13/09

4/13/09
SFD Listings Attached Listings Total Listings

Source: Zip Realty; Sullivan Group

There is a 3.9 Month Supply of Resale Units
25,000 5,000
22,500 4,500

Total Existing Sales
20,000 4,000
17,500 3,500
Listings

15,000 3,000
12,500 2,500
10,000 2,000
April 2009
7,500 1,500
Listings 12,511
5,000 Sales 3,194 1,000
2,500 500
0 0
Jan-06
Mar-06
May-06

Sep-06
Nov-06
Jan-07
Mar-07
May-07

Sep-07
Nov-07
Jan-08
Mar-08
May-08

Sep-08
Nov-08
Jan-09
Mar-09
Jul-06

Jul-07

Jul-08
Listings Total Existing Sales
Source: Zip Realty; Dataquick; Sullivan Group


Foreclosures Still at Record Levels in
San Diego County
7,000 Peak 3Q08 = 6,463
6,000 4Q08 = 3,837

5,000
4,000
3,000
2,000
1,000
0
Q4/89
Q4/90
Q4/91
Q4/92
Q4/93
Q4/94
Q4/95
Q4/96
Q4/97
Q4/98
Q4/99
Q4/00
Q4/01
Q4/02
Q4/03
Q4/04
Q4/05
Q4/06
Q4/07
Q4/08
Source: Real Estate Research Council; CAR; Sullivan Group

NOD’s Jumped Again in December ‘08
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Apr-08

Aug-08

Apr-09
May-08
Oct-07
Nov-07

Feb-08

Jun-08
Mar-08

Jul-08

Sep-08
Oct-08
Nov-08

Feb-09
Mar-09
Dec-07
Jan-08

Dec-08
Jan-09
Source: InnoVest Resource Mgmt; Sullivan Group

Foreclosures at Record Level of Transactions
(April 2009 = 9.2%)
25,000 Data reflects new state
25%
requirement which requires
20,000 lenders to contact homeowners 20%

Trustee Deeds as % of All Deeds
30 days prior to filing.
15,000 15%
10,000 10%
5,000 5%
0 0%
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
All Deeds Notices of Default Trustee's Deed TD % of all Deeds
Source: InnoVest Resource Mgmt; Sullivan Group

III. DISCUSSION


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