It’s All About the Price: Washington-Wall

Street - Real Estate and the Economy

Ted C. Jones Chief Economist Stewart Title Guaranty Co.
Recession Recovery

The recovery in every

recession since 1949
has been led by a
recovery in the
housing market
US Civilian Employment
Millions of Jobs

137.0

135.0

133.0

131.0
'07 '08 '09
263 Thousand Jobs Lost in September 2009
7.2 Million Jobs Lost Since January 2008
5.4 Million Job Losses Since Nov 2008 Elections
US Civilian Employment Job Loss
Thousands of Jobs Lost Per Month

700
600
500
400
300
200
100
0
n b a r p r y n u l g p ct v e c n b ar p r y n u l r p
J a F e M A M a Ju J A u S e O N o D J a F e M A M a Ju J A u g ep
'0 8 '09 S
U.S. Civilian Unemployment Rate

Percent Unemployment – Not Seasonally Adjusted

9.8%
10.0
8.0
6.0
4.0
2.0
0.0
'07 '08 '09
Colorado Jobs
August Comparison Compound Annual Growth Rate

-4.62% 1 Year

-1.93% 2 Years

-0.49% 3

5 Years 0.58%

10 Years 0.52%

-5.50% -4.50% -3.50% -2.50% -1.50% -0.50% 0.50%

Colorado Job Growth
Percent Change from Same Month Prior Year
Not Seasonally Adjusted
August
Colo -4.62%
USA -4.38%
3.0%

1.0%

-1.0%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
-3.0%

-5.0%
US Colorado
109,400 Net Lost Jobs in the Past 12 Months
Summit County Jobs
July Comparison Compound Annual Growth Rate

-5.91% 1 Year

-4.49% 2 Years

-2.58% 3 Years

-0.21% 5 Years

10 Years 1.50%

-7.00% -5.00% -3.00% -1.00% 1.00%

Summit County Job Growth
Percent Change from Same Month Prior Year
Not Seasonally Adjusted
10.0%

5.0%

0.0%
'01 '02 '03 '04 '05 '06 '07 '08 '09
-5.0%

-10.0%
US Summit County
911 Net Lost Jobs in the Past 12 Months
Summit County
Civilian Unemployment Rate
Percent Unemployment – Not Seasonally Adjusted

10.0
6.8%
8.0
6.0
4.0
2.0
0.0
'07 '08 '09
Eagle County Jobs
July Comparison Compound Annual Growth Rate

-2.26% 1 Year

-1.03% 2

3 Years 0.86%

5 Years 2.44%

10 Years 3.91%

-4.00% -2.00% 0.00% 2.00% 4.00%

Eagle County Job Growth
Percent Change from Same Month Prior Year
Not Seasonally Adjusted

8.5%
6.5%
4.5%
2.5%
0.5%
-1.5%
'01 '02 '03 '04 '05 '06 '07 '08 '09
-3.5%
-5.5%
US Eagle County
687 Net Lost Jobs in the Past 12 Months
Eagle County
Civilian Unemployment Rate
Percent Unemployment – Not Seasonally Adjusted

10.0
6.6%
8.0
6.0
4.0
2.0
0.0
'07 '08 '09
US Car Sales
Millions – Seasonally-Adjusted Annualized Rate
25

20

15

10

0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
US Car Sales
Millions – Seasonally-Adjusted Annualized Rate
18
16
14
12
10
8
6
4
2
0
'07 '08 '09
Cash For Clunkers
• $2.9 Billion
• $3,500 to $4,500 Per Car
• 690,114 Sales
• 38.6 Percent US Made Models
1. Toyota Corolla
2. Honda Civic
3. Toyota Camry
4. Ford Focus
5. Hyundai Elantra

Trade deficit increase was biggest since Feb 1999

 Analysis: Tax Credit Adds
357,000 Buyers
A study estimates that 357,000
buyers have been motivated so
far by the $8,000 First-Time
Homebuyer Tax Credit.
Campbell Surveys, a division of Campbell Communications
Obama Stimulus Plan
$787 Billion Cost
Save or Create 3.5 Million Jobs
Spending $ 787,000,000,000
Jobs 3,500,000

Cost Per Job $ 224,857

Ted’s No-Tax Solution Stimulus
Allow every homeowner that is current
on their loan to refinance at 5
percent

Include all jumbos -- No cash out

Make Fannie and Freddie buy all

and guaranty repayment of principal
after three years
Federal Budget Surplus (Deficit)
$ Billions

$200.0
$100.0
$0.0

90
91
92
93
94
95
96
97
98
99
'00
'01
'02
'03
'04
'05
'06
'07
'08

-$100.0
-$200.0
-$300.0
-$400.0
-$500.0
Federal Budget Surplus (Deficit)
$ Billions

$100.0
-$100.0

90
91
92
93
94
95
96
97
98
99
'00
'01
'02
'03
'04
'05
'06
'07
'08f
'09f

-$300.0
-$500.0
-$700.0
-$900.0
-$1,100.0
-$1,300.0
-$1,500.0
-$1,700.0
-$1,900.0
Federal Deficit Projections
• 2009 -- $1.7 to $1.8 Billion

• 2010 -- $1.30 Billion

• $9 Trillion Minimum for Next 10 Years

2010-2019 –Without Passing
Health Care or Cap and Trade
Oil Prices & 30-Year Conventional Loan Rates
July 2009 Dollars
30-Year
Oil Prices Residential
Rates %
$140

$120 19

$100 16
$80
13
$60
10
$40
7
$20

$0 4
72 75 78 81 84 87 90 93 96 99 '02 '05 '08
Oil Prices & Exchange Rates $US Per Euro
Oil in July 2009 Dollars
Dollars
Per
Oil Prices
OilPrice
Euro
$140
$1.65
$120

$100 $1.45

$80
$1.25
$60
$1.05
$40

$20 $0.85
'02 '03 '04 '05 '06 '07 '08 '09
 Housing
30-Year
Rate

12-31-09
6.0

Ted’s Forecast
6.2
Big 2010
‘09 Upside…
EXOT IC
Loans
$3.5 Trillion in Total
Commercial Loans
$400 Billion to
Refinance
Per Year for Next
10 Years
 Commercial Lending
Q4 2008 vs. Q4 2007

Overall -80%
Hotel -99%
Down
11 Percent
Office -72%
Q3 2008 Retail -82%
To
Q4 2008 Industrial -76%
MultiFamily -62%
Health -42%
 Commercial Lending Activity
Q1 2009 vs. Q1 2008
Just
14 Percent
of the Overall -70%
Level
In Q1 Hotel -88%
2007
Office -66%
Retail -76%
Industrial -50%
MultiFamily -61%
Health -42%
 Commercial Lending Activity
Q2 2009 vs. Q2 2008

Just
17 Percent Overall -54%
of the
Level
Hotel -77%
In Q2 Office -81%
2007
Retail -51%
Industrial -65%
MultiFamily -21%
Health -42%
Commercial Real Estate

“….only $8 billion in significant apartment, industrial,

office and retail had traded. The quarter-over-quarter
pace of decline in volume actually accelerated to 59
percent during the first three months of 2009 from the
already depressed level of transactions at year-end 2008.”

Deutsche Bank analysts said that tougher

underwriting standards and an eventual 50% drop in
property values would prevent a "vast swath" of
commercial real estate borrowers from refinancing
their loans as they come due over the next four years.
Perhaps All Commercial
Real Estate is Now
Value in Use
 Cost
Approach
Disconnect
Valuing Improved Commercial
Real Estate Today

Capitalize the Current NOI

at 8 to 10 Percent

Yields Top End Estimate

Could Argue That Commercial Real Estate Today
Should be Appraised as its Value in Use
Capitalization Rate Impact
Percent Change in Property Value
As Cap Rates Increase

New Original Rate

Rate 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 11.0% 11.5%
5.0%
5.5% -9.1%
6.0% -16.7% -8.3%
6.5% -23.1% -15.4% -7.7%
7.0% -28.6% -21.4% -14.3% -7.1%
7.5% -33.3% -26.7% -20.0% -13.3% -6.7%
8.0% -37.5% -31.3% -25.0% -18.8% -12.5% -6.3%
8.5% -41.2% -35.3% -29.4% -23.5% -17.6% -11.8% -5.9%
9.0% -44.4% -38.9% -33.3% -27.8% -22.2% -16.7% -11.1% -5.6%
9.5% -47.4% -42.1% -36.8% -31.6% -26.3% -21.1% -15.8% -10.5% -5.3%
10.0% -50.0% -45.0% -40.0% -35.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0%
10.5% -52.4% -47.6% -42.9% -38.1% -33.3% -28.6% -23.8% -19.0% -14.3% -9.5% -4.8%
11.0% -54.5% -50.0% -45.5% -40.9% -36.4% -31.8% -27.3% -22.7% -18.2% -13.6% -9.1% -4.5%
11.5% -56.5% -52.2% -47.8% -43.5% -39.1% -34.8% -30.4% -26.1% -21.7% -17.4% -13.0% -8.7% -4.3%
12.0% -58.3% -54.2% -50.0% -45.8% -41.7% -37.5% -33.3% -29.2% -25.0% -20.8% -16.7% -12.5% -8.3% -4.2%
Capitalization Rate Impact
Percent Change in Property Value
As Cap Rates Increase

New Original Rate

Rate 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5%
5.0%
5.5% -9.1%
6.0% -16.7% -8.3%
6.5% -23.1% -15.4% -7.7%
7.0% -28.6% -21.4% -14.3% -7.1%
7.5% -33.3% -26.7% -20.0% -13.3% -6.7%
8.0% -37.5% -31.3% -25.0% -18.8% -12.5% -6.3%
8.5% -41.2% -35.3% -29.4% -23.5% -17.6% -11.8% -5.9%
9.0% -44.4% -38.9% -33.3% -27.8% -22.2% -16.7% -11.1% -5.6%
9.5% -47.4% -42.1% -36.8% -31.6% -26.3% -21.1% -15.8% -10.5%
Opportunities
• Tenant renegotiations
• Property taxes
• Expense mitigation
• Buying at lowest in decades (cash)
• Life-Long Low Capital Gains Rates
• Brokerage Services Have Never Been
More Valuable
Patience
And
Wisdom

and cash
LETTER TO THE BANK

Dear Banker,
In view of current developments in the
banking market, if one of my checks is
returned marked ‘insufficient funds',
does that refer to me or to you?
Sincerely Yours,
It’s All About the Price: Washington-Wall
Street - Real Estate and the Economy
Ted C. Jones Chief Economist Stewart Title Guaranty Co.
Normal Housing Price Trends
Until the unsustainable boom in the 2000’s,
home prices went up ½ to 1.5 percent more
per year than inflation in most markets in
the past 50 years.

Home prices in the long-run cannot rise

more than incomes—after adjusting for
inflation.

Housing—a way to long-term wealth but not

instant riches.
Real Estate Cycle
Sales
Prices

Tops
Bottoms

Normal
US Existing Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®

125%

100%

75%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Colorado Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®
125%
87.5%

100%

75%

50%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
New Mexico Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®
200%

175%

150%

125%

100%

75%

50%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Florida Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®
150%

125%

100%

75%

50%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
California Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®

125%

100%

75%

50%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Texas Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®
150%

125%

100%

75%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Nevada Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®
200%

175%

150%

125%

100%

75%

50%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Arizona Housing Sales
2002 Q1 = 100 Percent
National Association of REALTORS®
175%

150%

125%

100%

75%

50%
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Orlando Median Home Price
$ Thousands
National Association of REALTORS®
$300

$250

$200

$150

$100
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Colorado Springs Median Home Price
$ Thousands
National Association of REALTORS®

$200

$150

$100
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Boulder Colorado Median Home Price
$ Thousands
National Association of REALTORS®
$400

$350

$300

$250

$200
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Denver-Aurora Colorado Median Home Price
$ Thousands
National Association of REALTORS®
$300

$250

$200

$150

$100
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Florida Existing Home Sales: July 2009
Florida Association of REALTORS®

Sales Year To Last Percent July July Percent

Cities Date YTD Change 2009 2008 Change
Daytona Beach 4,173 3,565 17.1% 755 595 26.9%
Fort Lauderdale 4,886 3,398 43.8% 907 581 56.1%
Fort Myers-Cape Coral 9,257 4,402 110.3% 1,570 768 104.4%
Fort Pierce-Port St. Lucie 3,361 2,497 34.6% 561 415 35.2%
Fort Walton Beach 1,399 1,370 2.1% 232 217 6.9%
Gainesville 1,011 1,302 -22.4% 200 205 -2.4%
Jacksonville 6,433 5,813 10.7% 1,226 925 32.5%
Lakeland-Winter Haven 2,051 1,769 15.9% 330 267 23.6%
Melbourne-Titusville-Palm Bay 3,568 2,984 19.6% 534 478 11.7%
Miami 3,847 2,250 71.0% 643 392 64.0%
Marco Island
Ocala 1,499 1,288 16.4% 255 167 52.7%
Orlando 12,724 9,379 35.7% 2,343 1,656 41.5%
Panama City 667 642 3.9% 117 114 2.6%
Pensacola 1,936 1,920 0.8% 371 321 15.6%
Punta Gorda 1,729 1,600 8.1% 248 200 24.0%
Sarasota-Bradenton 4,915 4,926 -0.2% 855 657 30.1%
Tallahassee 1,011 1,230 -17.8% 222 218 1.8%
Tampa-St. Petersburg-Clearwater 15,960 13,708 16.4% 2,822 2,174 29.8%
West Palm Beach-Boca Raton 4,761 4,102 16.1% 859 652 31.7%
Totals 85,188 68,145 25.0% 15,050 11,002 36.8%
California Existing Home Sales: July 2009

Sales Year To Last Percent July July Percent

Counties Date YTD Change 2009 2008 Change
Alameda 9,648 7,799 23.7% 1,780 1,428 24.6%
Contra Costa 11,353 8,122 39.8% 1,888 1,730 9.1%
Marin 1,324 1,383 -4.3% 265 277 -4.3%
Napa 752 616 22.1% 134 125 7.2%
Santa Clara 10,987 9,151 20.1% 2,199 1,660 32.5%
San Francisco 2,837 3,610 -21.4% 543 609 -10.8%
San Mateo 3,238 3,373 -4.0% 692 648 6.8%
Solano 4,828 2,878 67.8% 715 592 20.8%
Sonoma 3,441 2,831 21.5% 555 517 7.4%
Los Angeles 43,757 33,860 29.2% 8,082 6,592 22.6%
Orange County 17,242 14,189 21.5% 3,128 2,799 11.8%
Riverside 29,425 21,280 38.3% 4,699 4,116 14.2%
San Bernardino 21,004 12,365 69.9% 3,549 2,521 40.8%
San Diego 22,070 18,184 21.4% 3,809 3,431 11.0%
Ventura 5,101 4,583 11.3% 837 870 -3.8%
Totals 187,007 144,224 29.7% 32,875 27,915 17.8%
San Diego-Carlsbad-San Marcos
Median Home Price
$ Thousands National Association of REALTORS®
$650
$600
$550
$500
$450
$400
$350
$300
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Los Angeles-Long Beach-Santa
Ana Median Home Price
$ Thousands National Association of REALTORS®
$600
$550
$500
$450
$400
$350
$300
$250
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Houston-Bay Town-Sugar Land
Median Home Price
$ Thousands National Association of REALTORS®
$175

$150

$125

$100
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Austin-Round Rock
Median Home Price
$ Thousands National Association of REALTORS®
$200

$175

$150

$125

$100
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Las Vegas Median Home Price
$ Thousands
National Association of REALTORS®
$350

$300

$250

$200

$150

$100
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Phoenix Median Home Price
$ Thousands
National Association of REALTORS®
$300

$250

$200

$150

$100
2 3 4 5 6 7 8 9
'0 '0 '0 '0 '0 '0 '0 '0
Summit County Single Family Sales
Number of Dwellings Sold
200

150

100

50

0
'03 '04 '05 '06 '07 '08 '09
Summit County Single Family Sales
Average Number of Dwellings Sold Per Month for Prior 12 Months

125
100
75
50
25
0
'04 '05 '06 '07 '08 '09
Summit County Single Family Sales
Average of the Median Sales Price Per Month for Prior 12 Months

$500,000
$400,000
$300,000
$200,000
$100,000
$0
'04 '05 '06 '07 '08 '09
Summit County Single Condo Sales
Number of Dwellings Sold
200

150

100

50

0
'06 '07 '08
Summit County Condo Sales
Average Number of Dwellings Sold Per Month for Prior 12 Months

125
100
75 Actual
Numbers
50 Not
Averaged
25
0
'07 '08 '09
Summit County Condo Sales
Median Sales Price

$500,000
$400,000
$300,000
$200,000
$100,000
$0
'06 '07 '08 '09
NAR – 159 MSA Median Prices Quarterly
NAR – 159 MSA Median Prices Quarterly

Q1- Q2 Average Price Change

2004 to 2009 Percent
15 MSAs N/A 9.4%
88 Showed Price Increases 55.3%
11 Had Price Declines of Less Than 5 Percent 6.9%
45 Had Price Declines of Greater Than 5 Percent 28.3%
New Home Sales
Seasonally-Adjusted Annualized Rate
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Summit County Building Permits

1,400
1,200 Single Multi

1,000
800
600
400
200
0
90 92 94 96 98 '00 '02 '04 '06 '08
 Eagle County Building Permits

1,600
1,400 Single Multi
1,200
1,000
800
600
400
200
0

90 92 94 96 98 0 2 4 6 8
'0 '0 '0 '0 '0
Residential Recovery
• Existing Home Sales Up 16.7 Percent
Since January 2009
• New Home Sales Up 40 Percent Since
January 2009
• Case-Shiller Price Index Up Two
Consecutive Months—Just 2 out of 20
Cities Declining
• 55 Percent of MSAs Home Prices Greater
Than 1st Half of 2004
 2009-2010 Economic Concerns
• Wall Street—Washington--Liquidity
• Time Bomb Loans
• Cold War II—Terrorists
• Pandemic (bird flu…..) 2 years ago forecast
• Inflation (and Cap Rates)--Recession
• Tax Cut Clock Ticking…………….
• Energy: US Imports 63 Percent of Oil
• Real Estate-Autos-Credit Cards-Banks
Interest Rates Vs. Price Changes
Original $100,000 Loan

Price Change 0% -5% -10% -15% -20%

Loan Amount $ 100,000 $ 95,000 $ 90,000 $ 85,000 $ 80,000

Interest Rate Monthly Payment

4.0% $477.42 $453.54 $429.67 $405.80 $381.93
4.5% $506.69 $481.35 $456.02 $430.68 $405.35
5.0% $536.82 $509.98 $483.14 $456.30 $429.46
5.5% $567.79 $539.40 $511.01 $482.62 $454.23
6.0% $599.55 $569.57 $539.60 $509.62 $479.64
6.5% $632.07 $600.46 $568.86 $537.26 $505.65
7.0% $665.30 $632.04 $598.77 $565.51 $532.24
7.5% $699.21 $664.25 $629.29 $594.33 $559.37
8.0% $733.76 $697.08 $660.39 $623.70 $587.01
 Ted’s Blog
http://blog.stewart.com/
2009 It’s All About the Price
Washington-Wall Street
Real Estate and the Economy

Ted C. Jones PhD

Senior Vice President-Chief Economist
Stewart Title Guaranty Company
Director of Investor Relations
Stewart Information Services Corporation