Navigating California's Housing Market Trends: Insights from Peter Dennehy

1. California Housing Market Trends:Navigating Turbulent Waters Peter Dennehy October 3, 2007 New York City

2. Council Member Biography: Peter Dennehy is Senior Vice President of Sullivan Group Real Estate Advisors and spearheads the firm’s client engagements, whether managing market research efforts, conducting public policy research and analysis, or relating market positioning and strategy recommendations. With over 18 years experience in the real estate advisory field, he has consulted on a wide array of residential and commercial properties, from condominiums and single-family dwellings to master planned communities and resorts. Previously, Peter worked for The Meyers Group and Robert Charles Lesser & Co. His consulting activities have spanned most major real estate markets in California, Arizona and the Pacific Northwest, with a particular expertise in the areas of urban development, in analyzing and projecting the build-out of large scale residential and commercial projects, and issuing land-secured special tax financing. © 2007 Gerson Lehrman Group Inc., All Rights Reserved

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6. California Housing Market Trends:Navigating Turbulent Waters Gerson Lehrman Group September 26, 2007 SULLIVAN GROUP REAL ESTATE ADVISORS Peter Dennehy, Sr. Vice President (858) 523-0946 x227 p.dennehy@sgrea.com

7. California Overview

8. Population Percent Changes California (1971 - 2005) Source: U.S. Census Bureau; California Department of Finance; California Association of REALTORS®; Sullivan Group

9. Employment GrowthCalifornia vs. United States Year to Year Percent Change Source: Bureau of Labor Statistics; CAR; Sullivan Group Real Estate Advisors

10. Unemployment RateCalifornia vs. United States Source: Bureau of Labor Statistics; CAR; Sullivan Group Real Estate Advisors

11. Nonfarm Employment By Region Source: CA Employment Development Division; California Association of REALTORS®; Sullivan Group Real Estate Advisors

12. 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

13. California Trended Similar to the Nation(Employment to Permit Ratios) US 2006 = 1.2 Employees Per HH CA 2006 = 1.4 Employees Per HH Source: Census Bureau; BLS; Sullivan Group

14. Residential Construction Levels Surged Between 2000 and 2005… CALIFORNIA TOOK PART IN THE “BUILDING BOOM” Source: Census Bureau; Sullivan Group

15. But Never Reached Past Peak Levels 2007P = 125,725 Source: Construction Industry Research Board; Sullivan Group Real Estate Advisors

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

17. Active New Housing Projects vs. SalesCalifornia: Jan 2005 to July 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

18. California Total Building Permits Source: SOCDS; Sullivan Group Real Estate Advisors

19. California Existing Home Sales 2007P = 410,000 Source: California Association of REALTORS®; Sullivan Group Real Estate Advisors

20. Sales of Existing Detached Homes and Pacific West Consumer Confidence California, June 2007 Sales: 364,280 Units, Down 19.7% Y-T-D, Down 24.7% Y-T-Y SOURCE: California Association of REALTORS®; The Conference Board; Sullivan Group Real Estate Advisors

21. California vs U.S. Median Prices1970 - 2006 Source: California Association of REALTORS®; Sullivan Group Real Estate Advisors

22. Median Price of Existing Detached Homes California, August 2007: $588,970, Up 2% Y-T-Y Source: California Association of REALTORS®; Sullivan Group Real Estate Advisors

23. Housing Affordability Index % OF HOUSEHOLDS THAT CAN BUY California vs. U.S. Source: California Association of REALTORS®; Sullivan Group Real Estate Advisors

24. Homeownership Rates California vs. U.S. Source: U.S, Census Bureau; California Association of REALTORS®; Sullivan Group Real Estate Advisors

25. Unsold Inventory Index MONTHS California, August 2007: 11.8 Months Source: California Association of REALTORS®; Sullivan Group Real Estate Advisors

26. Unsold Inventory By Price Range California - Existing Homes July 2007 vs. July 2006 Source: California Association of REALTORS®; Sullivan Group Real Estate Advisors

27. Mortgage Foreclosure Rates DELINQUENCY RATE FORECLOSURE RATE California Source: Mortgage Bankers Association; California Association of REALTORS®; Sullivan Group Real Estate Advisors

28. Notices of Default – CA Houses and Condos * Includes additional counties Source: DataQuick Information Systems; California Association of REALTORS®; Sullivan Group Real Estate Advisors

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

30. Major Market Areas

31. Southern California: Great weather, weak housing market 3.7% of U.S. Permits Solid DemandE/P Ratios 2.0 Los Angeles2.2 Riv/San Bern1.0 San DiegoJob Growth 1.0% Los Angeles3.6% Riv/San Bern0.5% San Diego Short term supply issues Limited land Urban market Is flooded Source: Sullivan Group Real Estate Advisors

32. Sacramento: Oversupply and too high prices will make for a slow 2007 0.6% of U.S. Permits Strong connection to Reno Demand is StrongE/P Ratios 2.2 SacramentoJob Growth 2.2% Sacramento * Still pulls strongly from Bay Area for lifestyle refugees, business and retirees. Lots of Incentives Source: Sullivan Group Real Estate Advisors

33. Northern California: Bay Area most solid region of California 1.4% of U.S. Permits Great JobsE/P Ratios 4.2 San Francisco3.4 San Jose0.9 Stockton1.4 VallejoJob Growth 1.9% San Francisco2.4% San Jose1.2% Stockton1.6% Vallejo Supply concerns inCentral Valley Strong job base Source: Sullivan Group Real Estate Advisors

34. Population Projection: 2007-2012 • Southern California 257,200 • Bay Area 62,400 • Central California 60,300 • Sacramento 34,400 Gains Per Year

35. Employment GrowthJune 2007 (last 12 months) Source: Hanley Wood; Sullivan Group Real Estate Advisors

36. Southern California Markets: SFD Prices Down YTY2nd Qtr 2006 vs. 2nd Qtr 2007 -12% -2% -6% -2% 0% 1% Source: Hanley Wood; Sullivan Group Real Estate Advisors

37. Northern California Markets: SFD Prices Down in Central Valley/Sacramento – Up in Bay Area 2nd Qtr 2006 vs. 2nd Qtr 2007 +8% -7% -12% Source: Hanley Wood; Sullivan Group Real Estate Advisors

38. The Rapid Runup in Median New Home Prices Encouraged Speculation 2nd Qtr 2007 Statistics Sacramento $410,105 San Bernardino $439,900 Riverside $449,610 Los Angeles $458,500 San Diego $734,365 SF Bay Area $754,000 Orange County $1,034,000 Source: Hanley Wood; Sullivan Group Real Estate Advisors

39. Southern California Sales Volumes2006 vs. 1st Half 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

40. Northern California: Sales Volumes Have Slowed2006 vs. 1st Half 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

41. Southern California: SFD Active Projects2nd Qtr 2006 vs. 2nd Qtr 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

42. Northern California: SFD Active Projects2nd Qtr 2006 vs. 2nd Qtr 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

43. Southern California Attached Active Projects2nd Qtr 2006 vs. 2nd Qtr 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

44. Northern California: Attached Active Projects2nd Qtr 2006 vs. 2nd Qtr 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

45. And Too Many New Detached UnitsAre Still Being Supplied Change 2Q06 vs 2Q07 Central CA: +1,966 Inland Empire: +762 Bay Area: +494 LA/Ventura: +43 Orange: -37 Sacramento: -21 San Diego: -305 Source: Hanley Wood; Sullivan Group Real Estate Advisors

46. ….Same With Attached Units Change 2Q06 vs 2Q07 Bay Area: +948 Orange: +694 Central CA: +129 LA/Ventura: +97 Ventura: +69 Sacramento: -128 San Diego: -461 Source: Hanley Wood; Sullivan Group Real Estate Advisors

47. California 2007 Sales YTD: Public BuildersJuly 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

48. California 2007 Total Units Remaining: Public BuildersJuly 2007 Source: Hanley Wood; Sullivan Group Real Estate Advisors

49. Peter Dennehy, Sr. Vice President SULLIVAN GROUP REAL ESTATE ADVISORS11622 El Camino Real, Suite 300 San Diego, CA 92130 (858) 523-0946 x227