Where are we going today?

2. Where are we going today? • Trends in Connecticut’s residential markets. • Major drivers behind these changes. • Risk management: planning for a range of future outcomes. John M. Clapp, Center for Real Estate, University of Connecticut p. 2

3. 1. Trends in Connecticut’s residential markets. John M. Clapp, Center for Real Estate, University of Connecticut p. 3

4. Overview through 2009, 1st quarter: house prices decline in all submarkets • Existing single family: On average, prices in the first quarter declined by roughly 10% year-over-year at a time when inflation is near zero. Bright spots: • The real rate of decline is not accelerating. • The national rate of decline is about the same – and much higher in many metro areas. • The level of house prices has been rolled back to the first quarter of 2004. I.e., two years of unsustainable double digit price increases in 2004-2005 have been erased by declines during the last two years. John M. Clapp, Center for Real Estate, University of Connecticut p. 4

5. John M. Clapp, Center for Real Estate, University of Connecticut p. 5

6. Drilling down to submarkets • The Bridgeport-Stamford Labor Market Area (LMA) was down nearly 11%; the rate of decline was similar in the last half of 2008. It is likely that Wall Street’s layoffs have reduced demand. • The Norwich-New London LMA experienced a relatively models 7% decline. • Danbury: only -1%. John M. Clapp, Center for Real Estate, University of Connecticut p. 6

7. John M. Clapp, Center for Real Estate, University of Connecticut p. 7

8. John M. Clapp, Center for Real Estate, University of Connecticut p. 8

9. John M. Clapp, Center for Real Estate, University of Connecticut p. 9

10. 2. Major drivers behind these changes. John M. Clapp, Center for Real Estate, University of Connecticut p. 10

11. National and CT Economies • You have already heard about declining employment and rising unemployment in Connecticut and the US. • Higher mortgage default rates have a dampening effect – e.g., first time buyers benefit from federal tax incentives, but they may buy vacant properties. This does not stimulate the “chain of moves.” • Inflation rate has declined in the last year – from about 4% to 0%. • Many financial institutions fail or need government help. Nonfinancial corporations line up at the government trough. John M. Clapp, Center for Real Estate, University of Connecticut p. 11

12. Structural changes to the economy • Heavy government involvement with financial institutions • and with the auto industry, health care, and beyond. • politics will inevitably influence allocation of federal aid. • Mortgage financing – MBS – will likely be simplified for the foreseeable future. Less money flowing to housing. • The Connecticut data suggest that the number of transactions is unlikely to increase substantially • A 10% increase over the past year is possible, but 0% change is more likely. • Large government subsidies continue? John M. Clapp, Center for Real Estate, University of Connecticut p. 12

13. 3. Risk management: planning for a range of future outcomes. John M. Clapp, Center for Real Estate, University of Connecticut p. 13

14. Likely trends in home buying patterns • First time buyers have reason for optimism! Focus on their needs when planning business strategies – the rest of the market will follow. • Smaller homes likely to do better as consumption expectations moderate. Note that condominiums have done relatively well so far in this cycle. • Homes closer to metropolitan centers and mass transit are likely to sell better than the distant suburbs. Careful market analysis-add value in good locations – e.g., benefitting from federal $s invested in transportation. John M. Clapp, Center for Real Estate, University of Connecticut p. 14

15. Overview of Opportunities for Professionals • Adjust business model to get into foreclosure financing, short sales and workouts • Learn about federal programs • e.g., for first time home buyers • Invest or provide investment advice emphasizing long term “use value” • Form an investment fund & tap international money • Conservative financing • Property management will be a big growing area requiring local information on tenants and competing property. Investment consulting. John M. Clapp, Center for Real Estate, University of Connecticut p. 15