Presented at the San Jose Real Estate Investors Conference, Scott Sambucci explores current housing demand and supply drivers and housing affordability.

1. Housing Market Musings
SJREI | 02/01/2012
Scott Sambucci
COO, Altos Research

2. THE CONSTANT GROWTH MYTH

5. Capita per inventory
The other way to think about housing
affordability

7. Capita Per Inventory: National Picture
600
500
400
300
200
100
-

8. Capita Per Inventory
Altos Research "Capita per Inventory" vs. Active Market
Prices
Median Price Linear (Median Price)
$1,200,000
Stamfo
$1,000,000 rd, CT
$800,000
$600,000
$400,000
McAllen, T
$200,000 X
$-
- 50 100 150 200 250 300 350 400 450 500

11. 2011 Median
Capita per Wells Fargo Family Income Change Unemployment Rate: Sept
Metropolitan Area Inventory HOI Rank '(000s) Median Price Pop '00 to '10 '11 BLS
Honolulu, HI 530 223 $ 81.6 $ 755,000 8.8% 5.7%
San Francisco-Oakland-Fremont MSA 456 224 $ 101.6 $ 675,000 5.1% 9.2%
San Jose-Sunnyvale-Santa Clara, CA 408 217 $ 103.6 $ 701,000 5.8% 9.6%
Mc Allen-Edinburg-Mission, TX 378 214 $ 33.7 $ 158,000 36.1% 12.3%
Los Angeles-Long Beach-Glendale, CA ^^^ 333 220 $ 64.0 $ 595,000 3.8% 11.3%
San Diego-Carlsbad-San Marcos, CA 288 213 $ 74.9 $ 600,000 10.0% 9.7%
Santa Barbara-Santa Maria-Goleta, CA 287 212 $ 72.3 $ 1,000,000 6.2% 8.6%
New York-New- Jersey MSA 245 225 $ 67.4 $ 535,000 3.1% 8.3%
Santa Cruz-Watsonville, CA 235 219 $ 85.8 $ 561,000 2.7% 10.1%
San Luis Obispo-Paso Robles, CA 229 218 $ 74.4 $ 530,000 9.3% 9.3%
Greensboro-High Point, NC 223 151 $ 54.6 $ 172,000 12.49% 10.4%
Lakeland-Winter Haven, FL 219 9 $ 53.8 $ 139,000 24.4% 12.0%
Springfield, IL 214 31 $ 69.1 $ 153,000 4.3% 7.4%
Harrisburg-Carlisle, PA 198 32 $ 72.5 $ 176,000 7.9% 7.0%
Flint, MI 189 11 $ 57.7 $ 89,000 -2.4% 10.6%
Lansing-East Lansing, MI 186 6 $ 67.8 $ 128,000 3.6% 7.7%
Houston-Sugar Land-Baytown, TX 184 181 $ 66.0 $ 316,000 26.11% 8.6%
Burlington-South Burlington, VT 184 165 $ 75.7 $ 328,000 6.22% 4.2%
Sacramento--Arden-Arcade--Roseville, CA 179 110 $ 75.1 $ 248,000 19.9% 11.5%
Youngstown-Warren-Boardman, OH-PA 173 18 $ 54.9 $ 95,000 -6.2% 8.9%
Virginia Beach-Norfolk-Newport News, VA-NC 171 120 $ 69.9 $ 269,000 6.05% 7.3%
Austin-Round Rock-San Marcos, TX 167 159 $ 74.9 $ 286,000 37.3% 7.4%
Carson City, NV 158 6 $ 68.3 $ 202,000 5.4% 12.4%
Memphis, TN-MS-AR 158 148 $ 58.3 $ 170,000 9.20% 10.5%
Dayton, OH 157 22 $ 62.4 $ 109,000 -0.8% 9.2%
Rockford, IL 152 10 $ 63.4 $ 113,000 9.1% 13.4%
Charlotte-Gastonia-Rock Hill, NC-SC 150 183 $ 67.5 $ 213,000 32.14% 10.7%
Ogden-Clearfield, UT 148 21 $ 70.6 $ 206,000 23.6% 6.9%
Indianapolis-Carmel, IN 142 18 $ 66.0 $ 159,000 15.2% 8.1%
Toledo, OH 142 16 $ 61.7 $ 130,000 -1.2% 9.2%
Canton-Massillon, OH 141 13 $ 58.1 $ 98,000 -0.6% 9.0%
Columbia, SC 137 153 $ 63.6 $ 172,000 18.61% 9.2%
Bridgeport-Stamford-Norwalk, CT 135 216 $ 105.3 $ 931,000 3.9% 7.9%
Ocala, FL 92 17 $ 49.9 $ 163,000 28.0% 12.4%
Portland-Vancouver-Hillsboro, OR-WA 46 170 $ 72.0 $ 299,000 5.44% 8.4%

12. So what?
2011 Median Unemployment
Wells Fargo Family Income Change Rate: Sept '11
HOI Rank '(000s) Median Price Pop '00 to '10 BLS
CORREL
Capita per
Inventory 53.8% 31.2% 56.7% -4.6% -6.6%
CORREL Wells
Fargo
HOI Rank 44.5% 75.7% 13.8% -14.2%

13. Capita per Inventory: Bay Area cities
PALO ALTO SAN MATEO LOS ALTOS DUBLIN OAKLAND SAN JOSE SACRAMENTO BAKERSFIELD
1600
1400
1200
1000
800
600
400
200
0
10/7/2011

18. Homeownership Rates &
The Rental Market
What does this mean for investors?

20. Millennials not looking for Gen Y home ownership: A dream
McMansions (unless they have to deferred?
move back in with the parents)
http://www.cbsnews.com/8301-505143_162-57324851/gen-y-
home-ownership-a-dream-deferred/
http://grist.org/cities/2011-01-14-millennials-not-looking-
for-mcmansions-unless-they-have-to-live/

22. Owner occupied Renter occupied
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Total Households Native Naturalized US Citizen Non-US Citizens

26. Several factors other than demographic changes may explain the
broad-based increases in homeownership rates.
Unfortunately, however, there is little research available to quantify their
effects; therefore, the ideas in this section are more speculative than
the demographic analysis. With that said, it seems plausible that
one of the more important factors explaining the broad-based
increase in homeownership from 1994 to 2004 could be the myriad
of innovations in the mortgage finance industry that occurred
during that time…
Several innovations helped propel the rise of the subprime market
during the 1990s and into the 2000s. Although definitions of subprime
mortgages vary, in essence they are loans given to households with
lower credit quality, and they entail higher than average interest rates.
FRBSF Economic Letter - November 3, 2006
“The Rise in Homeownership”
http://www.frbsf.org/publications/economics/letter/2006/el2006-30.html

27. Homeownership Rates: Bubble Markets

32. Are REOs really a good
deal?
What does this mean for investors?

35. The Foreclosure Discount: Myth or Reality?
John P. Harding (University of Connecticut, Center for Real
Estate and Urban Economic Studies), Eric Rosenblatt (Fannie
Mae), Vincent W. Yao
“Using a large sample of REO purchases, we identify a control
sample of non-distressed property purchases that closely
match the REOs in terms of property characteristics, location
and time of sale and find that with the exception of a small
number of extraordinary returns from short-term investing in
REOs, typical REO buyers earn approximately 1.4%/year above
the return from price appreciation associated with the purchase
of a non-distressed property and that the original price
discount needed to generate that excess return is less than
typical transaction costs.”

38. Uncle Sam’s Policies
Do they work?

39. Programs. Lots of Programs
REO Rental Initiative (Freddie Mac)
National Real Estate Owned (REO) Rental Policy
(Fannie Mae)
Deed-for-Lease (Fannie Mae)
Department of Housing & Urban Development
Neighborhood Stabilization Program
REO-to-Rental (US Federal Reserve)
Federal Housing Finance Agency REO Initiative
US Election
HAMP, HARP, HARP II, HAFA
Tax Credit

40. http://www.fhfa.gov/webfiles/23196/REO2112F.pdf

41. Scott Sambucci
e: scott@altosresearch.com
p: (415) 931 7942
t: @scottsambucci