2009 Ccim Presentation - Residential Market

CCIM SPEECH NOTES: February 4, 2009

Steven L. Waugh Managing Director & Subdivision Team Leader PGP Valuation, Inc. 112 W. 11th Street, Suite 250 Vancouver, WA 98660 Phone 360-823-5274

Housing Stats Per Real Estats-Len Magazine Residential Market Trends Annual Trends 2007 & 2008 Excludes Mobile Homes & Plexes Clark County Clackamas County Washington County Multnomah County Sales Volumes 2008 2007 2008 2007 2008 2007 2008 2007 Existing Detached 3582 -33% 3196 -33% 4002 -32% 6854 -34% New Detached 860 -29% 764 -31% 806 -18% 666 -33% Attached 517 -49% 337 -54% 1580 -52% 2216 -40% Total Home Sales 4959 -34% 4297 -35% 6388 -37% 9736 -35% REO Sales as % Existing Home Sales 617 17% 305 9% 244 6% 495 7% Relative Inventory Existing home sales were down consisently across all 4 counties in 2008 by 32 to 34% New Detached sales followed a smilar trend, with Clark, Washington & Multnomah down 29-33%, and Washington down 18% Attached housing market faired the worse, down from 40 to 54% across all four counties. Overall, the volume of home sales was down an average of 35% for the Portland Metro Area Pending sales dropped 30%, and New Listings Dropped 8.7% for the year, and 20% compared to the same quarter last year Foreclosure sales now approaching 10% of existing sales, with Clark County higher at 17% Per the local RMLS service there is a 14.1 months of inventory based on current monthly sales rate, up from 8.5% in December 2007 Total Marketing Time for Homes Per MLS is up 13% to an average of 138 days Clark County Clackamas County Washington County Multnomah County Median Sale Price Trends Median Existing Detached $24,500 -5% $307,000 -5% $295,000 -6% $275,000 -2% Median New Detached $276,698 -19% $351,750 -13% $435,000 2% $312,447 1% Median Attached $188,600 -5% $200,000 -7% $220,000 -4% $247,100 -4% % of Units Sold New Detached 19% -5% 19% 2% 22% 15% 8.9% 1.1% Median Existing Home Price down from 2 to 6%, averaging 5% Mediand New Home Price more static in Washingotn and Multnomah Counties, but down 13% in Clackamas and 19% in Clark Coujnty Attached housing down average of 5% Median Sale Prices Are Likely Skewed by Concessions and by the number and location of the sales

New Home Trends Construction activity and starts are at all time low Generally selling close to 1/4 of the new units as compared to the peak of the market New home and lot inventories are declining, but slowing sales are still keeping the overall months of inventory high Most plat in Clark County with new detached product have absorption from 0 to 2.50 sales per momth, with average at about 1 per month Attached townhome absorption similar to slightly lower at 0 to 2 closed sales per month 2009 Volume of New Home Sales Could Go Down Further 20% if Economy Does Not Improve More builders will file bankruptcy in 2009 & we will see builders work together or consolidate to survive Some production builders trying to get detached housing down to $180,000 for starter home Affordability is improving with home prices continuing to decline & very low mortgage rates, but recession & tighter lending standards offset Long term trend for production builders: goal to match of starter home pricing to median incomes, and conform to underwriting standards. During the peak of the market, starter home prices far exceeded the affordability based on median incomes and traditional underwriting Median Income are likely to drop given unemployment on the rise, and near term deflation is likely Lot and land prices have to adjust further Interest Rate Buydowns More Common as Incentive From Builders Trend to continued increase in number of attached townhomes entering rental pools by builders. Some discussion between building community and jurisdications to put a temporary freeze on increased impact fees Banks & FDIC Restructuring of the financial system & underwriting requirements likely in near future Continued Bank Closures Likely in next two years Bank closures typically result in frozen lines of credit and loans being called- ripple effect for the community Opportunity for brokers to represent buyers & to inform them of inventory becoming available Also recommend learning the process and establishing relationship with FDIC on selling side Fed is injecting money (liquidity into banking system), but banks are stockpiling the liquidity and not passing it on. Commercial Real Estate Problems will hurt already troubled banks in the coming year. Lot Value Trends 25-40% value declines in many markets Most transactions are individual retail sales or takedown sales tied to home absorption to builders Larger custom lots and acreage lots showing big declines, with the exception of very unique parcels in limited supply Spec financing for smaller custom builders is extremely limited, so only buyers of larger lots are production builders or individuals Most bulk discounts analyzed using Discounted Cash Flows range at 25-35% from retail, with some up to 50% Increase in short sales for lots, will result in builders offering new below market product with competitive advantage Some Recent Potential Buyer Comments on Liquidation Values for Land and Lots Developer/Builder 50 cents on dollar because they can immediately react as a producer Inventor buyer at 20-30 cents on the dollar for wait and hold scenario

Residential Land Demand almost non existent in 2008, and will likely be limited to short sales, liquidation sales, or speculation in 2009 Reductions in land values have been magnified by the slower home sales, lack of demand for lots, and lack of financing Land Valuation - Focus on supported finished product type, price it right, run conservative costs, and calculate residual on yields w/holding periods. A&D Loans are essentially non-existent except for unique well positioned projects with high equity requirements of a limited scope. Multi-Family Land - Few sales, developers have quoted likely range from 8,000 to 14,000 per door for land at 18-24/acre garden style. Value of entitlement no what it used to be, and entitlements will expire for many projects Developers will continue to obtain post decision reviews to phase larger projects, in attempt to extend length of entitlements New Washington State Stormwater Rules Effective in April 2009 have caused a rush of new applications for subdivision to maintain lot yields Overall Comments Really in unchartered waters- Deep Recession, new administration, new stimulus plan, new direction for TARP Demographic Trends also shifting to more conservative for savers in the future Hard Money Lenders Coming into Play Now My guess is that we will bottom in early 2010, with a signs of a recovery in later 2011. Some national experts say housing crisis could last another 3-4 years. Private parties need to start looking at housing as a long term investment, not a quick flip product Future success in housing market will be dependent on bringing product to market that is supported by incomes and new underwriting requirements Qualified buyers will have a great opportunity with declining values and low rates If you are ready to pull the trigger on a home purchase & have a good deal you should do it as long as you are qualified and not heavily in debt.