Monthly Survey of R/E Agents

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1 Americas/United States Equity Research Homebuilding / MARKET WEIGHT Research Analysts Daniel Oppenheim, CFA dan.oppenheim@credit-suisse.com Michael Dahl michael.dahl@credit-suisse.com William Alexis william.alexis@credit-suisse.com Monthly Survey of R/E Agents CHANNEL CHECK Drops in March as Spring Starts Slowly slips in March, as buyers wait for increased confidence and lower prices: Our Monthly Survey of Real Estate Agents indicated a decline in buyer traffic in March, as buyers chose to wait for more signs of balance in the market. Agents continued to note the wide divide among potential buyers, with the most distressed markets finding significant investor interest, whereas buyers in other markets are still cautious and plan to wait for home prices to bottom. Investors represent the most stable demand, but providing little demand for builders. Real estate agents saw traditional buyers become more cautious as a result of additional declines in home prices, but saw consistent demand from investors paying cash. In general, the greatest demand is focused on the distress listings in strong locations. In contrast. Agents noted that poorly located homes received little to no traffic, as buyers have become even more sensitive to location. Agents seeing better traffic continued to note that buyers responded to the fear that rates will move higher by searching for opportunities at this time. The focus on distress listings and bargains leads buyers to foreclosures and short sales, with less traffic for new homes. Our traffic index fell by 4.5 points to 37.5 in March, down from 42.0 in February. Pricing still under pressure in February, due to competition with distress listings, but some agents noted better trends due to the improving economy. Our price index improved to 30.6 in March, up from 29.6 in February. Despite the slight uptick, readings below 50 indicate declining prices sequentially. However, the second straight month of a sequentially higher level points to early signs of stability. We would expect additional weakness in pricing, as sellers will likely attempt to use price to sell their homes as the end of the traditional spring season nears. Our home listings (inventory) index improved 3.7 points to 38.8 in March, better than 35.1 in February, although any readings below 50 still indicate rising inventory. DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit researchdisclosures or call +1 (877) U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

2 Table of Contents Overview of Results....3 Survey Methodology...5 Top 20 Housing Markets Atlanta, Georgia 7 Austin, Texas 8 Charlotte, North Carolina 9 Chicago, Illinois 10 Dallas, Texas 11 Denver, Colorado 12 Houston, Texas 13 Jacksonville, Florida 14 Las Vegas, Nevada 15 Los Angeles, California 16 Miami, Florida 17 Minneapolis, Minnesota 18 New York-Northern New Jersey 19 Orlando, Florida 20 Phoenix, Arizona 21 Riverside-San Bernardino (Inland Empire), California 22 San Antonio, Texas 23 Seattle, Washington 24 Tampa, Florida 25 Washington, D.C. 26 Additional Key Housing Markets 27 Baltimore, Maryland 28 Boston, Massachusetts 29 Charleston, South Carolina 30 Cincinnati, Ohio 31 Columbus, Ohio 32 Fort Myers, Florida 33 Detroit, Michigan 34 Nashville, Tennessee 35 Philadelphia-Southern New Jersey 36 Portland, Oregon 37 Raleigh, North Carolina 38 Richmond, Virginia 39 Sacramento, California 40 San Diego, California 41 San Francisco, California 42 Sarasota, Florida 43 St. Louis, Missouri 44 Tucson, Arizona 45 Virginia Beach, Virginia 46 Wilmington, North Carolina 47 Historical Survey Trends by Market 48 *Markets are characterized based on permit activity and listed in alphabetical order Monthly Survey of R/E Agents 2

3 Drops in March as Spring Starts Slowly For those who may be unfamiliar with our survey, we center our indices around 50 so that readings above 50 indicate positive or improving trends and readings below 50 indicate negative or worsening trends. Please see page 5 for a full description of our survey methodology. slips in March, as buyers wait for increased confidence and lower prices: Our Monthly Survey of Real Estate Agents indicated a decline in buyer traffic in March, as buyers chose to wait for more signs of balance in the market. Agents continued to note the wide divide among potential buyers, with the most distressed markets finding significant investor interest, whereas buyers in other markets are still cautious and plan to wait for home prices to bottom. Investors represent the most stable demand, but providing little demand for builders. Real estate agents saw traditional buyers become more cautious as a result of additional declines in home prices, but saw consistent demand from investors paying cash. In general, the greatest demand is focused on the distress listings in strong locations. In contrast. Agents noted that poorly located homes received little to no traffic, as buyers have become even more sensitive to location. Agents seeing better traffic continued to note that buyers responded to the fear that rates will move higher by searching for opportunities at this time. The focus on distress listings and bargains leads buyers to foreclosures and short sales, with less traffic for new homes. Our traffic index fell by 4.5 points to 37.5 in March, down from 42.0 in February. Pricing still under pressure in February, due to competition with distress listings, but some agents noted better trends due to the improving economy. Our price index improved to 30.6 in March, up from 29.6 in February. Despite the slight uptick, readings below 50 indicate declining prices sequentially. However, the second straight month of a sequentially higher level points to early signs of stability. We would expect additional weakness in pricing, as sellers will likely attempt to use price to sell their homes as the end of the traditional spring season nears. Our home listings (inventory) index improved 3.7 points to 38.8 in March, better than 35.1 in February, although any readings below 50 still indicate rising inventory. Monthly Survey of R/E Agents 3

4 Exhibit 1: Fell in March as Buyers Became Cautious; Prices Remain Under Pressure Buyer Index Home Price Index Home Listings Index Time to Sell Index Incentive Month Index Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Point change (4.5) Exhibit 2: Buyers Look for Deals, but Tight Lending and Fear of Lower Prices Bring Down Levels Versus Expectations 46% 21% 33% % 45% 47% 44% 41% 25% 16% 9% 6% Monthly Survey of R/E Agents 4

5 Survey Methodology We survey real estate agents, as we believe agents provide an accurate assessment of local housing market trends in both the new and existing home markets. We view an understanding of the existing home market as crucial to homebuilders as it represents over 9 of total sales, and trends in the existing home market often dictate trends in the new home market. Each month, we survey agents about trends in buyer traffic levels, home prices, incentives, inventory levels, and the length of time needed to sell a home. In March, we received responses from 1,200 real estate agents across the country. We review responses and calculate an index for each of the questions with levels above 50 indicating positive trends, levels below 50 indicating worsening trends, and a level of 50 indicating a neutral trend. 1) Are traffic levels in-line with, above, or below your expectations for this time of year? (Because of seasonality to traffic trends generally more traffic in Spring and less in Fall/Winter we ask about traffic relative to the expectations for this time of year rather than how traffic compared to the prior month). A traffic index above 50 means that traffic was above the expectations of agents, a traffic index of 50 means that traffic was in-line with expectations, and a traffic index below 50 means that traffic was below expectations. 2) Have prices remained the same, increased, or decreased over the past 30 days? A price index above 50 indicates that prices increased over the past 30 days, a price index of 50 indicates that prices were flat, and a price index below 50 indicates that prices decreased. 3) Have incentives remained the same, increased, or decreased over the past 30 days? An incentive index above 50 indicates that incentives decreased over the past 30 days, an incentive index of 50 indicates that incentives were unchanged, and an incentive index below 50 indicates that incentives increased. 4) Do you see the same, more, or fewer, listings as compared with 30 days ago? An inventory (listings) index above 50 indicates that the inventory of homes for sale decreased over the past 30 days, an inventory index of 50 indicates that inventories were unchanged, and an inventory index below 50 indicates that inventories increased. 5) Does it take the same, more, or less time to sell a house? A time to sell index above 50 indicates that the time needed to sell a home decreased over the past 30 days, a time to sell index of 50 indicates that the time needed to sell a home was unchanged, and a time to sell index below 50 indicates that the time needed to sell a home increased. Monthly Survey of R/E Agents 5

6 Exposure to Key New Home Markets The market exposure of homebuilders to the key housing markets is outlined in the table below. Exhibit 3: Summary of Homebuilders Exposure to Key New Home Markets Family Market Exposure ( % of 2009 Closings) Market Permits BZH DHI HOV KBH LEN MDC MTH NVR PHM RYL SPF TOL Atlanta, GA 6,436-3% % 4% - - Austin, TX 6,069-5% - 7% 4% - 9% - 4% - 6% - Charlotte, NC 4,518-2% - 3% 2% - - 5% 2% - 5% - Chicago, IL 4,249-3% - - 2% % 5% - - Dallas, TX 14, % - 4% - 23% - 3% Denver, CO 3,704-2% - 2% 1% 14% 4% - 1% Houston, TX 22,360-5% 18% 12% 18% - 25% - 3% Inland Empire, CA 5,248 6% 3% 6% 11% 4% % 5% 12% - Jacksonville, FL 3,381-3% - 5% 2% 7% - - 1% 3% 4% - Las Vegas, NV 4,630-5% - 6% 3% 18% 3% - 2% 5% - - Los Angeles, CA 4, % 2% % - 8% - Miami, FL 3,178-2% Minneapolis, MN 3,794-1% 3% - 3% % 5% - - NY - Northern NJ 7, % - 2% - - 1% 1% % Orlando, FL 4,177-2% - 5% 3% - 5% - 3% 5% - - Phoenix, AZ 7,259-6% - 4% 3% 18% 12% - 7% - 9% - San Antonio, TX 5,122-7% - 6% 2% - 5% - 4% 7% - - Seattle, WA 6,097-2% % Tampa, FL 4,395 4% 1% 2% 3% 6% % 3% 1 - Washington, DC 9,362-1% 1-4% % 7% - 15% Total Exposure to Top , % 61% 7 64% 57% 86% 25% 44% 49% 54% 31% Source: Company data, Builder Online, Credit Suisse estimates Monthly Survey of R/E Agents 6

7 Atlanta, GA Seasonal Demand Remains Well Below Normal as Buyers Continue to Lack Confidence (6,436 single-family building permits in 2010, 6th largest market in the country) up slightly but still well below expectations for the start of spring. Our buyer traffic index increased to 25 in March from 20 in February, but suggested little improvement in the overall sales environment as the reading remains well below a neutral 50 (any reading below 50 indicates buyer traffic below agents expectations). The few agents who noted improvement relative to last month commented that there seemed to be some pent up demand as the spring selling season kicked off, especially now that we re well past the worst of the tax credit hangover. One agent commented, There is more corporate relocation buying activity, less interest in short sales and foreclosures buyers are starting to look for move-in ready homes, willing to pay closer to market. However, most agents continued to see weakness in demand, which has been driven largely by the lack of confidence, high unemployment, and strict lending requirements. Local unemployment is rising here, rather than decreasing as it is in the rest of the country, according to one agent. Home prices remain under pressure. Home prices continued to fall in March, according to agents, although the declines appeared to be less widespread as our home price index improved to 33 from 21 in February (readings below 50 indicate lower prices over the past month). The weak demand and higher inventory likely contributed to the declines. Our home listings index increased to 33 in March from 27 in February, but any reading below 50 indicates sequentially higher inventory levels. Meanwhile, it took longer to sell a home, as our time to sell index came in at 33 (from 27 in February), with readings below 50 suggesting an increased length of time needed to sell. High inventory and a longer time to sell point to further pressure on home prices over the coming months. Lending guidelines are more strict than ever before. Consumer confidence is still low, with no job creation/growth. Looking more like a spring market around the corner. Ryland and D.R. Horton have the most exposure. Ryland has the greatest exposure to Atlanta, which represents approximately 4% of its net sales, followed by D.R. Horton with 3%, and Pulte Homes with 2%. Exhibit 4: Disappoints at Start of Spring Levels Versus Expectations % 52% 41% 29% 61% 59% 11% 38% 3% Monthly Survey of R/E Agents 7

8 Austin, TX Recent Improvement in Demand Leads to Flat Prices in March (6,069 single-family permits in 2010, 8th largest market in the country) down slightly but still close to agents expectations. Our buyer traffic index slipped to 40 in March from 43 in February, indicating traffic levels slightly below agents expectations for this time of year (a reading of 50 would indicate traffic in-line with expectations). Agents said that buyer confidence still isn t where it normally is or needs to be, which along with tight credit has held back the market. However, many agents still saw reason for optimism in March, noting pent up demand and relocation demand. Interestingly, several agents noted tighter inventory in some areas. Believe it or not, it is almost a seller s market with only 2-4 months of inventory, according to one agent. Several agents also cited increased motivation among buyers driven by the fear of higher mortgage rates. However, our own fear is that this issue cuts both ways, as the pool of buyers wanting to rush to lock in a rate now is likely much smaller than the pool of buyers that will become either discouraged or unable to afford a loan if rates do move significantly higher. Home prices stable on decent demand, flat inventory. Home prices were stable in March relative to February, according to agents, marking the first month since last April that agents in Austin indicated that prices held steady. Our home price index improved to 50 from 29 in February, in-line with a neutral reading of 50. Pricing was likely helped by the past two months of decent demand coupled with stable inventory levels. Our home listings index increased to 48 in March from 43 in February, essentially in-line with a neutral reading of 50. Our time to sell index also improved to 41 in March from 26 in February, still indicating a modest increase in the length of time needed to sell a home but moving closer to stabilization (a reading of 50 would suggest an unchanged time to sell). Rates are great, requirements are tough. There is still some worry over housing prices and lending criteria. Pent up demand from buyers, out of state relocation and investor interest in properties. Meritage, KB Home and Standard Pacific have the most exposure. Meritage has the greatest exposure to Austin with approximately 9% of net sales, followed by KB Home with 7%. Austin represents approximately 5% of sales for D.R. Horton. Exhibit 5: Stable Inventory Helps to Keep Prices Flat Levels Versus Expectations 42% 21% 38% % 57% 42% 38% 22% 22% 22% 21% 4% Monthly Survey of R/E Agents 8

9 Charlotte, NC Drops as Buyers Balk at Start of Spring Season (4,518 single-family permits in 2010, 14th largest market in the country) index drops to lowest level since December. Homebuyer traffic deteriorated in March, as our buyer traffic index fell to 29 from 42 in February, indicating traffic levels well below agents expectations for this time of year (readings below 50 point to traffic below expectations). Agents seemed frustrated and at a bit of a loss since traffic should be increasing seasonally around this time. One agent commented, Who knows anymore, I am getting very depressed. Most blamed the lack of jobs. Others said traffic wasn t as bad, but buyers remain hesitant to commit. One agent said, Buyers are still looking for deeply discounted deals but have little urgency to buy. Another agent commented, North Carolina still has a high unemployment rate. Artificially low interest rates are keeping buyers on the fence. The few agents that saw better sales activity cited pent up demand and Lots of relocations to the Charlotte market, as well as recent increases in mortgage rates which have spurred some people to get off the fence and at least look at what s out there in inventory. Prices continue to fall due to weak demand and rising inventory. Home prices fell further in March, as our home price index slipped to 21 from 23 in February, with readings below 50 indicating lower prices over the past 30 days. Prices continue to be pressured by the lack of demand and rising inventory. Our home listings index pointed to further increases in March, coming in at 32 (from 23 in February) vs. a neutral reading of 50 (readings below 50 point to rising inventory). In addition, the length of time needed to sell a home increased a negative sign for near-term pricing trends as our time to sell index also came in at 32 (from 23 in February), below a neutral reading of 50. The biggest problem now is appraisals. Several deals fell apart due to low appraisals or the PMI companies not being willing to insure the loan even though the property more than appraised At a loss as to why showing traffic is dismal. NVR and Standard Pacific have the most exposure. NVR and Standard Pacific each have the greatest exposure to Charlotte with approximately 5% of sales. Charlotte represents approximately 2% of sales for D.R. Horton, Lennar, and Pulte. Exhibit 6: Lack of Jobs and Confidence Leads to Slow Start to Selling Season Levels Versus Expectations 14% 57% 29% % 57% 14% 86% 36% 64% Monthly Survey of R/E Agents 9

10 Chicago, IL Sales Remain Weak as Buyers Either Can t or are Unwilling to Commit (4,249 single-family permits in 2010, 16th largest market in the country) Buyer traffic little changed at low levels in March. Buyer traffic remained depressed in March, as our buyer traffic index fell to 26 from 28 in February, with readings below 50 indicating traffic levels below expectations for this time of year. Agents said buyers remain in a holding pattern, concerned by foreclosures, tight lending, and an inability for many to move given the dwindling (or negative) equity in their current homes. One agent commented, Potential buyers who already own real estate have less equity than they thought they might have and because of the slow market, it is more or less frozen. Another noted, Buyers are still wary that prices will fall further. A handful of agents said that even though traffic levels have improved recently, conversion of traffic to sales is not happening. Premium north-side neighborhoods have good traffic, but not sales. Not-asdesirable neighborhoods have zero traffic, according to one agent. This is consistent with comments from agents in many other markets in March. Rising inventory and wary buyers lead sellers to cut pricing. Home prices continued to fall in March, as our home price index came in at 25, up from 21 in February but well below a neutral reading of 50 (any reading below 50 indicates lower prices over the past 30 days). Inventory rose further, which is likely to keep pressure on home prices at least in the near future, as our home listings index dropped to 25 in March from 36 in February (readings below 50 suggest sequentially higher inventory levels). In addition, our time to sell index fell to 18 in March from 25 in February, far short of a neutral reading of 50, indicating a longer time needed to sell a home over the past 30 days. Lenders are discounting from appraisal values. Distressed transactions continue in the market, which decreases buyers confidence. Broker incentives are being advertised: $3K extra in commissions, raffles for Caribbean trips and raffles for ipods. Ryland and D.R. Horton have the most exposure. Ryland has the greatest exposure to Chicago with approximately 5% of its sales in the market, followed by D.R. Horton with 3%. Lennar and Pulte each have approximately 2% of sales in Chicago. Exhibit 7: Prices Remain Under Pressure as Inventory Rises and Buyers Wait for Lower Prices Levels Versus Expectations 15% 24% 62% % 39% 56% 21% 65% 15% 7 25% 6% Monthly Survey of R/E Agents 10

11 Dallas, TX Hints of Optimism Return as Improves (14,409 single-family permits in 2010, 2nd largest market in the country) improves as buyers gain confidence, look for deals. Our buyer traffic index increased to 41 in March from 30 in February, pointing to sequential improvement in traffic levels albeit at overall levels still modestly below agents expectations for this time of year (a reading of 50 would indicate traffic in-line with agents expectations). Agents were more cheery this month than in February, with many comments about the improvement in activity (even if just seasonal) as job growth and the perception of value opportunities led to an uptick in calls and showings. One agent commented, People feel better about jobs, there are still plenty of homes to choose from, and financing is still good with excellent rates. Another noted, The lack of a tax credit has hurt traffic but reduced prices are finally getting properties under contract. Several other agents also mentioned lower prices as a driver for demand, as buyers are beginning to notice bargains in the market again. However, many continued to highlight the difficult lending environment as an impediment to a more meaningful improvement. Sellers cut prices to draw buyers back. Home prices continued to fall in March as sellers lowered prices in order to drive higher buyer interest. Our home price index came in at 25, up from 22 in February but well below a neutral reading of 50 (any reading below 50 points to sequentially lower home prices). This seemed to be at least somewhat effective based on the responses from agents suggesting better traffic levels. Inventory levels continued to increase, however, as our home listings slipped to 34 in March from 35 in February, short of a neutral reading of 50. The length of time needed to sell a home also increased, suggesting buyers are still reluctant to commit to a purchase, as our time to sell index came in at 32 (up from 17 in February but below a neutral 50). Better traffic appears to be more normal seasonal trend. More calls and appointments, but few contracts showing up yet. Increasing FHA requirements are killing some first-time buyers; the market is finding new mortgage products to offer. Meritage, Hovnanian and D.R. Horton have the greatest exposure. Meritage has the greatest exposure to Dallas, which represents 23% of its sales, followed by Hovnanian at 11% and D.R. Horton with 1. Dallas represents 4% of sales for LEN and 3% for PHM. Exhibit 8: Lower Prices Lure Buyers Back Into the Market Levels Versus Expectations 25% 8 74% 43% % 32% % 19% 18% 7% Monthly Survey of R/E Agents 11

12 Denver, CO Agents Start to See Hints of Pent Up Demand Being Unlocked (3,704 single-family permits in 2010, 24th largest market in the country) modestly below expectations, but some agents see hopeful signs. Our buyer traffic index slipped to 39 in March from 41 in February, indicating slightly worse traffic relative to seasonal expectations (readings below 50 point to traffic below agents expectations for this time of year). Buyer hesitancy was cited as the primary culprit, along with a continued overhang from the threat of more foreclosures coming through the pipeline. One agent noted the REO shadow market and the clog in the foreclosure process as a reason for the slower activity. However, many agents seemed to see some positive signs. A number of agents also mentioned pent up demand and higher consumer confidence. One agent commented, It seems the spring pick up has finally arrived and there are more people looking, especially first-time buyers. Others said the level and trend in mortgage rates is driving much of the interest as buyers fear a big move higher in rates. Another agent commented, People are hearing the market is better this year. Rates are still low, under 5%. Buyers are tired of waiting; however, prices still have to be at or below what the buyers think the market is. Prices fall as sellers adjust to buyer s market. Home prices remained under pressure in March, as our home price index fell to 34 from 39 in February, with readings below 50 indicating sequentially lower prices. Inventory levels increased, though an increase is typical for this time of year, as our home listings index came in at 39 (up from 33 in February), with readings below 50 indicating higher inventory over the past 30 days. Our time to sell index moved closer to stabilization, increasing to 41 in March from 35 in February (a reading of 50 would suggest a stable time to sell). Further improvement in the time needed to sell a home would indicate the start of a move to price stability. I can t explain it. Good weather, but showings fell off in late February and early March. Denver is normalizing. Inventory is steady, buyers are shopping, and sellers are ready. Lenders really rake you over the coals MDC Holdings and Meritage have the greatest exposure. MDC Holdings has the greatest exposure to Denver, which generates approximately 14% of its sales, followed by Meritage at 4%, and D.R. Horton and KB Home each with 2%. Exhibit 9: Buyers Are Looking but Want Deals Levels Versus Expectations 17% 4 43% % 4 9% 9% 82% 9% 34% 49% 17% Monthly Survey of R/E Agents 12

13 Houston, TX Buyers Don t Have the Confidence to Get Off the Fence (22,134 single-family permits in 2010, largest market in the country) Shaky confidence leads to lower traffic levels. Buyer traffic worsened in March, according to agents, as our traffic index fell to 29 from 40 in February, indicating traffic below agents expectations for this time of year (any reading below 50). Agents said a general lack of confidence continues to plague the market, as even the buyers that are starting to look are having a hard time committing to a purchase. According to one agent, Move-up homebuyers are not entering the market nor are lateral price range buyers who typically move for school district or location reasons, due to job insecurity and no long term confidence. Other agents said that tighter mortgage qualifications are impacting the area, especially given the low price point. Further tightening of FHA lending in April is likely to also have an impact. Agents who saw better traffic primarily cited either relocation demand or the fear of rising rates as the drivers. One agent noted, Plenty of transferees coming through, but the locals are not moving much. Improvement in the oil industry would likely continue to boost relocations and lead to a pick up in overall activity. Prices move closer to stabilization as sellers wait for spring rebound. Home prices fell modestly in March, according to agents, as sellers were likely hesitant to cut as they wait for a typical spring rebound. Our home price index improved to 42 from 37 in February, only slightly below a level of 50 which would suggest flat prices. Inventories continued to trend higher, as our home listings index improved to 38 in March from 26 in February but remained below a neutral reading of 50. In addition, the length of time needed to sell a home continued to increase typically a negative for pricing as our time to sell index slipped to 33 in March from 34 in February (below a neutral reading of 50). Economy and new, tighter mortgage guidelines. Buyers seem to be sitting on the fence waiting for more positive economic news. Buyers are starting to look at housing as the market seems to have stabilized. Buyers are willing to take the chance. Meritage, Hovnanian and Lennar have the greatest exposure. Houston represents approximately 25% of sales for Meritage, 18% of sales for Hovnanian and Lennar, and 12% of sales for KB Home. DHI has 5% exposure and RYL has 3%. Exhibit 10: Confidence Remains Stubbornly Low as Buyers Wait for More Tangible Signs of Improvement Levels Versus Expectations 4% 46% % 46% 42% 29% 22% 13% 9% 13% Monthly Survey of R/E Agents 13

14 Jacksonville, FL Low Prices Continue to Attract Buyers (3,381 single-family permits in 2010, 26th largest market in the country) Investors and traditional buyers taking advantage of the low prices. Buyer traffic improved modestly in March, slightly exceeding agents expectations, as our buyer traffic index increased to 54 from 50 in February (readings above 50 point to traffic above expectations). Agents said that both investors and traditional buyers were active in the market as prices continued to fall and buyers sought out deals. One agent commented, Lots of buyers and every good listing gets multiple offers. The market is saturated with HUD, REO, and short sale listings. Others said that the rates environment (low current mortgage rates with likelihood that they will rise meaningfully in the future) helped to drive traffic. One agent cited, Uncertainty regarding the future of the mortgage markets employment picture looking less bleak. It appeared that, similar to prior months, tight lending (especially on condos) remains a challenge. We are seeing an uptick in the high end of the market and a slowdown in the mid range. Falling prices aid inventory absorption. Home prices continued to fall in March, as our home price index dropped to 19 from 30 in February, well below a neutral reading of 50. Price reductions appeared effective, leading to higher traffic and lower inventory levels. Our home listings index improved to 54 in March from 40 in February, above a neutral 50 (readings above 50 indicate lower inventory levels). However, our time to sell index dipped to 39 in March from 45 in February, indicating a modestly longer time needed to sell (readings below 50). People from the Northeast cannot sell their homes. Many condos are no longer eligible for financing, putting great values out of the reach of regular homebuyers who would most benefit and could clean up a lot of the inventory and lead to the condo market recovery. Investor activity is increasing. MDC Holdings and KB Home have the most exposure. Jacksonville represents approximately 7% of sales for MDC and 5% for KB Home, with Standard Pacific at 4%, and DHI and RYL each at 3%. Exhibit 11: Buyers Sap Up Deals as Prices Fall Further Levels Versus Expectations 29% 36% 36% % 57% 5 38% 36% 36% 14% 7% Monthly Survey of R/E Agents 14

15 Las Vegas, NV Buyers in the Market are Treasure Hunters, Not Normal Buyers (4,630 single-family permits in 2009, 13th largest market in the country) drops as regular buyers head back to the sidelines. Buyer traffic worsened in March, as our traffic index fell to 26 from 44 in February, suggesting traffic levels well short of expectations for this time of year (readings below 50 point to lower than expected traffic). Agent commentary suggested that most buyers except for investors took a breather from the market, driven by further price declines, an inability to obtain credit, and a lack of desirable foreclosure properties. One agent commented, The major activity is below $150,000, same as last month, however there are fewer offers. Another agent mentioned that rising gas prices may also be coming into play, noting, Recent weakness in consumer confidence and projections of further price declines may be keeping some buyers pensive. Fuel price increases also may be disruptive. Agents who saw relatively better activity generally cited investor demand, and one also cited some builder incentives. Home prices continue to fall. Home prices fell further in March, pressured by weakness in demand and the continued prevalence of distressed properties, as our home price index was unchanged at 30, with readings below 50 indicating lower prices over the past 30 days. Inventory levels moved closer to stabilization, as our home listings index bounced to 42 in March from 22 in February (a reading of 50 would suggest flat inventory sequentially). The length of time needed to sell a home increased modestly, as our time to sell index ticked up to 38 from 37 in February, but remained below a neutral reading of 50. Most are cash buyers. Limited amount of bank owned properties versus short sales. Buyers want to purchase now, but are stuck waiting on short sales as there is a limited supply of REO properties available. Prices are so low, they are attracting investors from Asia, Europe and especially the Middle East. MDC Holdings and KB Home have most exposure to Vegas. MDC has the greatest exposure to Las Vegas, which generates 18% of its sales, followed by KB home with 6%. Las Vegas represents 5% of sales for DHI and RYL.. Exhibit 12: Investors Represented the Majority of the Demand in March Levels Versus Expectations 8% 56% 36% % % 38% 38% 12% 13% 13% Monthly Survey of R/E Agents 15

16 Los Angeles, CA Buyer Uncertainty Reigns as Prices Slip (4,012 single-family permits in 2010, 19th largest market in the country) Buyers still can t decide if it s time to buy yet. worsened in March relative to seasonal expectations, as our buyer traffic index fell to 33 from 39 in February (readings below 50 indicate traffic levels below agents expectations). Agents saw a continued lack of urgency, as inventory remains plentiful and there were signs of further slippage in home prices, leading buyers to feel like they can afford to wait for better deals. One agent said the weak traffic was driven by properties declining in value and many buyers who would buy now can t because of unemployment and loan qualification difficulties. Agents also criticized the burdensome process of completing a foreclosure or short sale purchase, claiming that banks continue to drag their feet. One agent cited the high level of distressed property sales, slow bank response to offers made leading to sluggish sales. Agent feelings on the impact of mortgage rates were mixed, with some noting that the recent increases spurred buyers to get off the fence, but others noting no real impact. Distressed listings continue to weigh on pricing. Home prices remained under pressure in March, according to agents. Our home price index increased to 34 from 28 in February, but any reading below 50 indicates lower home prices over the past 30 days. Distress continues to apply pressure, as several agents noted foreclosures are continuing to push prices down. Inventory levels continued to trend higher, as our home listings index fell to 32 in March from 44 in February, below a neutral reading of 50. The time needed to sell a home also lengthened, as our index came in at 32 (from 29 in February), with readings below 50 pointing to a longer time needed to sell. We also saw a larger than expected number of clients seeking residential rentals. Consumers are still not sure prices have bottomed and are still fence-sitting. Lack of buyer qualification. Banks restrictive financing. High inventory levels of available homes. Standard Pacific and KB Home have the most exposure. Approximately 8% of sales for Standard Pacific come from L.A., and 6% for KB Home. L.A. represents 2% of sales for Lennar. Exhibit 13: Price Fears, Tight Lending Keep Potential Buyers on Edge Levels Versus Expectations 15% 48% 38% % 51% 4 22% 63% 15% 5 43% 7% Monthly Survey of R/E Agents 16

17 Miami, FL Cash is King as Buyers Seek Deals from Wide Selection of Distress (3,178 single-family permits in 2009, 29th largest market in the country) remains healthy as low prices keep buyers interested. met agents expectations for the third consecutive month in March, as our traffic index came in at 52, unchanged from our reading in February, in-line with a neutral reading of 50 (readings of 50 point to traffic meeting expectations). Nearly all agents stressed price in our March survey. According to those surveyed, price is the single most important factor for the better traffic in the Miami area as of late. Good deals on foreclosures and short sales, as well as wanting to get in before prices pick back up were key drivers of demand. One agent mentioned, Buyers are looking to get great deals. Another agent noted, The number of bargain properties available has really helped traffic. Buyers from all over are looking to get in on these deals. I have snow birds from Canada looking to get steals. Agents also noted that cash investors remained very active in March, as one agent put it, Cash is king around here Another highlighted, Cash investors from outside the U.S. have really helped traffic. Prices still falling as distress add to pressure. Home prices continued to decline in March, as our home price index came in at 37 (from 30 in February), closer toward a neutral reading, but still short of a reading of 50, pointing to sequentially lower prices (readings below 50). Inventory levels continued to decline, as our home listings index improve to 62 from 60 in February, though we think this is only temporary. Meanwhile, our time to sell index improved to 60 from 53 in February, pointing to a reduced time to sell over the past month (readings above 50 point to a decreased time to sell), which we view as a positive for pricing. However, we remained concerned over the level of shadow foreclosure inventory held by banks. Distress properties are selling quickly. Low prices are driving the market. Buyers think they might miss the bottom. They want to get in now D.R. Horton has the most exposure. D.R. Horton has the greatest exposure to Miami, thought it represents only 2% of DHI s sales. Exhibit 14: Buyers Flock to Deals as Distress Opportunities Drive in March Levels Versus Expectations 36% 24% % 4 43% 41% 39% 17% 2 15% 12% Monthly Survey of R/E Agents 17

18 Minneapolis, MN Fewer Buyers Test Waters in March, Activity Weakens (3,794 single-family permits in 2010, 21st largest market in the country) falls as cloud of uncertainty remains. fell in March, as our buyer traffic index fell to 35 from 39 in February (after seeing slight improvement in January), coming in below agents expectations for this time of year (readings below 50). Agents noted that the phones were very quiet for sellers in our March survey, as strict financing, no urgency from buyers, and uncertainty weighed on the market. According to one agent, The economy and the uncertainty over buyers own personal circumstances put them on edge. They are worried to make such a large commitment. Another agent mentioned, People really need the jobs picture to improve to get serious. Declining prices added to the weakness, as agents noted that people wanted to see signs of stabilization in the market before buying anything. One agent said, Most buyers are waiting it out, they do not want to be the first ones in or else they might get burned. However, some agents did note an uptick in traffic from some buyers, ready to jump in at current prices. Prices under pressure as inventory rises and homes spend more time on the market. Prices fell again in March, as our home price index came in at 28 (from 21 in February), pointing to lower prices over the past month (readings below 50). Weak demand and higher inventories likely helped drag prices lower, as our home listings index came in at 40 (from 35 in February), pointing to higher inventory levels over the past month (readings below 50). In addition, our time to sell index came in at 33 from 29 in February, showing improvement each month since December. However, it still pointed to an increased time to sell, as readings below 50 suggest the time to sell increased. There is a lot of difficulty obtaining financing. Buyers see falling prices and want nothing to do with a home. There continues to be no urgency from buyers to put pen to paper. Ryland, Hovnanian, and Lennar have the greatest exposure. Ryland has the greatest exposure to Minneapolis, which generates approximately 5% of its sales, followed by Lennar and Hovnanian with 3% each. Exhibit 15: Buyers Become Increasingly Wary as Outlook on Market Weakens Levels Versus Expectations 14% 44% 42% % 33% 56% 48% 42% 44% 44% 9% 11% Monthly Survey of R/E Agents 18

19 New York-Northern NJ Buyers Go Back to Sidelines as Concerns over Pricing Return (7,092 single-family permits in 2010, 5th largest market in the country) takes a step back on market and price concerns. Buyer traffic dipped in March, as our traffic index fell to 23 from 34 in February, coming in below agents expectations for this time of year (readings below 50). Agents noted that buyers remained hesitant to enter the market amid lower prices and tighter lending requirements. One agent mentioned that buyers uncertainty helped bring the market lower in March. Another agent mentioned, Banks are getting more stringent and flat out denying mortgages, adding to the pressure on traffic. The trend appears to have reversed the more positive commentary toward the end of the month in February, when buyers appeared slightly more confident. In March, buyers anxiety returned as, fluctuating market conditions spooked people away. However, one agent did mention that great short sale opportunities helped support traffic in an otherwise lackluster month. Prices continue to fall as inventory levels rise and demand remains soft. Prices fell further in March as our home price index came in at 35 (from 23 in February), closer toward a neutral reading, but still short, pointing to lower prices over the last 30 days (readings below 50). Meanwhile, inventories are likely to add pressure to prices, as our home listings index came in at 25 (from 33 in February), pointing to higher inventory levels over the past month. In addition, our time to sell index came in at 25 (from 31 in February), further from a neutral reading, and pointing to an increased time to sell (readings below 50). We view the higher inventory levels and the increased time to sell as negative indicators of future pricing. Buyers don t have any interest now. Higher ownership costs have people worried, especially if prices keep falling. Lending institutions are increasing their requirements, squeezing buyers out. Toll Brothers and Hovnanian have the greatest exposure. Toll Brothers has the greatest exposure to the New York-Northern NJ area market, which represents approximately 16% of its sales, followed by Hovnanian with 11%. Exhibit 16: Buyers Remain Cautious as Prices Continue to Trend Downward Levels Versus Expectations 11% 65% 25% % 59% 42% 45% 32% 2 14% 9% 1 Monthly Survey of R/E Agents 19

20 Orlando, FL Slips on Economic, Price Jitters (4,177 single-family permits in 2010, 18th largest market in the country) slips as buyers lack confidence. Buyers traffic fell slightly in March, as our buyer traffic index slipped to 40 from 50 in February, coming in below agents expectations for this time of year (readings below 50). Agents noted that more buyers were nervous about the economy and pricing levels in our March survey. One agent mentioned, Buyers continued to worry about the economy. Another agent said, The high unemployment is starting to weigh on people. Agents also noted that a lack of good inventory was partly to fault for lower traffic, as buyers couldn t find the right properties (likely to get resolved as the foreclosure moratoria ends). Agents also noted that a greater portion of buyers also lacked confidence in the market. However, some agents did comment on better activity due to lower prices, cash investors and snow birds. Another commented Sellers listing prices are now much more realistic. That has been helping move some inventory. Prices fall as sellers adjust to meet the market. Home prices remained under pressure in March, as our home price index came in at 21 (from 12 in February), still well below a neutral reading of 50, pointing to lower prices over the past month (readings below 50). We think that downward adjustments to asking prices helped push prices lower in March. Meanwhile, inventory levels were lower in March, as our home listings index came in at 71 (from 62 in February), pointing to lower inventory levels (readings above 50). However, we would note that this is likely due to the foreclosure moratoria, holding properties off the market. We would expect higher inventory levels as this issue is resolved, adding further pressure to prices. Our time to sell index came in at 37 (from 35 in February), pointing to an increased time to sell (readings below 50). We view this as a negative indicator of future pricing. 04 April 2011 Buyers seem to be waiting for distress opportunities. The news about a double-dip has many buyers paralyzed. Investors are still interested, but the rest of the market is still weak. KB Home, Meritage and Ryland have the greatest exposure. KB Home, Meritage, and Ryland each generate approximately 5% of their sales in Orlando. The market represents approximately 3% of sales for Lennar and Pulte Homes. Exhibit 17: Prices Fall as Sellers Adjust Expectations, Slips over Concerns about Economy Levels Versus Expectations 16% 37% 47% % 58% 28% 72% 42% 42% 16% Monthly Survey of R/E Agents 20

21 Phoenix, AZ Confidence Falls as Buyers Expect Further Market Weakness (7,259 single-family permits in 2010, 4th largest market in the country) just shy of expectations as nervous buyers wait for stabilization. Buyer traffic fell just below agents expectations in March, as our traffic index fell to 44 from 47 in February, shy of a neutral reading of 50, pointing to traffic missing agents expectations (readings below 50). Agents stressed that buyers were concerned that the market had not bottomed. Several agents noted that buyers were interested in buying, but wanted to wait, postponing decisions until the market appears more stable. One agent mentioned, Buyers are scared we are not anywhere near the bottom. Another agent said, Buyers are anticipating further price reductions. Economic concerns also dragged on the market in March, with agents highlighting that lower prices were not the only concerns for buyers. One agent noted, Economic fears of no job growth and a loss of income have people changing their minds. Some agents did note, however, that certain buyers are willing to take the plunge at this level, so long as they think they got a great deal. Home prices continue fall as time to sell increases. Home prices remained under pressure in March, as our home price index came in at 28 (from 21 in February), indicating that prices fell over the past 30 days (readings below 50). Meanwhile, agents suggested that inventory levels were stable in March, as our home listings index came in at 58 in March from 35 in February (readings above 50 suggest lower inventory levels). However, foreclosures continue to pressure prices in the region. Our time to sell index came in at 40 from 35 in February, suggesting an increased time to sell over the past month (readings below 50), a negative indicator of future prices. Lending is huge headache for buyers. Buyers are frustrated with the lengthy delays on short sales and foreclosures. Buyers come in expecting a great deal, but many have unrealistic expectations. MDC Holdings, Meritage, and Standard Pacific have the greatest exposure. MDC has the largest exposure to Phoenix, which represents approximately 18% of its total company sales, followed by MTH (12%), SPF (9%), PHM (7%), DHI (6%) and KBH (4%). Exhibit 18: Buyers Slightly More Cautious about the Direction of Prices Levels Versus Expectations 38% 35% 27% % 5 43% 44% 31% 23% 25% 7% 11% Monthly Survey of R/E Agents 21

22 Riverside-San Bernardino, CA (Inland Empire) Strict Lending Pushes Lower in March (5,248 single-family permits in 2010, 10th largest market in the country) slips as buyers can t secure financing. Our buyer traffic index fell to 33 in March from 50 in February, coming in below agents expectations for the first time since December (readings below 50 point to traffic lower than agents expectations), ending six consecutive months of improvement in the index. Agents noted tight lending and a lack of attractive inventory led to the weaker traffic in our March survey. One agent mentioned that changes in lending requirements have prevented buyers from closing in on anything. According to another agent, Financing availability is becoming very limited. There were also issues related to the availability of good inventory. One agent said, The main complaint I get from buyers is that a lot of homes are in poor condition. Another agent noted a poor selection of homes for buyers to choose from. However, investor activity remained strong, as one agent highlighted, I have more cash buyers than ever. Prices remain under pressure. Home prices fell further in March as our home price index came in at 41, better than our reading of 27 in February, but still short of a neutral reading of 50, suggesting lower prices over the last 30 days (readings below 50). The lack of demand seems to be having its effect on price, as agents suggested inventory levels remained unchanged in March. Our home listings index came in at 48 (from 32 in February), in-line with a neutral reading of 50, pointing to unchanged inventories (readings of 50). In addition, our time to sell index pointed to an unchanged time to sell, coming in at 45 in March (from 27 in February), in-line with a neutral reading of 50 (readings of 50 point to an unchanged time to sell). We view the unchanged time to sell as a positive indicator of future pricing, but remained concerned over the high level of inventory in the region. All my inquiries come from cash investors. There are very few properties asking market prices, sellers are not willing to budge. Buyers are doing a lot of looking, but nothing is translating into sales. Standard Pacific, KB Home, Beazer and Hovnanian have the greatest exposure. Standard Pacific generates approximately 12% of its sales in the region, followed by KB Home (11%), Beazer and Hovnanian (6%), and Ryland (5%). Exhibit 19: Weak Demand Drives Prices Lower Levels Versus Expectations 19% 52% 29% % 71% 24% 2 75% 5% 43% 33% 24% Monthly Survey of R/E Agents 22