goldman housing report 9-09 watermarked

8/14/2019 Goldman Housing Report 9-09 Watermarked

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September 24, 2009 Americas: Building - Homebuilders

Goldman Sachs Global Investment Research 2

Upgrading Homebuilders to Attractive

We have been constructive on the long-term fundamentals of the homebuilders since February 2009. We now upgrade to Attractive

as we believe the mismatch between our and Street expectations for a federal tax credit extension will provide near-term upside of

10%-15%, while longer-term fundamentals could drive further upside in excess of 50%. Ultimately the group has a very closecorrelation with new home sales. As new home sales continue to rise toward our 2010 forecast of 525,000-550,000, we expect share

appreciation for homebuilders. Our proprietary distressed book value analysis and normalized earnings driven targets imply 10%-

15% upside over six months. As we look further out, normalized earnings and tax adjusted book support in excess of 50% upside.

Homebuilder stocks follow new home sales

We believe the key to having the right view on the homebuilder stocks is having the right view on new home sales. A regression

analysis of the level of new home sales to the level of our homebuilder index shows an R2

of 67% and we see no reason for thisstrong relationship to break down going forward. We estimate that new home sales will grow 50% over the next two years as the

US economy continues to recover and home prices remain stable. We note that the expected growth is off of very depressed levels

and remains 25% below our normalized levels of 800,000-850,000 new home sales.

Exhibit 1: We expect new home sales to rise 30% in 2010 off of their half-century low levels in 2009New home sales 1999-2011E

Exhibit 2: New home sales are a unique predictor of movement inhomebuilder stocksNew home sales vs. our homebuilder stocks

879 880907

976

1,091

1,201

1,279

1,049

769

481

412

538

645

0

200

400

600

800

1,000

1,200

1,400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E

Normalized = 800-850

We see 30% growthin new home sales

next year

-125%

-75%

-25%

25%

75%

125%

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

New

HomeSales

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Indexofo

urhomebuilderstocks

HB Index NHS

There is a strongrelationship (R2 = 67%)

between new home salesand our stocks

Source: US Census Bureau, Goldman Sachs Research estimates. Source: Facstet, US Census Bureau.MultifamilyInvesto

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3/23



Economic recovery works in the favor of homebuilders

There has never been an economic recovery in the US without a recovery in new home sales and we expect this cycle to be no

different. Historically, new home sales have begun to rise either coincident with or as a leading indicator to the US economy. Some

believe that as long as unemployment is rising, investors should stay on the sidelines with homebuilder stocks but we disagree.

Below we highlight that the troughs in non farm payroll losses are a better gauge for a return to growth in new home sales thanwaiting for the peak in unemployment. Historically, you are 7-8 months and 60% too late by the time unemployment peaks.

Exhibit 3: There is a closer relationship between the trough in new homesales and the troughs in non farm payrollsNew home sales vs. economic data

Exhibit 4: than the troughs in new home sales and the unemploymentrateNew home sales vs. unemployment rate (inverted scale)

'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

600

200

400

600

800

1,0

1,2

1,4

1,6

(DIFF 1M) Employmen t Overall Nonfarm payroll, total, Persons , SA - United States (Left)New Home Sales Total , Number of, Annual Rate, SA - United States (Right)

Recession Periods - United States

The bottom in newhome sales has been

consistent with abottom in payroll

losses

' 63 '64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05'06 '07 '08 '09200

400

600

800

1,000

1,200

1,400

1,600 3%

4%

5%

6%

7%

8%

9%

10%

11%

Unemployment Rate Total, Percent, SA - United States (Right)New Residential Sales, New Houses Sold, Total, SA - United States (Left)

Recession Periods - United States

Investors are generally7-8 months and 60% too

late when waiting forunemployment to peak

Source: US Bureau of Labor Statistics; US Census Bureau. Source: US Bureau of Labor Statistics; US Census Bureau.

MultifamilyInvesto

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4/23



Recent CA trip supports our Attractive view

In mid-September we hosted two days of meetings with homebuilders, community banks, and distressed real estate fund

managers in California and we came away more encouraged with the residential landscape in the state. Phrases like the worst is

well behind us and things remain encouraging capture the mood of the many constituents we met with on residential real estate

(the mood was much more negative on commercial real estate).

The continued recovery in California housing, in the face of expired state stimulus, is encouraging for the entire US. Californias

$10,000 tax credits for new homes exhausted in early July but there has not been a significant fall off in housing activity in the state.

The cause for continued strong sales is affordability as prices remain at multi-year lows and interest rates hover near 5.25%. While

we now expect an extension of the federal tax credit, it has been encouraging to the see the California sales resilience without it in

the unlikely chance that an extension does not occur or the credit is allowed to lapse before being reinstated.

The positive tone on the residential side of this trip bodes well for KB Home given its 25% exposure to the state of California. That

said, we still maintain our Sell rating given: (1) KB Homes exposure to Las Vegas, which remains a very soft market, and (2) the

stretched relative valuation.

Exhibit 5: The continued strength in California activity post the expiration of the state tax credit is encouraging for the entireUS; While we expect a federal tax credit extension the lack of a hangover effect in California where the stimulus was moredirect and stimulative bodes well for the nationComparison of CA stimulus vs. the federal stimulus

California tax credit Federal Tax credit

Type of buyer Only owner-occupants First-time buyers andowner-ocuupant

Value of credit $10,000 $8,000

Use of other credits Could use both CA credit Noneand federal credit

Income Limits No income limits Less than $95,000

Expiration Only 10,000 available 12/1/2009Exhausted in early-July

Source: Goldman Sachs Research estimates.MultifamilyInvesto

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5/23



Valuation

While homebuilder stocks have more than doubled from the November 2008 lows (S&P 500 up 80% from its lows), the stocks

remain 73% below their 2005 peaks (S&P is 33% below its peak). We do not expect to see 2005 levels at any point in the near future

but we do believe that there is an excess of 50% long-term value in this group as shares are trading at about 1.1X tax adjusted book

value versus the long-term average of 1.6-1.7X. We primarily look at three criteria to judge valuation for the group:

Price to book. We look at our proprietary distressed book value analysis and current book value (after adjusting

for deferred tax assets). The group is trading near 1.5X on distressed book, suggesting 10%-15% near-term upside,

and under 1.1X on tax adjusted book, suggesting in excess of 50% upside longer-term.

Normalized earnings. In our normalized earnings estimates we assume 800,000-850,000 new home sales, pre-

bubble, pre-tax profit margins, and 35% tax rates. The group is trading near 9X our normalized earnings estimates.

When we put a 0% tax rate into our normalized models the group is trading near 6X, providing plenty of upside for

the group as profitability return in aggregate.

Default scenarios. We think default scenarios are quite low given that credit markets are open to builders.

Price to Book

Exhibit 6: Our distressed book value suggests near term upside of 10%-15%Price to distressed book value vs. long-term price to book multiples

Exhibit 7: Tax adjusted book values suggest further excess of 50% upsidefor the group longer-termPrice to book value (adjusted for deferred tax assets since 2007)

2.83

1.421.36

1.28

1.51

1.24

1.49 1.45 1.42

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

NVR MDC KBH TOL DHI RYL HOV MTH LEN

1.1X

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

P

ricetoBookValue

Average: 1.6X

Source: FactSet; Goldman Sachs Research. Source: FactSet, Goldman Sachs Research.MultifamilyInvesto

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6/23



Normalized Earnings

In our view, homebuilders that will exist on the other side of the current downturn should be valued on normalized earnings, at

least in part. Today the group trades at 9X our normalized earnings forecasts, but at only 6X our normalized earnings forecast if we

input 0% tax rates instead of the 35% tax rates we currently use. Employing 0% tax rate makes some sense because homebuilders

will not pay cash or GAAP taxes over the next cycle. As a result of the $25 bn in losses from 2007-09 the group has built up nearly$10 bn in deferred tax assets that will offset profits for an average of 10 years.

From a multiple standpoint we think the 12-15X range will likely prevail as builders return to strong profitability.

We view Housing turnover as one of the best ways to detect the relative health of the US housing market. By our calculation,

homes should transfer hands once every 21 years (4.7% turnover) vs. todays transaction pace of 24 years and the unsustainable

2005 pace of 15 years. To determine our normalized level of new homes sales we expect a 21-year turnover pace with new home

sales capturing 15%-16% share of total homes sales; this is 800,000-850,000 new home sales per year.

Our gross margin estimates are consistent with 1997-2003 profitability, as we believe that 2004-2006 profitability was inflated. For

operating expenses we take an arithmetic ten-year average which generally includes one overly cost efficient year during the

bubble (2005) and one overly harsh year as cost cutting did not keep up with sales declines (2007).

Exhibit 8: Homebuilders trade at 9X normalized earning which isfavorablePrice to normalized earnings (35% tax rates)

Exhibit 9: however, the group is trading at 6X earnings if the we bake in0% tax ratesPrice to normalized earnings (0% tax rates)

3.6 X

6.4 X

7.8 X

9.1 X9.4 X 9.3 X 9.4 X

9.8 X

12.2 X

14.1 X

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

HOV MTH KBH PHM TOL LEN NVR DHI RYL MDC

Group is trading at 9Xnormalized earnings we

utilize 35% tax rates

2.4 X

4.1 X

5.1 X

5.9 X 6.0 X6.0 X 6.1 X

6.4 X

8.2 X

9.1 X

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

HOV MTH KBH PHM TOL LEN NVR DHI RYL MDC

Group is trading at 6Xnormalized earnings if weincorporate 0% tax rates

Source: FactSet; Goldman Sachs Research. Source: Goldman Sachs Research.

ltifamilyInvestor

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Exhibit 10: Homebuilders have traded between 5X and 20X earnings depending on the cyclePrice to FY1 earnings (1988-2005)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

The stocks traded in the range 5-10Xfrom 1999 to 2005 as investors

assumed that earnings were peakingeach year given the high growth in the

industry

The stocks traded in the range 8- 20X

from 1992 - 1998 on the back of theearly 1990s housing crisis

Source: Goldman Sachs Research estimates.ltifamilyInvestor

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8/23



Credit markets are open to homebuilders, limiting default risk for now

Ultimately we take a probabilistic view of homebuilder valuations and put little weight on default scenarios across our group. So

long as the credit markets remain open to homebuilders, we think the risk of zeros across the group is limited. Since April we have

seen 9 successful debt placements. Additionally, credit spreads continue to grind tighter, reflecting both signs of housing

stabilization and a broader credit market rally.

Exhibit 11:Credit spreads continue to shrink, suggesting the credit marketsare favorable for homebuildersCredit spreads, bp

Exhibit 12:Nine new debt deals have successfully been placed, helping toalleviate balance sheet stress for homebuildersNew debt issuances for homebuilders

0

200

400

600

800

1,000

1,200

1,400

Sep-08 Dec-08 Mar-09 Jun-09 Sep-09

Spreads,

bp

CTX LEN PHM DHI RYL MDC TOL KBH MTH

Issuer

Announcement

Date Maturity Rating

Amount

issued ($, mn)

TOL 4/13/2009 10/15/2017 Ba1/BBB- 400LEN 4/23/2009 6/1/2017 B3/BB- 400RYL 4/30/2009 5/15/2017 Ba3/BB- 230DHI 5/7/2009 5/15/2014 Ba3/BB- 500HOV 5/27/2009 5/1/2017 CC/B+ 29KBH 7/23/2009 9/15/2017 B1/BB- 265BZH 9/3/2009 10/15/2017 B1/CCC+ 250TOL 9/15/2009 11/1/2019 Ba1/BBB- 250

SPF 9/10/2009 9/15/2016 Caa1/CCC 280

Source: Goldman Sachs. Source: Bloomberg.ltifamilyInvestor

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10/23



Raising homebuilder target prices as we revise our Distressed Book Value analysis

We are raising the median six-month target by about 25% and see 10%-15% upside to the group from current levels. Our

new target prices reflect higher distressed book value estimates as sales have picked up, prices remain stable, lower

writedowns are ahead, and now we see a discrepancy between our and consensus expectations for housing tax creditextension. Previously we had assumed that trough book for homebuilders could reflect a 15% reduction in home prices and

a 30% cut to land prices these estimates reflected a 2008-2010 home pricing environment similar to what had happened

predominately in 2008. We have now decreased our distressed assumptions for inventory to an incremental 5% reduction in

home prices and a 10% cut to land prices.

Exhibit 14: Our new target prices suggest 10%-15% upside to the group over the next six monthsOverview of six-month target price. Closing price as of September 22, 2009.

New Target Old Target Current Price

New Up/down

side Old vs. New RatingTax-adjusted

Book Distressed Book LT Average

New TargetPremium to LT

Average Target Current Price

DHI $17.00 $16.00 $12.45 37% 6% Conviction Buy 1.51 1.87 1.93 -22% 12.82 9.39

MTH $28.00 $22.00 $20.15 39% 27% Conviction Buy 1.40 1.65 1.19 18% 8.25 5.94

TOL $28.00 $25.00 $20.68 35% 12% Buy 1.54 1.89 2.27 -32% 12.03 8.89

MDC $41.00 $38.00 $36.58 12% 8% Buy 1.47 1.65 1.42 4% 15.38 13.73NVR $760.00 $555.00 $648.58 17% 37% Neutral 2.92 3.24 3.15 -7% 10.70 9.13RYL $26.00 $21.00 $22.59 15% 24% Neutral 1.28 1.56 2.01 -36% 13.38 11.62HOV $4.00 $2.15 $4.47 -11% 86% Neutral 0.41 1.17 1.69 -76% 3.55 3.97LEN $14.00 $7.00 $15.51 -10% 100% Sell 0.70 1.10 1.29 -46% 8.16 9.04

KBH $18.00 $12.00 $18.83 -4% 50% Sell 0.86 1.35 1.67 -48% 7.08 7.41

Average 15% 39% 1.15 1.53 1.63 -25% 10.2 8.8

Median 15% 27% 1.34 1.60 1.56 -32%

Six Month Target Price Implied Price to Book for New Targets Implied Normalized P/E

At our targets stocks remain at~30% below historic multiples

We see another 10-15% upside tothe group over the next six months

We expect the group to trade to ~1.2X tax-adjusted book

We expect the group to tradeat 10X normailzed earnings

Methodology: Our targets are based on distressed book value and normalized earnings

Risks: Downside is lower home prices or higher mortgage rates while upside is continued boost to confidence

Source: Goldman Sachs Research.ultifamilyInvesto

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12/23



We are raising our target prices as we believe that our new distressed book value analysis better reflects the economic reality of the

homebuilders. Previously we had assumed that trough book for homebuilders would reflect a 15% reduction in home prices and a

30% cut to land prices. We have now decreased our assumptions to assume a 5% reduction in home prices and a 10% cut to land

prices. As home prices have stabilized nationally, writedowns are currently less than 2% of inventory their lowest level since

impairments began in late 2006.

Summary of distressed book value adjustments:

Trim value of homes by 5% and land by 10% (was 15% and 30% previously).

Add back fair value of FAS 109 deferred tax valuation allowances assuming 10 year recovery period.

Value intangible assets at zero.

Value unconsolidated investments at zero.

Value un-owned inventory at zero.

Exhibit 16: Under our new assumptions the group has 10%-15% upsidePrice to distressed book value vs. long-term average price to book value

2.83

1.421.36

1.28

1.51

1.24

1.49 1.45 1.42

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

NVR MDC KBH TOL DHI RYL HOV MTH LEN

Source: Goldman Sachs Research estimates.

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13/23



We are Attractive on the group as valuation is still well below historical levels. The group currently trades at about 1.1X of book,

versus its long-term average of 1.6-1.7X. The current discount reflects the tenuousness of book values in a declining home price

environment which many investors fear will return. Today, however, we raise our target prices as we have gained more confidence

in book values following the more muted inventory writedowns homebuilders are taking today and the stability we see in home

prices. That said, we still employ our distressed book value analysis because builders will not turn profitable for 2-6 quarters,

suggesting modest downside to current book value.

Exhibit 17:Homebuilders have traded at 1.6-1.7X book over the last 35years but trade at 1.1X of tax adjusted book todayPrice to book value (adjusted for FAS 109 deferred tax assets from 2006-present)

Exhibit 18:We are gaining more confidence in book value as inventorywritedowns are tracking at their lowest levels since they began in late 2006Inventory writedowns as a % of beginning inventory

1.1X

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

PricetoBookValue

Average: 1.6X

2.7%

2.2% 2.3%

7.6%

11.6%

6.1%

7.4%

3.8%

8.5%

6.2%

5.6%

3.7%

0.6%

0%

2%

4%

6%

8%

10%

12%

14%

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Source: FactSet, Goldman Sachs Research. Source: Company reports, Goldman Sachs Research estimates.ultifamilyInvesto

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14/23



Framework: Biased toward homebuilders that have a higher chance of profitability

The homebuilders trade very closely together over a long period of time. Over the last 3 years, though, the correlation has slipped

as some public builders have gone bankrupt and others still face balance sheet pressures. As we look forward we are looking to

homebuilders that have a greater chance of returning to profitability as the better investment vehicle as housing recovers. Wemeasure four criteria to determine the ability of a homebuilder to turn a profit soon:

Strong balance sheet We prefer homebuilders with low net debt to capital ratios, less short-term debt maturities

and/or strong cash flow potential such that they can finance growth.

Strong cost control Homebuilders with low SG&A as a percent of revenue have a stronger potential for profit

Low potential for further writedowns Higher gross margins (in the double digits) or low inventories are favorable.

Low risk of negative surprise Off-balance sheet joint ventures are likely to weigh on profits even as sales recover.

Exhibit 19: There are 4 keys to a return to profitability that we measure Our 4 Buy ratings are in the top fundamental group

(1) Strong Balance

Sheet

(2) Strong Cost

Control

(3) Low potential for

further writedowns

(4) Low risk of

surprise

Criteria Assessed Higher scoring homebuilders

DR Horton (DHI) X X X(1) Strong Balance Sheet MDC Holdings (MDC)Low net debt/capital, extended maturities, strong cash Meritage (MTH)flow potential - all providing ability to f inance growth Toll Brothers (TOL) X X X

(2) Strong Cost Control Middle of the packGross margins that are already high or SG&A that is Ryland Group (RYL)reasonable given current sales pace Pulte Home (PHM)

KB Home (KBH)

(3) Low potential for further writedowns

Limited inventory or current margins that are well intoou e g s Low scoring homebuilders

Hovnanian (HOV) X(4) Low risk of surprise Lennar (LEN)Limited joint ventures and other off-balance sheet financing

Profile Scoring

Note: We broadly group the homebuilders into 3 groups. These are not meant to replicate our ratings as valuation is not considered here. Within each group we are not

differentiating here company names are merely in alphabetical orders

Source: Goldman Sachs Research.ultifamilyInvesto

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15/23

S b 2 2009 A i B ildi H b ild

The Goldman Sachs Gro p Inc Global In estment Research


16/23



Exhibit 22:Meritage has strong cash flow potential relative to its balancesheet sizePercent of total debt that could be paid down with spec homes

Exhibit 23:Meritage has no debt maturing until 2014 and $400 mn of cashMeritage is in a solid balance sheet positionDebt maturity schedule ($ mn)

13.0%

10.5%

6.9%

5.6%

4.3%4.0%

2.9%

2.0%1.6%

1.1%

0%

2%

4%

6%

8%

10%

12%

14%

DHI MTH TOL RYL LEN CTX PHM MDC KBH HOV

Percentofdebtthatcouldbepa

ydownwithsellingfinishedspecunits

2009201

0201

1201

2201

3201

4201

5201

6201

7201

8201

9202

0202

1202

2202

3202

4202

5202

6202

7202

8202

9+Perp

0

50

100

150

200

250

300

350

Very favorablematurity schedule

Source: Company filings, Goldman Sachs Research. Source: FactSet.

The Goldman Sachs Group, Inc. Global Investment Research

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17/23

September 24 2009 Americas: Building - Homebuilders


18/23



Exhibit 26: DHI is poised to generate strong cash flow from the sale of itssufficiently large inventory of finished, unsold homes (specs)Cash flow potential from finished, unsold homes ($ in millions)

Exhibit 27: DHI could pay off 13% of the face value of it debt by simplyconverting spec homes to cashCash flow potential from finished, unsold homes (as % of debt balance)

437.7

187.9

154.3141.4

127.2

69.1 63.348.4

27.6 22.1 20.6

0

50

100

150

200

250

300

350

400

450

500

DHI PHM TOL LEN CTX NVR MTH RYL KBH HOV MDC

13.0%

10.5%

6.3% 6.3%

5.6%

4.8%

4.0%

2.0%1.6%

1.0%

0%

2%

4%

6%

8%

10%

12%

14%

DHI MTH TOL PHM RYL LEN CTX MDC KBH HOV

Percentofdebtthatc

ouldbepaydownwithsellingfinishedspecun

its

Source: Company filings, Goldman Sachs Research. Source: Company filings, Goldman Sachs Research.

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September 24 2009 Americas: Building - Homebuilders


19/23

September 24, 2009 Americas: Building Homebuilders


Appendix

Exhibit 28: Mortgage spreads over the 10-year treasury are in-line with history; without a disruptive lift in treasury yields webelieve that mortgage rates will remain low

Mortgage Rates and Spreads

'70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '094.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0bps

100bps

200bps

300bps

400bps

500bps

600bps

Conventional mortgage ra te, NSA - United States (Left)(Conventional mortgage rate, NSA - United States - Yield on 10-year Treasury bonds, NSA (pct.)) * 100 (Right)

Spreads(RHS)

Mort. Rates(LHS)

Mortgage

Rates

10 yr

Spreads2000s 6.14 182.751990s 7.91 150.071980s 12.35 203.641970s 9.39 143.86

Current 5.35 166.00

Average 8.95 170.08

Mortgage 10 yr

Rates Spreads

2000s 6.14 182.751990s 7.91 150.071980s 12.35 203.641970s 9.39 143.86

Current 5.20 179.41Average 8.95 170.08

Source: FactSet, Goldman Sachs Research.ultifamilyInvesto

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20/23

p , g


Exhibit 29: New home sales are at levels that historically signal a great

time to invest in the homebuilders

New homes sales (1963-present)

Exhibit 30: On a population adjusted basis new home sales remain well

below previous cyclical troughs

New home sales/total households

'63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '090

200

400

600

800

1,000

1,200

1,400

1,600

ThousandsofNew

HomesSold

(1-Peak)

11/1965

616 homes

(1-Trough)

2/1970

373 homes39% decline

over 4+yrs

(2-Peak)

10/1972

843 homes

(2-Trough)

1/1975

416 homes51% decline

over 2+yrs

(3-Peak)

10/1978

872 homes

(3-Trough)4/1982

339 homes

61% decline

over 3+ yrs

(4-Peak)

3/1986

880 homes

(4-Trough)

1/1991

401 homes

54% decline

over 4+yrs

(5-Peak)

12/1993

812 homes

(5-Trough)

2/1995

559 homes

31% decline

over 1+yr

(6-Peak)

11/1998995 homes

(6-Trough)

9/2001

853 homes

14% decline

over 2+yrs

(7-Peak)

7/2005

1367 homes

July 2009:433K

New Home Sales - United States Recessi on Periods - United States

New home sale are stillat very low levels

despite the 40% pickupYTD

Source: US Census Bureau.

0.29%

0.43%0.41%

July 09:0.36%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Population adjusted newhome sales are still below

previous troughs


Exhibit 31: More homes are being sold than started - inventory is improving

New home sales minus housing starts for sale

Exhibit 32: Valuation is very attractive for the group

Price to book (adjusted for deferred tax assets since 2007)

'7 1 '72 '73 '7 4 '7 5 '7 6 '77 '78 '79 '8 0 '8 1 '82 '8 3 '84 '8 5 '8 6 '87 '88 '89 '9 0 '9 1 '9 2 '93 '94 '9 5 '9 6 '97 '98 '9 9 '0 0 '0 1 '02 '03 '0 4 '0 5 '0 6 '07 '0 8-30

-20

-10

0

10

20

30

40

(MOV1Y) Housing Starts ByPurpose a nd Design, 1 unit, built for sale, total, Number of - United States - New Home Sales Total, Number of - United StatesRecession Periods - United States

Under-Building

Over-Building


1.1X

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

PricetoBookValue

Average: 1.6X

Valuation remainsattractive

Source: FactSet; Goldman Sachs Research.

ultifamilyInvesto

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