04/22/23 1

Southern California 2009 …A Very Difficult Year!

John Husing, Ph.D. Economics & Politics, Inc.

04/22/23 2

265,

894

236,

506

227,

473

242,

148

243,

229

195,

379

120,

875

(182

,138

)

(203

,752

)

(100

,067

)

37,6

92 123,

967

125,

767

217,

617

246,

983

222,

192

217,

667

95,7

75

(9,2

42)

30,9

33 122,

033

151,

858

170,

783

35,3

42

(147

,033

)

(340

,600

)

Source: CA Employment Development Department

Southern California Employment GrowthAnnual Change, 1983-2009

So. Calif. Job Change, 1984-2009

04/22/23 3

30,0

50 41,0

25

37,6

42

36,5

33

36,7

75

41,4

83

46,0

08

6,34

2

9,75

8

4,57

5 16,9

17 28,9

25

23,0

83 38,3

25

40,6

92 56,4

67

49,8

50

40,5

67

33,2

92

35,4

67

59,2

75

61,5

33

44,7

00

2,37

5

(48,

650)

(76,

500)

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

2008

2009ytd

Sources: CA Employment Development Department, John E. Husing, Ph.D.

Exhibit 133.-Job CreationInland Empire, Annual Average, 1984-2008

Inland Empire Job Change, 1984-2009

04/22/23 4

Worst National Unemployment Rates

9.0

9.1

9.2

9.4

9.4

10.3

10.4

10.8

11.0

11.8

11.9

Orlando

Portland

Tampa

San Jose

Las Vegas

Providence

Sacramento

Los Angeles

Charlotte, Fl

Inland Empire

Detroit

U.S. Bureau of Labor Statistics

U.S. Metro Areas, 1 Million People or MoreHighest 10 Unemployment Rates, January 2009

Now 12.2%

04/22/23 5

1929

1931

1933

1935

1937

1939

1941

1943

1945

1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

Source: U.S. Bureau of Labor Statistics & U.S. Census Bureau

U.S. Unemployment History, 1929-2009

Unemployment Can Get Stuck For Years

Inland EmpireL not U

04/22/23 6

What Happened?

04/22/23 7

Shrinking Our Economy

$4.5

$2.9 $2.5 $2.2 $2.3 $2.3 $2.5$3.3

$4.2$5.1 $5.4

$6.1

$7.2

$9.1

$12.1 $12.5

$10.6

$7.0

$3.9

Construction Industry Research Board

Exhibit 2.-Total Building Permit ValuationInland Empire, 1990-2008 (billions)

$8.6 Billion Hole

In IE Economic Base

04/22/23 8

Gold Mine Theory

Primary Tier

Secondary Tier

-$8.6 Billion

Another-$8.6 Billion

-$17.2 Billion Loss To The Economy

04/22/23 9

Taxable Sales Decline

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008-14%-12%-10%

-8%-6%-4%-2%0%2%4%6%8%

10%12%14%16%18%20%

California Riverside

Source: CA Board of Equalization, RCTC for 2008

Exhibit 6.-Taxable Sales Growth RatesQuarterly, California & Riverside County, 1992-2008

04/22/23 10

Housing Demand Rose With Population

1997 18.3 million people/3.9 million SFR homes = 4.66

1997-2007 Add 3.2 million people: Need 709,600 homes = 4.661997-2007 Actual New homes 552,9001997-2007 Shortfall 156,700Annual Production Too Low: 15,670 a year

CA Home RestrictionsSlow GrowthNIMBYsEndangered SpeciesWaterKeep “Them” Out of Our City

Just Under LA & OC

Production In 2006 or 2007

04/22/23 11

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

80,000100,000120,000140,000160,000180,000200,000220,000240,000260,000280,000300,000320,000340,000360,000380,000400,000420,000

Source: Dataquick

Exhibit 8.-Price Trends, New & Existing HomesInland Empire, 1988-2008, Quarterly

$404,611

Prices Had To Take-Off To Eliminate Buyers

1997-200312.9% per year

2003-200619.7% per year

04/22/23 12

Sales Soars Until Late 2005

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,00022,00024,00026,00028,00030,00032,000

Source: Dataquick

31,545

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,00022,00024,00026,00028,00030,00032,000

Source: Dataquick

Exhibit 11.-Existing & New Homes Sales, Inland EmpireSeasonally Adjusted, by quarter, 1988-2008

11,398

19,664

29,670

Price Peak

72.5%

04/22/23 13

Prices Back to Early 2003 Levels

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

$60,000

$90,000

$120,000

$150,000

$180,000

$210,000

$240,000

$270,000

$300,000

$330,000

$360,000

$390,000

$420,000

Source: Dataquick & Economics & Politics, Inc.

Exhibit 8.-Price Trends, All HomesInland Empire, 1988-2008, Quarterly

$211,547

$404,611

359,044 SFR Homes Traded 2004-2007More Owed They Are Worth!

33.5% Of IE’s 1,071,071 SFR Homes

04/22/23 14

Supply: Foreclosures

Sales In Jan. 2009

71.2% of Riv. Co. 67.3% of SB Co.

04/22/23 15

Demand: Affordability

53%

45%

18%

52.1%

2000 2002 2005 2008

Source: CA Association of Realtors, 2000-2005; Economics & Politics, Inc., 2008

Exhibit 12.-Share Able To Buy Median Price HomeInland Empire, 2000-2008

Where is Price Floor?

04/22/23 16

Demand & Supply

Demand From Lower Prices

Supply From Foreclosuresvs.

04/22/23 17

And The Winner So Far ….

Foreclosure Supply Still Overwhelming Demand

04/22/23 18

Key:Reducing the Flow of Foreclosures

04/22/23 19

Current Market Status

•151,985 of 359,044359,044 Homes Sold 2004-2007 Notices of Default

•207,059207,059 Upside Down but Not Yet in Visible Trouble

2,592

4,5925,974

4,254 4,8546,092

5,148 5,7324,099

7,6989,220

8,3709,415 9,209 9,491 9,389 9,022 9,550 9,550

3,7894,945

9,000

Source: ForeclosureRadar

Exhibit A.-Notices of DefaultInland Empire, Mar-07 to Dec-08

04/22/23 20

Defaulted Homes

•151,985 Notices of Default

•134,251 through 90-Day grace period

•103,205 ((77%77%) foreclosed) foreclosed … 44,536 (23%) worked out

1,2962,296 2,987 3,279

4,404 3,7635,032 4,754

3,347

6,234 7,083 7,806 8,070 8,484 8,289

4,265

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Source: ForeclosureRadar

Exhibit 11.-Notices of Trustee SalesInland Empire, Mar-07 to Sep-08

04/22/23 21

Upside Down Homes

•207,059 Upside Down … Not Yet Notices of Default

• 17,734 NOD Grace Period

•224,793 Future Issue224,793 Future Issue!!

04/22/23 22

Pace of Future Problem

Sub-Prime Alt-A

Option Adjustable

04/22/23 23

Inland Empire’s Long Term Competitive Advantage Still Exists

$147,000 $136,000

$243,000$212,000

$359,000 $348,000

$455,000

Inland Empire San Diego Los Angeles Orange

Median All Home PriceLake Elsinore Advantage

Source: Dataquick

Exhibit 136.-Home Price Advantage, So. California MarketsMedian Priced New & Existing Home, 4th Quarter 2008

Have To Get This Crisis Behind Us …

$8.6 Billion Hole to Fill

04/22/23 24

Worst Potential Financial Crisis Since 1929

President Hoover

Fed Raised Rates

Cut Money Supply!

Fed’s Ben Bernanke

04/22/23 25

Issue: Mortgage Backed SecuritiesLoan Originator

Home Buyer

Low Risk Investors

Fannie, Freddie

Investment Bank

Mortgage Group

Loan Servicer

High Risk Investors

Mortgage

Loan Servicer Will Do

Nothing To HurtNothing To Hurtthe Interest of the

InvestorsInvestors

04/22/23 26

Two Strategies

#1 Reduce the Principal Owed

NO!

Hurts The Interest of the Investor

04/22/23 27

Two Strategies

#2 Cut Interest Rate

Lengthen Term

Leave Principal Alone

Lower Payment

Stay In Home BUT Upside Down

Never Able To Sell!

Obama: FNMA, Freddie Mac If Owe 105% Refi To Lower Rate

Obama: If 38% of Income, Share Cost of Lowering to 31% of Income

Inland Empire Upside Down Too Much For

These Strategies!

04/22/23 28

Reduce PrincipalPurchase Price $400,000

Owe $350,000

Today’s Value $250,000

90% of Today’s Value Paid To Investor $225,000Loss to Investor $125,000

30 Year FHA Mortgage, Less Principal & Interest, Lower Payment

If Sell Early For Over $225,000 Profit To Lender

Only For Existing Mortgages

Obama Cramdown: Bankruptcy But Must Negotiate FirstObama Cramdown: Bankruptcy But Must Negotiate First

04/22/23 29

What About Moral Hazard?

Unless We Cut Off The Flow of Foreclosures …

If Foreclosures Not Lowered …

No Recovery Until Past 2012

04/22/23 30

Attempt To Get To First Strategy

Hope For Homeowners TARP: Govt Acquire Mortgages (Didn’t) BofA/Countrywide Bankruptcy Judges (Passed House, In Senate)

Being Sued By MBS Holders

04/22/23 31

Local Action:Prices Back to Early 2003 Levels

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

$60,000

$90,000

$120,000

$150,000

$180,000

$210,000

$240,000

$270,000

$300,000

$330,000

$360,000

$390,000

$420,000

Source: Dataquick & Economics & Politics, Inc.

Exhibit 8.-Price Trends, All HomesInland Empire, 1988-2008, Quarterly

$211,547

$404,611

$235,000

04/22/23 32

At 2004 Prices: 2,500 SF homes, 7,200 SF Lot

Revenue $324,000 Land Cost $0 Construction $288,980 Fees $42,897 Loss -$7,847 -2.2%

Direct Construction (of square footage) 50.00$ Indirect Construction (fixed cost) 15,000$ Site Dev. Costs (per square foot of gross land) 8.00$ Sales/Marketing (9%) 9%Warrenty (1%) 1%Finance (6%) 6%Homeowners Assoc./Dept. of R. Estate 500.00$ Property Tax (1.80%) 1.8%General and Administrative (4.0%) 4%

04/22/23 33

At 2004 Prices: 1,500 SF homes, 7,200 SF Lot

Revenue $252,000 Land Cost $0 Construction $221,540 Fees $16,567 Profit +$13,893 5.0%

Direct Construction (of square footage) 50.00$ Indirect Construction (fixed cost) 15,000$ Site Dev. Costs (per square foot of gross land) 8.00$ Sales/Marketing (9%) 9%Warrenty (1%) 1%Finance (6%) 6%Homeowners Assoc./Dept. of R. Estate 500.00$ Property Tax (1.80%) 1.8%General and Administrative (4.0%) 4%

-60% Agency

-40% School

04/22/23 34

Issue: Financial Freeze

Bank, S & L, CU

Savers

Borrower

Account

Mortgage

Secondary Market

More Loans

xAutoStudentPersonalBusiness

TALF: Term Asset Backed Security Loan Facility Creates Secondary MarketMortgagesAuto LoansStudent LoansPersonal LoansShort Term Business Loans

04/22/23 35

Restoring Demand•Consumer (Scared)

•Business Investment (Can’t Borrow)

•Export Growth (Dollar Value Has Risen Again)

•Government Borrow & Spend (World War II Experience)

Borrow $787 Billion & Spend It

04/22/23 36

Borrow $787 Billion & Spend It

Collect $787 Billion In Taxes … Cuts $787 Billion In Private Spending

Spend $787 Billion Collect … Effect is NEUTRAL on Demand

Collect Taxes … Spend That Amount

Borrow $787 Billion … Spent That Too … Adds $787 To Demand

04/22/23 37

Has This Been Tried?

04/22/23 38

World War II As A Giant Stimulus Effort

14.5%

9.7%

4.7%

1.9%

1940 1941 1942 1943

U.S. Unemployment RatesEntering World War II

04/22/23 39

Why Do This? Have To Fill Hole In Our Economy

$4.5

$2.9 $2.5 $2.2 $2.3 $2.3 $2.5$3.3

$4.2$5.1 $5.4

$6.1

$7.2

$9.1

$12.1 $12.5

$10.6

$7.0

$3.9

Construction Industry Research Board

Exhibit 2.-Total Building Permit ValuationInland Empire, 1990-2008 (billions)

$8.6 Billion Hole

In IE Economic Base

04/22/23 40

Blue Collar Industrial Jobs

04/22/23 41

63.8%

50.9% 48.9% 47.9%44.7%

39.3% 37.2% 35.9%

Imperial San Bdno. Riverside Los Angeles Southern California Ventura Orange San Diego

Source: 2007 American Community Survey

Share of Adults, No College Class & BA or AboveSouthern California Counties, People 25 & Over, 2007

Why Blue Collar Jobs Important

04/22/23 42

05,000,000

10,000,00015,000,00020,000,00025,000,00030,000,00035,000,00040,000,00045,000,00050,000,000

Source: Grubb & Ellis & Economics & Politics, Inc.

Exhibit 14.-Industrial Space Gross AbsorptionInland Empire, 1991-2008 (moving 4-quarter total)

Quarterly Industrial Absorption, 1991-2008

20 million Sq.Ft.

7.1 million Sq.Ft.

04/22/23 43

0%2%4%6%8%

10%12%14%16%18%20%22%24%26%

Source: Grubb & Ellis

Exhibit 21.-Industrial Space Availability RateInland Empire, 1991-2008

Industrial Vacancy Rate

9.9%

Moreno Valley-Perris 23.0% SB-Redlands 19.7%

Ontario-Mira Loma 5.2%

04/22/23 44

3.7 3.8 4.1 4.4 5.1 5.4 5.8 6.5 7.5 8.2 9.5 9.6 10.6 11.8 13.1 14.2 15.8 15.7 14.5

42.5

TEU=20 foot equivalent container unitsSource: Ports of Los Angeles & Long Beach; forecast: Moffatt & Nichol Engineers

Exhibit 6.-Port Container TrafficPorts of Los Angeles & Long Beach, 1990-2008 & 2025e (million TEUs)

200743.2% U.S. Imported Containers25.3% U.S. Exported Containers

1. International Containers Thru So. Calif.

04/22/23 45

2. Ports On West Coast Nearest Asia

Los Angeles Long Beach

04/22/23 46

8,000-Container Post-Panamax Ships

3. Deep Water Ports As Ships Draw Over 50 feet of Water

04/22/23 47

BUT (Warning) …

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Port Import Export Reporting Service (PIERS), collected from Vessel

Growth of Imported ContainersPorts of Los Angeles-Long Beach, 1997-2008 (000)

551454

654

160

670

349

788

443

934

(164)

(753)

2008

04/22/23 48

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(800)

(600)

(400)

(200)

0

200

400

600

Source: U.S. Bureau of Labor Statistics

Job Creation or DestructionU.S., 1998-2009, Seasonally Adjusted

1. U.S. Economic SlowdownLost 4,384,000 Jobs

04/22/23 492000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: U.S. Federal Reserve Board

Exhibit 8.-Value of Dollar vs. Major Currencies, 2000-2009

Feb-02 to Jan-Feb-02 to Jan-0909

-17.2%-17.2%

2. Decline In Value of Dollar

04/22/23 50

Manufacturing: OpportunityLogistics: Difficulty

Foreign Goods More Expensive Here

U.S. Products Cheaper Abroad-17.2% toForeigner

+17.2% toAmerican

04/22/23 51

3. Clean Truck Program•Container Fees: Infrastructure, Clean Trucks

•Employee Mandate & Teamsters

04/22/23 52

BCOs4-Corners Strategy

Beneficial Cargo Owners

04/22/23 53

Industrial Situation

Long Term Strength As No Where Else To Build

Long Term Strength Due To Growth of Trade

Short Term Slowing Due To U.S. Economy

Short Term Slowing due to Low Value of the Dollar

??? Impact of Clean Truck Program & Diversion

04/22/23 54

Office Market

Housing Slowdown Hurts!

04/22/23 55

(600,000)(400,000)(200,000)

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,0001,800,0002,000,000

Source: Grubb & Ellis & Economics & Politics, Inc.

Exhibit 90.-Office Net Space AbsorptionMoving 4-quarters, Inland Empire, 1991-2008

Office Absorption

Absorption Falls With Housing Slowdown

04/22/23 561991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0%2%4%6%8%

10%12%14%16%18%20%22%24%26%28%

Source: Grubb & Ellis

Exhibit 93.-Office Vacancy RateInland Empire, 1991-2008

Office Vacancy Rate Has Jumped Dramatically

7.0%

20.6%

24.5%

04/22/23 57

Office Forecast

Recovery Will Await End of Housing Crisis & Re-Emergence of Residential Construction

04/22/23 58

2010 or 2011

When Will “Normal” Return?

xIf Policies

Work!

04/22/23 59

While Waiting ….

04/22/23 60

www.johnhusing.com