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How long will investor holding on for returns and when will

primary residential purchases drive sales?

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Investor share is meaningful and back to bubble levels. (2011

data)

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67%64%

60% 64%67% 70%

73% 73%61%

12% 11% 12% 14% 12%9% 10% 10% 11%

22% 25%28%

22% 21% 21%17% 17%

27%

0%10%20%

30%40%50%60%70%80%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Home Sales by Stated Purpose

Primary Residences Vacation Properties Investment Properties

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Cap rates will driving holding periods and large share of

vacation homes are for investment. (2011 data)

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82%

30%22%

22%

16%

13%10% 3%

22%

14%

34%

49%

14%12%

5% 3%0

0.10.20.30.40.50.60.70.80.9

Vacations Future principalresidence Diversifyinvestments Rent to others Family member/friend For the taxbenefits Extra money tospend Other

Reason For Purchase

Primary Residence Vacation Property Investment Property

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Historically, most buyers were residents. Investor Holding

Periods are Shorter. (2011 data)

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2% 5% 6%

14% 16%

40%

17%

2% 4% 7%12%

8%

43%

26%

5% 8%9%

21%15%

22% 21%

0%5%

10%15%20%25%30%35%40%45%50%

Have already sold

this property Less than a year 1 to 3 years 3 to 6 years 6 to 11 years 11 or more years Don't know

Expected Holding Period

Primary Residence Vacation Property Investment Property

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Ongoing issues

Ownership peaked in 2004. Refinancing and the 27-40% of sales thatwere investment or vacation homes stoked the bubble. Much of this is

now phantom inventory. Though much of it was likely strategic

defaults that have already occurred there is no government bid behindthis segment.

Foreclosure starts have peaked, completions remain slow. REO has barely begun to liquidate. Banks remaining unwilling to hold mortgage assets. Securitization remains closed. Third party origination capacity remains impaired. Correspondent lending remains concentrated.

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Tail-winds Reversing

Three former tail winds (and an end to declining rates) are and willremain generational headwinds: Democratization of credit which began as asset prices outpaced

real wage growth during the inflationary late 70s. Inflation of the 70's also drove acceleration of move from one

income to two income families and supported a one time boost to

housing and other consumption. Prior to the crisis: Majority of top quintile of household income had two earners Majority of mid quintile had one income per household

Largest generation of consumers (baby boom) entered peakconsumption years as the economy came out of the recession of theearly 80s. Now they will consume less and need more.

Coupled with behavioral changes toward homeownership, by potential first time

buyers, we are likely underestimating non-economic impact on ownership.7

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Net Change in Number of Households/ Structural Change

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Number of Households by Age

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Ownership Rates An Aging Population & Structural

Change. Household formation is in demographics that alreadyown homes

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Younger cohorts are saddled with increasing student debts

that will hamper home purchases.

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