1Q2009. Inland Empire UCR May 21, Q09. Copyright Metrostudy

1Q2009 Inland Empire UCR May 21, 2009 Copyright Metrostudy 2009 1

The Economy Copyright Metrostudy 2009 2

National Economic Overview BOOSTERS TO THE ECONOMY Very Strong Government Spending Low Inflation Rate Relatively Low Energy Prices Low Mortgage Rates Copyright Metrostudy 2009 3

National Economic Overview THREATS TO THE ECONOMY Falling Housing Demand due to the absence of mortgage money Collapsing Mortgage backed securities market Liquidity Crisis Declining GDP Growth Massive Job Loss Copyright Metrostudy 2009

NATIONAL ECONOMIC OVERVIEW GDP Growth Rate (Quarterly) 10% 8% 6% 4% 2% 3.5% FED TARGET Source: U. S. Dept. of Commerce 0% -2% -4% -6% -6.20% -8% 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 4Q07 4Q Copyright Metrostudy 2009 5

Employment Copyright Metrostudy 2009 6

NATIONAL ECONOMIC OVERVIEW Annual Job Growth Trend 4,000,000 3,000,000 2,000,000 1,000,000 - (1,000,000) (2,000,000) (3,000,000) (4,000,000) (5,000,000) (6,000,000) Mar 2004 Sep 2004 Mar 2005 Sep 2005 Mar 2006 Sep 2006 Mar 2007 Sep 2007 Mar 20 Sep 20 Mar 2009 Source: U. S. Bureau of Labor Statistics Copyright Metrostudy 2009 7

Source: U. S. Bureau of Labor Statistics NATIONAL ECONOMIC OVERVIEW Employment Growth by Industry Education & Health Services Government Natural Resources & Mining Information 1Q2009 Other Services Financial Activities Leisure & Hospitality Construction Prof & Business Services Transportation, Trade & Utilities Manufacturing (1,500,000) (1,000,000) (500,000) - 500,000 Copyright Metrostudy 2009 8

9.0% 8.0% NATIONAL ECONOMIC OVERVIEW Unemployment Rate Trend 8.5% 7.0% 6.0% 5.0% 4.0% 3.0% 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q 3Q Source: U. S. Bureau of Labor Statistics Copyright Metrostudy 2009 9

NATIONAL ECONOMIC OVERVIEW ISM - Purchasing Managers Index 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 GROWTH NO GROWTH RECESSION 36.3 20.0 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar- Sep- Mar-09 Source: Institute of Supply Management Copyright Metrostudy 2009 10

NATIONAL ECONOMIC OVERVIEW Initial Unemployment Claims 700,000 650,000 Source: U. S. Bureau of Labor Statistics 600,000 550,000 500,000 450,000 400,000 350,000 300,000 250,000 Nov- 05 Mar- 06 Jul- 06 Nov- 06 Mar- 07 Jul- 07 Nov- 07 Mar- Jul- Nov- Mar- 09 Copyright Metrostudy 2009 11

NATIONAL ECONOMIC OVERVIEW Top 25 US Job Growth Markets Topeka KS Laredo TX Bloomington-Normal IL Coeur dalene ID Waco TX Bismarck ND Kennewick-Richland-Pasco WA College Station-Bryan TX Wichita KS New Orleans-Metairie-Kenner LA Morgantown WV Tyler TX Baton Rouge LA Austin-Round Rock TX Columbia MO Houma-Bayou Cane-Thibodaux LA Grand Junction CO Oklahoma City OK Odessa TX Midland TX Anchorage AK Killeen-Temple-Fort Hood TX Champaign-Urbana IL Source: U. S. Bureau of Labor Statistics - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 Copyright Metrostudy 2009 12

Los Angeles-Long Beach-Santa Ana CA New York-Northern New Jersey-Long Island NY-NJ-PA Detroit-Warren-Livonia MI Chicago-Naperville-Joliet IL-IN-WI Phoenix-Mesa-Scottsdale AZ Atlanta-Sandy Springs-Marietta GA San Francisco-Oakland-Fremont CA Miami-Fort Lauderdale-Miami Beach FL Orlando FL Riverside-San Bernardino-Ontario CA Philadelphia-Camden-Wilmington PA-NJ-DE-MD Minneapolis-St. Paul-Bloomington MN-WI Seattle-Tacoma-Bellevue WA Tampa-St. Petersburg-Clearwater FL Charlotte-Gastonia-Concord NC-SC Denver-Aurora CO Las Vegas-Paradise NV Cleveland-Elyria-Mentor OH San Diego-Carlsbad-San Marcos CA Portland-Vancouver-Beaverton OR-WA Cincinnati-Middletown OH-KY-IN Dallas-Fort Worth-Arlington TX Milwaukee-Waukesha-West Allis WI St. Louis MO-IL Naples-Marco Island FL NATIONAL ECONOMIC OVERVIEW Bottom 20 US Job Growth Markets Source: U. S. Bureau of Labor Statistics (250,000) (200,000) (150,000) (100,000) (50,000) - Copyright Metrostudy 2009 13

Conclusions Copyright Metrostudy 2009 14

National Economic Overview THE ECONOMY & EMPLOYMENT GDP Growth reflects a severe recession CPI (inflation) is expected to continue to fall as consumers spend less Job losses are accelerating at an alarming rate The unemployment rate is above 8% and expected to continue upward The Purchasing Managers Index is predicting a recession in the manufacturing sector and the overall economy for next 12 months Initial Unemployment Claims are moving up signaling an increase in the difficulty in finding new jobs Copyright Metrostudy 2009 15

Consumer Confidence Copyright Metrostudy 2009 16

NATIONAL ECONOMIC OVERVIEW Consumer Confidence Index 150.0 140.0 130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 1Q94 3Q95 1Q97 3Q98 1Q00 3Q01 1Q03 3Q04 1Q06 3Q07 Source: Conference Board GROWTH STATIC RECESSION Copyright Metrostudy 2009 17

GROWTH NATIONAL ECONOMIC OVERVIEW Consumer Confidence Index 70.0 STATIC 60.0 50.0 40.0 30.0 RECESSION 20.0 10.0 0.0 Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- 09 Feb- 09 Mar- 09 Apr- 09 Source: Conference Board Copyright Metrostudy 2009 18

NATIONAL ECONOMIC OVERVIEW Consumer Confidence Index - ALL REGIONS 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 Apr- Jun- Aug- Oct- Dec- Feb-09 Apr-09 Source: Conference Board National Index PACIFIC (WA, OR, AK, HI, CA) NEW ENGLAND MIDDLE ATLANTIC (PA, NJ, NY) EAST NORTH CENTRAL (IL, IN, OH, MI, WI) WEST NORTH CENTRAL (MN, IA, MO, NE, KS, ND, SD) SOUTH ATLANTIC (DE, MD, VA, DC, NC, SC, GA, FL, WV) EAST SOUTH CENTRAL (KY, TN, AL, MS) WEST SOUTH CENTRAL (AR, LA, OK, TX) MOUNTAIN (MT, ID, WY, AZ, CO, NM, NV, UT) Copyright Metrostudy 2009 19

NATIONAL ECONOMIC OVERVIEW WEST (California) Consumer Confidence Index 180.0 150.0 Consumer Conf Index PACIFIC (WA, OR, AK, HI, CA) 120.0 90.0 60.0 30.0 0.0 Apr- Jun- Aug- Oct- Dec- Feb-09 Apr-09 Source: Conference Board Copyright Metrostudy 2009 20

NATIONAL ECONOMIC OVERVIEW WEST (California) Consumer Confidence Index 200 180 160 140 120 100 80 60 40 20 Future Expectation Source: Conference Board Present Situation 0 Apr- Jun- Aug- Oct- Dec- Feb-09 Apr-09 Copyright Metrostudy 2009 21

NATIONAL ECONOMIC OVERVIEW Consumer Confidence Index - Home Buying Plans % Source: Conference Board 4.0 3.5 2.5 Million Home Buying Households 3.0 2.5 2.0 1.5 1.0 0.5 - Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- 09 Feb- 09 Mar- 09 Apr- 09 Intend to Purchase Copyright Metrostudy 2009 22

% 4.0 3.5 NATIONAL ECONOMIC OVERVIEW Consumer Confidence Index - Home Buying Plans Source: Conference Board 1.6 Million Resale Buying Households 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- 09 Feb- 09 Mar- 09 Apr- 09 Intend to Purchase Used Home Copyright Metrostudy 2009 23

% 4.0 3.5 NATIONAL ECONOMIC OVERVIEW Consumer Confidence Index - Home Buying Plans Source: Conference Board 0.3 Million New Home Buying Households 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- 09 Feb- 09 Mar- 09 Apr- 09 Intend to Purchase Used Home New Home Copyright Metrostudy 2009 24

% 4.0 3.5 NATIONAL ECONOMIC OVERVIEW Consumer Confidence Index - Home Buying Plans Source: Conference Board 0.6 Million Undecided Households 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- 09 Feb- 09 Mar- 09 Apr- 09 Intend to Purchase Used Home New Home Undecided Copyright Metrostudy 2009 25

Interest Rates Copyright Metrostudy 2009 27

NATIONAL ECONOMIC OVERVIEW Short Term Mortgage Rate Trend 7.00% 6.75% 6.78% 6.66% Source: Freddie Mac 6.50% 6.25% 6.00% 5.75% 6.25% 6.04% 6.27% 5.91% 6.35% 6.40% 6.18% 6.26% 6.42% 5.97% 6.32% 6.04% 5.50% 5.25% 5.72% 5.68% 5.29% 5.00% 4.75% 4.50% 4.25% 4.85% 4.80% 4.00% 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q 4Q 2Q09 Copyright Metrostudy 2009 28

NATIONAL ECONOMIC OVERVIEW Mortgage Rate Trend History 10.0% 9.0% 8.0% 7.0% 4.80 % 6.0% 5.0% 4.0% Source: Freddie Mac Apr-91 Apr-93 Apr-95 Apr-97 Apr-99 Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Copyright Metrostudy 2009 29

NATIONAL ECONOMIC OVERVIEW Top 25 US Housing Markets by Annual Permits Baltimore-Towson MD Portland-Vancouver-Beaverton OR-WA San Francisco-Oakland-Fremont CA Salt Lake City UT Minneapolis-St. Paul-Bloomington MN-WI Tampa-St. Petersburg-Clearwater FL Indianapolis IN Los Angeles-Long Beach-Santa Ana CA Jacksonville FL Boston-Cambridge-Quincy MA-NH Las Vegas-Paradise NV San Antonio TX Riverside-San Bernardino-Ontario CA Charlotte-Gastonia-Concord NC-SC Raleigh-Cary NC Austin-Round Rock TX Chicago-Naperville-Joliet IL-IN-WI Seattle-Tacoma-Bellevue WA Phoenix-Mesa-Scottsdale AZ Orlando FL Washington-Arlington-Alexandria DC-VA-MD-WV Atlanta-Sandy Springs-Marietta GA Dallas-Fort Worth-Arlington TX Houston-Baytown-Sugar Land TX New York-Northern New Jersey-Long Island NY-NJ-PA Source: U. S. Dept of Commerce METROSTUDY MARKETS - 10,000 20,000 30,000 40,000 50,000 Copyright Metrostudy 2009 30

Home Prices Copyright Metrostudy 2009 31

$200,000 $190,000 NATIONAL ECONOMIC OVERVIEW Affordability & Home buying Power 1Q04 $190,000 4Q $234,000 $35,800 $198,200 8.50% 8.00% 7.50% $180,000 $170,000 7.00% 6.50% 6.00% $160,000 5.50% 5.00% $150,000 4.50% 2Q00 2Q01 2Q02 2Q03 2Q04 2Q05 2Q06 2Q07 2Q 2Q09 HOME PRICE MORTAGE RATE Copyright Metrostudy 2009 32

The Bottom Line The outlook for the housing market, and the U. S. economy remains very bleak. The bailout plan has done little to free up mortgage loans, as Wall Street and the banks deal with massive investment losses. It is unlikely that anyone in Washington or on Wall Street knows what to do to avoid further collapse in the economy. The primary signal that we are on the right track toward recovery will be action by the Congress and the administration, to set aside political interests and focus on decisions that will help the economy recover Copyright Metrostudy 2009 33

Current Market Conditions Copyright Metrostudy 2009 34

Current Market Conditions Great time to buy Lots of deals and incentives Low prices New homes are affordable now Great Interest Rates Mortgage qualification is more difficult Foreclosure properties have created opportunity Copyright Metrostudy 2009 35

New v. Resale Copyright Metrostudy 2009 36

Advantages of Resales Character Location Large lots More cabinet space Some remodeled already Sellers willing to negotiate Foreclosure properties represent unique opportunities Sense all have been taken Significant repairs Copyright Metrostudy 2009 37

Disadvantages of Resales Someone else s home Require remodeling Extensive repairs (particularly distressed) Potential for more repairs Old plumbing A/C units Old appliances resales have unusable yards (slope) Homes do not feel open, particularly in the kitchen Even if remodeled, may not match their tastes Copyright Metrostudy 2009 38

Advantages of New Homes Incentives Closing costs Appliances Options First ones to occupy Ability to customize Specs have modern finishes Can create and design backyard Less likely to require repairs Those have new homes disagreed Did not note that repairs were at builder s cost New homes are now affordable were not during the boom Copyright Metrostudy 2009 39

Disadvantages of New Homes Quality of construction and craftsmanship? Concerns about quality of construction were pervasive, particularly in Group Two Quick build equated with low quality Tract home look Too close Small lots Quality of the neighborhood, particularly if affordable Potential foreclosures and values Copyright Metrostudy 2009 40

Weekly Sales Traffic per Subdivision 80 70 60 50 40 30 20 10 0 2007 20 2009 J F M A M J J A S O N D Copyright Metrostudy 2009 41

Weekly Conversion Rate 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2007 20 2009 J F M A M J J A S O N D Copyright Metrostudy 2009 42

Weekly Net Contracts per Subdivision 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2007 20 2009 J F M A M J J A S O N D Copyright Metrostudy 2009 43

Weekly Cancellation Rate 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 20 2009 J F M A M J J A S O N D Copyright Metrostudy 2009 44

Southern California Housing Market New and Used (DQ) Total Sales March. 2009 San Diego 3,020 +43.3 % Los Angeles 5,971 +40.1 % Orange 2,413 +45.1 % Riverside 4,409 +63.8 % Ventura 776 +41.3 % San Bern. 2,897 +88.8 % 19,486 +52.1% Copyright Metrostudy 2009 45

Inland Empire Median Price of New Units Sold: $304,228. 470,000 420,000 370,000 320,000 270,000 220,000 4Q05 2Q06 4Q06 2Q07 4Q07 2Q 4Q Copyright Metrostudy 2009 46

Inland Empire Market Quarterly Starts & Closings History All Housing 902 Starts and 1,414 Closings 12000 10000 8000 6000 4000 2000 0 1Q04 2Q04 3Q04 4Q04 1Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Starts Closings Copyright Metrostudy 2009 47

L.A./O.C./I.E./CV/Ventura Regional Market Annual Starts by Market Area 3,500 3,000 2,500 3,135 2,287 2,000 1,710 1,500 1,000 902 914 500 332 0 West Riverside Los Angeles San Bernardino Coachella Valley Orange Ventura Copyright Metrostudy 2009 48

Los Angeles County Annual Starts by Market Area / Housing Type 16000 Detached Attached 14000 12000 10000 8000 6000 4000 2000 0 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Copyright Metrostudy 2009 49

Orange County Annual Starts by Market Area / Housing Type 7000 Detached Attached 6000 5000 4000 3000 2000 1000 0 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Copyright Metrostudy 2009 50

Ventura County Annual Starts by Market Area / Housing Type 3000 Detached Attached 2500 2000 1500 1000 500 0 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Copyright Metrostudy 2009 51

Inland Empire Market Housing Inventory All Finished Vacant Inventory declined 4 % in the 1st quarter 25000 20000 15000 10000 5000 0 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Under Construction Finished Vacant Housing MOS Copyright Metrostudy 2009 54

Southern California Coastal Regional Market Housing Inventory - New home production inventory attached/detached UNCHANGED in the 1 ST Quarter 25000 20000 15000 10000 5000 0 22.0 17.0 12.0 7.0 2.0-3.0 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Under Construction Finished Vacant Housing MOS Copyright Metrostudy 2009 55

Southern California Coastal Regional Market Attached Housing Inventory - New home attached Finished inventory increased 10 % 16000 14000 12000 10000 8000 6000 4000 2000 0 32.0 27.0 22.0 17.0 12.0 7.0 2.0-3.0 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Under Construction Finished Vacant Housing MOS Copyright Metrostudy 2009 56

Southern California Coastal Regional Market Detached Inventory - New home production inventory 8000 7000 6000 5000 4000 3000 2000 1000 0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q 2Q 3Q 4Q Under Construction Finished Vacant Housing MOS Copyright Metrostudy 2009 57

MONTHS OF STANDING INVENTORY Inland Empire 16 14 12 10 8 6 4 2 0 1st Qtr 2009 Statistics Orange County 12.3 LA County 11.8 Inland Empire 4.6 4Q92 2Q93 4Q93 2Q94 4Q94 2Q95 4Q95 2Q96 4Q96 2Q97 4Q97 2Q98 4Q98 2Q99 4Q99 2Q00 4Q00 2Q01 4Q01 2Q02 4Q02 2Q03 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q 4Q Riverside Inland Empire San Bernardino Source: Market Monitor, Metrostudy Copyright Metrostudy 2009 58

Inventory is moving in the right Direction Consumers have reacted well to the Tax Rebates Small price increases have been reported at a few projects The Elephant in the corner is the Foreclosure Inventory and the timing of the next wave. Copyright Metrostudy 2009 59

National Comparison Resale market softest in Florida, healthiest in CA, TX Markets by Months of Supply of Resale Listings 25.0 20.0 15.0 10.0 Technically in equilibrium per NAR 5.0 0.0 Copyright Metrostudy 2009 61

National Comparison Finished Vacant units an issue in FL, western markets Markets by Months of Supply of Finished Vacant Units 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Copyright Metrostudy 2009 62

Inland Empire Market Vacant Developed Lots - The Inland Empire has 24,834 Vacant Developed Lots on the Ground, a 61.5 MOS... VDL 30,000 25,000 20,000 15,000 10,000 5,000 MOS 70 60 50 40 30 20 10 0 2Q06 3Q06 4Q06 1Q07 2Q07 3Q074Q07 1Q 2Q 3Q 4Q 0 Copyright Metrostudy 2009 63

The New Market The next cycle will emerge on I.E. finished lots, lots of lots. Consumers need to gain more confidence in the economy over the next year The first step will be a shelter driven market Markets near employment centers will correct first Copyright Metrostudy 2009 67

New Products Green Building embracing all aspects of planning and building Energy consumption will take on more importance Water utilization is the bane of the industry. Vehicle trip miles is the elephant in the corner Copyright Metrostudy 2009 68

New Product More urbanized Higher density Close to employment centers These products will be targeted to the next generation of home buyers. Many genexers and gen y value time and do not wish to commute. Copyright Metrostudy 2009 69

Product Utility Smaller homes More utility in floorplan Optional upgrades Less volume inside Fewer garage spaces Copyright Metrostudy 2009 70