Dr. James P. Gaines Research Economist. recenter.tamu.edu

Dr. James P. Gaines Research Economist recenter.tamu.edu

National Economic Recovery still Going 2

National Issues Expected GDP growth still modest: 2015 2.5%; personal consumption 2.5% Inflation not worrisome: 2015 1.5% - 2.0%, especially with lower gas prices Industrial production data generally positive Housing improving, but not adding a great deal to overall national economy; residential construction stable at 1 1.2 million units Jobs expanding; unemployment rate probably down under 5.5% level or better 3

1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Percent Change in Real GDP Since 1947 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% 4.4% 8.7% -0.5% -0.9% 7.7% 3.8% 4.6% Average 3.4% rate of growth per year 1947-2005 -0.6% 7.2% 2.0%2.0% -0.9% 7.2% 2.5% 2.3% 6.4% 6.5% 6.1% 5.8% 4.4% 2.5% 4.8% 3.4% 3.1% 0.2% 5.3% 5.8% -0.2% -0.6% 5.6% 5.4% 4.6% 3.1% -0.3% 2.5% 4.5% 4.1% -1.9% 7.2% 4.1% 3.5% 3.6% 3.2% 1.9% 4.8% 4.5% 4.4% 4.1% 4.1% 3.7% 3.4% -0.2% 2.9% 2.5% 1.0% 1.8% 2.8% 3.8% 3.3% 2.7% 1.8% -0.3% 2.5% 2.3% 2.4% 2.2% -2.8% 1.6% Source: BEA

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Thousands of Jobs U.S. Jobs Finally Recovered 150,000 140,000 130,000 2013 1.7% increase 2014 2.0% increase; 0.8% > 2007 126,157 132,019 132,074 134,005 130,628 130,318 131,749 129,240 137,936 137,170 136,398 131,233 131,842 130,275 134,104 136,368 139,042 122,951 120,000 117,407 119,836 114,398 110,000 110,935 109,527 108,427 108,802 100,000 90,000 Sources: BLS, Real Estate Center at Texas A&M University 5

Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Thousands of People Working Employment Level 160,000 150,000 Employment up 1.1% from prior max In past 7 years! Nov-07 146,595 Jan-15 148,201 140,000 130,000 120,000 110,000 100,000 90,000 Sources: BLS, Real Estate Center at Texas A&M University

Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Unemployment Rate 12.0 11.0 10.0 Average since 1980=6.5 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 Sources: BLS, Real Estate Center at Texas A&M University

Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Inflation Remains Relatively Low 16.0% 14.0% 12.0% 10.0% 8.0% Consumer Price Index for All Urban Consumers: All Items 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Source: BLS, Y/Y % change in index 8

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Consumer Confidence Index 140 130 120 110 100 90 80 70 60 50 40 30 20 10 Recession U.S. Source: The Conference Board (1985=100); Haver Analytics 9

CURRENT SITUATION: Texas The Future Just Ain t What It Used to Be! Yogi Berra

Texas Issues Price of oil fell ~half since July National economy, High Tech & Healthcare sectors still fairly strong: major influences Energy-dependent local economies (e.g. Houston, Corpus) more vulnerable to significant downturns Statewide or local Slowdown vs. Decline? State budget expectations from Severance Tax affected by oil price decline Downstream offsets to Upstream cutbacks? 11

Oil Prices & Energy Prices may not have bottomed yet: Saudi Arabia continues to protect its market share Global oil production will increase before it decreases Global oil demand not rapidly increasing even with rapidly-falling prices. The rig count will drop: January US by 199 rigs to 1,683; Texas was down 99 rigs. Expect significant cut back in upstream capital spending on E&P, i.e., fewer wells drilled Increased geo-political-military volatility among oil producing nations that need (require) $95-$100+ oil price 12

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Texas Active Rig Count & Price 1,000 900 800 700 600 Rigs (left) of WTI $160 $140 $120 $100 $80 500 400 300 200 WTI$/bl (right) $60 $40 $20 $0 Source: Baker Hughes, Haver Analytics 13

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Texas Annual Jobs 12,000,000 11,000,000 10,000,000 9,000,000 2012 & 2013 2.9% increase 2014 3.4% 8,610,900 9,737,500 9,428,900 9,510,900 9,412,700 9,494,200 9,366,900 9,157,300 8,940,500 10,875,000 10,606,300 10,567,500 10,392,700 10,304,200 10,336,900 10,063,500 11,574,750 11,190,200 8,000,000 7,000,000 7,485,500 7,272,800 7,098,900 7,177,300 7,755,600 8,260,300 8,027,300 6,000,000 5,000,000 Sources: Texas Workforce Commission, Real Estate Center at Texas A&M University, SA 14

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Houston Annual Jobs 3,000,000 2,800,000 2013 94,700 +3.8% 2014 102,500 +3.7% 2,693,700 2,890,942 2,788,400 2,600,000 2,400,000 2,200,000 2,000,000 1,800,000 1,871,400 1,827,600 1,793,900 1,795,100 1,764,800 1,977,700 1,930,000 2,060,400 2,289,600 2,284,500 2,270,400 2,286,100 2,250,600 2,198,000 2,163,400 2,350,200 2,602,600 2,591,900 2,548,500 2,533,300 2,527,600 2,448,000 1,600,000 1,400,000 Sources: Texas Workforce Commission, Real Estate Center at Texas A&M University 15

Jul-78 Jul-79 Jul-80 Jul-81 Jul-82 Jul-83 Jul-84 Jul-85 Jul-86 Jul-87 Jul-88 Jul-89 Jul-90 Jul-91 Jul-92 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Houston Business Cycle Index 325.0 300.0 275.0 250.0 225.0 200.0 175.0 150.0 125.0 100.0 75.0 50.0 Source: Federal Reserve Bank of Dallas, October 1980=100 16

Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Houston Jobs & WTI Price/bl 3,000,000 2,900,000 2,800,000 2,700,000 2,600,000 2,500,000 2,400,000 2,300,000 2,200,000 2,100,000 2,000,000 1,900,000 1,800,000 1,700,000 1,600,000 Number of Jobs NSA WTI $/bbl Correlation coefficient of 0.26 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Source: EIA Monthly WTI Spot Price FOB Cushing, OK; TWC; Real Estate Center at Texas A&M University

Housing Market Past 20 years, housing riding roller coaster of monetary policy, political directives and capital market manipulation caused boom-bust-boom Believe that housing market is returning to fundamentals Employment-income Household formations Affordability: Interest rates and financing

The Current Housing Market Price & Cost increases and Affordability Tight/Difficult mortgage credit: ATR, put-back risks slow HH income growth house price (collateral) risk Interest rates Shifting demographics: families, age, ethnic Gen Y demand Difficulty of first-time buyers to enter the market Attitude toward Homeownership Institutional investors All-cash sales

2Q1971 2Q1972 2Q1973 2Q1974 2Q1975 2Q1976 2Q1977 2Q1978 2Q1979 2Q1980 2Q1981 2Q1982 2Q1983 2Q1984 2Q1985 2Q1986 2Q1987 2Q1988 2Q1989 2Q1990 2Q1991 2Q1992 2Q1993 2Q1994 2Q1995 2Q1996 2Q1997 2Q1998 2Q1999 2Q2000 2Q2001 2Q2002 2Q2003 2Q2004 2Q2005 2Q2006 2Q2007 2Q2008 2Q2009 2Q2010 2Q2011 2Q2012 2Q2013 2Q2014 (Percent) 70.0 69.0 US Homeownership Rate Current rate is same as 3Q1994 68.0 67.0 66.0 65.0 64.0 63.0 1970s Baby Boomers enter market; homeownership grows 1995-2005 Low interest rates and new mortgage products; Homeownership explodes from 64.1% to 69.1% 62.0 Source: U.S. Census Bureau 20

Source: FHLMC, Job Outlook Casts Shadow on Homeownership Rate, February 2, 2015

WHO S BUYING? Who s Not Buying?

Major Demographic Trends & Changing Housing Preferences Aging population Generational changes Lifestyle & life cycle: Gen Y vs. Boomers Increasing racial/ethnic diversity & cultural shifts Economic Shift: income & wealth gap Educated and less well educated Age Race & Ethnicity Urban Concentration - urban areas 23

Overall Growth and Change in State Population 2010-2050 Texas D-FW Houston Austin San Antonio Population Population % of State Total Population % of State Total Population % of State Total Population % of State Total 2010 25,145,561 6,426,214 25.3% 5,920,416 23.5% 1,716,289 6.8% 2,142,508 8.5% 2020 30,541,978 7,920,671 25.8% 7,413,214 24.3% 2,306,857 7.6% 2,635,183 8.6% 2030 37,155,084 9,970,678 26.8% 9,278,789 25.0% 3,035,547 8.2% 3,182,644 8.6% 2040 44,955,896 12,728,992 28.4% 11,519,566 25.6% 3,960,317 8.9% 3,735,981 8.3% 2050 54,369,297 16,367,293 30.4% 14,221,267 26.1% 5,176,940 9.7% 4,013,515 7.7% Number Increase 29,223,736 9,941,079 34.6% 8,300,851 28.2% 3,460,651 12.0% 2,151,724 7.0% Percent Increase 116.2% 154.7% 140.2% 201.6% 100.4% 82% of total increase will go to the Major MSAs Sources: U. S. Census; Texas State Demographer 2014 Projections (2000-2010 Scenario) 24

Montgomery County Population 2,500,000 2,000,000 1970 2010 added 406,267 2010 2050 add 1,606,226 2,061,972 1,500,000 1,415,763 1,000,000 965,553 660,481 500,000 455,746 49,479 0 1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: U.S. Census Bureau; 2014 Texas State Demographer s Office Projections 25

Fort Bend County Population 3,000,000 2,500,000 1970 2010 added 533,061 2010 2050 add 2,153,178 2,738,553 2,000,000 1,920,868 1,500,000 1,314,652 1,000,000 888,595 585,375 500,000 52,314 0 1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: U.S. Census Bureau; 2014 Texas State Demographer s Office Projections 26

2013 Texas population by Age 8,000,000 7,000,000 6,000,000 5,000,000 7,159,172 26.8% Total 26,664,574 4,000,000 3,825,377 3,614,086 3,484,545 3,000,000 2,000,000 1,000,000 0 0 to 17 years 2,730,371 10.2% 18 to 24 years 14.3% 25 to 34 years 13.6% 35 to 44 years 13.1% 45 to 54 years 1,591,662 55 to 59 years 1,304,789 60 to 64 years 1,743,317 6.0% 4.9% 6.5% 65 to 74 years 11.0% 65+ Source: Texas State Demographer s Office 2012 Projections 2000-2010 1.0 Scenario 879,010 3.3% 75 to 84 years 332,245 1.2% 85 years and over 27

Percent Change from 2010 to 2050 by Age Groups in the Texas Population 300% 250% 259.0% 200% 150% 100% 119.5% 89.4% 101.8% 111.7% 110.5% 50% 0% ALL <18 18-24 25-44 45-64 65+ Sources: Texas State Demographer s Office 2012 Projections 1.0 Scenario 28

Total <34 Years 34-48 Years 49-58 Years 59-67 Years 68 > Years First-Time Home Buyers by Age Group (Percent of All Buyers) 80% 70% 2014 Texas first-time buyer was 32 60% 50% 40% 30% 76% 20% 10% 38% 35% 0% 16% 9% 2% Source: 2014 NAR Home Buyers and Sellers Survey

<34 Years 34-48 Years 49-58 Years 59-67 Years 68 > Years Age of All Home Buyers (Percent Distribution and Median Age in Group) 35% 30% 29 40 2014 Texas buyer was 45 25% 20% 15% 31% 30% 53 63 10% 5% 0% 16% 14% 72 9% Source: 2014 NAR Home Buyers and Sellers Survey

Gen Y Housing Outlook Gen Y Emerging Adults Plugged in Social Educated Outspoken More liberal Multicultural High performance High expectations Marry later buy later Fewer children, later Gen Y Housing Seen the housing collapse Currently 51% rent 80+% eventually want to buy First-time buyers mostly with financial constraints to buying Jobs and student debt = less savings for down payment First-time buyers <30% vs. historic 40% Sources: M. Leanne Lachman and Deborah L. Brett, Generation Y: America's New Housing Wave, Urban Land, February 2011, FNMA National Housing Survey; Pew Research Group; Real Estate Center at Texas A&M University 31

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Interest Rate Mortgage and 10-Year Treasury Rates are DOWN 6.0 10-YR Treasury 30-YR Mortgages 5.0 4.0 3.0 2.0 1.0 Source: Federal Reserve Bank of St. Louis; FHLMC; Real Estate Center at Texas A&M University

Jan-00 Jul-00 New and Existing SF Home Sales U.S. Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Existing Home Sales 000s 8,000 New Home Sales 000s 1,600 7,000 1,400 6,000 5,000 Existing SF Home Sales (left axis) 1,200 1,000 4,000 800 3,000 600 2,000 1,000 New Home Sales (right axis) 400 200 0 0 Sources: US Census Bureau, NAR, SAAR 33

New Houses Sold in the United States, by Sales Price Period Total Under $150,000 $150,000 to $199,999 $200,000 to $299,999 $300,000 to $399,999 $400,000 to $499,999 $500,000 to $749,999 $750,000 and over 2002 973 30.2% 24.4% 25.3% 10.9% 4.8% 3.2% 1.2% 2003 1,086 27.3% 24.3% 24.0% 13.1% 5.2% 4.7% 1.6% 2004 1,203 22.4% 21.1% 26.0% 13.7% 7.5% 6.8% 2.6% 2005 1,283 17.6% 19.2% 27.4% 15.8% 8.7% 7.7% 3.5% 2006 1,051 15.4% 19.8% 28.5% 16.6% 8.0% 7.6% 4.1% 2007 776 13.7% 20.9% 29.3% 15.6% 8.4% 8.0% 4.1% 2008 485 15.9% 21.9% 30.7% 14.2% 7.2% 6.4% 3.7% 2009 375 17.9% 25.6% 30.4% 12.3% 6.1% 5.3% 2.7% 2010 323 17.0% 24.5% 30.0% 13.6% 6.5% 5.6% 2.5% 2011 306 16.3% 22.2% 32.4% 15.0% 6.5% 5.6% 2.0% 2012 368 12.5% 20.1% 32.6% 17.1% 9.0% 6.3% 2.4% 2013 429 8.2% 18.4% 32.4% 19.8% 9.3% 8.4% 3.7% 2014 435 6.4% 16.6% 31.7% 20.5% 10.8% 9.2% 4.8% % Change -55.3% -78.7% -32.0% 25.5% 87.8% 123.7% 188.6% 291.4% Sources: US Census Bureau

Current DTI Levels on New Mortgage Loans Loans Originated in January 2015 Total DTI > 38% Total DTI > 43% Total DTI > 50% Overall 46% 23% 5% FNMA/FHLMC 37% 15% ~0% FHA 65% 44% 16% RHS 40% 13% ~0% VA 56% 36% 13% Source: AEI International Center on Housing Risk, February 23, 2015

Why Aren t New Home Sales Increasing Faster? First-time/move up buyer employment and financing difficulties Home builders maxed out in many cases Employment & income stability and outlook Rent vs. Buy: flexibility; negative stigma; no choice Profit margins to builders better on higher-priced homes Bulk institutional investor buyers have run course Local regulatory controls and fees increasing cost of new home development 36

Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 HMI Housing Starts, thousands NAHB HMI & SF Starts 100 90 Housing Market Index Single-Family Starts 2,000 1,800 80 1,600 70 1,400 60 1,200 50 1,000 40 800 30 600 20 400 10 200 0 0 Source: NAHB, Real Estate Center at Texas A&M University 37

1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014YTD Median Price of New & Existing SF Homes $300,000 $280,000 $260,000 $240,000 $220,000 $200,000 New 2013 up 10% 2014 up 6.1% Existing 2013 up 11.5% 2014 up 6% $247,900 $221,900 $283,600 $207,208 $180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 Source: U.S. Census Bureau; NAHB; NAR

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Annual Texas Home Sales 310,000 290,000 270,000 Sales Avg Price Md Price $66.05 292,805 $72.34 $56.64 275,584 266,842 $93.26 284,479 276,361 $310,000 $290,000 $270,000 250,000 230,000 210,000 190,000 201,528 196,401 188,738 184,056 216,147 $41.51 241,020 232,381 213,334 203,637 205,786 238,060 $250,000 $230,000 $210,000 $190,000 170,000 150,000 146,395 138,123 170,638 $170,000 $150,000 130,000 110,000 107,107 100,047 99,619 122,134 116,604 121,823 $130,000 $110,000 90,000 $90,000 70,000 $70,000 50,000 $50,000 Source: Real Estate Center at Texas A&M University

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Record Texas Median Home Price Five Years in a Row $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 2013 +9%; 2014 +7% 78,200 80,00081,600 75,200 68,50068,100 71,200 100,900 96,200 90,600 86,400 112,100 124,500 127,700 130,100 119,400 136,800 147,300 146,900 147,600 148,800 143,100 145,800 158,000 172,300 184,400 Source: Real Estate Center at Texas A&M University 40

1990 Annual Percent Change in the 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 15.0% 10.0% Median Home Price in Texas 11.1% 1990-1999 Average Change +4% 2000-2014 Average Change +4.15 1990-2014 Average Change +4.1% 9.1% 5.0% 4.6% 5.6% 4.0% 6.2% 5.9% 4.9% 4.9% 6.5% 4.3% 5.1% 4.6% 6.2% 7.0% 2.3% 2.0% 2.6% 1.9% 2.9% 1.2% 0.8% 0.0% -0.6% 2007-2009 peak-to-trough -1.0% 2009-2014 trough-to-peak +26.5-0.3% -0.7% -5.0% Source: Real Estate Center at Texas A&M University

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e Texas SF Building Permits 180,000 160,000 140,000 2014YTD up ~7.5%; marked slowdown 1995-2012 average (104,800) 151,384 137,493 166,203 163,032 120,000 100,000 80,000 60,000 40,000 67,870 66,161 103,252 84,565 78,714 67,964 59,143 59,543 43,975 46,209 36,658 35,908 38,233 83,132 82,228 70,452 69,964 70,421 122,913 111,915 108,782 99,912 101,928 120,366 81,107 81,926 68,170 68,230 67,254 102,400 93,478 20,000 0 Source: US Census Bureau, Real Estate Center at Texas A&M 42

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e Texas MF Building Permits 180,000 160,000 159,603 2014 MF permits Up ~22% 140,000 120,000 111,026 100,000 95,086 80,000 60,000 40,000 20,000 0 59,057 51,592 64,247 33,857 13,879 5,251 3,8508,273 9,304 8,291 3,745 51,576 40,245 30,165 31,281 32,521 40,715 28,381 33,958 35,791 37,537 33,036 47,271 38,671 53,196 46,918 15,837 19,741 30,729 54,145 53,615 65,700 Source: US Census Bureau, Real Estate Center at Texas A&M 43

Houston 2015 Outlook Job formation about half of 2014 level if oil prices stabilize in the $50 s per barrel; even lower if oil price is lower Home sales down 5% - 15% from best year ever, depending on impact of oil prices and potential offsets from downstream energy, healthcare, first-time buyers and National economy Home prices up 5% to 7% - continued tight inventory for sale

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Houston Annual Home Sales 90,000 80,000 2012 +16.6%; 2013 +17.8% 2014 +3% - marked slowdown 80,994 77,668 83,160 80,848 72,800 70,000 66,979 65,169 68,643 60,000 50,000 60,732 56,563 51,433 52,45953,856 48,767 60,106 58,854 56,807 40,000 30,000 40,673 36,894 33,617 32,491 29,726 30,080 30,78332,37133,386 20,000 Source: Real Estate Center at Texas A&M

$10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 Monthly Home Sales Houston Home Sales & WTI Price /bl Monthly January 1995 to Current 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1990-1995 1996-1999 2000-2005 2006-2009 2010-2014 1,000 Monthly WTI Crude Price $/bl Source: EIA; Real Estate Center at Texas A&M 46

Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Houston Months Inventory 9.0 8.0 Inventory at extremely low level relative to market activity 7.0 6.0 5.0 4.0 3.0 2.0 Source: Real Estate Center at Texas A&M 47

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jul-05 Houston Median Home Prices $210,000 $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 66,00065,800 2013 +10% 2014 +9.5% 72,400 78,400 79,900 83,000 78,20078,300 88,900 94,700 101,100 113,900 121,800 129,700 133,100 134,300 141,400 163,400 148,700 151,800 151,800 152,000 152,700 153,700 179,600 196,700 Source: Real Estate Center at Texas A&M University

Percent of Total Sales Percent of Houston Home Sales by Price 70 60 2000 2005 2010 2014 59.5 50 42.6 44.5 50.9 50.9 40 30 20 10 0 27.7 24.8 22.8 18.5 13.9 12.3 9.9 9.1 5.7 2.8 3.8 $99,999 or less 100,000-249,999 250,000-499,999 500,000 or more Source: Real Estate Center at Texas A&M 50

Houston Median Price & WTI Price/bl Monthly January 1990 to Current $230,000 $210,000 $190,000 $170,000 $150,000 $130,000 $110,000 Correlation coefficient of 0.86 $90,000 $70,000 $50,000 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University

Montgomery County Median Home 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $260,000 Price $240,000 $220,000 Annual average increase of 4.3% 1993-2012 2013 +9.6%; 2014 +9.8% 212,400 233,300 $200,000 193,800 $180,000 $160,000 $140,000 $120,000 113,300 115,400 120,800 143,200143,400 131,200 136,100139,500 163,300 157,700 171,300 175,300177,200178,900 184,300 $100,000 88,10087,600 89,700 98,200 $80,000 $60,000 Source: Real Estate Center at Texas A&M University

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Fort Bend County Median Home Prices $290,000 $270,000 $250,000 $230,000 Annual average increase of 4.5% 1993-2012 2013 +13.7%; 2014 +12% 234,400 262,300 $210,000 $190,000 $170,000 $150,000 $130,000 $110,000 $90,000 90,50090,500 92,800 100,100 110,200 113,800 123,700 133,600 170,700 176,600182,800 162,300 151,500 154,700154,700 143,900 206,100 197,600198,400 189,900 $70,000 $50,000 Source: Real Estate Center at Texas A&M University

Harris County Fort Bend County Montgomery County January Market Activity by Major Sales Y/Y % County Median Price Y/Y % Price per Sq.Ft. Y/Y % DoM Months Invent. 2,587-3.1% $173,000 8.1% $108 7.0% 50 2.3 613 2.2% $265,000 13.5% $103 11.2% 50 2.3 496 7.1% $205,000-3.3% $110 8.8% 62 3.2 MSA* 4,328 0.9% $190,000 7.7% $106 7.8% 54 2.5 *10-County Area: Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, San Jacinto, and Waller Counties Source: Real Estate Center at Texas A&M University 54

January Y/Y Percent Change in Sales by Zip Code Produced by: Real Estate Center at Texas A&M University Data: Houston Association of REALTORS /CoreLogic Solutions LLC 55

January Y/Y Percent Change in Average Price/Sq. Ft. by Zip Code Produced by: Real Estate Center at Texas A&M University Data: Houston Association of REALTORS /CoreLogic Solutions LLC 56

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Houston MSA SF Building Permits 60,000 50,000 40,000 2012 +25% 2013 +21% 2014 +11% 55,159 51,202 45,092 42,040 42,217 34,685 34,543 38,319 30,000 20,000 10,000 21,160 25,763 30,563 30,303 17,820 8,886 7,803 7,514 8,093 9,894 10,963 15,159 15,661 15,762 15,873 13,535 19,463 20,854 25,414 25,617 28,169 30,490 28,188 22,328 22,369 22,887 28,624 0 Source: U. S. Census Bureau, Real Estate Center at Texas A&M University

Houston SF Permits & WTI Price/bl Monthly January 1995 to Current 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 45,000 40,000 35,000 30,000 Houston MF Building Permits 42,355 32,495 2011 +70.5% 2012 +75.4% 2013 +14.6% 2014 +50% 25,000 20,000 15,000 10,000 5,000 0 18,310 21,543 12,687 4,067 3,667 3,887 3,341 2,2432,311 755 1,041 284 6,690 4,783 4,499 11,265 20,189 10,150 7,631 6,643 11,382 16,586 10,602 10,468 15,733 20,312 14,165 4,709 4,858 8,281 14,525 16,649 25,044 Source: U. S. Census Bureau, Real Estate Center at Texas A&M University

Houston MF Permits & WTI Price/bl Monthly January 1995 to Current 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 $110 $120 $130 $140 $150 Source: Avg. Monthly WTI Spot Price FOB Cushing, OK; Real Estate Center at Texas A&M University

Dr. James P. Gaines Research Economist recenter.tamu.edu