1. New Business Model For the 2011 Economy
Adapt, Mutate, Migrate or Die
An Economic and Real Estate Forecast
Ted C. Jones, PhD Chief Economist Stewart Title Guaranty Co.

2. The New Business Model
i.e. Things are different today…..

3. The New Business Model
1. Cost Control is
Essential
2. Consumers Have
Changed Expectations
3. Less is More

4. US Employment
September
Year Millions
2000 132.1
2010 130.2
1.9 Million Fewer Jobs
10 Years at 100,000 Per Month = 12 Million Needed Jobs

5. US Civilian Employment
Millions of Jobs
137.0
135.0
133.0
131.0
129.0
'07 '08 '09 '10
613 Thousand Jobs Gained in 2010
7.75 Million Jobs Lost Since January 1, 2008
September 2010 95,000 Jobs Lost

6. Houston-Baytown-Sugar Land Jobs
Percent Change from Same Month Prior Year
Not Seasonally Adjusted
3.0%
0.0% 7
6
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10
-3.0%
-6.0%
US Houston-Baytown-Sugar Land
900 Net Lost Jobs in the Past 12 Months

7. Recession Recovery
The recovery in every
recession since 1949
has been led by a
recovery in the
housing market

8. Axiom #1
There is No Such
Thing as a National
Real Estate Market
or Economy
Nor is there even a generalized Orlando Market

9. US Existing Home Sales
Sold (Millions)
8.0
7.0
6.0
August 2010
5.0
4.0
3.0
'02 '03 '04 '05 '06 '07 '08 '09 '10
National Association of REALTORS®

10. Houston MSA Existing Home Sales
Number Per Month
9,000
8,000
7,000
August 2010
6,000
5,000
4,000
3,000
2,000
1,000
0
2 3 4 5 6 7 8 9 0
'0 '0 '0 '0 '0 '0 '0 '0 '1

11. Houston Existing Home Sales
Average Number Per Month For Prior 12 Months
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2 3 4 5 6 7 8 9 0
'0 '0 '0 '0 '0 '0 '0 '0 '1

12. Houston Existing Home Prices
Median Price
$175,000
$150,000
$125,000
$100,000
$75,000
$50,000
$25,000
$0
2 3 4 5 6 7 8 9 0
'0 '0 '0 '0 '0 '0 '0 '0 '1

13. Houston Residential Building Permits
Number of Dwelling Units
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
80 82 84 86 88 90 92 94 96 98 ' 00 ' 0 2 ' 04 ' 0 6 ' 08 ' 1 0f
Single Family Multi

14. Federal Budget Surplus (Deficit)
$ Billions
$0.0
'01
'02
'03
'04
'05
'06
'07
'08
'09
-$200.0
'10f
'11f
-$400.0
-$600.0
-$800.0
-$1,000.0
-$1,200.0
-$1,400.0
-$1,600.0

15. Interest Expense on Debt Outstanding
$ Billions 2009
$383 Billion
$500
$400
$300
$200
$100
$0
88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 09p
'

16. 2010 Budget
Department $ Billions
Agriculture 25.7
Education 46.7
Energy 26.4
Homeland Security 42.7
Housing and Urban Development 43.7
Interior 12.0
NASA 18.7
Labor 13.3
State 53.9
Transportation 73.3
Treasury 13.4
Environmental Protection Agency 10.5
Total 380.2

17. $533 Billion Spent Remove Temporary
Census Jobs
723,000 Jobs YTD
-33,000 = $772,500
$737,200 Per Job Per Job

18. Oil Prices & 10-Year Treasury Note Rates
August 2010 Dollars
10-Year
Oil Prices Treasury
Rates %
$140
$120 17
$100 14
$80
11
$60
8
$40
5
$20
$0 2
72 75 78 81 84 87 90 93 96 99 '02 '05 '08

19. Oil Prices & Exchange Rates $US Per Euro
Oil in August 2010 Dollars Dollars
Per
Oil Prices
Oil Price Euro
$140
$1.65
$120
$100 $1.45
$80 $1.25
$60
$1.05
$40
$20 $0.85
'02 '03 '04 '05 '06 '07 '08 '09 '10

20. Why Interest Rates Are Going To Increase
Japanese Buyer of 2-Year Treasury Note in September 2008
Dollar-Yen
Exchange
Date Event U.S. Dollars Rate Yen
9-2008 Purchase the Bond $ (100,000.00) 106.6 $ (10,660,000)
3-2009 Interest Payment $ 480.00 97.9 $ 46,992
9-2009 Interest Payment $ 480.00 91.3 $ 43,824
3-2010 Interest Payment $ 480.00 90.7 $ 43,536
9-2010 Interest Payment $ 480.00 83.3 $ 39,984
9-2010 Bond Redempetion $ 100,000.00 83.3 $ 8,330,000
Total (With No Time Value of Money) $ (2,155,664)
Return (No Time Value of Money) -20.2%

21. Rates
Up 100
Basis
Points
Ted’s Forecast
‘10
Big 2011
9-1-2010 to 12-31-10
Upside…

22. Commercial Sales
Percent
$ Billion Change
2007 $ 557.8
2008 $ 181.6 -67.4%
2009 $ 54.4 -70.0%
$58 Billion Q1+Q2+Q3 2010
Forecast 2010 = $77.3 2010 +42%

24. Mortgage Bankers Association
Office Building
Washington, DC
Purchased 2007 $79.0 Million
Sold Feb 2010 $41.3 Million
Loss $37.7 Million
47.7 Percent

25. MIT Real Estate Group
NCREIF

26. Estimated Current Property Value Compared to Q2 2010
Property Type
Acquisiton Date Apartments Industrial Office Retail
2000 Q1 41.3% 16.9% 26.7% 40.2%
Q2 35.8% 13.9% 23.5% 43.6%
Q3 30.5% 10.5% 20.7% 43.9%
Q4 29.3% 10.9% 20.1% 50.2%
2001 Q1 30.8% 6.9% 21.1% 53.4%
Q2 21.5% 4.1% 24.0% 46.1%
Q3 22.2% 5.3% 28.7% 43.1%
Q4 22.4% 7.7% 32.6% 44.4%
2002 Q1 21.3% 13.1% 26.8% 40.7%
Q2 25.0% 10.6% 31.3% 37.5%
Q3 24.5% 9.1% 22.9% 32.0%
Q4 20.5% 4.3% 25.1% 24.2%
2003 Q1 21.6% 8.2% 23.7% 25.4%
Q2 22.3% 3.8% 25.5% 17.7%
Q3 18.7% -2.0% 21.7% 28.5%
Q4 18.0% -2.9% 21.3% 20.2%
2004 Q1 19.3% -4.2% 21.1% 15.5%
Q2 14.7% -10.0% 16.5% 10.0%
Q3 8.5% -9.3% 15.4% 3.8%
Q4 6.2% -9.7% 11.1% -0.3%
2005 Q1 -2.2% -6.7% 8.0% 1.2%
Q2 -2.4% -25.1% -1.4% -17.8%
Q3 -17.1% -26.0% -7.7% -20.6%
Q4 -20.9% -25.7% -15.9% -20.6%

27. Estimated Current Property Value Compared to Q2 2010
Estimated Percent Change in Value Since Acquisition
Property Type
Acquisiton Date Apartments Industrial Office Retail
2006 Q1 -23.8% -32.8% -19.4% -21.8%
Q2 -21.8% -34.1% -19.5% -24.0%
Q3 -21.1% -32.6% -24.5% -25.6%
Q4 -21.4% -38.3% -28.6% -27.3%
2007 Q1 -19.6% -39.6% -30.9% -28.3%
Q2 -24.0% -43.6% -35.2% -28.1%
Q3 -27.7% -41.8% -35.7% -27.1%
Q4 -27.2% -37.8% -35.3% -25.8%
2008 Q1 -26.8% -38.0% -33.7% -21.9%
Q2 -25.5% -33.1% -28.0% -21.0%
Q3 -24.5% -31.7% -26.6% -21.3%
Q4 -13.0% -24.9% -20.8% -18.3%
2009 Q1 -8.3% -5.4% -17.3% -14.8%
Q2 -1.4% -5.4% -6.2% -5.6%
Q3 -1.1% -4.1% -0.6% -1.2%
Q4 8.0% -2.1% 9.2% 4.3%
2010 Q1 5.4% 5.5% 5.0% 5.2%
Q2 0.0% 0.0% 0.0% 0.0%

29. Commercial Lending
Four Quarter Moving Average Q1 2001 = 100
350
300
250
200
150
100
50
0
3 4 5 6 7 8 9 0
'0 '0 '0 '0 '0 '0 '0 '1

30. Apartment
Price Index
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10

31. Texas Multifamily
Prices Down 10 to 15 Percent
Since 2007 Peak
Texas Industrial
Cap Rates Up 100 Basis Points
From 6.5 Percent
Value Down 13+ Percent

34. Multifamily Assessed
Value
2007
Percent Texas
Years Change Apartment
2007-2008 -1.4% Resales
2007-2008 22.6%
2007-2008 59.4%
2007-2009 -3.2%
2007-2009 8.7%
2007-2009 20.6%

35. 2011 Economic Concerns
• Wall Street—Washington DC—Liquidity
• Jobs – Stimulus Not Working GDP=C+I+G
• Time Bomb Loans Now Commercial
• Cold War II—Terrorists
• Inflation (and Cap Rates)--Recession
• Tax Cut Clock Ticking…………….
• Energy: US Imports 70+ Percent of Oil
• Real Estate-Autos-Credit Cards-Banks

36. Ted’s Blog
http://blog.stewart.com/

37. Ted C. Jones, PhD Chief Economist
Stewart Title Guaranty Co.
http://blog.stewart.com/