Resale Market Analysis
Excesses unwinding, but
economic turmoil still ahead
Nishu Sood, CFA
Research Analyst
(1) 212 250 4756
nishu.sood@db.com
Rob Hansen
Research Associate
(1) 212 250 5182
rob.hansen@db.com
Housing bubble continues to unwind, but economic impact growing
Foreclosures remain the main risk to the housing market, with the most
remarkable statistic being that 10% (and rising) of outstanding mortgages are in
some stage of distress. Nevertheless, our local resale analysis shows significant
unwinding of bubble era excesses, especially in terms of pricing, which is down
more than -50% in the hardest-hit markets. This would perhaps finally be cause for
optimism; however, the impact of severe economic turmoil is only just beginning.
Deutsche Bank Securities Inc.
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may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Industry Update
Top picks
Centex (CTX.N),USD10.54 Buy
Ryland Homes (RYL.N),USD18.65 Buy
Companies featured
Centex (CTX.N),USD10.54 Buy
2008A 2009E 2010E
EPS (USD) -21.71 -3.70 -1.40
P/E (x) – – –
EV/EBITDA (x) – – –
D.R. Horton (DHI.N),USD7.02 Hold
2007A 2008E 2009E
EPS (USD) -2.26 -8.55 -0.40
P/E (x) – – –
EV/EBITDA (x) – – –
K. Hovnanian (HOV.N),USD2.16 Hold
2007A 2008E 2009E
EPS (USD) -10.11 -10.44 -2.54
P/E (x) – – –
EV/EBITDA (x) – – –
Lennar (LEN.N),USD8.80 Hold
2007A 2008E 2009E
EPS (USD) -12.31 -1.58 -0.09
P/E (x) – – –
EV/EBITDA (x) – – 11.7
Masco (MAS.N),USD10.21 Hold
2007A 2008E 2009E
EPS (USD) 1.72 0.43 0.16
P/E (x) 15.6 23.9 62.1
EV/EBITDA (x) 8.7 7.1 10.9
Meritage Homes (MTH.N),USD12.96 Hold
2007A 2008E 2009E
EPS (USD) -11.01 -7.39 -0.71
P/E (x) – – –
EV/EBITDA (x) – – –
Pulte Homes (PHM.N),USD10.77 Hold
2007A 2008E 2009E
EPS (USD) -9.02 -4.49 -0.33
P/E (x) – – –
EV/EBITDA (x) – – 183.6
Ryland Homes (RYL.N),USD18.65 Buy
2007A 2008E 2009E
EPS (USD) -7.90 -7.97 -0.71
P/E (x) – – –
EV/EBITDA (x) – – –
Toll Brothers (TOL.N),USD20.34 Hold
2007A 2008E 2009E
EPS (USD) 0.22 -2.16 0.78
P/E (x) 124.6 – 26.0
EV/EBITDA (x) 25.4 – 10.7
Global Markets Research Company
How long can the surge of foreclosure sales last?
Foreclosures have driven a remarkable rise in resale volumes, with September and
October transactions nearly level with a year ago. As we have observed since
early this year, this spike in volumes is less indicative of real demand than it is of
market clearing prices on distressed homes. Real buyers remain petrified on the
sidelines, as is abundantly clear from new home statistics. On the other hand,
investors appear to have responded in droves to aggressive pricing. So far,
investor demand is still short of new foreclosure supply, so prices continue to
plummet. Foreclosure supply should rise in 2009 while our resale analysis already
shows some pullback from September’s transaction level. As a result, we expect
resale price declines to accelerate in the coming months.
And now for your regularly scheduled housing downturn…
The housing downturn has already been on for three years, encompassing first
volume declines (Act 1) and then home price declines (Act 2). As we wrote a few
months ago, we think there is an Act 3 as well and it is only just beginning – the
impact of economic recession. Some of the traditional factors driving cyclicality in
housing – job and income loss, declining confidence – are only just beginning to
intensify. We may have already endured the worst housing downturn on record,
but now we face the prospect of a regular cyclical downturn as well.
It takes 15 months for pricing to fall after volumes, more in bubble markets
Every single one of the 41 markets we track shows pricing off from peak levels,
allowing us to analyze the trajectory of the downturn as it relates to volumes and
pricing. Volumes on a yr/yr basis declined for 33 months in bubble markets
through June 2008, while declines in non-bubble markets started 28 months ago
and are still going. Prices began falling on average 15 months after volumes, with
a slightly longer lag time in bubble markets.
Valuation and risks
Our builder valuations apply a multiple (incorporating liquidity risk as ascribed by
the CDS market) to our worst-case book values. See valuation section (pages
29/30) for details. Chief risks for the builders is a weakening broader economy &
increased foreclosures. On the upside, further government policies more directly
aimed stimulating housing demand could improve the market in the near term.

Table of Contents
Local resale trends ............................................................................ 3
Volumes rising rapidly in bubble markets..................................................................................3
Foreclosures..................................................................................... 12
Foreclosure filings remain elevated ........................................................................................12
Shadow inventory continues to lurk........................................................................................15
Analyzing distressed inventory at a local level ........................................................................18
Housing Inventory ........................................................................... 21
Seasonal decline in listings .....................................................................................................21
Company impact.............................................................................. 24
Winners/losers ........................................................................................................................24
Valuation / risks .......................................................................................................................30
Top 25 metropolitan areas.............................................................. 31
1) Houston, TX ........................................................................................................................32
2) Dallas-Fort Worth, TX..........................................................................................................34
3) Phoenix, AZ.........................................................................................................................36
4) Washington DC Area ..........................................................................................................38
5) Las Vegas, NV.....................................................................................................................40
6) Inland Empire, CA ...............................................................................................................42
7) Orlando, FL .........................................................................................................................44
8) Austin, TX............................................................................................................................46
9) Chicago, IL ..........................................................................................................................48
10) Denver, CO .......................................................................................................................50
11) Tampa- St. Petersburg, FL ................................................................................................52
12) San Antonio, TX.................................................................................................................54
13) Jacksonville, FL.................................................................................................................56
14) Charlotte, NC.....................................................................................................................58
15) Atlanta, GA........................................................................................................................60
16) Minneapolis-St. Paul, MN..................................................................................................62
17) Raleigh-Cary, NC ...............................................................................................................64
18) Sacramento-Stockton, CA .................................................................................................66
19) Bakersfield, CA..................................................................................................................68
20) Los Angeles-Orange County, CA ......................................................................................70
21) Indianapolis, IN..................................................................................................................72
22) New York Area ..................................................................................................................74
23) Miami-Ft. Lauderdale, FL ..................................................................................................76
24) Oakland, CA ......................................................................................................................78
25) Fort Myers, FL ..................................................................................................................80