You’re Nobody and Unless You’re

somebody@somewhere.com

The Internet, Real Estate, Interest

Rates, Bubblettesand the Economy

Ted C. Jones, PhD

Senior Vice President-Chief Economist

Stewart Title

minks, farming chinchillas, uranium

mines, oil drilling, gold, exotic

cattle, stock markets, raising emus,

ostriches, llamas, alpacas, tech

stocks, Dot Coms, Enron,

derivatives, flipping real estate,

mergers and acquisitions, private

equity…….

Get Rich Quick Schemes

Real Estate: 3 Sim

ple Steps

•Jobs—Net Number New (Loss)

•Interest Rates—Cost of Capital

•Supply and Demand

1 2

3

Fed Funds & 10-Year T-Bond Rates

01234567

'00

'01

'02

'03

'04

'05

'06

'07

Fed Funds

10-Year T-Bonds

Percent

Correlation Since 1960 0.862

Time

Bomb

Loans

2005 First-Time Homebuyers

January 18 2006

43 Percent Put Zero Down

Median Down Payment Was

2 Percent

1/3 Interest Only or Minimum

Payment Loans

Slide From 2006 Presentation

Ted “Does this bother anyone but me?”

“Phase I inspections provide some

representation of previous or

current CMBS deals in the

pipeline. An EDR survey last

Wednesday found 75 percentof

260-300 national environmental

consultant clients

had significant

or slig

htly fewer transactions

overall in the past few m

onths.”

Meanwhile

, Moody's Investors

Service, New York, forecasts higher

bond spreads and lower issuance

from fewer and smaller deals when

the CMBS m

arket stabilizes

because cheap and abundant

liquidity appears unlikely to return

from the first half of the year.

http://ml-implode.com/

September 8 2007

“The Mortgage Bankers Association

reported recently that the percentage

of subprime loans that were 30 or

more days past due climbed to 15.75

percent in the first three months of

this year, a record high and up from

14.44 percent in the final three

months of last years.”

Versus 3.25 Percent for All Loans

Subprime Spill Over

The credit crunch has raised the cost of

mortgages even for borrowers with pristine

credit and put further downward pressure on

home prices. David Adamo, CEO of Luxury

Mortgage, a mortgage banker in Connecticut,

says that three months ago he could sell a

high-quality $3 million mortgage to 20

different banks at an interest rate of 6.75%.

Today only two will even consider buying the

loans, and they want 10%.

August 23 2007: 12:21 PM EDT

Cheese

Milk

Orange Juice

Gas

Home Loans

Interest Rate Difference Between

30-Year and 1-Year ARM Loans

65

95

125

155

185

215

245

6-Aug

-03

6-Ja

n-04

6-Ju

n-04

6-Nov

-04

6-Apr

-05

6-Se

p-05

6-Fe

b-06

6-Ju

l-06

6-Dec

-06 6-

May

-07

Basis Points

The lower the difference,

the better reason to get a

fixed-rate mortgage loan 72

$0

$20

$40

$60

$80

$100

$120

72

75

78

81

84

87

90

93

96

99

'02

'05

4812

16

20

Oil Prices

Interest

Rates %

Oil Prices & 30-Year Residential

Mortgage Interest RatesAugust 2007 Dollars

Source: Stewart Title Guaranty Company

$20

$30

$40

$50

$60

$70

$80

'02

'03

'04

'05

'06

'07

$0.80

$1.00

$1.20

$1.40

$1.60

Oil Prices

Dollars

Per

Euro

Oil Prices & Exchange Rates $US Per Euro

Oil inAugust 2007 Dollars

What Caused This?

Oil Price

Killer D’s

2

Weakened Dollar Causes

What is greater—

the trade deficit or

the Federal deficit?

US Balance of Trade

Inflation Adjusted April 2007 $ Dollars

-$1,000

-$800

-$600

-$400

-$200

$0 93

95

97

99

'01

'03

'05

'07

$ Billions, Prior 12 Months

What was the last year

that there was at least

one month that the US

Gov’tran a surplus?

Jan

2007

Federal Budget Surplus (Deficit)

-$450.0

-$350.0

-$250.0

-$150.0

-$50.0

$50.0

$150.0

$250.0

90

91

92

93

94

95

96

97

98

99

'00

'01

'02

'03

'04

'05

'06

'07

2007 Forecast Based on C

urrent Trend

$ Billions

Up 20-

25 Basis

Points

By End

‘07

Ted’s 2008 ForecastChange From Now

Up Another 25

Basis Points

By

December

2008

Travis Jones

Texas

Sheep C

om

pan

yT

exas

Sheep C

om

pan

yT

exas

Sheep C

om

pan

yT

exas

Sheep C

om

pan

y

Axiom #1

“If you own a four-

wheel drive pickup

you will be stuck

200 yards further

from the Road.”

Percent

Of Home

Buyers

That

Commence

Their

Search

Online

Percent of Homebuyers That

First Found Their Home

Purchased on the Internet

29%

2%

0%

4%

8%

11%

24%

15%

0%

5%

10%

15%

20%

25%

30%

35%

'95

'97

'99

'01

'03

'04

'05

'06

National Association of REALTORS®

Percent of Homebuyers That

First Found Their Home

Purchased in the Newspaper

5%

8%

9%

8%

7%

7%

5%

5%

0%

2%

4%

6%

8%

10%

'95

'97

'99

'01

'03

'04

'05

'06

National Association of REALTORS®

Percent of Homebuyers That First

Found Their Home Purchased By

the Real Estate Agent

35%

50%

50%

49%

48%

41%

36%

38%

0%

10%

20%

30%

40%

50%

60%

'95

'97

'99

'01

'03

'04

'05

'06

National Association of REALTORS®

National Association of REALTORS®

US Job Growth Rates

1.16%

1.16%

1.60%

1.42%

1.12%

0.00%

0.50%

1.00%

1.50%

10 Years

5 Years

3 Years

2 Years

1 Year

August Comparison CAGR

US Job Growth

-2.0%

0.0%

2.0%

98

99

'00

'01

'02

'03

'04

'05

'06

'07

Percent Change from Same Month Prior Year

1.521 Million Net New Jobs in Past 12 Months

Texas

1.77%

1.83%

2.72%

2.78%

2.68%

0.00%

1.00%

2.00%

3.00%

10 Years

5 Years

3 Years

2 Years

1 Year

July Comparison CAGR

51.4 Percent Greater Than 10-Year Average

139 Percent Greater Than US Job Growth Rate

-2.0%

0.0%

2.0%

4.0%

98

99

'00

'01'02'03'04'05'06'07

US

Texas

Percent Change from Same Month Prior Year

Texas Job Growth Rates

267,000 Net New Additional Jobs in the Past 12 Months

Job Growth

Net

Additional

Jobs

(Thousands)

1 Year

10 Years

Abilene

1.7

2.64%

0.79%

Amarillo

3.2

2.93%

1.47%

Austin-Round Rock

33.0

4.63%

2.86%

Beaumont-Port Arthur

5.4

3.43%

0.34%

Brownsville-Harlingen

1.8

1.48%

2.49%

College Station-Bryan

0.9

1.04%

1.97%

Corpus Christi

4.2

2.43%

1.12%

Dallas-Ft Worth-Arlington

91.0

3.19%

1.83%

Dallas-Plano-Irving

68.7

3.40%

1.83%

Compound Annual

Job Growth

Job Growth

Net

Additional

Jobs

(Thousands)

1 Year

10 Years

El Paso

8.4

3.24%

0.98%

Ft Worth-Arlington

22.3

2.68%

1.83%

Houston-Baytown-Sugar Land

82.0

3.37%

2.06%

Killeen-Temple-Fort Hood

0.8

0.68%

1.62%

Laredo

2.4

2.87%

3.75%

Longview

1.9

2.09%

1.62%

Lubbock

4.9

3.90%

1.37%

McAllen-Edinburg-Pharr

10.6

5.45%

4.59%

Midland

3.2

5.10%

1.80%

Compound Annual

Job Growth

Job Growth

Net

Additional

Jobs

(Thousands)

1 Year

10 Years

Odessa

2.3

4.01%

2.45%

San Angelo

0.8

1.81%

0.36%

San Antonio

16.2

2.00%

1.96%

Sherman-Denison

1.2

2.71%

0.41%

Texarkana

1.2

2.20%

0.89%

Tyler

1.0

1.09%

1.84%

Victoria

1.3

2.62%

0.97%

Waco

2.0

1.90%

1.02%

Wichita Falls

1.6

2.59%

0.40%

Compound Annual

Job Growth

Texas

Single

Multi

Year

Family

Family

Title

97

82,228

43,794

126,022

98

99,912

56,918

156,830

99

101,928

44,716

146,644

00

108,782

32,620

141,402

01

111,915

38,427

150,342

02

122,913

42,409

165,322

03

137,493

43,081

180,574

04

151,384

39,796

191,180

05

166,203

44,431

210,634

06

163,032

53,894

216,926

07p

132,527

51,444

183,971

Building Permits

Texas

Last 12 Months

New Jobs

267,000

Residential Permits

183,971

New Jobs Per Dwelling

1.45

Jobs Per Dwelling

Normal markets typically create 1.25

to 1.5 net new jobs per new

dwelling unit.

Dr. Ivan Schmedemann

Professor Emeritus

Axiom #1

“When you make

more money, you

are simply broke at

a higher level.”

Los Angeles Retail Market

Value = -----------------

Income (NOI)

Cap Rate

Capitalization Rates Are Too Low

Next Three Years: Rents Up, Vacancies

Down, Cap Rates Up

http://www.cbre.com/G

lobal/Research/

Commercial Market Reports

CBRE

Colliers International

http://www.colliers.com/Corporate/MarketReports/

http://www.grubbellis.com/Research/quart_trends_reports.aspx

Grubb and Ellis

Ted C. Jones

Axiom #1

“The Early Bird May

Get the Worm, But the

Second Rat Gets the

Cheese.”

http://data.bls.gov/cgi-bin/dsrv?la

http://recenter.tamu.edu/data/bpm

/

Data Sources

Employment

Building Permits

Interest Rates

http://www.freddiemac.com/dlink/htm

l/PMMS/display/PMMSOutputYr.jsp?year=2007

Fannie Mae Forecast

http://www.fanniemae.com/m

edia/berson/m

onthly/index.jhtm

l

Approval Ratings

President: 32 Percent Approval Rating

August 13 -16, 2007

US House & Senate

18 Percent Approval Rating

76 Percent Disapproved all Americans

2007 Economic Concerns

•Some Bubbles Do Exist

•Time Bomb Loans

•Cold War II—Terrorists

•Inflation (and Cap Rates)

•Pandemic (bird flu…..)

•More Hedge Funds Will Fail

•Energy: US Imports 64 Percent of Oil

•Extreme Partisan Politics

Housing Sales Down

6 to 11 Percent