2017 Q1 - U.S. Residential Housing Marketing Review

Adkins Capital Management “Helping Prospective Home Buyers Make A Prudent Home Purchase Decision”

U.S. Residential Housing Market Review

Adkins 60-City Home Price Index Analysis

First Quarter, 2017

PRESENTATION CONTENTS

The purpose of this presentation is to provide an overview and assessment of:

The events and trends that have transpired in the U.S. residential housing market

for the first quarter of 2017:

Actions taken by the Consumer Financial Protection Bureau

Key findings from the “Emerging Trends in Real Estate” report by

PricewaterhouseCoopers and the Urban Land Institute

Financial settlements made by the DOJ attributed to the mortgage crisis:

Deutsche Bank

Credit Suisse

Actions and implications of the Monetary Policy set by the Federal Reserve

The home price level for a select group of cities that make up the Adkins 60-City

Home Price Index.

Top Five Overpriced Cities in the U.S.

Top Five Underpriced Cities in the U.S.

Conclusion

Resources for Prospective Home Buyers

Important Disclosures

1 Adkins Capital Management LLC. 2017 Q1 - Residential Real Estate Analysis

Adkins Capital Management Privately owned and independently operated company.

Exclusive focus on residential real estate.

Company not affiliated with any parties associated

with the residential housing industry.

Our mission is to bridge the gap in the residential

housing market, where deficiencies in education,

public policy, regulation, product structure, and

personnel have created an environment where

prospective home buyers need objective information

and useful analytical tools in order to make a prudent

home purchase decision.

Adkins Capital Management LLC. 2

More than 15 years of real estate analysis experience, more than 10 years of

institutional investment consulting experience, and more than eight years of

freelance financial writing experience.

Author of more than 25 published articles, including publications by Forbes,

Investor’s Business Daily, Yahoo, Investopedia, Financial Edge, and more than

230 news organizations worldwide.

2017 Q1 - Residential Real Estate Analysis

OVERVIEW OF FOUNDER AND CORPORATION

For the first quarter of 2017, an order imposed by the Consumer Financial Protection

Bureau (CFPB) against the nation’s three major credit reporting bureaus (Equifax,

Experian, and TransUnion) was the primary topic of discussion.

The problem, according to the CFPB, was that TransUnion, Equifax, and Experian misled

consumers by suggesting that the educational credit scores they offered were the same

scores lenders used to make credit decisions. However, according to the CFPB, these scores

were "rarely used by lenders to make credit decisions.”

The order imposed by the CFPB levied the following fines upon the three organizations:

Equifax and TransUnion were ordered to pay more than $23 million dollars in fines

and restitutions; and

Experian was ordered to pay $3 million dollars in fines and restitutions for similar

violations.

According to Fair Isaac, 90% of "top" U.S. lenders use FICO scores as part of their lending

decision making process.

Prospective home buyers should remember that according to Fair Isaac, the three credit

scores used by most lenders in terms of offering mortgage loans are:

Equifax: FICO® Score 5: based on Equifax data

Experian: FICO® Score 2: based on Experian data

TransUnion: FICO® Score 4: based on TransUnion data


IMPLICATIONS OF CFPB ACTIONS

For the first quarter of 2017, a report titled “Emerging Trends in Real Estate” was worthy

of discussion.

The report, undertaken jointly by PricewaterhouseCoopers and the Urban Land

Institute, provides: “an outlook on real estate investment and development trends,

real estate finance and capital markets, property sectors, metropolitan areas, and other

real estate issues throughout the United States.”

The following points are an excerpt of the key findings that can be used to help prospective

home buyers analyze the real estate market in their community before purchasing a home:

A rising number of female executives, affluent immigrants, younger and older

workers, and retirees will have a profound influence on community building in the

U.S. over the next ten years.

The annual change in the median existing home price versus the change in the

median existing household income is outlined in an informative manner.

Moderate and severe housing cost burden on households with annual incomes below

$50,000 dollars is worthy of analysis.

Few builders are targeting middle-income buyers. Instead, homebuilders have been

targeting more affluent buyers. This in turn means that existing housing stock will

likely exceed the supply of new homes for future middle-income buyers.

The National Association of Realtors (NAR) is worried about the decreasing ability of

Americans to buy homes. According to the NAR, it seems unlikely that the U.S.

homeownership rate will edge above 65 percent anytime soon.

4 Adkins Capital Management LLC.

FINDINGS FROM EMERGING TRENDS IN REAL ESTATE REPORT


For the first quarter of this year, financial settlements agreed to by two foreign banking

institutions that led to the U.S. mortgage crisis were also important topics of discussion.

The Department of Justice reached a $7.2 billion dollar settlement with Deutsche

Bank, a German global banking and financial services institution

headquartered in Frankfurt, in connection with the bank’s issuance and

underwriting of residential mortgage-backed securities between 2005 and 2007.

The Department of Justice, reached a $5.28 billion dollar settlement with Credit

Suisse , a Swiss multinational financial services holding company located in

Zurich, in connection with the bank’s packaging, securitization, issuance,

marketing and sale of residential mortgage-backed securities between 2005 and

2007.

These financial settlements should remind prospective home buyers that they need to

take a proactive approach to analyzing their home purchase decisions by using

independent proprietary software applications such as the Adkins Residential Home

Valuation Analyzer.


FINANCIAL SETTLEMENTS FROM THE MORTGAGE CRISIS


For the first quarter of 2017, the national average mortgage loan interest rate for a 30-year

fully-amortized fixed-rate loan began the quarter at 4.09% and ended the quarter at 4.19%.

Since June of 2011, the national average mortgage loan interest rate for a 30-year fixed-rate

loan has been less than 4.61%.

In order to better assess the current mortgage loan interest rate environment, prospective

home buyers should remember that the national average mortgage loan interest rate for a

30-year fully-amortized fixed rate loan reached an all-time low of 3.31% in November of

2012, and it reached an all-time high of 18.63% in October of 1981.

In view of realized and expected labor market conditions and inflation, the Federal

Reserve elected to raise the target Federal Funds Rate from (0.50% - 0.75%) to

(0.75% - 1.0%) during their Q1 2017 Federal Open Market Committee meeting. In

addition, the Fed stated that it aims to raise interest rates twice more by the end of the year.

Accordingly, the Fed’s stance of monetary policy remains accommodative, thereby

supporting some further strengthening in labor market conditions and a return to 2 percent

inflation.

Prospective home buyers should closely follow the level of mortgage loan interest rates in

their community, because a rising cost of debt will increase the amount of interest expense

that prospective home buyers will need to pay for their mortgage loan. This in turn will

place downward pressure on the price-level of residential housing in their community.

Prospective home buyers should use the Adkins Residential Home Valuation Analyzer in

order to assess the impact of a changing interest rate environment.


IMPLICATIONS OF FEDERAL RESERVE MONETARY POLICY


ADKINS RESIDENTIAL HOME VALUATION ANALYZER HOME PRICE-LEVEL ANALYTICAL METHODOLOGY

JUSTIFIED MORTGAGE LOAN INTEREST RATE

Represents the cost of debt for a 30-year fully-amortized fixed-rate mortgage

loan that equates the median home price level for a city with the median

household income level for the city.

Based on the assumption that 28% of household income is the largest amount of

money that should be spent in order to repay the principal and interest costs for a

30-year fully-amortized fixed-rate mortgage loan.

7

JUSTIFIED PERCENTAGE OF HOUSEHOLD INCOME

Represents the percentage of pre-tax household income that would have to be

spent by the people that live in a city in order to justify the relationship between

the median household income level for the city and the median home price level

for the city.

Based on the month-ending national average mortgage loan interest rate for a

30-year fully-amortized fixed-rate mortgage loan.

Adkins Capital Management LLC. 2017 Q1 - Residential Real Estate Analysis

FINANCED-BASED ANALYSIS

TOP FIVE OVERPRICED CITIES IN THE U.S.

16 cities that make up the Adkins 60-City Home Price Index were classified as overpriced for the quarter.

It is not possible to justify the home price level for the top five overpriced cities by reducing the 30-year fixed

rate mortgage loan interest rate from 4.19% to 0.0%.

In order to classify the homes in the top five overpriced cities as underpriced, it would need to be deemed

prudent by prospective home buyers to spend more than the justified percentage of household income amount.

In order to justify the median home price level for each city, the median required household income level would

need to increase to a level within the respective range of $95,253 and $231,375.

Based on the median household income level, the quarter ending national average mortgage loan interest rate,

and the assumption that no more than 28% of pre-tax household income should be spent in order to repay the

principal and interest costs of a mortgage loan, the justified home price level for the top five overpriced cities

fell within the respective range of $267,146 and $401,568.

8

Adkins 60-

City Home

Price Index

Median

Household

Income

Level

Median

Home Price

Level

Justified

Mortgage

Loan

Interest

Rate

Justified

Percentage

of

Household

Income

Required

Median

Household

Income

Level

Justified

Home Price

Level

San Francisco $84,160 $1,104,000 None 77% $231,375 $401,568

New York City $58,878 $586,400 None 59% $122,897 $280,935

San Diego $63,400 $540,500 None 51% $113,277 $302,512

Seattle $71,273 $592,200 None 49% $124,112 $340,078

Los Angeles $55,988 $454,500 None 48% $95,253 $267,146


TOP FIVE UNDERPRICED CITIES IN THE U.S.

44 cities that make up the Adkins 60-City Home Price Index were classified as underpriced for the

quarter.

While Huntington has the same justified percentage of household income amount as Memphis

(Wichita), Huntington is ranked as the fifth most underpriced city in the index due to its lower

(higher) justified mortgage loan interest rate amount.

In order to classify homes in the top five underpriced cities as overpriced:

The national average mortgage loan interest rate would have to increase from 4.19% to more

than the justified mortgage loan interest rate amount for each city; or

It would have to be deemed imprudent by prospective home buyers to spend as much as the

justified percentage of household income amount in order to repay the costs of a mortgage loan.

9

Adkins 60-City

Home Price Index

Median

Household Income

Level

Median Home

Price Level

Justified

Mortgage Loan

Interest Rate

Justified

Percentage of

Household Income

Buffalo $66,100 $94,000 19.65% 9%

Detroit $25,980 $42,600 16.95% 10%

Milwaukee $53,164 $99,500 14.80% 11%

Memphis $36,817 $76,200 13.25% 13%

Huntington $44,520 $96,800 12.60% 13%

Wichita $52,231 $114,600 12.45% 13%


CONCLUSION

Given the events that have transpired in the residential housing market, and taking

into account the fact that buying a home will likely be the largest single financial

transaction that prospective home buyers will ever make, and the bulk of their net

worth will likely be tied up in their home, prospective home buyers should subscribe

to use the Adkins Residential Home Valuation Analyzer in order to accurately

assess:

the level of underpricing or overpricing of homes in their community;

the largest amount of money they should spend in order to purchase a home;

the amount of money they would need to earn on an annual basis in order to be

able to afford to purchase a specific home;

total home ownership costs expressed as a percentage of household income; and

how much a home would need to appreciate in value each year in order to offset

the costs associated with owning the home.

By analyzing residential real estate from these perspectives, prospective home buyers

should be able to make a prudent home purchase decision.


ACCESS THE ADKINS RESIDENTIAL

HOME VALUATION ANALYZER

REVIEW THE ADKINS 60-CITY HOME

PRICE INDEX

ACCESS THE STRATEGIC RETIREMENT

PLAN SAVINGS CALCULATOR


RESOURCES FOR PROSPECTIVE HOME BUYERS

WATCH OUR MOVIE CATALOG OF QUARTERLY RESIDENTIAL HOUSING

REVIEWS

WATCH OUR COMPREHENSIVE HOUSING VALUATION METHDOLOGY

MOVIE PRESENTATIONS

WATCH OUR STRATEGIC RETIREMENT PLAN SAVINGS METHODOLOGY

MOVIE PRESENTATION

WATCH OUR ANIMATED MOVIE PRESENTATIONS

CONTACT ADKINS CAPITAL MANAGEMENT IN ORDER TO DISCUSS

RESIDENTIAL HOUSING ANALYSIS QUESTIONS


THANK YOU!

Adkins Capital Management residentialrealestateanalysis.com

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Adkins Capital Management LLC. 12 2017 Q1 - Residential Real Estate Analysis

IMPORTANT DISCLOSURES