BFM_Newsletter_032012_A Bullish View of US Real Estate

Executive Summary

• Median Home Price is Down 27% and is Low Compared to
Household Income or New Home Price.

• Housing Affordability is High with Median Mortgage Payment
Low Compared to Household Income.

• Home Building to Home Buying Ratio is Low even with a
Positive Population Growth.

• Renting Seems Expensive Compared to Buying.

• Home Inventories is Lower.

© 2012 Bourbon Financial Management, LLC ~ Excellence-Experience-Ethics ~ All Rights Reserved ~ info@bourbonfm.com ~ (+1) 312 909 6539 1

Introduction

The real estate crisis has been one of the trigger elements of the
2008 financial crisis. Prices have already fallen by 50% in some U.S.
Cities. Here is a bullish view of the housing market.

While home prices may bottom in 2012-2013, short term future
home-price appreciation is likely to be modest, at best, for the
foreseeable future, based on still-high foreclosure rates, unsold
home inventories, and still-tight credit standard.


Median Existing Home Prices
Down 27%

Sources : National Association of Realtors, FactSet, J.P. Morgan Asset Management, and Census Bureau


Housing Busts in U.S. History


Home Price Index is Now 15% Below
Household Income Index

Notes : « Median U.S. home price » pertains to existing, single-family home ; « rental equivalent of home prices » is defined by apartment rents as measured by the
CPI shelter index. To minimize base-year effects, all series in Figure 3b have been rebased to index values in which the average for 1983-1993 equals to 100.
Sources : Vanguard, based on data from Federal Reserve, Moody’s Analytics Association of Realtors, U.S. Census Bureau, and U.S. Bureau of Labor Statistics.


Case-Shiller Home Price Index Annual Change


U.S. Housing Follows a More
or Less Regular Cycle

Sources : Bureau of the Census, and GMO, As of 6/30/11


Median Home Price is 153% of
Household Income

Sources: Census, National Association of Realtors, BEA, and J.P. Morgan Asset Management.
September 2011 is a J.P. Morgan Asset Management estimate.


Existing Home Price is Low
Compared to New Home Prices

Sources : FactSet, NAR, and US Census Bureau, as of November 30, 2011


Housing Affordability Index
is close to 200

120.0 means a family earning the median family income has 120% of the income necessary to qualify for a
conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the HAI, then,
shows that this family is more able to afford the median priced home.

Sources : FactSet, NAR, and US Census Bureau, as of November 30, 2011


Price to Income Ratio is Low at 1.8

Sources : BEA, Census, PPR, and Fiserv


Housing Starts as a % of
Population Growth is Low at 223

Sources : BEA, Census, and J.P. Morgan Asset Management.


Median Mortgage Payment is
Low as % of Household Income

Sources : Census, Federal Reserve, BEA, and J.P. Morgan Asset Management. *September 2011 is a J.P. Morgan Asset
Management estimate.


Rent is Now 17% More Expensive
than Mortgage Payment

Sources : Census Bureau, and J.P. Morgan Asset Management. Monthly mortgage payment assumes a 20% down payment at
prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage payment based on asking
price. *3Q11 estimates provided by J.P. Morgan Asser Management.


Home Inventories Are Back
To 2.8 Millions

Sources : National Association of Realtors, FactSet, J.P. Morgan Asset Management, and Census Bureau.
Home sales include both new and existing home sales. Existing home sale include single-family, townhouse,
condominiums and co-ops


Future Housing
Construction Gap

Gap with potential
demand could soak
up excess supply in
3-4 years.

At that time, we’ll
have to potentially
double, or even
triple, the residential
industry.

Potential significant
impact on
employment,
consumer,
confidence, home
prices, tax revenues,
the balance sheets
Numbers shown in thousands. Source: CMSG estimates based on Census Bureau Data. of banks and retail
spending.


From 1890 to 2000, Housing Prices
Adjusted for Inflation were almost Flat

Source: Irrational Exuberance, 2nd Edition, 2006 by Robert J Shiller


New Home Sales
and Recessions

www.calculatedriskblog.com


Chicago Data

Sources: Moodys


About Bourbon Financial
Management, LLC

Bourbon Financial Management was formed to provide you with effective and comprehensive solutions for managing your
global wealth. Our disciplined and rigorous approach comes from our collective knowledge in serving large institutional clients
over many years.

Our core investment belief is that asset allocation (equities, fixed income, cash, real estate…) is the single most important
determinant of success in any investment plan. The dominant amount of risk and return comes not from your choice of
individual investments but from your asset class mix. Bourbon Financial Management focuses our resources on risk
management and asset allocation.

PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to our clients. Please tell those you feel may
be interested that they can subscribe to their own free copy of the newsletter at info@bourbonfm.com. Thank you.

BOURBON FINANCIAL MANAGEMENT

Excellence ~ Experience ~ Ethics
616 W. Fulton St., Suite 411, Chicago, IL 60661
(+1) 312-909-6539 ~ www.bourbonfm.com

Member of the Financial of Planning Association and Academic Affiliate of the National
Association Personal Financial Advisors.


Disclosures

• This material was prepared by BFM, Copyright by Bourbon Financial Management, LLC. All rights reserved. BFM is a trademark of
Bourbon Financial Management, LLC. No part of this publication may be copied or distributed, transmitted, transcribed, stored in a
retrieval system, transferred in any form or any means-electronic, mechanical, magnetic, manual, or otherwise-or disclose to third parties
without the express written permission of Bourbon Financial Management, LLC, 616 W. Fulton #411, Chicago IL 60661. The information
contained in this presentation is not written or intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any
federal tax penalties. You are encouraged to seek advice from your own tax or legal counsel. The content is derived from sources believed
to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any
security. BFM assumes no responsibility for statements made in this publication including, but not limited to, typographical errors or
omissions, or statements regarding legal, tax, securities, and financial matters. Qualified legal, tax, securities, and financial advisors should
always be consulted before acting on any information concerning these fields.

• All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will
fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The views expressed in this
presentation are not intended to be a forecast of future events, a guarantee of future results or investment advice. The information
contained herein has been prepared from sources believed to be reliable, but it is not guaranteed by Bourbon Financial Management, LLC
as to its accuracy or completeness. Forecasts and predictions are inherently limited and should not be construed as a solicitation or
recommendation or be used as the sole basis for any investment decision. All investments are subject to risk including the loss of principal.

• The information provided here is for general informational purposes only and should not be considered an individualized recommendation
or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to
review an investment strategy for his or her own particular situation before making any investment decision. We believe the information
obtained from third-party sources to be reliable, but neither Bourbon Financial Management, LLC nor its affiliates guarantee its accuracy,
timeliness, or completeness. The views, opinions and estimates herein are as of the date of the material and are subject to change without
notice at any time in reaction to shifting market conditions. Past performance is no guarantee of future results and the opinions presented
cannot be viewed as an indicator of future performance. Examples provided are for illustrative purposes only and not intended to be
reflective of results you should expect to attain.


BFM_Newsletter_032012_A Bullish View of US Real Estate

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