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com

“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”
William Arthur Ward

December 2009 Issue

In This Issue
Reflections on the past Decade
Cartoons
Ben Bernanke
Risk in 2010
Stiglitz: 6 Harsh Lessons We Failed to Learn
TNX - 10 Year Treasury Yields
2009 Stock Market Tally
Charleston

Reflections on the past Decade

Happy New Year and Happy New Decade everyone!

I am sure everybody can reflect on the ups and downs of this past decade. I think what is important is that we reflect
on the good and bad and learn important lessons that came each of our ways through this thing called life. I guess two
words would sum up my feelings of the past decade: “No Regrets.” The last decade was truly an incredible learning
experience for me personally and in business. I have had the luxury of participating in the DotCom bubble and 9/11
as a Financial Consultant and the real estate boom/bust and credit meltdown as a former appraiser and consultant.

What I have tried to pass on to all the readers of the CMR since September 2006 is the importance of risk
management from different perspectives. I could have easily taken my knowledge and tried to “bamboozle” the CMR
readers with real estate or investment deals to line my own pocket but this was never my style or intention. I actually
had potential buyers wait on the sidelines in 2006-07 until the correction ran its course instead of taking the easy real
estate commission.

This is what the past decade taught me by being in the trenches of the stock market, real estate and credit markets
during extreme volatility created by sheer greed and ignorance. Although these lessons that I learned from the

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markets did not feel very good while they were actually occurring the experience and knowledge I gained from them
is priceless.

As many of you know I took a ton of heat in September 2006 for being quoted in Post and Courier saying "I think it's
a lending bubble. Lending is out of control. The way some people finance their homes is crazy.” I also made the
comment:

For the country, "We are not so much a housing bubble as a lending bubble," he said. "Many lenders are involved in
high-risk financing scenarios with borrowers when they push high-risk loans and do not expect loan defaults when
the market turns ugly," he said. "My main worry for the local real estate market here is the possibility of nationwide
recession, which could drag down the U.S. real estate market even further."

You must remember that in 2006 everyone in Charleston and other parts of the country were still high on real estate
and those quotes cost me a lousy job and I moved on. Today it is hard to believe how certain so called professionals
in the real estate and lending industry could not comprehend these comments. However, the individuals who attacked
me for those “right to free speech” comments have now lost millions on bad real estate deals, lost thousands of
transactions in the mortgage business because you can not get a mortgage with just a heartbeat anymore, and
local/national banks have lost billions in poor residential and commercial loans.

In my opinion, if you just stick with the truth you usually come out ahead. The individuals who attempted to tarnish
my reputation for the comments above were worried about their wallets and so called businesses that were built on
smoke and mirrors. Many of the loans and appraisals made before and after my comments were published were just a
pile of crap. If you decide to pursue a purchase a home or pursue a career in real estate just make sure that you have
the knowledge to decipher the truth from the lies so you do not lose money.

The Torah teaches that we measure our success, not by what we achieve for ourselves, but rather, by how we impact
on our fellow man and the extent through which we become a blessing to others. This does not mean that we should
neglect ourselves or our own needs, but rather, that we should expand ourselves to include others and make their
concerns our own.

The readers of the CMR who waited to purchase real estate until 2009 have saved a ton of money. They found a
source of truth and educated themselves. I am not the only guy who is doing this type of research but trust me there
are much fewer people writing about the truth in the markets rather than those who have a financially induced hidden
agenda to make mullah (money) such as some of the clowns you see on CNBC each day.

I appreciate you all spending your hard earned money to read these reports each month and I hope they help you in
your future personal and/or business decisions.

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Cartoons

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www.charlestonmarketreport.com
www.charlestonmarketreport.com
Ben Bernanke “Time Magazine’s Man of the Year”
How About: “Dumbass of the Decade”

You just can’t make this stuff up! This choice by Time Magazine displays the collusion between the government and
the main stream media. Bernanke as Person of the Year is almost as bad as President Obama receiving the Nobel
Peace Prize. I believe in the next year or so it will become apparent to all the “sheeple” out there who just gobble up
all the BS from the main stream media as the truth that Ben Bernanke is actually “Dumbass of the Decade” instead of
“Man of the Year” when everyone realizes what he actually did with our money. The only true way to find out what
he did is to audit the Fed. Unfortunately, if the Fed were audited we would probably have another stock market crash
when everyone realizes where all the money went to.

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 The Dumbass Bernanke Timeline

• On July 1, 2005, Bernanke stated without hesitation that we were not experiencing a housing bubble: “I think
what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.”

• November 2005, on derivatives: “With respect to their safety, derivatives, for the most part, are traded among
very sophisticated financial institutions and individuals who have considerable incentive to understand them
and to use them properly.” And “the Federal Reserve’s responsibility is to make sure that the institutions it
regulates have good systems and good procedures for ensuring that their derivatives portfolios are well
managed and do not create excessive risk in their institutions.”

• February 15, 2006: “Housing markets are cooling a bit. Our expectation is that the decline in activity or the
slowing in activity will be moderate, that house prices will probably continue to rise.”

• February 2008: “I expect there will be some failures of smaller banks” (Bear Stearns collapsed a couple of
weeks later).

• But then again, I guess in regards to his nomination we are talking about achievements in 2009. That was the
year Bernanke said, "Currently, we don’t think [the unemployment rate] will get to 10 percent."

This is the same chairman of the Federal Reserve who told us that Fannie and Freddie were “adequately capitalized”
and “in no danger of failing.”

Unfortunately, he has not just been wrong about housing, unemployment, banking, and derivatives – his policies have
directly contributed to all of the problems we now face.

High unemployment and the weak dollar threaten to further undermine our economy, yet his policy is to just keep
borrowing. The massive debt his policies have slapped the American taxpayer in the face and are weakening the
U.S.’s position as global economic leader and hurting already tenuous relations with foreign governments. Bernanke
has supported the policies of Greenspan and our current and previous administrations – the very policies that got us
into this mess. He has supported the leveraging of the American economy to rescue companies long past saving and
the borrowing of billions from foreign governments to line the pockets of corrupt investment bankers.

Risk in 2010
Before we all get “goo goo gaga” over the resurgence in the stock market, real estate and certain aspects of the
economy we all need to take a step back and remember what just happened and where we are going. This is a
government led recovery while the private sector is still recovering from the “credit cancer” that manifested over the
past 10 years. Anytime your “gooberment” throws approximately $15 trillion at a problem there is certainly going to
be some appearance of a recovery. However, many problems still linger in our overall economic structure that could
put a damper on future bullishness I have regarding the future of Charleston. The “credit cancer” has not gone away
and if it rears its ugly head again down the road and places more fear in the minds of the consumer real estate along
with other businesses will suffer. The trillion dollar question to ask yourselves is if the so called economic repairs are
sustainable. Based on what I know regarding the complicated international monetary system is the answer would be
that current monetary policies are not sustainable. The reasons are:

• Foreign governments have allowed the U.S. to run up our deficit by purchasing our debt.
• The Federal Reserve has artificially kept interest rates low which has created a massive carry trade that has
caused the stock market to have ridiculous appreciation.
• Gold continues to move higher just as it has since the beginning of the decade.
• Banks still hold tons of toxic assets that are never going to appreciate back to the level of what they paid.

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 • The same morons that helped steer us into this crisis such as Larry Summers, Tim “Tax Cheat” Geitner,
Congress, etc. are still in charge of the economic policy.
• Our economy is still over leveraged and a rise in interest rates will be a shock with negative consequences.
• Our debt to GDP continues to rise as our Congress continues to show a lack of discipline with the U.S.
checkbook.
• The current “experiment” to repair the economy is unchartered territory and much more complicated than
during 1930s when the Great Depression occurred.

I would recommend the following in 2010 and beyond.

• Buy a residential home to live in NOT to invest in for spectacular profits like seen during the “go go” days.
Real estate is typically a leveraged investment that is not liquid and can become a dangerous trap.
• Be very careful with commercial real estate. Many sectors of CRE are tricky and are not going to be
successful investment plays for novice investors.
• Look outside of the U.S. to invest in the stock market. Make sure you have a financial advisor who
understands risk management through the use of options or using stop losses.
• The days of “buy and hold”are over and you have to implement and a much more tactical approach to
investing that is more active than some people prefer. Again, use a very experienced financial advisor for this
approach who understands and has a game plan for risk management.
• If you are going to become an investor or already are an investor in real estate or stocks then get educated or
get more educated. Ignorance is the problem most people have when they lose money in the markets. Focus
your education around risk management strategies.

Sales volumes are being propped up by government intervention (tax credit, aggressive FHA lending, Freddie and
Fannie bailout, and Fed mortgage rate intervention) and investor activity that now exceeds 2005 levels as a % of total
activity. In other words, there would be far fewer home buyers today (just as there was in 1968-70, 1973-75, 1981-83
and 1990-92) and house prices would be falling even further.

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Market Share of 4 Biggest Banks Since 1998
Can you say “Too Big To Fail” (TBTF) still rules?”

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- How Big is the Total At-Risk Mortgage Universe?

Of the loans in existence today at least 75% were refinanced or attained through a purchase from 2003-2007 – the
bubble years. On several occasions in the past couple of years, Jim “The Clown” Cramer has quantified the at-risk
loan universe as being around 14 million, which represents everyone who purchased a home between 2005-2007. But
then he says ‘”there is no way everybody who bought a house from 2005-2007 will ever default”. So, he pairs it back
to 20% or 25% of 14 million – whatever. He is incorrect on a number of levels.

First off, the bubble years were really 2003-2007. But aside from that, the number of people who purchased a
home is only a small piece of the entire pie. The bubble years were not about purchases, rather refi’s. During the
bubble years refi’s, cash-out refi’s and HELOCs were at least 4:1 over purchases. A purchase is no more risky than an
existing homeowner with a great payment history who pulled out 90% or 100% of their equity at a 50% DTI. In fact,
the latter are more risky…purchases in general are always considered the safest loans.

This means the true potential at-risk loan universe is any Prime, Alt-A, or Subprime borrower that did a
purchase or refi from 2003-2007. Obviously, not every single borrower is at-risk but we have no way of really
knowing how many of the 43 million + loans from that period still in existence today are destined for trouble. This is
especially true when even borrowers with 800 scores and 70% LTV’s are at risk of default because their DTI
started out at 50% and after the fact, they expanded their credit portfolio because all credit was so easily attained until
a couple of years ago.

- 13 to 15 Million Loans at Imminent Risk of Default

- Potentially, 20 Million Homeowners over the Next Few Years

The chart below breaks out all of the loans in existence by loan type. Of the loans originated during the trouble
years, the far right columns show the conservative number of loans in which the borrowers either borrowed at 50%
DTI or went Limited Doc (stated income, light doc, no doc, no ratio). The two columns are not mutually exclusive.

The last Mortgage Bankers Association report estimates that the total number of loans in some sort of delinquency,
default, or foreclosure status to be about 8.2 million, or 14.41% of all loans. If the true number of imminently at-risk
loans is somewhere between 13 and 15 million, the default and foreclosure crisis is about 60% over.

The problem with the final 40% is that it crushes everyone other than Subprime households and likely happens over a
longer period of time than the two-year Subprime Implosion.

In addition to the imminent defaulters, a large percentage will default for various unforeseen reasons tied to the
macro. Throw in top strategic defaulters and we could easily see a situation over the next few years in which 20
MILLION homeowners are either delinquent, defaulted, or in the foreclosure pipeline.

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Source: www.mhanson.com/blog

Stiglitz: 6 Harsh Lessons We Failed to Learn

Economics Nobel laureate and Columbia University professor Joseph E. Stiglitz has what very well be the best year
end piece I have seen to date;

“The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which
we seemed to be perched in late 2008, and that 2010 will almost surely be better for most countries around the world.
The world has also learned some valuable lessons, though at great cost both to current and future prosperity – costs
that were unnecessarily high given that we should already have learned them.”

What were those 6 “harsh” lessons?

1. Markets are not self-correcting, and without adequate regulation, they are prone to excess.
2. There are many reasons for market failures. Too-big-to-fail financial institutions had perverse incentives: Privatized
gains, socialized losses. .
3. When information is imperfect, markets often do not work well – and information imperfections are central in
finance.
4. Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs
early emerged from the crisis faster
5. There is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central
banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to
the costs imposed on economies when central banks allow asset bubbles to grow unchecked.
6. Not all innovation leads to a more efficient and productive economy – let alone a better society. Private incentives
matter, and if they are not properly aligned, the result can be excessive risk taking, excessively shortsighted behavior,
and distorted innovation.

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TNX - 10 Year Treasury Yields
• Bloomberg.com – Morgan Stanley Sees 5.5% Note as U.S. Faces Deficits
If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale.

Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since
1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge
will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a
decade, Greenlaw said. Investors are demanding higher returns on government debt, boosting rates this
month by the most since January; on concern President Barack Obama’s attempt to revive economic
growth with record spending will keep the deficit at $1 trillion. Rising borrowing costs risk jeopardizing a
recovery from a plunge in the residential mortgage market that led to the worst global recession in six
decades.

“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after
yourself,” Greenlaw said in a telephone interview. “Market signals will ultimately spur some policy action but I’m
not naive enough to think it will be a very pleasant environment.”Yields on the 3.375 percent notes maturing in
November 2019 climbed 4 basis points to 3.84 percent at 11 a.m. in London today, according to BGCantor
Market Data. The price fell 10/32 to 96 5/32. They have risen 65 basis points this month, the most since April
2004, as government efforts to unfreeze global credit markets lessened the appeal of the securities as a haven. …
Edward McKelvey, senior economist in New York at Goldman Sachs Group Inc., the top-ranked U.S.
economic forecasters in 2009, according to data compiled by Bloomberg, expects yields to drop to 3.25
percent. Goldman Sachs says unemployment will average 10.3 percent in 2010, hindering the recovery.

When we take a look at the Point & Figure chart of the Ten Year Yield (TNX) below it demonstrates since the
beginning of the year that the trend has been on the upside. If I were going to predict where interest rates move in
2010 then I would be in agreement with David Greenlaw that they continue to move up since the Fed is supposed to

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reduce the “Ponzi” quantitative easing by reducing the purchase of the U.S. Treasuries like it has this year. I am not
sure if 30 year fixed mortgages will hit 7.5-8% but I do feel they will be higher than the current 5.3% 30 year rate.

We must all remember that there are two main factors behind super duper low interest rates: The Federal Reserve and
the Chinese buying our Treasuries.

The Fed has created massive artificial demand for more U.S. debt in two ways; by direct purchase of bonds being
auctioned (During the first 2 months of the new fiscal year, the Federal Reserve grew its balance sheet by about $65
billion, in effect purchasing about 22% of the federal government’s new debt) and by secretly buying Treasury bonds
from “primary dealers” (banks) a few days after the auction. The entire “package” of Fed buying of Treasury debt to
keep interest rates low runs in the hundreds of billions–The Fed’s balance sheet ballooned to $2.24 trillion in assets as
of last week, up 142 percent from the beginning of 2008.

This is just one example of the “Ponzi Financing” used to keep the housing market from hitting the skids.

China holds about $2.27 trillion in foreign reserves, about two-thirds of it in US dollars, up 19% from a year earlier.
The country held Treasury bills worth about $797.1 billion in August, making China the world’s largest holder of US
Treasuries outside the United States, according to the US Treasury Department.

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So if you are interested in buying a home I would seriously consider pulling the trigger this winter. This time of the
year is a great time to purchase (if you have a good deal) due to the seasonality of real estate. The winter season is
always the slowest and sellers are more inclined to negotiate because of the slow activity. Remember, the longer the
seller waits they have to continue paying the mortgage until their homes sells so as a qualified buyer you have major
leverage this time of year due to these factors along with the high number of competitive homes on the market at this
time and the difficulty to obtain financing. I also believe it is important to understand that sellers will be slow to react
to an increase in mortgage rates on sales price since they are getting beat up so bad already that it would be in a
buyer’s best interest to move as quickly as possible if they have to buy a home in Charleston. If you are a real estate
agent (especially a buyer’s agent) I would definitely be discussing these scenarios with your clients at this time.

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2009 Stock Market Tally
Via Bloomberg, here are the final closing data for December 31st 2009:
Dow -18%
S&P500 - 23.5%
Nasdaq Comp - 44%

Last year’s big market rally failed to rescue investors from the single worst return of any decade in history for
equities.

This 2009 move off of the bear market lows wasn’t enough to restore money lost in both bears (dot com bubble
and credit collapse) of the 2000s.

Annual returns for the S&P 500 the past decade?

An average annual loss of 0.9% a year since 1999 including dividends. S&P noted this was the first negative
return for a decade since data began in 1927.
Source: The Big Picture

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Charleston

Jobs, Jobs, Jobs

Charleston actually did fairly well in the recent YTD job loss category compared to the top 100 largest employment
markets. We ended up ranked 83 out of a 100. Only one metro area in this top 100 actually gained jobs since last
year, McAllen, TX.

Employment in 100 Biggest Markets (November 2009)

Primary Jobs (Nov. Jobs (Nov. Raw Percent
Metro area state 2008) 2009) change change

Youngstown-Warren- Ohio 236,100 219,000 -17,100 -7.2%

Boardman
Detroit-Warren- Michigan 1,880,900 1,752,300 -128,600 -6.8%
Livonia
Las Vegas-Paradise Nevada 903,500 843,100 -60,400 -6.7%
Boise City-Nampa Idaho 266,900 250,000 -16,900 -6.3%
Phoenix-Mesa- Arizona 1,841,700 1,731,500 -110,200 -6.0%
Scottsdale
Milwaukee- Wisconsin 851,500 801,000 -50,500 -5.9%
Waukesha-West Allis
Bradenton-Sarasota- Florida 264,000 249,100 -14,900 -5.6%
Venice
Portland-Vancouver- Oregon 1,034,600 982,400 -52,200 -5.0%
Beaverton
Sacramento-Arden- California 873,200 829,300 -43,900 -5.0%
Arcade-Roseville
Wichita Kansas 313,100 297,600 -15,500 -5.0%
Atlanta-Sandy Georgia 2,399,600 2,282,500 -117,100 -4.9%
Springs-Marietta
San Jose-Sunnyvale- California 912,000 869,300 -42,700 -4.7%
Santa Clara
Riverside-San California 1,201,100 1,145,900 -55,200 -4.6%
Bernardino-Ontario
Salt Lake City Utah 644,100 614,700 -29,400 -4.6%
Charlotte-Gastonia- North 851,400 813,900 -37,500 -4.4%
Concord Carolina
Cleveland-Elyria- Ohio 1,053,500 1,008,000 -45,500 -4.3%
Mentor
Greensboro-High North 363,600 347,800 -15,800 -4.3%
Point Carolina
Providence-Fall River- Rhode 568,200 543,500 -24,700 -4.3%
Warwick Island
Tampa-St. Florida 1,211,600 1,159,700 -51,900 -4.3%
Petersburg-
Clearwater
Chicago-Naperville- Illinois 4,513,900 4,327,300 -186,600 -4.1%
Joliet
Orlando-Kissimmee Florida 1,062,500 1,018,500 -44,000 -4.1%
San Francisco- California 2,014,100 1,931,000 -83,100 -4.1%
Oakland-Fremont
Akron Ohio 340,100 326,600 -13,500 -4.0%
Colorado Springs Colorado 257,200 246,800 -10,400 -4.0%
Honolulu Hawaii 457,000 438,700 -18,300 -4.0%

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 Primary Jobs (Nov. Jobs (Nov. Raw Percent
Metro area state 2008) 2009) change change

Lancaster Pennsylvania 238,200 228,900 -9,300 -3.9%

Lansing-East Lansing Michigan 228,900 219,900 -9,000 -3.9%
Seattle-Tacoma- Washington 1,761,100 1,692,600 -68,500 -3.9%
Bellevue
Oxnard-Thousand California 286,200 275,200 -11,000 -3.8%
Oaks-Ventura
Tucson Arizona 379,100 364,700 -14,400 -3.8%
Indianapolis-Carmel Indiana 914,200 880,900 -33,300 -3.6%
Toledo Ohio 317,300 306,000 -11,300 -3.6%
Albuquerque New Mexico 397,400 383,500 -13,900 -3.5%
Dayton Ohio 394,900 381,000 -13,900 -3.5%
Denver-Aurora- Colorado 1,244,100 1,200,700 -43,400 -3.5%
Broomfield
Los Angeles-Long California 5,521,500 5,326,600 -194,900 -3.5%
Beach-Santa Ana
Grand Rapids- Michigan 382,700 369,800 -12,900 -3.4%
Wyoming
Houston-Sugar Land- Texas 2,623,800 2,534,900 -88,900 -3.4%
Baytown
Nashville-Davidson- Tennessee 757,800 731,700 -26,100 -3.4%
Murfreesboro-Franklin
Jacksonville Florida 614,600 594,500 -20,100 -3.3%
San Diego-Carlsbad- California 1,294,300 1,251,000 -43,300 -3.3%
San Marcos
Allentown-Bethlehem- Pennsylvania 345,200 334,200 -11,000 -3.2%
Easton
Cincinnati-Middletown Ohio 1,040,100 1,006,500 -33,600 -3.2%
Chattanooga Tennessee 246,500 238,800 -7,700 -3.1%
Durham-Chapel Hill North Carolina 294,300 285,100 -9,200 -3.1%
Springfield Massachusetts 298,100 288,800 -9,300 -3.1%
Birmingham-Hoover Alabama 523,900 508,100 -15,800 -3.0%
Minneapolis-St. Paul- Minnesota 1,781,100 1,728,400 -52,700 -3.0%
Bloomington
Harrisburg-Carlisle Pennsylvania 330,600 321,000 -9,600 -2.9%
Philadelphia-Camden- Pennsylvania 2,817,700 2,736,800 -80,900 -2.9%
Wilmington

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 Jobs Jobs
Primary (Nov. (Nov. Raw Percent
Metro area state 2008) 2009) change change

Trenton-Ewing New Jersey 240,100 233,200 -6,900 -2.9%

Bridgeport-Stamford- Connecticut 417,800 406,000 -11,800 -2.8%
Norwalk
Knoxville Tennessee 333,000 323,600 -9,400 -2.8%
Louisville-Jefferson Kentucky 619,700 602,300 -17,400 -2.8%
County
Miami-Fort Florida 2,345,600 2,280,500 -65,100 -2.8%
Lauderdale-Pompano
Beach
St. Louis Missouri 1,358,400 1,320,300 -38,100 -2.8%
Scranton-Wilkes-Barre Pennsylvania 263,200 256,200 -7,000 -2.7%
Tulsa Oklahoma 440,000 428,000 -12,000 -2.7%
Fresno California 301,300 293,600 -7,700 -2.6%
Oklahoma City Oklahoma 581,500 566,100 -15,400 -2.6%
Augusta-Richmond Georgia 215,500 210,200 -5,300 -2.5%
County
Bakersfield California 239,400 233,300 -6,100 -2.5%
Buffalo-Niagara Falls New York 559,200 545,400 -13,800 -2.5%
Poughkeepsie- New York 258,700 252,300 -6,400 -2.5%
Newburgh-Middletown
Hartford-West Connecticut 561,000 547,800 -13,200 -2.4%
Hartford-East Hartford
Lexington-Fayette Kentucky 257,500 251,400 -6,100 -2.4%
Albany-Schenectady- New York 453,800 443,200 -10,600 -2.3%
Troy
Greenville-Mauldin- South Carolina 318,800 311,600 -7,200 -2.3%
Easley
Pittsburgh Pennsylvania 1,154,000 1,127,400 -26,600 -2.3%
Spokane Washington 219,600 214,500 -5,100 -2.3%
Kansas City Missouri 1,020,800 998,600 -22,200 -2.2%
New York-Northern New York 8,639,800 8,453,700 -186,100 -2.2%
New Jersey-Long
Island
Raleigh-Cary North Carolina 520,300 509,100 -11,200 -2.2%
Baton Rouge Louisiana 380,000 372,000 -8,000 -2.1%
Boston-Cambridge- Massachusetts 2,504,400 2,451,300 -53,100 -2.1%
Quincy

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 Jobs Jobs
Primary (Nov. (Nov. Raw Percent
Metro area state 2008) 2009) change change

Memphis Tennessee 634,400 620,900 -13,500 -2.1%

Winston-Salem North Carolina 216,600 212,000 -4,600 -2.1%
Baltimore-Towson Maryland 1,312,500 1,286,700 -25,800 -2.0%
Syracuse New York 329,100 322,600 -6,500 -2.0%
Omaha-Council Bluffs Nebraska 472,300 463,100 -9,200 -1.9%
Madison Wisconsin 349,400 343,000 -6,400 -1.8%
Richmond Virginia 620,100 608,800 -11,300 -1.8%
Dallas-Fort Worth- Texas 2,998,300 2,947,600 -50,700 -1.7%
Arlington
Charleston-North South 298,600 293,900 -4,700 -1.6%
Charleston- Carolina
Summerville
Rochester New York 525,700 517,100 -8,600 -1.6%
Des Moines-West Des Iowa 325,000 320,300 -4,700 -1.4%
Moines
New Haven Connecticut 278,800 275,100 -3,700 -1.3%
New Orleans-Metairie- Louisiana 530,400 523,400 -7,000 -1.3%
Kenner
Worcester Massachusetts 248,000 244,900 -3,100 -1.3%
El Paso Texas 280,200 276,700 -3,500 -1.2%
Huntsville Alabama 213,000 210,500 -2,500 -1.2%
Columbus Ohio 944,900 934,900 -10,000 -1.1%
Columbia South Carolina 365,600 362,700 -2,900 -0.8%
Jackson Mississippi 260,500 258,500 -2,000 -0.8%
Little Rock-North Little Arkansas 347,700 344,800 -2,900 -0.8%
Rock-Conway
San Antonio Texas 855,400 849,200 -6,200 -0.7%
Austin-Round Rock Texas 785,200 780,900 -4,300 -0.5%
Washington-Arlington- District of 3,021,300 3,006,000 -15,300 -0.5%
Alexandria Columbia
Virginia Beach- Virginia 767,700 764,700 -3,000 -0.4%
Norfolk-Newport News
McAllen-Edinburg- Texas 221,100 223,800 2,700 1.2%
Mission

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I believe a very important question to ask ourselves is housing in Charleston really affordable. We can do this by
looking at the averages. The average wage in Charleston, SC (according to the BLS) is $37,523 as of 4/09 so for a
married couple we will use an annual salary of $75,000. I think am being generous here assuming both the husband
and wife both are working and earning $37k per year. The Census shows the median household income in 2007 was
$47,233.

Salary Paycheck Calculator

Your Pay Check Results
Monthly Gross Pay $6,250.00
Federal Withholding $720.83
Social Security $387.50
Medicare $90.63
South Carolina $412.50

Net Pay $4,638.54

So after the Gooberment takes taxes out this average married couple is left with $4638.54 per month to spend on the
house, car, food, gas, etc.

If I average the past year for Single Family Residential Homes (Excluding condos and townhouses) I get a median
sold price in the Tri-County of $193,700.

Now let’s take that $193k home and finance it with an FHA loan using a 3.5% down payment.

Down Payment $6,779.50

Loan Amount $186,920.50

Annual Interest Rate 5.85%
Loan Period in Yrs 30
Start of Loan 1/1/2010

Schedule Monthly PMT $1,102.72

Scheduled # of
Payments 360
Total Interest $226,052.87

Debt to Income (DTI) 23.8%

PITI
PI ($1102.72) + TI ($233.65) = $1336.37

*PITI means Principal, Interest, Taxes and Insurance.

If we take a look into the past at home price to income ratios we can get a better feel for what we are dealing with
today.

1950
Median household income: $3,319
Median home price: $7,354
Home price / income = 221 percent

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1960
Median household income: $5,620
Median home price: $11,900
Home price / income = 211 percent

2010
Median household income: $75,000
Median Home Price: $193,700
Home price/income = 258 percent

In conclusion, the buyers who are acting financially responsible and actually make $75,000 in the Charleston area are
in not too bad of shape when comparing to the 50s and 60s if they purchase a home in the median price range in the
Tri-County area. Obviously, this is the reason that the lower end of the market is where all the action is these days
because the banks had to wise up and lend based on true income and not lies. This is the main reason there is such a
huge disparity between the lower and upper end of the market in Charleston. The upper end of the market was built
on demand created by false lending principals that allowed unqualified buyers to obtain financing on upper end
housing they truly could not afford. For this reason we must look at this current real estate market as three separate
markets, which I describe below. Comparing the upper to the lower end is like comparing apples to oranges and the
proof is in the stats below. The inventory is three times higher for the $400k and up homes and the demand is lower
due to stricter underwriting. The result will mean more falling prices for those upper end homes until credit improves
for Jumbo loans and the inventory is reduced. This will take years to work out.

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Tri-County Residential Data

SFD(Houses) and SFA (Condo/Townhomes) All Prices

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SFD ($0-$400,000)

SFD ($400,001 and up)

SFD ($0-$400,000)

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SFD ($400,001 and up)

When you take a peak at the Charleston residential market I feel you have to divide it up into three different segments
in order to understand it. Those 3 segments are:
1. Short Sales and Foreclosures
2. The lower/mid end market
3. The upper end market

As you can see from the charts above the upper end market stats are approximately four times higher than the
lower/mid market for Single Family Detached (SFD) and Single Family Attached (SFA).

The simple answer behind this disparity is supply and demand. The reason why the upper end of the market has
higher inventory, longer Days on Market, and bigger discounts (Sold Price vs. List Price) and the reason is that there
are fewer buyers and credit is much more difficult to obtain after the “meltdown.” Think of all the “stated income”
buyers who used to lie in order to qualify for a $600,000 house who can no longer qualify for a mortgage in 2009.
The other “bottleneck” really hurting the upper end of the market more than the lower end is the fact that many of
these sellers are “upside down” meaning their home is worth less than it was 2-3 years ago. Many of these sellers do
not have enough cash to bring to the closing table in order to satisfy current market value it would require to sell their
home in today’s market.

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Disclaimer
The research done to gather the data in The Charleston Market Report involves examining thousands of listings. With
this much data inaccuracies will occur. Care is taken in gathering and processing the data and information within this
report is deemed reliable. IT IS NOT GUARANTEED. The real estate market is cyclical and will have its ups and
downs. Past performance cannot determine future performance. The purpose of the Charleston Market Report is to
educate you on current and consistent market conditions by reporting leading market indicators with the support of
traditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or other
professional services. If legal, tax or other expert assistance is required, the services of a competent professional are
recommended. This is a personal newsletter reflecting the opinions of its author. It is not a production of my
employer. Statements on this site do not represent the views or policies of anyone other than me.

Investing in real estate is not a get-rich-quick scheme nor is there any guarantee you will make a profit. Every effort
has been made to make this report as complete and accurate as possible. However, there may be mistakes. Therefore,
this report should be used only as a general guide and not as the ultimate source for making money in real estate.

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