An Update on U.S. Real Estate Opportunities Our Positive...

October 2013

An Update on U.S. Real Estate Opportunities

Our Positive View Continues !

Excellence. Expertise. Ethics.

Executive Summary

• Median home prices are up more than 10% after going down 27% between 2007 and 2012.

• The annual increase of the median home price is the highest on record. • Buying continues to be cheaper than renting.

• Home inventories continue to decline. • Good demographics (household formation) should drive new demand. • Housing affordability is still high. • Prices are still low compared to household income.

• Time on the market dropped • BFM’s 2012 real estate research can be found at: www.tinyurl.com/bfm-march2012-realestate © 2013 Bourbon Financial Management, LLC ~ Excellence-Expertise-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 had fallen by 50% in some U.S. Cities. While homeownership rate has been declining since 2004, and housing affordability is lower due to higher home prices and mortgage rates, we are still optimistic on the U.S. housing market as we close out 2013. With home prices that bottomed out in 2012, home price appreciation has continued at a strong pace (more than 10%) in most top cities. Existing home sales reached the highest level since 2007, while the median price shows nine consecutive months of double-digit year-over-year increases. Chicago’s median sales price increased by 25% according to HousingWire though the S&P/Case Shiller index shows only a 11% increase. U.S. home prices are back to long-term trends (0% to 2% inflation-adjusted return). Time on the market dropped substantially but prices in some states may already be above trend. San Francisco prices have already increased by close to 40% from their lows! Additionally, the rules created by the 2010 Dodd-Frank Act, which include measures to prevent mortgage abuses, should add another layer of security to the industry and stability to the market. We are also encouraged by the improving availability of mortgage credit. Furthermore, Goldman Sachs estimates that nearly 60% of existing home sales were all-cash purchases (vs. 20%-30% during 2005-2008). Finally, the number of new foreclosure fillings hit its lowest level in nearly eight years.

Home Prices are Increasing Inventory is Lower

Source: Mish Global Economic

Many Indices Show that House Prices are Increasing

Source: S&P, FactSet, Census Bureau, NAR, JP Morgan

FHFA= Federal Housing Finance Agency

The Current Annual Increase of the Median U.S. Home Price is the Highest on Record

Source: chartoftheday

Buying is Still Cheaper than Renting

Source: Census Bureau, NAR, JP Morgan

Good Demographics Should Drive New Demand

Source: Bloomberg, Goldman Sachs (07/2013)

Household Formations Have Outpaced Housing Starts for Four Years

Source: Census Bureau, Haver, Fidelity, NAR, FHFA, and BLS (09/2013)

Home Prices are Low Relative to Household Income

Source: Lincoln Institute of Land Policy, BEA

The price-to-income ratio looks at the total cost/price of a home relative to median annual incomes. If the ratio is 2.6, it means that the median home in the U.S. cost 2.6 times as much as the median annual income (so if the median income in an area was $100,000, the median price of a home would typically be about $260,000: $100,000 * 2.6).

The Housing Affordability Index is Still High

A value of 120 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.

Foreclosure Rate Continues to Decrease

Source: FactSet

Time on the Market Dropped

Source: Bloomberg

Appendix

Home Builders are Optimistic

Source: NAR, Haver, and DB

NAHB = National Association of Home Builders

Prices are Up in Most States

Source: Freddie Mac

Home Prices Continue to Increase and yet, they are Still Well Below Market Peaks

Source: S&P, Dow Jones, and Fiserv

S&P Case-Shiller Home Price Indices

Source: S&P (06/2013)

Positive Population Growth Expected

Source: Downtownvoices.org

From 1890 to 2000, Home Prices Adjusted for Inflation were Almost Flat

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

Chicago Housing Inventory Continues to Decrease

Source: Lucid Realty

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. More information can be found at www.bourbonfm.com. 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 ~ Expertise ~ 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 issues discussed in this Newsletter are general comments and are not and cannot be construed as advice. Creating strategies related to these issues requires knowledge of specific situations and advice from a tax or legal professional. This Newsletter may be an Advertisement Pursuant to the federal CAN-SPAM Act and other laws.

• 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. This information discusses general market activity, industry or sector trends, or other broad-based economic, market, or political conditions and should not be construed as research or investment advice.

An Update on U.S. Real Estate Opportunities Our Positive...

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