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EYE ON HOUSING – STICKING WITH OUR CALL – MARKING A BOTTOM IN 2Q09

Since the beginning of 2009, I have been very clear on my stance as it relates to the housing crisis - the worst of the housing crisis is behind us. I said in early January that housing could bottom (in terms of sequential price declines and inventory growth) in 2Q09. Forming a bottom in housing is a process, not a specific data point.

The bubble in residential real estate is the root cause for the problems we face today. Therefore, it is only fitting that residential real estate should become the leading indicator that the worst of times is over; or at the very least, that the bottom is near. Increased confidence in the real estate asset class will allow those assets, in addition to other asset classes (i.e. equities), to obtain higher prices and ultimately, a higher valuation.

Today we learned that housing starts in the U.S. surged in February from a record low number in January. February housing starts saw a 22% increase from January; the biggest jump since 1990. While we are not out of the woods, these numbers are a part of the bottoming process and provide some visibility that we may see housing starts reach a bottom in the 2Q09. At the very least, it should provide comfort that the end is near.

We understand that builders are facing record foreclosures that will keep prices down year-over-year for the balance of 2009. Importantly, we will see the deceleration in prices begin to slow, also in 2Q09.

Howard W. Penney
Managing Director