Phil Soper

President & Chief ExecutiveMarch 12th, 2009

The Housing Industry’s New Reality:

Is there a Silver Lining to our

Dark Cloud Economy?

Royal LePage: Canada’s largest real estate firmRoyal LePage: Canada’s largest real estate firm

Agents: 14,000Locations: 600+Franchises: 300+Home Sales: $34 billion

Vancouver

Edmonton

Calgary

Regina

Winnipeg

Toronto

MontrealHalifax

CharlottetownFredericton

St. John’s

Ottawa

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

Mexico Brazil India China

2004-07

2008f-10f

Where’s the Growth? Economies Worldwide take a nosediveWhere’s the Growth? Economies Worldwide take a nosedive

Growth Leaders Gear Down

Real GDP, annual average % change

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

Canada U.S. Euro-zone

Japan

2004-07

2008f-10f

G7 Growth Stalls

Real GDP, annual average % change

Source: ScotiabankSource: Scotiabank

Living Large and Falling Hard:painful economic adjustment for the U.S.

0

3

6

9

12

15

02 03 04 05 06 07 08

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

months’ supply

Housing Starts (RHS)

mn units

Housing Starts & Inventories

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

02 03 04 05 06 07 08 09 10

Consumption & Employment

annual y/y % changeReal

Consumptionforecast

Inventories (LHS)

Employment Growth

Source: ScotiabankSource: Scotiabank

U.S. House Prices &Income Back in BalanceU.S. House Prices &Income Back in Balance

0

100

200

300

400

500

600

700

75 78 81 84 87 90 93 96 99 02 05 08

Household Income House Prices

Index 1975=100

Prices will over-correct

in the short-term

Source:CIBCSource:CIBC

Relative to Rest-of-the-World, Canada’s Homes are not OverpricedRelative to Rest-of-the-World, Canada’s Homes are not Overpriced

Source: International Monetary Fund, National Bank Financial 2Q 2008Source: International Monetary Fund, National Bank Financial 2Q 2008

Ireland

Netherlands

UK Australia

35%

30%

25%

20%

15%

10%

5%

0%

-5%

-10%France

Norway

Denmark

Belgium

SpainSweden

ItalyJapan

US Finland

Germany

Canada

Austria

Canada’s Housing Cycle Peaked in 2007Canada’s Housing Cycle Peaked in 2007

Housing Starts

25

50

75

100

125

150

90 92 94 96 98 00 02 04 06 08

units, 000s

Multiple Units

Single Detached

Home Resales

100

150

200

250

300

350

90 92 94 96 98 00 02 04 06 08

200

300

400

500

600units, 000s

MLS Average

Price

MLS Sales Volume

$000

Source: ScotiabankSource: Scotiabank

0

100

200

300

400

500

1980 1984 1988 1992 1996 2000 2004 2008first half

Resale House Prices Disposable Income

Index: 1980 = 100

Canadian Prices v.s. Incomes. Modest Overshooting.Canadian Prices v.s. Incomes. Modest Overshooting.

Source:CIBCSource:CIBC

Canada …and Canadiansare in Better Financial ShapeCanada …and Canadiansare in Better Financial Shape

0%

2%

4%

6%

8%

10%

12%

Austra

lia UK US

Canad

a

Share of Speculative Activity in Total Mortgage Outstanding

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Canada US

0%

20%

40%

60%

80%

100%

120%

140%

debt per capitamortgage debt as share of income

Source:CIBCSource:CIBC

Canada Has A Supply Overhang, But Nowhere Close To The U.S.

2

4

6

8

10

12

14

00 01 02 03 04 05 06 07 08

months’ supply

Existing Homes

U.S. Home Inventories

New Homes

Balanced Market

0.0

0.5

1.0

1.5

2.0

2.5

00 01 02 03 04 05 06 07 08

Mortgage Arrears

% of loans 90 days’ past due

Canada

United States

Source: ScotiabankSource: Scotiabank

-3

-2

-1

0

1

2

3

02 03 04 05 06 07 08 09

Canada

U.S.

annual y/y % change

-4

-2

0

2

4

6

Canada

U.S.

Spending Stronger in Canada

annual y/y% change

Real Consumption forecast

Employment

Canada Leads in Jobs & Consumer Spending, Lags in Export Volumes

40

45

50

55

60

65

70

75

98 99 00 01 02 03 04 05 06 07 08

Canada

U.S.

Household Equity % of household real estate

14

16

18

20

22

24

26

28

98 99 00 01 02 03 04 05 06 07 08

Canada

U.S.

Household Debt% of household assets

Source: ScotiabankSource: Scotiabank

Inflation & Interest Rates Plunge

-3

-1

1

3

5

02 03 04 05 06 07 08 09 10

CPI

forecast

y/y% changeU.S.

Canada

-2

-1

0

1

2

3

4

5

6

02 03 04 05 06 07 08 09 10

Canada

U.S.

Canada-U.S. Central Bank Spread

%

Central Bank Ratesforecast

% change, 2007-08

Source: ScotiabankSource: Scotiabank

-40

-30

-20

-10

0

10

20

30

40

50

60

70

80

02 03 04 05 06 07 08 09 10

C$ billions

Trade Balance

forecast

Canada Tops G7 in Fiscal & Trade Trends

Canada has best Fundamentals fear drives temporary flight to $US

Energy Balance

Provincial Balance

Federal Balance

Motor Vehicles & Parts

Commodity Drop & Liquidity Flight Hit C$

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

02 03 04 05 06 07 08 09 10

CAD/USD

20-year Average

(1987-2007)

Canadian Dollar

forecast

Source: ScotiabankSource: Scotiabank

Canada has best Fundamentals fear drives temporary flight to $US

Commodity Drop & Liquidity Flight Hit C$

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

02 03 04 05 06 07 08 09 10

CAD/USD

20-year Average

(1987-2007)

Canadian Dollar

forecast

The rapid ascent of the Canadian dollar wrecked havoc on domestic exporters

Source: ScotiabankSource: Scotiabank

Canada has best Fundamentals fear drives temporary flight to $US

Commodity Drop & Liquidity Flight Hit C$

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

02 03 04 05 06 07 08 09 10

CAD/USD

20-year Average

(1987-2007)

Canadian Dollar

forecast

The rapid ascent of the Canadian dollar wrecked havoc on domestic exporters

Source: ScotiabankSource: Scotiabank

Canada = Room for Fiscal StimulusCanada = Room for Fiscal Stimulus

10

20

30

40

50

60

70

80

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Cda US G-7 Ave

General govt net debt/GDP, %

Source:CIBCSource:CIBC

Ottawa Avoids Washington’s Mega-Deficits…

-12

-9

-6

-3

0

3

FY03 04 05 06 07 08 09 10 FY11

% of GDP

U.S. (ex. Social Security Surplus)

forecast

Yes, Canada Still has Big Fiscal AdvantageYes, Canada Still has Big Fiscal Advantage

Canada

-500 0 500 1,000 1,500 2,000 2,500 3,000

FY 2008/09forecast

FY 2007/08

…But Fiscal Pressures Hit All Governments

budget balance, $ per capita

SK

BC

FED

PE

MB

AB

NB

NS

ON

NL

QC*Federal Budget Balance

*Balanced budgets.

Source: ScotiabankSource: Scotiabank

-1 0 1 2 3 4 5 6

ON

PE

QC

NS

NB

BC

NL

AB

MN

SK

2004-07

2008f-10f

Real GDP, annual % change

The West Sputters, Central Canada Shifts into ReverseThe West Sputters, Central Canada Shifts into Reverse

Source: ScotiabankSource: Scotiabank

Canada moved quickly to a Buyers’ Market over an 18 month periodCanada moved quickly to a Buyers’ Market over an 18 month period

Source: TD Canada TrustSource: TD Canada Trust

Canadian Real Estate:Getting Closer to a buyers’ market

97 99 01 03 05 07

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

Buyers’ Market

Sellers’ Market

Balanced Market

Unit Sales to New Listings Ratio

09

Supply Growth has Outpaced Demand in almost all Urban areasSupply Growth has Outpaced Demand in almost all Urban areas

1.5

2.0

2.5

3.0

3.5

4.0 Sales-to-new-listings Ratio, 3-month moving average

Balanced Market

Source: ScotiabankSource: Scotiabank

First-time buyers the largest estate demographic category

Estimated at 40% of all transactions now Peaked at close to 70% at the height of the

expansion Like stalled credit, the cycle of buyers and

sellers grinds to a halt when first-time buyers disengage New buyers allow entry-level home owners to move up, for

example to larger homes as children arrive Mid-price point owners aspire to more luxurious homes but

without move-uppers, they are stuck

What will bring them back to the market?

Government incentives RSP-transfer limit raised Closing cost tax credit First-time buyer land transfer tax credit

Lower priced homes Historically low mortgage interest rates Risk mitigation: the return of the conditional

offer and disappearance of bidding wars

A reduction in the total cost of ownership and transactional risk mitigation

How does the first time buyer differ from other home purchasers?

Generation X buyers: well educated with inherent acceptance of technology

Parents were baby boomers who were comfortable with mortgages and moving

Multiple jobs at a young age; define job security based on abilities rather than their employer

Self reliance promoted by families, governments, educators, financial institutions

Very likely to be female and single

Traditionally, senior REALTORS® focus on sellers or the ‘listing side’ of the transaction Higher probability that transaction will close Contractually governed

Move to focus on the buyer First-time buyer seminars Web-based education and ‘buyer aggregation’ Seller-driven contractual offers increasing

Impact of Buyers’ Market on current real estate sales practices

1981-82

1983-88

1989-90

1991-94

1995

1996-99

2000

2001-05

2006-08

-14%

13%

-6%

9%

-1%

12%

4%

15%

-14%

Average Annual Change in Transactional Dollar Volume

Source: National Association of RealtorsSource: National Association of Realtors

Historically, the U.S. Housing Rebounds after CorrectionHistorically, the U.S. Housing Rebounds after Correction

2 yrs2 yrs

6 yrs6 yrs

2 yrs2 yrs

4 yrs4 yrs

1yr1yr

4yrs4yrs

1yr1yr

5yrs5yrs

3+yrs3+yrs

Servicing Costs as a % of Average Household Income

Canadian Home Affordability: Better than 1990 & set to ImproveCanadian Home Affordability: Better than 1990 & set to Improve

Source: RBCSource: RBC

Average House Price Servicing Costs

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

$320,000

$300,000

$280,000

$260,000

$240,000

$220,000

$200,000

$180,000

$160,000

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

50%

46%

43%

38%

34%

30%

Market Dollar Volume Canadian Resale Residential Real Estate

(1980 – 2008) $131B

Market has Grown at a 10% Compound Annual Rate Since 1980Market has Grown at a 10% Compound Annual Rate Since 1980

Source: CREASource: CREA

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

$160

$140

$120

$100

$80

$60

$40

$20

$0

$Volume 3 Year Rolling Average $ Volume

CAGR 9%Estimated 2008 T$V = $131 BillionEstimated 2008 T$V = Rolling 3 Year Average = $141.4 Billion

Canadian Residential Resale Real Estate Market

2008 is 200 units more than 2007

Inventory of Homes Always BuildingInventory of Homes Always Building

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Re

sid

en

tia

l U

nit

s A

va

ila

ble

- T

ho

us

an

ds

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000