July 2012

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DRESS CODE Today's Homebuilder Evaluating the current marketplace for residential construction, the equity research division of Barclays recently released first-quarter findings that indicate improvements throughout the sector. BY THE NUMBERS Barclays' analysts weren't re- served with their predictions regarding the near future of the country's homebuild- ers, noting in the study, "The fundamentals underlying housing—both on a micro and macro basis—are validating our conviction that 2012 could mark the definitive turn in the housing market." Other statis- tical highlights from the sur- vey included macroeconomic data that showed dropping mortgage delinquency rates alongside starts-to-orders comparisons that set the stage for "a healthy rebound in single-family housing starts over the next few months." GOOD TIDINGS FOR PRICING "As we head into mid-year, we look for the strength in home- builder orders to steadily give rise to more broad-based op- portunities for price increases, for residential strength to materialize in improved build- ing products earnings, and for the housing industry to begin driving a positive feedback loop in the economy for the first time in seven years," stated Barclays. Statistical findings from the group also demonstrated that among the homebuilders surveyed, most companies had been able to successfully pass through base price increases, reduced incentives, and higher lot pre- miums within the top 25 to 35 percent of their communities. THE FUTURE OF HOUSING FORMATIONS Barclays' analysis revealed an uptick in housing forma- tions that was "better than expected" during the first quarter. Housing formations, The Top 10 Which companies led the nation's homebuild- ing market to start the year? Barclays ranks the first-quarter winners based on year-over-year growth in net orders. 1. MDC HOLDINGS, INC.: +51% (net order growth y-o-y) Closings Growth (y-o-y): 12% Average Closing Price: $298,000 2. STANDARD PACIFIC CORP.: +43% Closings Growth (y-o-y): 46% Average Closing Price: $343,000 3. MERITAGE HOMES CORPORATION: +36% Closings Growth (y-o-y): 12% Average Closing Price: $269,000 4. LENNAR CORPORATION: +34% Closings Growth (y-o-y): 30% Average Closing Price: $247,000 considered a key driver for new homes, hit 1.144 million in 2011; and labeling the data "surpris- ing," Barclays has altered its nationwide outlook for housing formations accordingly, saying, "We are adjusting the outlook for household formation to reflect a nearer-term rebound. Rather than very modest formation in 2012 and 2013 and then significantly ramping in years 2014–2016, we now model a more gradual recov- ery in household formation." CHALLENGES AND EURO CHAOS Influences abroad took a toll on U.S. building product companies, as "weakness" in Europe persisted during the first quarter. However, Barclays noted that "commentary on conference calls affirmed that we are seeing strengthening end-user demand in those businesses that are most exposed to U.S. residential." Additionally, Barclays referenced the indirect pressure that unpredictable jobs numbers have placed on the homebuilding market, calling for the continuation of "declining mortgage delinquency rates tempered by moderating job growth." Barclays went on to add that "the data has been more uneven, with job growth in particular indicating moderation from January and February." ON ORDER: LEADING INDICATORS Citing strength in homebuilder orders, Barclays is forecast- ing a rise in single-family starts over the coming months. The group extended its positive predictions as far as 2015, making the following estimations for housing starts: Single-Family Starts 2012—500 2013—700 2014—1,050 2015—1,300 Multifamily Starts 2012—250 2013—300 2014—350 2015—400 Total Housing Starts 2012—750 2013—1,000 2014—1,400 2015—1,700 5. THE RYLAND GROUP, INC.: +33% Closings Growth (y-o-y): 18% Average Closing Price: $256,000 6. NVR, INC.: +31% Closings Growth (y-o-y): 18% Average Closing Price: $350,000 7. BEAZER HOMES USA, INC.: +27% Closings Growth (y-o-y): 47% Average Closing Price: $224,000 8. D.R. HORTON, INC.: +19% Closings Growth (y-o-y): 21% Average Closing Price: $219,000 9. M/I HOMES INC.: +17% Closings Growth (y-o-y): 15% Average Closing Price: $250,000 10. PULTEGROUP, INC.: +15% Closings Growth (y-o-y): 1% Average Closing Price: $261,000 About the Survey: Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Ave., 17th Floor, New York, NY 10019, refer to, or call 212.526.1072. The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities. THE M REPORT | 15

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