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Real Estate Bubble: Root Causes—Government Home Ownership Push + Declining Interest & Savings Rates + Aggressive Borrowing and Lending Led to 10+ Years of Rising Home Ownership USA Home Ownership Rates vs. Interest Rates vs. Personal Savings Rates, 1965 - 2010 0, _ _ 0, 70% June 2004: US home ownership = 73MM 20% 68% - + 16% 2 ‘S a ” a £ 66% | January 1993: HUD began promoting < © broader home ownership. US home id a ownership = 62MM _ 42% a = ° 3 ” = ° 3 2 Z 4h a 8 e 2 ‘S = 8% 0 w 3 62% - 4 2 < 6 =] + 4% 60% ~ 58% 1 1 1 1 1 1 1 ; ; ~ 0% 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 ——U.S. Home Ownership Rate ——U.S. Interest Rate «="PU.S. Home Ownership Rate 30-year (1965-1995) Trendline —— U.S. Personal Savings Rate Note: HUD is Dept. of Housing & Urban Development. interest rate is the overnight federal funds rate. Data as of CQ1:10. Savings rate is amount of saving divided by income after taxes. KP Data source: Federal Reserve, DOC Bureau of Economic Analysis. (@E www.kpcb.com USA Inc. | Income Statement Drilldown 183 Real Estate Bubble: Home Prices Rose Dramatically (7% Annually) for 10 Years — Up ~2x Over 10-Year Period Ending 2007 USA Real Home Price & Building Cost Indexes, % Change 1965 — 2008 —— USA Real Home Price Index —— USA Real Building Cost Index % Change from 1965 Level 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Note: Real home prices & building costs are inflation-adjusted. Source: Robert Shiller, Yale University. a USA Inc. | Income Statement Drilldown 184 HOUSE_OVERSIGHT_020933