By NAR ResearchBy NAR Research

Denver Housing Market Conditions and Prospects

Denver Housing Market Conditions and Prospects

Denver Metro Home Prices:Did not Experience Rapid Price Growth

Denver Metro Home Prices:Did not Experience Rapid Price Growth

0

50

100

150

200

250

300

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: NAR

$ thousand

Denver is “Affordable” Western Market(2006)

Denver is “Affordable” Western Market(2006)

0

100

200

300

400

500

600

700

800

0

100

200

300

400

500

600

700

800

Source: NAR

Existing Home Sales in Colorado at Near Historic Highs

Existing Home Sales in Colorado at Near Historic Highs

0

50

100

150In thousand unitsIn thousand units

Source: NARSource: NAR

Something appears Out of Whack!National Income and Price Trend Something appears Out of Whack!National Income and Price Trend

50

100

150

200

250

Income Home Price

50

100

150

200

250

Income Home Price

Income and Price set to Index of 100 in 1990

Source: NAR

However, Consider that Low Historic Rates permits Higher Loans to be taken out without

Higher Monthly Payments

However, Consider that Low Historic Rates permits Higher Loans to be taken out without

Higher Monthly Payments

Source: Freddie MacSource: Freddie Mac

1970s9% average

1980s13% average

1990s8% average

2000s6.5% average

Better Metric on Assessing Housing Market

Bubble is Mortgage Obligation to Income Looks Manageable at the National Level

Better Metric on Assessing Housing Market

Bubble is Mortgage Obligation to Income Looks Manageable at the National Level

10

15

20

25

30

U.S. Average

Source: NAR

%

All Real Estate is Local and National Trends may not apply at

Denver

All Real Estate is Local and National Trends may not apply at

Denver

Mortgage Obligation to Income Very High in Some Markets

Mortgage Obligation to Income Very High in Some Markets

0%

10%

20%

30%

40%

50%

1990 1995 2000 2005

debt service to buy a median priced home by a middle income family

San DiegoSan Diego 45% !!!

Source: NAR

Mortgage Obligation to Income Very Favorable in Denver and Below

Historic Average

Mortgage Obligation to Income Very Favorable in Denver and Below

Historic Average

0%

10%

20%

30%

40%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

debt service to buy a median priced home by a middle income family

Historic Average

DenverDenver

Source: NAR

Apartment Rent Now Rising and will Begin to Squeeze Renters in DenverApartment Rent Now Rising and will Begin to Squeeze Renters in Denver

-8.0%-7.0%-6.0%-5.0%-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%

Rent Growth

Source: Torto-Wheaton ResearchSource: Torto-Wheaton Research

%

0.0

2.0

4.0

6.0

8.0

Prime VA FHA Sub-primeFixed

Sub-primeARM

0.0

2.0

4.0

6.0

8.0

Prime VA FHA Sub-primeFixed

Sub-primeARM

National Foreclosure Rates High only in Subprime Loans

2007 Q1

National Foreclosure Rates High only in Subprime Loans

2007 Q1

Data: MBA

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Colorado

Prime Sub-prime Fixed Sub-prime ARM

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Colorado

Prime Sub-prime Fixed Sub-prime ARM

Colorado Foreclosure Rates also High in Subprime Loans

Colorado Foreclosure Rates also High in Subprime Loans

0%

20%

40%

60%

Prime VA FHA Sub-prime

0%

20%

40%

60%

Prime VA FHA Sub-prime

Delinquency Leading to Foreclosure shows “Bad” Performance by Subprime Loans

(Latest Foreclosure/Delinquency ratio)

Delinquency Leading to Foreclosure shows “Bad” Performance by Subprime Loans

(Latest Foreclosure/Delinquency ratio)

Better Loss Mitigation Programs for VA and FHA

Bottom Line: FHA and VA are superior to Subprime Loans

Healthier Future MarketHealthier Future Market• Job growth leads to accumulating and releasing of Job growth leads to accumulating and releasing of

pent-up housing demandpent-up housing demand

• Cut back in new home construction thins out Cut back in new home construction thins out inventory and strengthen home pricesinventory and strengthen home prices

• Shift to “traditional” productsShift to “traditional” products– Reckless lenders going belly up Reckless lenders going belly up – Wall Street tighteningWall Street tightening– FHA revivalFHA revival– Higher prevalence of fixed-rate mortgagesHigher prevalence of fixed-rate mortgages– Could lead to a temporary setback for Could lead to a temporary setback for

homebuying but will bring forth a much healthier homebuying but will bring forth a much healthier housing market conditions in the future housing market conditions in the future

Job Gains in Denver RegionJob Gains in Denver Region

-60

-40

-20

0

20

40

60

Source: BLSSource: BLS

12-month net payroll job changes in thousands

Denver Office Vacancy Rate Falling due to Job Gains

Denver Office Vacancy Rate Falling due to Job Gains

10%

12%

14%

16%

18%

20%

22%

Vacancy Rate%

Source: NAR/Torto-WheatonSource: NAR/Torto-Wheaton

Denver Office Rent - Positive Denver Office Rent - Positive

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2004.1 2004.3 2005.1 2005.3 2006.1 2006.3 2007.1

Rent Growth

Source: NAR/Torto-WheatonSource: NAR/Torto-Wheaton

%

Wage Growth Picking UpWage Growth Picking Up

1

2

3

4

5

% change from a year ago

%

Source: BLSSource: BLS

U.S. Migration Trend Favors Warm-Weather, Low-Tax States

(Top vs. Bottom)

U.S. Migration Trend Favors Warm-Weather, Low-Tax States

(Top vs. Bottom)

StateState Net Migration from 2000 to 2006Net Migration from 2000 to 2006FloridaFlorida + 1,221,000+ 1,221,000

ArizonaArizona + 541,000+ 541,000

TexasTexas + 452,000+ 452,000

GeorgiaGeorgia + 378,000+ 378,000

North CarolinaNorth Carolina + 347,000+ 347,000

NevadaNevada + 318,000+ 318,000

MichiganMichigan - 239,000- 239,000

New JerseyNew Jersey - 277,000- 277,000

MassachusettsMassachusetts - 290,000- 290,000

IllinoisIllinois - 473,000- 473,000

CaliforniaCalifornia - 950,000- 950,000

New YorkNew York - 1,242,000- 1,242,000 Source: CensusSource: Census

Mountain States BenefitingMountain States Benefiting

StateState Net Migration from 2000 to 2006Net Migration from 2000 to 2006

ArizonaArizona + 541,000+ 541,000

NevadaNevada + 318,000+ 318,000

ColoradoColorado + 80,000+ 80,000

New MexicoNew Mexico + 23,000+ 23,000

WyomingWyoming + 5,000+ 5,000

UtahUtah-18,000 18,000

(expected to be positive if including 2007)(expected to be positive if including 2007)

Source: CensusSource: Census

Denver New Single-Family Construction Falling … Very Good in Limiting

Oversupply Conditions

Denver New Single-Family Construction Falling … Very Good in Limiting

Oversupply Conditions

0

5,000

10,000

15,000

20,000

25,000

Starts

Source: CensusSource: Census

FHA Market Share for Home Purchase in Denver … will revive and much

better than Subprime Loans

FHA Market Share for Home Purchase in Denver … will revive and much

better than Subprime Loans

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005 2006 2007 est.

2008forecast

Source: HMDA,NAR estimate

Local Forecasts:Who Will be on Top?Local Forecasts:Who Will be on Top?

Presented by Lawrence Yun, Vice President of Research at NAR Midyear Meetings in May

Top Five Markets (in random order)

Top Five Markets (in random order)

NashvilleNashville

AustinAustin

Salt Lake CitySalt Lake City

DenverDenver

Raleigh-DurhamRaleigh-Durham

Watch out for these Watch out for these small marketssmall markets

St. George, UT St. George, UT Myrtle Beach, SCMyrtle Beach, SC

Watch out for these Watch out for these small marketssmall markets

St. George, UT St. George, UT Myrtle Beach, SCMyrtle Beach, SC

1995

1995

1998

1998

2001

2001

2004

2004

$0

$50,000

$100,000

$150,000

$200,000

Renter Homeowner

1995

1995

1998

1998

2001

2001

2004

2004

$0

$50,000

$100,000

$150,000

$200,000

Renter Homeowner

Best Evidence for Homebuying:Household Wealth Accumulation

Best Evidence for Homebuying:Household Wealth Accumulation

Source: Federal Reserve

Median Net Worth

$184,400$184,400

$4,000

SummarySummary• Denver clearly looks to be “underpriced”Denver clearly looks to be “underpriced”

– Compared to other Western MarketsCompared to other Western Markets– Based on Mortgage servicing cost to income ratioBased on Mortgage servicing cost to income ratio

• Job growth and educated workforce will provide solid Job growth and educated workforce will provide solid demand for homesdemand for homes

• Homebuilder cutback is good for housing in limiting Homebuilder cutback is good for housing in limiting oversupply conditionsoversupply conditions

• FHA loan revival will help for the better for low-and-FHA loan revival will help for the better for low-and-moderate income households buy their first homes moderate income households buy their first homes (good move away from risky subprimes) (good move away from risky subprimes)

• Subprime resets on the horizon, but to be Subprime resets on the horizon, but to be overwhelmed by above positive factorsoverwhelmed by above positive factors

• Denver – one of the markets to watch and one of the Denver – one of the markets to watch and one of the markets to be on top over the next two yearsmarkets to be on top over the next two years