Market Facts in Uncertain Times

NAR Research

September 2010

Economic and Market Facts• Informed consumers make smarter decisions.• The economy is soft and consumer confidence remains low.• Housing affordability is at generational high.• Home values in many markets have returned to historically justifiable levels. • Most economists expect home values to rise in upcoming years, though not at

a fast pace.• Bad loans are nearly always made in good times. But recently originated loans

are performing very well.• Patient homeowners over the long-term do much better than renters in

attaining wealth.

Fact 1: The Economy is Growing, though Slowly

2000 - Q1

2000 - Q3

2001 - Q1

2001 - Q3

2002 - Q1

2002 - Q3

2003 - Q1

2003 - Q3

2004 - Q1

2004 - Q3

2005 - Q1

2005 - Q3

2006 - Q1

2006 - Q3

2007 - Q1

2007 - Q3

2008 - Q1

2008 - Q3

2009 - Q1

2009 - Q3

2010 - Q1

-8

-6

-4

-2

0

2

4

6

8

10GDP annualized % growth rate

Fact 2: Private Sector Finally Creating Some Jobs (Government jobs were not included since many could be temporary from stimulus measures)

2000 - Jan 2001 - Jul 2003 - Jan 2004 - Jul 2006 - Jan 2007 - Jul 2009 - Jan

-1000

-800

-600

-400

-200

0

200

400

600 Monthly Net Private Payroll Job Changes in Thousands

Fact 3: Consumer Confidence Remains Low, though Clearly Off Bottom

2000 - Jan 2001 - Jun 2002 - Nov2004 - Apr 2005 - Sep 2007 - Feb 2008 - Jul 2009 - Dec0

20

40

60

80

100

120

140

160 Index by The Conference Board

Fact 4: The 30-year Mortgage Rate at Generational Lows

(Very accommodative Federal Reserve monetary policy helping, but for how long?)

1971 - May 1976 - Apr 1981 - Mar 1986 - Feb 1991 - Jan 1995 - Dec 2000 - Nov 2005 - Oct02468

101214161820 %

30-year Mortgage

Fact 5: National Median Home Price Stabilizing(Combination of price change and type of homes that are selling)

2001 - Feb 2002 - Jan 2002 - Dec 2003 - Nov 2004 - Oct 2005 - Sep 2006 - Aug 2007 - Jul 2008 - Jun 2009 - May2010 - Apr100000

120000

140000

160000

180000

200000

220000

240000

260000

280000

New Home Price

Existing Home Price

Fact 6: Other Home Price Measurements also Showing Price Stabilization

2001 - Feb 2002 - Jan 2002 - Dec 2003 - Nov 2004 - Oct 2005 - Sep 2006 - Aug 2007 - Jul 2008 - Jun 2009 - May 2010 - Apr100

120

140

160

180

200

220

Case-Shiller

Core Logic

Fact 7: Home Price-to-Income Ratio Have Returned to Fundamentally Justifiable Levels

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

Source: NAR

Fact 8: Economists Expect Price Increases in Upcoming Years

• Macromarkets, a firm associated with Professor Robert Shiller, surveys about 100 economists about home price outlook.

• The consensus forecast as of August 2010 (which can be found from Macromarkets or from news media stories such as Wall Street Journal) are for

• 0.78% price increase in 2011• 2.43% price increase in 2012• 3.20% price increase in 2013• 3.69% price increase in 2014• No forecast for 2015 and beyond

Fact 9: Delinquencies Are High but Recent Loan Originations Performing Well

• Due to Past Lending Mistakes the Bad Loans are still working through the system

• Banker’s Afterthought is nearly always that “Bad Loans are made in Bubble Times.”

• But Mortgage Delinquency Rate may have peaked. According to Mortgage Bankers Association, mortgage delinquencies fell to 9.85 percent in second quarter 2010 from 10.1 percent in the first quarter.

• Various reports suggest good loan performance on recently originated mortgages (see government reports on loan performance of government backed mortgages).

• One-third of homeowners own their homes free-and-clear. They are not included in mortgage delinquency statistics.

• Loan approval is more difficult, which explains for better recent loan performance. There is a better approval chance if the borrower stays well within budget.

Renter Homeowner$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

1995

1995

1998

1998

2001

2001

2004

2004

2007

20072007

2007

Fact 10: Long-Term Path to Self Reliance may be Helped from Long-Term Housing Wealth Gains

(2010 data to be published in 2012 by the Federal Reserve)

Fact 10: Long-Term Path to Self Reliance may be Helped from Long-Term Housing Wealth Gains

(2010 data to be published in 2012 by the Federal Reserve)

Source: Federal Reserve

Median Family Net Worth