Presentation in Rockford, IL

1
Market Trends and Forecasts
Lawrence Yun, Ph.D. Chief Economist NATIONAL
ASSOCIATION OF REALTORS
Presentation in Rockford, IL February 21, 2008
2
Housing Recession in 2007Year of Challenge
3
National Home Price Growth
change from a year ago
4
Rockford Home Price Growth
change from a year ago
5
Chicago Home Price Growth
change from a year ago
6
Relative Home Prices
thousand
7
Annual Existing-Home Sales
In thousand units
EXCESSIVE BOOM
Home sales have retreated back to pre-boom years,
which was then considered to be at healthy
levels.
8
Recent Monthly National Existing-Home
Sales(from over 7 million in peak to 5 million
now)
In thousand units
Low soft sales are reflecting the fact that
subprime lending has essentially disappeared.
But a pick up in FHA will help market turn around.
9
Illinois Existing-Home Sales
In thousand units
Source NAR
10
Single-Family Housing Starts(Major fall but,
good trend to control inventory)
In thousand units
Source Census
11
Illinois Single-Family Housing Starts
Source Census
12
Rockford Single-Family Housing Starts
Source Census
13
Souring Loan Performance(Big swings for
subprime no real change in prime)
Stagnant Prices
Job Losses pushes up delinquency
Housing boom permits re-financing and lowers
delinquency
Data MBA
14
Subprime Loan Exposure
Source NAR Estimate
15
Foreclosed Homes
Source NAR Estimate
16
Foreclosure Rates by Loan Type 2007 Q3

Data MBA
17
Foreclosure Rate Comparisons(2007 Q3)

Data Mortgage Bankers Association
18
Gamble Did Not PayWall Street Re-valuation
Stock Price
Source Wall Street Journal
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Important Factorsfor 2008Year of Opportunity
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All Real Estate is Local
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National vs. Local Information

• National data are important
• Quick casual glance
• Economic impact and monetary policy
• Local data are important
• Home purchase is a serious decision
• Huge local variations
• national data are not meaningful

22
Something appears Out of Whack!
Income and Price set to Index of 100 in 1990
Source NAR
23
Mortgage Rates Falling
Source Freddie Mac
24
Mortgage Obligation to Income Manageable

Source NAR
25
Local Markets

• NAR data
• 2/3 of 150 metro markets with price expansion
• Treat all homes equally (low priced home gets
  same weight at high-priced home)
• OFHEO data
• 70 of 287 metro markets with price expansion
• Treat all homes equally (low priced home gets
  same weight at high-priced home)
• Case-Shiller
• 3 or 4 of 20 markets with price expansion
• Do not treat all homes equally, price weighted
  index

26
Mortgage Obligation to Income Very High in Some
Markets
San Diego
Source NAR
27
Mortgage Obligation to Income Historically High
in Some Markets
Miami
Source NAR
28
Under-Priced MarketsWith Affordable Mortgage
Obligation to Income
U.S. Historic Average
Similar Trends in Vast Part of Middle America
Source NAR
29
RockfordVery Affordable Mortgage Obligation to
Income
U.S. Historic Average
Source NAR
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Job Gains4 Million New Jobs in Past 24 months
12-month payroll job changes in millions
Source BLS
31
Job Gains in Rockford Area
12-month net payroll job changes in thousands
Source BLS
32
Job Gains in Chicago Area
12-month net payroll job changes in thousands
Source BLS
33
Wage Growth Picking Up

Source BLS
34
Aggregate U.S. Wages and Salary Disbursement
billion
Source BEA
35
Corporate Profits Record High
billion
Source BEA
36
Business Spending
year-over-year growth rate
37
Dollar vs Euro
U.S. homes are selling at a 30 to 40 discount
for foreigners
Source BLS
38
Export Growth
billion
39
Consumer Spending
year-over-year growth rate
40
Worry Spot - Oil Prices
per barrel
Source Wall Street Journal
41
Economic Outlook
42
Pent-Up Demand ?
43
Unleashing of Pent-Up Demand
44
Existing-Home Inventory(From 2 million to 4.5
million but most are owner-occupied)
Source NAR
45
New Home Inventory(Already Topped Out)
Source Census
46
The Truth on Wall Street

• Moodys and Standard Poors
• Need to quickly downgrade bad debts
• Come clean about conflict of interest
• Show us all of your bad cards
• Merrill Lynch 8 billion in write-down
• Citi 8 to 11 billion in write-down
• Global investors want transparency before
  re-entering the market

47
Fed Rate Cut
Source Freddie Mac
48
Mortgage Rates Falling
Source Freddie Mac
49
FHA Endorsements Rising(2007 Q2)
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FHA Market Share for Home Purchase
Source HMDA, NAR Estimate
51
FHA Reform Please Enact

• NAR has been lobbying for
• Higher Loan Limit
• Risk-based Pricing
• Lower Down-payment
• Greater Flexibility

52
Jumbo Loan Rate Spread(Jumbo Loan rate above
Prime Conforming Rate)
Basis Points
Source Freddie Mac, NAR Estimate
53
National Housing Outlook
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Local Forecast

• Rising Exports help Economy
• Increased Jobs in Affordable Regions lead to rise
  in Home Sales
• Rising Home Sales to thin out Abundant Inventory
• Future Corporate Relocation to affordable America?

55
Best EvidenceHousehold Wealth Accumulation
184,400
Median Net Worth
4,000
Source Federal Reserve