Market Facts Market Facts in Uncertain Timesin Uncertain Times

NAR ResearchNAR Research

September 2010September 2010

Economic and Market FactsEconomic and Market Facts• Informed consumers make smarter decisions.Informed consumers make smarter decisions.• The economy is soft and consumer confidence remains low.The economy is soft and consumer confidence remains low.• Housing affordability is at a generational high.Housing affordability is at a generational high.• Home values in many markets have returned to historically Home values in many markets have returned to historically

justifiable levels. justifiable levels. • Most economists expect home values to rise in upcoming Most economists expect home values to rise in upcoming

years, though not at a fast pace.years, though not at a fast pace.• Bad loans are nearly always made in good times. But recently Bad loans are nearly always made in good times. But recently

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

renters in attaining wealth.renters in attaining wealth.

Fact 1: The Economy is Growing, Fact 1: The Economy is Growing, though Slowlythough Slowly

GDP annualized % growth rateGDP annualized % growth rate

Fact 2: The Private Sector is Finally Fact 2: The Private Sector is Finally Creating Some Jobs Creating Some Jobs

(Government jobs were not included since many could be temporary from (Government jobs were not included since many could be temporary from stimulus measures)stimulus measures)Monthly Net Private Payroll Job Changes in ThousandsMonthly Net Private Payroll Job Changes in Thousands

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

Bottom Bottom IndexIndex by The Conference Boardby The Conference Board

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

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

Fact 5: National Median Home Price Fact 5: National Median Home Price StabilizingStabilizing

(Combination of price change and type of homes that are selling)(Combination of price change and type of homes that are selling)

FactFact 6: Other Home Price 6: Other Home Price Measurements Are Also Showing Measurements Are Also Showing

Price StabilizationPrice Stabilization

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

Justifiable LevelsJustifiable Levels

Source: NAR

2.02.22.42.62.83.03.23.43.6

Fact 8: Economists Expect Price Fact 8: Economists Expect Price Increases in Upcoming YearsIncreases in Upcoming Years

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

• The consensus forecast as of August 2010 (which can The consensus forecast as of August 2010 (which can be found at Macromarkets or via news media stories be found at Macromarkets or via news media stories such as the Wall Street Journal) is as follows:such as the Wall Street Journal) is as follows:

• 0.78% price increase in 20110.78% price increase in 2011• 2.43% price increase in 20122.43% price increase in 2012• 3.20% price increase in 20133.20% price increase in 2013• 3.69% price increase in 20143.69% price increase in 2014• No forecast for 2015 and beyondNo forecast for 2015 and beyond

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

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

systemsystem• Banker’s Afterthought is nearly always that “Bad Loans are made in Banker’s Afterthought is nearly always that “Bad Loans are made in

Bubble Times.”Bubble Times.”• However, the Mortgage Delinquency Rate may have peaked. According to However, the Mortgage Delinquency Rate may have peaked. According to

the Mortgage Bankers Association, mortgage delinquencies fell to 9.85 the Mortgage Bankers Association, mortgage delinquencies fell to 9.85 percent in second quarter 2010 from 10.1 percent in the first quarter.percent in second quarter 2010 from 10.1 percent in the first quarter.

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

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

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

their budget. their budget.

Source:: Federal Reserve

Median Family Net Worth

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

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

Renters Homeowners

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