2. Why Buy Now?
• Time of “crisis” often turns out to have been a time ofTime of “crisis” often turns out to have been a time of
opportunity in hindsightopportunity in hindsight
• Wide selection of housing inventoryWide selection of housing inventory
• Favorable mortgage ratesFavorable mortgage rates
• Prime borrowers – low favorable conforming rate loansPrime borrowers – low favorable conforming rate loans
• Jumbo borrowers – rates coming down after AugustJumbo borrowers – rates coming down after August
credit crunchcredit crunch
• Non-prime borrowers – moving away from the riskyNon-prime borrowers – moving away from the risky
subprime loans into safer FHA loans (Major reform insubprime loans into safer FHA loans (Major reform in
FHA program taking place)FHA program taking place)
• Worst in credit crunch is over – Alan GreenspanWorst in credit crunch is over – Alan Greenspan
• More jobs, more income, more wealth --- significant pent-upMore jobs, more income, more wealth --- significant pent-up
demand --- buy before others dodemand --- buy before others do
• Homeowners in it for the long-term nearly always come outHomeowners in it for the long-term nearly always come out
ahead in building wealthahead in building wealth
3. Latest Key Data
IndicatorIndicator Trend from aTrend from a
year agoyear ago
CommentComment
Existing Home SalesExisting Home Sales Down 13%Down 13% Impact of August creditImpact of August credit
crunchcrunch
Home PriceHome Price Up 0.2%Up 0.2% First increase in 13 monthsFirst increase in 13 months
Single-familySingle-family
Housing StartsHousing Starts
Down 27%Down 27% Good news to thin outGood news to thin out
inventoryinventory
Existing homeExisting home
inventoryinventory
Up 19%Up 19% A lot of choices for buyersA lot of choices for buyers
Mortgage RatesMortgage Rates 6.3%6.3% Historically favorableHistorically favorable
Net New JobsNet New Jobs 1.6 million1.6 million Pent-up demandPent-up demand
accumulatingaccumulating
Aggregate IncomeAggregate Income Up 7%Up 7% Plenty of financialPlenty of financial
wherewithalwherewithal
4. Monthly Existing-Home Sales
(from 7 million in peak to 5.5 million now)
5,000
6,000
7,000
8,000
2001
-Jan2001
-Jul2002
-Jan2002
-Jul2003
-Jan2003
-Jul2004
-Jan2004
-Jul2005
-Jan2005
-Jul2006
-Jan2006
-Jul2007
-Jan2007
-Jul
Source: NAR
In thousand units
Peak
5. Annual Existing-Home Sales
and Forecast
(5th
best year in 2007 and recovery in 2008)
0
2,000
4,000
6,000
8,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
20062007
est2008
est
Source: NAR
In thousand units
10. Home Price Change
in the Northeast
(First region to undergo a slump – but now already into a
respectable recovery)
-5
0
5
10
15
20
25
2001
-Jan2001
-Jul2002
-Jan2002
-Jul2003
-Jan2003
-Jul2004
-Jan2004
-Jul2005
-Jan2005
-Jul2006
-Jan2006
-Jul2007
-Jan2007
-Jul
Source: NAR
Positive Gains
11. Interest Rates
(Another Fed rate cut likely before year end)
5.0
6.0
7.0
8.0
9.0
2005
- Jan
2005
- A
pr
2005
- Jul
2005
- O
ct
2006
- Jan
2006
- A
pr
2006
- Jul
2006
- O
ct
2007
- Jan
2007
- A
pr
2007
- Jul
2007
- O
ct
Mortgage Rate Prime Rate
Source: Freddie Mac, Federal Reserve
12. Jumbo Loan Rate Spread
(August panic over – but still not back to norm)
0.0
25.0
50.0
75.0
100.0
1/5/2007
1/19/2007
2/2/2007
2/16/2007
3/2/2007
3/16/2007
3/30/2007
4/13/2007
4/27/2007
5/11/2007
5/25/2007
6/8/2007
6/22/2007
7/6/2007
7/20/2007
8/3/2007
8/17/2007
8/31/2007
9/14/2007
9/28/2007
Source: Freddie Mac
Basis Points
13. U.S. Job Gains- Less Strong
(Still 4 million new jobs in past 24 months – time period when
sales were falling …. points to Accumulating pent-up demand)
-3
-2
-1
0
1
2
3
4
2000
-Jan2000
-Jul
2001
-Jan2001
-Jul
2002
-Jan2002
-Jul
2003
-Jan2003
-Jul
2004
-Jan2004
-Jul
2005
-Jan2005
-Jul
2006
-Jan2006
-Jul
2007
-Jan2007
-Jul
Source: BLS
12-month payroll job changes in millions
14. Resetting Mortgage Burden
• There are $450 billion in resetting mortgages over theThere are $450 billion in resetting mortgages over the
next 12 months (about 2 million loans)next 12 months (about 2 million loans)
– If all reset (without any refis) to rates 4 to 5 percentageIf all reset (without any refis) to rates 4 to 5 percentage
points higher, then $18 to $22 billion in additional mortgagepoints higher, then $18 to $22 billion in additional mortgage
paymentspayments
– About 10% to 20% (worst case scenario) of subprimes willAbout 10% to 20% (worst case scenario) of subprimes will
default … 200,000 to 400,000 additional inventorydefault … 200,000 to 400,000 additional inventory
• Personal Income (aggregate) to rise by $700 billion inPersonal Income (aggregate) to rise by $700 billion in
20072007
• Resets are burdensome and will raise foreclosures.Resets are burdensome and will raise foreclosures.
But the impact to the economy is small in relation toBut the impact to the economy is small in relation to
the positive income gains ... and the impact onthe positive income gains ... and the impact on
overall inventory is about 5% to 10% to the currentoverall inventory is about 5% to 10% to the current
inventory.inventory.
15. Bottom Line
• Home sales weak and growing inventoryHome sales weak and growing inventory
• The national median home price – interestingly -The national median home price – interestingly -
remains flatremains flat
• Local price trends vary – Northeast showing goodLocal price trends vary – Northeast showing good
appreciationappreciation
– Seattle, Austin, Raleigh, and 2/3 of the countrySeattle, Austin, Raleigh, and 2/3 of the country
with price gainswith price gains
• Job gains evidently supporting pricesJob gains evidently supporting prices
• Plenty of wealth -- solid income gains and recordPlenty of wealth -- solid income gains and record
high stock markethigh stock market
• Pent-up demand accumulatingPent-up demand accumulating
• Few more months of “bad” press coverageFew more months of “bad” press coverage
• Media coverage to become positive in 2008Media coverage to become positive in 2008
• Forecast: 2008 will be better than 2007; 2009 toForecast: 2008 will be better than 2007; 2009 to
improve furtherimprove further
17. Something appears Out of Whack!
(If viewing solely by home price and income, but … next page)
50
100
150
200
250
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Income Home Price
Income and Price set to Index of 100 in 1990
Source: NAR
18. Rates: Near 45-Year Lows
(Low rate permit people to take out a larger loan with less burden)
Source: Freddie Mac
1970s
9% average
1980s
13% average
1990s
8% average
2000s
6.5% average
19. Mortgage Obligation to Income
(better indicator of to assess “bubble” and it is not out of whack)
Manageable and not out of Whack
10
15
20
25
30
1990
-Jan1991
-Jan1992
-Jan1993
-Jan1994
-Jan1995
-Jan1996
-Jan1997
-Jan1998
-Jan1999
-Jan2000
-Jan2001
-Jan2002
-Jan2003
-Jan2004
-Jan2005
-Jan2006
-Jan2007
-Jan
U.S. Average
Source: NAR
%
20. Apartment Rents
(Rising rents force some renters to about ownership)
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2002.12002.22002.32002.42003.12003.22003.32003.42004.12004.22004.32004.42005.12005.22005.32005.42006.12006.22006.32006.4
Rent Growth
Source: Torto-Wheaton Research
%
21. Subprime Loan Exposure
(subprime makes up less than 10% of homeowners)
Prime
50%
FHA+
VA
6%Sub-
prime
9%
Free +
Clear
Homes
35%
Source: NAR Estimate
22. Foreclosed Homes
(less than 10% of subprime owners make up more than ½ of
foreclosures)
Prime
33%
FHA+
VA
14%
Sub-
prime
53%
Source: NAR Estimate
23. 0.0
2.0
4.0
6.0
8.0
10.0
Prime VA FHA Sub-prime
Fixed
Sub-prime
ARM
Foreclosure Rates by Loan Type
2007 Q2
(Problem is principally the resetting subprime loans)
Data: MBA
24. 0%
20%
40%
60%
Prime VA FHA Sub-prime
Foreclosure Probability once
becoming Delinquent
(Latest Foreclosure/Delinquency ratio)
Better Loss Mitigation
Programs for VA and FHA
25. FHA Loan Impact
• FHA had been the choice for first-timeFHA had been the choice for first-time
homebuyers and for those with blemishedhomebuyers and for those with blemished
credit in the pastcredit in the past
• FHA dramatically lost market share toFHA dramatically lost market share to
subprime loans in the past 5 yearssubprime loans in the past 5 years
• FHA interest rates are much more favorableFHA interest rates are much more favorable
than APR of subprime loans (afterthan APR of subprime loans (after
considering resets)considering resets)
• Major FHA reform will better help first timeMajor FHA reform will better help first time
homebuyers to enter the markethomebuyers to enter the market
26. FHA Market Share for Home Purchase
0%
5%
10%
15%
20%
2000 2001 2002 2003 2004 2005 2006 2007
est.
2008
forecast
2009
forecast
Source: HMDA,NAR estimate
27. U.S. Job Gains
(Still 4 million new jobs in past 24 months – time period when
sales were falling …. points to Accumulating pent-up demand)
-3
-2
-1
0
1
2
3
4
2000
-Jan2000
-Jul
2001
-Jan2001
-Jul
2002
-Jan2002
-Jul
2003
-Jan2003
-Jul
2004
-Jan2004
-Jul
2005
-Jan2005
-Jul
2006
-Jan2006
-Jul
2007
-Jan2007
-Jul
Source: BLS
12-month payroll job changes in millions
33. $10,000 $10,000 $10,000
$23,600
$35,200
$110,300
$0
$50,000
$100,000
$150,000
Stock Market
(normal market)
Stock Market
(bull market)
Homeowner
(normal market)
Now 10-years later
Wealth Accumulation –
The Power of Leverage for Homeowners
($10,000 down payment on a $200,000 home)
10% appreciations 15% appreciations 5% appreciations
34. Why Buy Now? – Repeat the Mantra
• Time of “crisis” often turns out to have been a time ofTime of “crisis” often turns out to have been a time of
opportunity in hindsightopportunity in hindsight
• Wide selection of housing inventoryWide selection of housing inventory
• Favorable mortgage ratesFavorable mortgage rates
• Prime borrowers – low favorable conforming rate loansPrime borrowers – low favorable conforming rate loans
• Jumbo borrowers – rates coming down after AugustJumbo borrowers – rates coming down after August
credit crunchcredit crunch
• Non-prime borrowers – moving away from the riskyNon-prime borrowers – moving away from the risky
subprime loans into safer FHA loans (Major reform insubprime loans into safer FHA loans (Major reform in
FHA program taking place)FHA program taking place)
• Worst in credit crunch is over – Alan GreenspanWorst in credit crunch is over – Alan Greenspan
• More jobs, more income, more wealth --- significant pent-upMore jobs, more income, more wealth --- significant pent-up
demand --- buy before others dodemand --- buy before others do
• Homeowners in it for the long-term nearly always come outHomeowners in it for the long-term nearly always come out
ahead in building wealthahead in building wealth