Presentation to Federation of Tax AdministratorsHoliday Inn By the Bay Hotel

Portland, MaineSeptember 15, 2008

Jed SmithManaging Director for Quantitative ResearchNATIONAL ASSOCIATION OF REALTORS®

Market Trends and Forecasts

Where Are We?Housing Markets: Current Status

•• SalesSales——Existing HomesExisting Homes–– National Down 31% as of June 08 from Sept 05 peak.National Down 31% as of June 08 from Sept 05 peak.–– National Down 13.2 % 12 mo ending July 08.National Down 13.2 % 12 mo ending July 08.–– Virginia: Down 8.1% for 12 mo ending June 08.Virginia: Down 8.1% for 12 mo ending June 08.–– Northern Virginia down 16.8%, July YTD.Northern Virginia down 16.8%, July YTD.–– Maine: -20% 2Maine: -20% 2ndnd qtr 08 vs. 07; +3.7% most recent qtr. qtr 08 vs. 07; +3.7% most recent qtr.

•• PricesPrices–– Median National Down 7.7 % as of July 08 from July 2006 peak.Median National Down 7.7 % as of July 08 from July 2006 peak.–– Median National Down 7.1 % 12 mo ending July 08.Median National Down 7.1 % 12 mo ending July 08.–– Washington/No. Va. MSA Median down 16.8 %, 2007Q2 to 2008Q2.Washington/No. Va. MSA Median down 16.8 %, 2007Q2 to 2008Q2.–– Median Northern Virginia down 16.9% 12 mo ending July 08.Median Northern Virginia down 16.9% 12 mo ending July 08.–– Median Portland price -5.7%, 2Median Portland price -5.7%, 2ndnd qtr 07/2 qtr 07/2ndnd qtr 08. qtr 08.

•• SalesSales——New Single Family HomesNew Single Family Homes–– National Down 61 % from March 2005 peak.National Down 61 % from March 2005 peak.–– National Down 35 % for 12 mo ending July 08.National Down 35 % for 12 mo ending July 08.

Annual Existing-Home SalesIncludes Single Family, Condos, Coops

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

2006

2007

2008

Home sales have retreated back to pre-boom years, which was then considered to be at healthy levels.

In thousand unitsEXCESSIVE BOOM

Source: NAR

Recent Monthly NationalExisting-Home Sales

SAAR: A drop from over 6 million to 5 million

4,000

5,000

6,000

7,000

8,000

2007

- Ja

n

2007

- Feb

2007

- M

ar

2007

- Apr

2007

- M

ay

2007

- Ju

n

2007

- Ju

l

2007

- Aug

2007

- Sep

2007

- O

ct

2007

- Nov

2007

- Dec

2008

- Ja

n

2008

- Feb

2008

-Mar

2008

-Apr

2008

-May

2008

-Jun

2008

-Jul

In thousand units

Soft but Stable Sales

Source: NAR

Maine: Existing Home Sales

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008EST

Source: NAR

Where Are We—Price?NAR, OFHEO, Case Shiller

•• NARNAR–– MLS data, all transactions.MLS data, all transactions.

•• OFHEOOFHEO–– Conforming loans (Freddie/Fannie), repeat sales.Conforming loans (Freddie/Fannie), repeat sales.

•• Case ShillerCase Shiller–– Repeat sales, twenty major areas.Repeat sales, twenty major areas.–– Heavy concentration in distressed markets.Heavy concentration in distressed markets.

•• Some ConfusionSome Confusion——What is the Clear Message?What is the Clear Message?–– Each local market is different.Each local market is different.–– Representative Market/Submarkets.Representative Market/Submarkets.

Comparison of Three IndexesTrends in National Prices

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

'

1/06

'

7/06

'

1/07

'

7/07

'

1/08

'

5/08

CaseShiller OFHEO NAR

National Home Price GrowthTotal Homes, Median Sales Price

-8

-5

-2

1

4

7

10

13

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: NAR

% change from a year ago

Washington-Arlington-Alexandria, DC-VA-MD-WV

Median Home Price Growth

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

16

18

20

22

24

26

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008Est

% change from a year ago

Source: NAR; Data for 2008 are estimates based on first two qtrs.

NVAR Median Price Divided by MedianFairfax Household Income

0

3

6

9

2001

2002

2003

2004

2005

2006

2007

2008

Based on NVAR and BEA data

What Drives the Housing Market?

•• MoodMood•• Financial Issues, Subprime,Financial Issues, Subprime,Foreclosures.Foreclosures.

•• The EconomyThe Economy——PositivePositive•• Impact of the Economy on HousingImpact of the Economy on Housing•• Approaches for Addressing theApproaches for Addressing theCurrent MarketCurrent Market

Consumer ConfidenceNegative Housing, Economic, Financial News, Uncertainties

Financial IssuesLoan Originations—Billions of Dollars

•• Over a trillion dollarsOver a trillion dollarsof subprime loans perof subprime loans peryear in 2005 and 2006.year in 2005 and 2006.

•• Subprime default andSubprime default anddelinquency ratesdelinquency rateshigh.high.

•• PrimePrime——Lower default.Lower default.•• OutlookOutlook——AdditionalAdditional

defaults?defaults?

Year PrimeLoans Subprime

2001 2353 295

2002 3032 356

2003 3961 503

2004 2083 882

2005 1879 1138

2006 1548 1051

2007 1509 466

Source:HarvardJointCenter2008

Subprime Loan Exposure

Prime

53%

FHA+VA

6%

Sub-prime

9%

Free +

Clear

Homes

32%

Source: NAR Estimate

Foreclosed Homes

Prime

37%

FHA+

VA

9%

Sub-

prime

53%

Source: NAR Estimate

Free +

Clear

Homes

27%

Prime

58%

Sub-prime

7%

FHA+VA

8%

Source: NAR Estimate

Subprime Loan Exposure: Virginia

Prime

37%

Sub-

prime

57%

FHA+VA

6%

Source: NAR Estimate

Foreclosed Homes: Virginia

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Prime VA FHA Sub-prime

Fixed

Sub-prime

ARM

Foreclosure Rates by Loan Type2008 Q1

%

Source: MBA

0.72

1.3

2.47

4.12

4.61

0.0

1.0

2.0

3.0

4.0

5.0

MT

ND

UT

DC VA

WV

TX

MD PA

DE

MA

US

AZ

CA MI

OH

NV

FL

Foreclosure Rate Comparisons(All Loans, 2008 Q1)

%

Source: MBA

Subprime Problem Outlook

•• Huge Loss Write Downs: Possibility of additionalHuge Loss Write Downs: Possibility of additionalwrite downs and distress in financial markets.write downs and distress in financial markets.

•• Fannie and Freddie.Fannie and Freddie.•• Government Agencies Involved.Government Agencies Involved.

–– Federal Reserve, FDIC, FHFA, OCCFederal Reserve, FDIC, FHFA, OCC–– Can provide liquidityCan provide liquidity

•• Consumer/Homebuyer Confidence: A Major IssueConsumer/Homebuyer Confidence: A Major Issue•• Somewhat tighter credit.Somewhat tighter credit.•• Impacts on prices and housing market.Impacts on prices and housing market.•• Problem diminishing, but potential additional losses.Problem diminishing, but potential additional losses.

Economic SnapshotNot Great/Not Bad

•• Recession or weak economic performance?Recession or weak economic performance?•• Rising unemployment .Rising unemployment .•• Stock market Stock market –– roller coasting. roller coasting.•• Housing slowdown Housing slowdown –– negative to economy. negative to economy.•• Credit Crunch.Credit Crunch.•• Consumer Confidence.Consumer Confidence.•• Interest Rates Cut: Appropriate level?Interest Rates Cut: Appropriate level?•• Oil Prices Oil Prices –– Alarmingly high--Fluctuations? Alarmingly high--Fluctuations?•• Inflation.Inflation.

Mortgage Rates Relatively Low

0.0

5.0

10.0

15.0

20.0

1980 - J

an

1982 - J

an

1984 - J

an

1986 - J

an

1988 - J

an

1990 - J

an

1992 - J

an

1994 - J

an

1996 - J

an

1998 - J

an

2000 - J

an

2002 - J

an

2004 - J

an

2006 - J

an

2008 - J

an

Source: FHFB, Residential Existing House

Mortgage Obligation ManageableMedian as Percent of Income

10

15

20

25

30

1990

- Ja

n

1991

- Ja

n

1992

- Ja

n

1993

- Ja

n

1994

- Ja

n

1995

- Ja

n

1996

- Ja

n

1997

- Ja

n

1998

- Ja

n

1999

- Ja

n

2000

- Ja

n

2001

- Ja

n

2002

- Ja

n

2003

- Ja

n

2004

- Ja

n

2005

- Ja

n

2006

- Ja

n

2007

- Ja

n

2008

-Jan

Current Average

Source: NAR

%

Mortgage Obligation to IncomeVery 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 Diego

Source: NAR

Mortgage Obligation to IncomeHistorically High in Some Markets

0%

10%

20%

30%

1990 1995 2000 2005

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

Miami

Source: NAR

Under-Priced MarketsWith Affordable Mortgage Obligation to Income

0%

10%

20%

30%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Columbus Pittsburgh Denver

Source: NAR

U.S. Historic Average

Similar Trends in Vast Part of Middle America

NVAR Median Price Divided by MedianFairfax Household Income

0

3

6

9

2001

2002

2003

2004

2005

2006

2007

2008

Based on NVAR and BEA data

-3.0

0.0

3.0

6.0

9.0

20

00

- Q

1

20

00

- Q

3

20

01

- Q

1

20

01

- Q

3

20

02

- Q

1

20

02

- Q

3

20

03

- Q

1

20

03

- Q

3

20

04

- Q

1

20

04

- Q

3

20

05

- Q

1

20

05

- Q

3

20

06

- Q

1

20

06

- Q

3

20

07

- Q

1

20

07

- Q

3

20

08

- Q

1

GDP Growth% annualized growth rate

Source: BEA

U.S. Job Gains - Decelerating

-2000

-1000

0

1000

2000

3000

4000

2000 - J

an

2000 - J

ul

2001 - J

an

2001 - J

ul

2002 - J

an

2002 - J

ul

2003 - J

an

2003 - J

ul

2004 - J

an

2004 - J

ul

2005 - J

an

2005 - J

ul

2006 - J

an

2006 - J

ul

2007 - J

an

2007 - J

ul

2008 - J

an

2008-J

ul

Source: BLS

12-month payroll job changes in thousands

Job Gains in Virginia

-100

-50

0

50

100

150

2000 - J

an

2001 - J

an

2002 - J

an

2003 - J

an

2004 - J

an

2005 - J

an

2006 - J

an

2007 - J

an

2008 - J

an

Source: BLS

12-month net non agricultural payroll job changes in thousands

Single-Family Housing Starts(Major fall – but, good trend to control inventory)

0

500

1,000

1,500

2,000

2001

- Ja

n

2001

- J

ul

2002

- Ja

n

2002

- J

ul

2003

- Ja

n

2003

- J

ul

2004

- Ja

n

2004

- J

ul

2005

- Ja

n

2005

- J

ul

2006

- Ja

n

2006

- J

ul

2007

- Ja

n

2007

- J

ul

2008

- Ja

n

Source: Census

In thousand units

VirginiaSingle Family Home Permits

0

5

10

15

20

25

30

35

40

45

50

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Thousands

Source: Census

Construction Spending

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2000

- Ja

n

2000

- J

ul

2001

- Ja

n

2001

- J

ul

2002

- Ja

n

2002

- J

ul

2003

- Ja

n

2003

- J

ul

2004

- Ja

n

2004

- J

ul

2005

- Ja

n

2005

- J

ul

2006

- Ja

n

2006

- J

ul

2007

- Ja

n

2007

- J

ul

2008

-Jan

Residential Commercial

Source: Census

$ million

National Unemployment Rate

3

4

5

6

7

2000

- Ja

n

2000

- Ju

l

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

2008

- Ja

n

2008

-July

%

Source: BLS

Employee Compensation

1

2

3

4

5

6

7

8

9

10

2000

- Ja

n

2000

- Ju

l

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

2008

- Ja

n

% change from a year ago

%

Source: BLS

Aggregate U.S. Wages andSalary Disbursement

4,000

5,000

6,000

7,000

2000

- Q

1

2000

- Q

3

2001

- Q

1

2001

- Q

3

2002

- Q

1

2002

- Q

3

2003

- Q

1

2003

- Q

3

2004

- Q

1

2004

- Q

3

2005

- Q

1

2005

- Q

3

2006

- Q

1

2006

- Q

3

2007

- Q

1

2007

- Q

3

2008

- Q

1

Source: BEA

$ billion

Corporate Profits Before Tax with Inventory andDepreciation Allowances

500

1,000

1,500

2,000

2000

- Q

1

2000

- Q

3

2001

- Q

1

2001

- Q

3

2002

- Q

1

2002

- Q

3

2003

- Q

1

2003

- Q

3

2004

- Q

1

2004

- Q

3

2005

- Q

1

2005

- Q

3

2006

- Q

1

2006

- Q

3

2007

- Q

1

2007

- Q

3

2008

-Q1

Source: BEA

$ billion

Stock MarketS&P 500 Index

800

1000

1200

1400

1600

2000

- Ja

n

2000

- Ju

l

2001

- Ja

n

2001

- Ju

l

2002

- Ja

n

2002

- Ju

l

2003

- Ja

n

2003

- Ju

l

2004

- Ja

n

2004

- Ju

l

2005

- Ja

n

2005

- Ju

l

2006

- Ja

n

2006

- Ju

l

2007

- Ja

n

2007

- Ju

l

2008

- Ja

n

2008

--July

Source: NYSE

1000

1100

1200

1300

1400

15002

00

0 -

Q1

20

01

- Q

1

20

02

- Q

1

20

03

- Q

1

20

04

- Q

1

20

05

- Q

1

20

06

- Q

1

20

07

- Q

1

20

08

- Q

1

Gross Private Domestic InvestmentChained 2000 Dollars

$ billion (2000-chain $)

Source: BEA

Dollar vs. EuroU.S. Exports Increasingly Competitive

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

2000 - Jan

2000 - Jul

2001 - Jan

2001 - Jul

2002 - Jan

2002 - Jul

2003 - Jan

2003 - Jul

2004 - Jan

2004 - Jul

2005 - Jan

2005 - Jul

2006 - Jan

2006 - Jul

2007 - Jan

2007 - Jul

2008 - Jan

2008 - Jul

Source: BLS

Net Exports Goods and ServicesSome Improvement

Current Year Dollars

-900

-800

-700

-600

-500

-400

-300

-200

-100

0

2000

- Q

1

2000

- Q

3

2001

- Q

1

2001

- Q

3

2002

- Q

1

2002

- Q

3

2003

- Q

1

2003

- Q

3

2004

- Q

1

2004

- Q

3

2005

- Q

1

2005

- Q

3

2006

- Q

1

2006

- Q

3

2007

- Q

1

2007

- Q

3

2008

-Q1

Net Export

Source: BEA

Billions

0.0

2.0

4.0

6.0

20

00

- Q

1

20

01

- Q

1

20

02

- Q

1

20

03

- Q

1

20

04

- Q

1

20

05

- Q

1

20

06

- Q

1

20

07

- Q

1

20

08

- Q

1

Personal Consumption Expenditures, Changes in Billions ofChained 2000 Dollars

% year-over-year growth rate

Source: BEA

Big Worry - Oil PriceEurope: Brent Spot Market

0

20

40

60

80

100

120

140

1985 - J

an

1987 - J

an

1989 - J

an

1991 - J

an

1993 - J

an

1995 - J

an

1997 - J

an

1999 - J

an

2001 - J

an

2003 - J

an

2005 - J

an

2007 - J

an

Source: Haver

$ per barrel

Inflation: A Potential Issue(Core CPI Inflation)

1

2

3

4

5

6

2000 - J

an

2001 - J

an

2002 - J

an

2003 - J

an

2004 - J

an

2005 - J

an

2006 - J

an

2007 - J

an

2008 - J

an

Core Overall CPI

% change from a year ago

Fed Rate Cut

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2004 - J

an

2004 - J

ul

2005 - J

an

2005 - J

ul

2006 - J

an

2006 - J

ul

2007 - J

an

2007 - J

ul

2008 - J

an

2008 - J

ul

Fed Funds Rate

Source: Freddie Mac

Mortgage Rates

5.0

5.5

6.0

6.5

7.0

2007 - J

an

2007 - Feb

2007 - M

ar

2007 - Apr

2007 - M

ay

2007 - Jun

2007 - J

ul

2007 - Aug

2007 - S

ep

2007 - O

ct

2007 - Nov

2007 - D

ec

2008 - J

an

2008 - Feb

2008-Mar

2008-Apr

2008-May

2008-Jun

Existing House New House

Source: FHFB

Economic Outlook

20072007 20082008 20092009

GDPGDP 2.0%2.0% 1.7%1.7% 1.5%1.5%

CPI InflationCPI Inflation 2.9%2.9% 3.2%3.2% 1.5%1.5%

Job GrowthJob Growth 1.1%1.1% 0.1%0.1% .2%.2%

Unemployment RateUnemployment Rate 4.6%4.6% 5.5%5.5% 6.0%6.0%

10-year Treasury10-year Treasury 4.6%4.6% 4.0%4.0% 4.5%4.5%

Housing Affordability Index(Median Income/Qualifying Income) * 100

50

75

100

125

150

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Source: NAR

Existing-Home Inventory(From 2 million to 4.5 million; but most are owner-occupied)

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2001

- Ja

n

2001

- J

ul

2002

- Ja

n

2002

- J

ul

2003

- Ja

n

2003

- J

ul

2004

- Ja

n

2004

- J

ul

2005

- Ja

n

2005

- J

ul

2006

- Ja

n

2006

- J

ul

2007

- Ja

n

2007

- J

ul

2008

- Ja

n

2008

- J

ul

Source: NAR

New Home Inventory(Already Topped Out)

200,000

300,000

400,000

500,000

600,000

2001

- Ja

n

2001

- J

ul

2002

- Ja

n

2002

- J

ul

2003

- Ja

n

2003

- J

ul

2004

- Ja

n

2004

- J

ul

2005

- Ja

n

2005

- J

ul

2006

- Ja

n

2006

- J

ul

2007

- Ja

n

2007

- J

ul

2008

- Ja

n

2008

-Jul

Source: Census

Housing Markets—Outlook

•• Short Run: Short Run: Existing Home Sales stable but trending atExisting Home Sales stable but trending at10 year ago levels. From 1998 to 200810 year ago levels. From 1998 to 2008

–– 25 million more people, 13 million more jobs,25 million more people, 13 million more jobs,reasonable interest rates.reasonable interest rates.

–– Recovery: Affordability, Housing Stimulus Package, HigherRecovery: Affordability, Housing Stimulus Package, HigherGSE Loan Limits, Lower Inventories of New Homes,GSE Loan Limits, Lower Inventories of New Homes,Slowing Foreclosures.Slowing Foreclosures.

–– Financial problems being resolved.Financial problems being resolved.–– Prices down 7% this year; up 2.4% next year.Prices down 7% this year; up 2.4% next year.–– Sales down 11% this year; up 7% next year.Sales down 11% this year; up 7% next year.–– New Housing: 1.6 to 1.8 million houses per year.New Housing: 1.6 to 1.8 million houses per year.–– Will support a substantial resale market.Will support a substantial resale market.

Pent-Up Demand ?20052005 20072007 CommentComment

Total HomeTotal HomeSalesSales(new and existing)(new and existing)

8.4 million8.4 million 6.5 million6.5 million 5.1 million in 20085.1 million in 2008

JobsJobs(in October)(in October)

133.7 million133.7 million 137.6 million137.6 million 137.6 million, 2137.6 million, 2ndnd

quarter 2008quarter 2008

Wage + SalaryWage + Salary(in October)(in October)

$5.7 trillion$5.7 trillion $6.4 trillion$6.4 trillion $6.6 trillion$6.6 trillion

HouseholdHouseholdWealthWealth(3(3rdrd quarter) quarter)

$51 trillion$51 trillion(3(3rdrd quarter) quarter)

$59 trillion$59 trillion(3(3rdrd quarter) quarter)

$58.2 trillion, 2$58.2 trillion, 2ndnd

quarter, 2008quarter, 2008

Home PricesHome Prices $219,600$219,600 $219,000$219,000 $215,000, July 2008$215,000, July 2008

Mortgage RatesMortgage Rates 5.9%5.9% 6.3%6.3% 6.2% for 20086.2% for 2008

From the Realtor® PerspectiveAddressing Current Market Conditions

•• What appear to be some of the Key Issues in AddressingWhat appear to be some of the Key Issues in AddressingCurrent Market Conditions?Current Market Conditions?

–– A market where prices have declined, inventories are high,A market where prices have declined, inventories are high,sales are slower.sales are slower.

–– How do principles of Marketing and Economics apply?How do principles of Marketing and Economics apply?•• The Realtor® StoryThe Realtor® Story

–– Trusted resource for real estate informationTrusted resource for real estate information–– Realtors® Add ValueRealtors® Add Value–– Realtors® are Industry innovatorsRealtors® are Industry innovators–– NAR is an advocate for homeownershipNAR is an advocate for homeownership–– Realtors® build communitiesRealtors® build communities–– HomeownershipHomeownership——immediate benefits and long-term valueimmediate benefits and long-term value

From the Realtor® PerspectiveAddressing Current Market Conditions

•• Trusted Resource for Real Estate InformationTrusted Resource for Real Estate Information–– Professional Advice.Professional Advice.–– Coming off of Unusual Boom Times.Coming off of Unusual Boom Times.–– Economy favorable, significant underlying demand.Economy favorable, significant underlying demand.–– A three to five year horizon is appropriate.A three to five year horizon is appropriate.

•• Adding ValueAdding Value–– Marketing: Realistic Pricing, targeting, segmentation,Marketing: Realistic Pricing, targeting, segmentation,

demographics, defining needs.demographics, defining needs.–– StagingStaging——How many times do you make a first impression?How many times do you make a first impression?

•• InnovatorInnovator–– Implementation of Technologies.Implementation of Technologies.–– Customer communications: boomers, GEN-X, GEN-Y.Customer communications: boomers, GEN-X, GEN-Y.

From the Realtor® Perspective

•• NAR an advocate for homeownership.NAR an advocate for homeownership.

•• Homeownership and long-term value.Homeownership and long-term value.•• Lifestyle, long term investment.Lifestyle, long term investment.

•• Building CommunityBuilding Community–– Establishing a presence/active in community service.Establishing a presence/active in community service.–– Part of the backbone/establishment.Part of the backbone/establishment.