wells fargo securities- housing chart book sep 2010

8/4/2019 WELLS FARGO SECURITIES- Housing Chart Book Sep 2010

1/13

This report is available on wellsfargo.com/research and on Bloomberg WFEC

September 15, 2010

E co n o m ics Gr o u p

Record Low Mortgage Rates Are Not Yet Enticing Many BuyersRecord low mortgage rates have not yet produced much of a lift for home sales. Sales of both newand existing homes appear to have risen modestly following their sharp declines in July in the

wake of the expiration of the homebuyer tax credits. With the declines, the supply of unsoldhomes remains uncomfortably high relative to sales. Sales normally weaken during the fall on a

non-seasonally adjusted basis. Because sales are already so low, however, they probably will notfall as much as they normally would, which means the seasonally adjusted data may show modestgains. No significant improvement in sales or construction is expected to take place until thespring homebuying season. By then, the economy should have put up a fairly lengthy string ofmodest private-sector job gains, which should bolster confidence and household formations.

While sales and new home construction may rise on a sequential basis, year-to-year comparisonswill be unusually tough because they will be compared with the run-up in sales and starts, whichpreceded the initial expiration of the homebuyer tax credits. Buyer traffic has stalled in recent

weeks, as the potential buyer is running into roadblocks in selling their current home andqualifying for a mortgage. Closings have also been held up by tougher appraisals and larger downpayment requirements.

The threat of foreclosures is again taking center stage, with anecdotal reports showing a surge in

foreclosures occurring in August. The increased number of foreclosures and short sales isexpected to pull prices lower during the second half of 2010, with price declines most problematicin the nations most overbuilt markets. The large number of homes currently in foreclosure andthe high percentage of homes with negative equity and/or seriously delinquent mortgages iskeeping homebuyers and builders on the sidelines until they better understand the impact of thisshadow inventory on prices, appraisals and mortgage underwriting.

Figure 1

MBA Seriously Delinquent Mortgage RatesForeclosures and 90 Days Past Due Mortgages, Percent

0%

2%

4%

6%

8%

10%

79 85 91 97 03 09

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

Seriously Delinquent Loans: Q2 @ 9.1% (Left Axis)

Foreclosures Started During Quarter: Q2 @ 1.2% (Right Axi s)

Figure 2

Inventory of New Homes for SaleNon-Seasonally Adjusted - In Thousands

0

150

300

450

600

89 93 97 01 05 09

0

150

300

450

600

Inventory: Jul @ 209,000

Completed New Homes: Jul @ 80,000

Source: Mortgage Bankers Association, U.S. Department of Commerce and Wells Fargo Securities, LLC

Special Commentary

Mark Vitner, Senior [email protected] 704- 383-563

Anika R. K han, [email protected] 704- 715-057

Hou sing Chartbook: Septem ber 2010

No s i gn i f i can t

im p r o v em e n t i n

sa l e s o r

c o n s t r u c t i o n i s

e x p e c te d t o t a k ep l ace un t i l t he

s p r in g h o m e b u y i

s e a s o n .
mailto:[email protected]:[email protected]:[email protected]:[email protected]


2/13

Housing Chartbook: September 2010 WELLS FARGO SECURITIES, LLCSeptember 15, 2010 ECONOMICS GROUP

While most of the housing data has turned negative in recent weeks, we continue to believe that agenuine recovery in home sales and new home construction will begin next spring. By genuine, wemean a recovery driven by improving underlying economic fundamentals rather than governmentprograms designed to incentivize buyers through tax incentives or relaxed underwritingstandards. Such a recovery in home sales will likely be very slow because the underlying economicrecovery is producing only modest gains in employment and income and the unemployment rate

remains uncomfortably high.

Job growth is expected to strengthen over the next few years. We are expecting around 1.5 millionprivate-sector jobs to be created in 2011, which should allow housing starts to rise to around a810,000-unit pace. Job growth should strengthen further in 2012 and starts will likely rise backabove the million-unit mark. A return to the 1.55 million-unit pace averaged from 1985 to 2005

will most likely not be seen until 2015 at the earliest.

N e w h o m e

c o n s t r u c t i o n i s

b e in g li m i t e d b y t h e

s t i ll e n o r m o u s

s u p p l y o f v a c a n t

h o m e s fo r r en t a n d

for sa le .

New home construction is being limited by the still enormous supply of vacant homes for rent andfor sale. We continue to believe this measure is the best gauge of the oversupply of housing on themarket. The current inventory totals 4.4 million vacant homes for rent and 2.0 vacant homes forsale. The normal inventory would be around 3.2 million vacant for rent and around 1.3 million

vacant for sales. As sales recover over the next two or three years, this excess supply will graduallydissipate. During this period, new home construction will remain constrained relative to job

growth and household formations.The housing market is also fraught with structural impediments to a strong recoveryHomeownership was pushed beyond sustainable limits between 1995 and 2005. Gains inhomeownership were achieved through the loosening of underwriting standards, the increaseduse of leverage and more generous tax treatment for residential real estate. Homeownershiptopped out at around 67 percent in 2005 and appears headed back toward 65 percent.

Not only was there a surge in homeownership but there was also an increase in demand for largerhigher-priced homes. Many of these homes were financed with little money down and interest-only payments. Such arrangements only make sense when housing prices are expected toincrease. Following the most recent experience, with prices plunging 30 percent or more, neitherlenders nor borrowers are interested in entering such relationships. As a result, there is a hugeexcess supply of higher-priced homes on the market and few potential buyers waiting in the wingsto snatch up any bargains. Taken together, the overhang of vacant units, the expected decline inhomeownership and the glut of large, higher-priced homes means the housing recovery will likelydrag on for the next several years.

Figure 3

Homeownership RatePercent

60%

62%

64%

66%

68%

70%

65 70 75 80 85 90 95 00 05 10

60%

62%

64%

66%

68%

70%

Homeownership Rate: Q2 @ 66.9%

Figure 4

Housing StartsMillions of Units

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

Forecast

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

2


3/13

Housing Chartbook: September 2010 WELLS FARGO SECUR ITIES, LLCSeptember 15, 2010 ECONOMICS GROUP

3

RealGDP,percen

tchange

1.9

0.0

-2.6

2.7

2.2

Nonfarm

Employm

ent,percentchange

1.1

-0.6

-4.3

-0.5

0.7

UnemploymentRate

4.6

5.8

9.3

9.7

9.6

HomeConstruction

TotalHousingS

tarts,inthousands

1341.8

900.0

554.3

591.0

810.0

Single-FamilyS

tarts,inthousands

1035.8

616.3

442.3

491.0

680.0

Multi-FamilyStarts,inthousands

306.1

283.7

112.0

100.0

130.0

HomeSales

New

HomeSale

s,Single-Family,inthousand

s

768.7

482.2

373.9

365.0

475.0

TotalExistingH

omeSales,inthousands

5674.7

4892.0

5157.9

4960.0

5180.0

ExistingSingle-

FamilyHomeSales,inthousa

nds

4959.2

4337.5

4566.7

4350.0

4500.0

ExistingCondom

inium

&TownhouseSales,in

thousands

715.5

554.5

591.3

610.0

680.0

HomePrices

MedianNew

Ho

me,$Thousands

243.7

230.4

214.5

205.4

211.2

PercentChan

ge

0.3

-5.5

-6.9

-4.2

2.8

MedianExisting

Home,$Thousands

215.5

195.8

172.5

170.2

173.0

PercentChan

ge

-2.9

-9.2

-11.9

-1.4

1.7

FHFA(OFHEO)

HomePriceIndex,PercentChange

1.7

-3.1

-4.0

-1.3

1.4

Case-ShillerC-10HomePriceIndex,PercentChange

-4.4

-16.7

-12.9

-1.4

1.5

InterestRates-

AnnualAverages

PrimeRate

8.05

5.08

3.25

3.25

3.31

Ten-YearTreasuryNote

4.63

3.66

3.26

2.98

2.98

Conventional30-YearFixedRate,Commitme

ntRate

6.34

6.04

5.04

4.65

4.70

One-YearARM,

EffectiveRate,Commitment

Rate

5.56

5.18

4.71

3.85

3.70

Forecastasof:Sep

tember15,2010

Source:FederalReserveBoard,FHFA,MBA,NAR,S&

PCorp,U.S.DepartmentofCommerce,U.S.DepartmentofLabor

andWellsFargoSecurities,LLC

NationalHousingOutlook A

ctual

Forec

ast

2011

2010

2009

20

08

2007


4/13


MortgagesMortgage Rate

Average Conventional 30-Year Commitment Rate

4%

5%

6%

7%

8%

9%

10%

93 95 97 99 01 03 05 07 09

4%

5%

6%

7%

8%

9%

10%

30-Yr Conventional Mortgage: Aug @ 4.43%

Mortgage purchase applications are now down37 percent after peaking in late April. The pullback

in purchase applications likely signals residentialoutlays will fall further in the third quarter.

Purchase applications bounced back a bit during thesecond half of August, but fell during the most

recent week. Low mortgage rates are enticing a

handful of buyers back into the market, but the

response so far has been disappointing.

Refinance applications are beginning to lose steam,even with mortgage rates remaining at historic lows.

Many mortgages are currently underwater and

borrowers are unable to take advantage of todays

low rates.

Mortgage Applications8-Week Moving Average, Seasonally Adjusted

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 20100%

10%

20%

30%

40%

50%

60%ARMs Percent of Loan Applications (Value): Sep 10 @ 10.5%

ARMs Percent of Loan Applications (Volume): Sep 10 @ 5.9%

Mortgage Applications for Purchase8-Week Moving Average, Seasonally Adjusted

0

100

200

300

400

500

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

0

100

200

300

400

500

Weekly Figure: Sep-10 @ 183.7Down From 184.5 on Sep-3Mort. Appl.: 8-Week Average: Sep 10 @ 175.58-Week Average Down 36.0% From Same Period Last Year

New Home Sales vs. Mortgage Applications

Month-over-Month Percent Change

-45%

-30%

-15%

0%

15%

30%

Jan-09 Jul-09 Jan-10 Jul-10

-45%

-30%

-15%

0%

15%

30%

New Home Sales: Jul @ -12.4%

Mortgage Applications for Purchase: Sep @ -9.3%

Mortgage Applications for Refinancing4-Week Moving Average, Seasonally Adjusted

0

2,000

4,000

6,000

8,000

10,000

12,000

94 96 98 00 02 04 06 08 10

0

2,000

4,000

6,000

8,000

10,000

12,000Weekly Figure: Sep-10 @ 4,396

Down from 4,927 on Sep-3

4-Week Average: Sep-10 @ 4,838

4-Week Average Up 114.3% from Same Period Last Year

Source: Mortgage Bankers Association, FHLMC, U.S. Department ofCommerce and Wells Fargo Securities, LLC

4


5/13


5

Single-Family ConstructionPrivate Single-family Construction Spending

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

94 96 98 00 02 04 06 08 10

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

3-Month Annual Rate: Jul @ -15.0%

Year-over-Year Percent Change: Jul @ 13.8%

Single-family construction spending got a boostfrom the homebuyers tax credit through April as

builders rushed to meet increased demand. With the expiration of the tax incentive, outlays

have fallen in each of the past three months.

Worries that sales were pulled forward by the tax

incentives appear to be well placed. Buyer traffic

remains weak across much of the country.

Single-family permits have also declined in each ofthe past four months, but remain well above their

historic lows reached in early 2009.

We expect residential investment could tumble toaround a 30 percent annual rate in the third quarter,

but should rise modestly in subsequent quarters.Single-family Housing Starts

SAAR, In Millions, 3-Month Moving Average

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

90 92 94 96 98 00 02 04 06 08 100.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Single-family Housing Starts: Jul @ 447K

Single-family Building PermitsSAAR, In Millions, 3-Month Moving Average

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

90 92 94 96 98 00 02 04 06 08 10

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Single-family Building Permits: Jul @ 421K

NAHB/Wells Fargo Housing Market Index

Diffusion Index

0

10

20

30

40

50

60

70

80

90

87 89 91 93 95 97 99 01 03 05 07 09

0

10

20

30

40

50

60

70

80

90

NAHB Housing Market Index: Aug @ 13.0

Single-family Housing CompletionsSeasonally Adjusted Annual Rate, In Millions

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

87 89 91 93 95 97 99 01 03 05 07 09

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Single-family Housing Completions: Jul @ 490K

Source: The National Association of Home Builders, U.S. Departmentof Commerce and Wells Fargo Securities, LLC


6/13


Multifamily ConstructionMultifamily Housing Starts

SAAR, In Thousands, 3-Month Moving Average

0

50

100

150

200

250

300

350

400

450

90 92 94 96 98 00 02 04 06 08 10

0

50

100

150

200

250

300

350

400

450

Multi-family Housing Starts: Jul @ 110K

Multifamily outlays are now at their lowest level in16 years. Declines have largely been due to

competition from the oversupply of for-sale housingthat has been put up for rent. The expiration of the

homebuyers tax credit and modest job growth

should fuel multifamily demand in coming quarters.

Multifamily building permits have increased for fourstraight months on a three-month moving average

basis, which suggests at least a gradual increase in

multifamily outlays is on the horizon.

Apartment property fundamentals are showingsigns of stabilization. Net absorption outpaced

completions in the second quarter, and effective rent

growth rose for the second quarter in a row.

Multifamily Building PermitsSAAR, In Thousands, 3-Month Moving Average

0

100

200

300

400

500

600

90 92 94 96 98 00 02 04 06 08 10

0

100

200

300

400

500

600

Multi-family Building Permits: Jul @ 151K

Private Multifamily Construction Spending

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

94 96 98 00 02 04 06 08 10

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

3-Month Annual Rate: Jul @ -24.2%

Year-over-Year Percent Change: Jul @ -51.6%

Apartment Supply & Demand

Percent, Thousands of Units

-15%

-10%

-5%

0%

5%

10%

15%

05 06 07 08 09 10

-60

-40

-20

0

20

40

60

Apartment Net Completions: Q2 @ 29,161 Units (Right Axis)

Apartment Net Absorption: Q2 @ 46,246 Units (Right Axis)

Apartment Vacancy Rate: Q2 @ 7.8% (Left Axis)

Housing VacanciesMillions of Units

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

00 01 02 03 04 05 06 07 08 09 10

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Vacant for Sale: Q2 @ 2.0M

Vacant for Rent: Q2 @ 4.4M

Source: U.S. Department of Commerce, REIS Inc. and Wells FargoSecurities, LLC

6


7/13


7

Buying ConditionsHousing Affordability, NAR-Home Sales

Base = 100

90

110

130

150

170

190

92 94 96 98 00 02 04 06 08 10

90

110

130

150

170

190

Housing Affordability Index: Jul @ 161.8

6-Month Moving Average: Jul @ 167.4

Homebuying conditions remain favorable, withmortgage rates near their historic lows and prices

down 28.3 percent from their 2005 peak. Many borrowers are unable to take advantage of todays

lower prices and low mortgage rates, however, due

to higher down payment requirements, tougher

appraisals or simply the inability to sell their current

homes.

Economic and market uncertainty have helped drivethe 10-year Treasury yield below 3 percent, pulling

mortgage rates below 4.50 percent for 30-year

conventional fixed-rate mortgages.

Buyer traffic remains stuck at historic low levels, butlower rates are beginning to revive buyer interest.

Net Percent of Banks Tightening Standards

Mortgages for Individuals

-20%

0%

20%

40%

60%

80%

100%

1990 1994 1998 2002 2006 2010-20%

0%

20%

40%

60%

80%

100%

All Mortgages (Through Q1-2007)Prime Mortgages: Q3 @ -5.5%Nontraditional Mortgages: Q3 @ 4.5%Subprime Mortgages: Q1 @ 50.0%

U. Michigan Sentiment Home Buying ConditionsPercent Reporting Good Conditions

50%

60%

70%

80%

90%

100%

1986 1990 1994 1998 2002 2006 2010

50%

60%

70%

80%

90%

100%

Good Home Buying Conditions: Aug @ 76.0%

10-Year Treasury Yield

Percent

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

2004 2005 2006 2007 2008 2009 2010

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

10-Year Yield: Sep @ 2.71%

NAHB Expected Buyer TrafficPercent

0%

10%

20%

30%

40%

50%

60%

70%

87 90 93 97 00 03 07 10

0%

10%

20%

30%

40%

50%

60%

70%

Traffic of Expected Buyers: Aug @ 10.0%

Source: Federal Reserve Board, NAHB, NAR, University of Michiganand Wells Fargo Securities, LLC


8/13


New Home SalesNew Home Sales

Seasonally Adjusted Annual Rate - In Thousands

100

300

500

700

900

1,100

1,300

1,500

89 91 93 95 97 99 01 03 05 07 09

100

300

500

700

900

1,100

1,300

1,500

New Home Sales: Jul @ 276,000

3-Month Moving Average: Jul @ 290,667

Giving back much of their tax incentive inducedgains, new home sales have plunged a cumulative

33.3 percent since April. The absolute level of salesdropped to a record low of 276,000 units in July.

The sharp decline follows the expiration of

homebuyer tax credits. Growing worries about a

double dip may be sidelining potential buyers as

well.

Sales have averaged a 290,667-unit pace over thepast three months and will likely remain around

this level over the next few months.

Inventories of new homes available for sale remainat their lowest level in over 40 years, at just 210,000

units. Due to the sharp decline in sales, however,

months of available supply surged to 9.1 months. Inventory of New Homes for SaleNew Homes for Sale at End of Month - In Thousands

200

250

300

350

400

450

500

550

600

97 98 99 00 01 02 03 04 05 06 07 08 09 10

200

250

300

350

400

450

500

550

600

New Homes for Sale: Jul @ 210,000

Percentage of New Homes Completed in InventoryNon-Seasonally Adjusted

20%

25%

30%

35%

40%

45%

50%

90 92 94 96 98 00 02 04 06 08 10

20%

25%

30%

35%

40%

45%

50%

New Homes Completed in Inventory : Jul @ 38.3%

Months' Supply of New Homes

Seasonally Adjusted

2

4

6

8

10

12

14

90 92 94 96 98 00 02 04 06 08 10

2

4

6

8

10

12

14

Months' Supply: Jul @ 9.1

Inventory of New Homes for SaleNew Homes for Sale at End of Month, 2002=100

40

60

80

100

120

140

160

180

200

220

97 98 99 00 01 02 03 04 05 06 07 08 09 10

40

60

80

100

120

140

160

180

200

220

Northeast: Jul @ 92.6

Midwest: Jul @ 43.7

South: Jul @ 74.5

West: Jul @ 64.3

Source: U.S. Dept. of Commerce and Wells Fargo Securities, LLC

8


9/13


9

Existing Home SalesExisting Home Resales

Seasonally Adjusted Annual Rate - In Millions

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1999 2001 2003 2005 2007 2009

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Existing Home Sales: Jul @ 3.83 Million

Existing home sales also fell sharply following theexpiration of the homebuyer tax credit. Sales fell to

just a 3.83 million unit pace in July, but showedsome tentative signs of improvement in August.

The number of homes for sale rose to almost 4million in July. The combination of high inventories,

increasing distressed transactions and declining

home sales is causing sellers to reduce asking prices.

Home prices will likely fall during the second half of

2010.

Pending home sales have picked up following asharp slide earlier this summer. The correlation

between sales and pending sales has broken down

recently, however, as more buyers are having

trouble closing on purchases. Existing Single-Family Home ResalesSeasonally Adjusted Annual Rate - In Millions

2.0

3.0

4.0

5.0

6.0

7.0

86 88 90 92 94 96 98 00 02 04 06 08 10

2.0

3.0

4.0

5.0

6.0

7.0

Existing Home Sales: Jul @ 3.4 Million

Pending Home Sales IndexYear-over-Year Percent Change

-30%

-20%

-10%

0%

10%

20%

30%

40%

2002 2003 2004 2005 2006 2007 2008 2009 2010

-30%

-20%

-10%

0%

10%

20%

30%

40%

Year-over-Year Change: Jul @ -19.1%

Existing Condominium ResalesSeasonally Adjusted Annual Rate - In Thousands

400

500

600

700

800

900

1,000

99 00 01 02 03 04 05 06 07 08 09 10

400

500

600

700

800

900

1,000

Condo Sales: Jul @ 460,000

Inventory of Existing Homes for SaleExisting Homes for Sale at End of Month, In Thousands

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1999 2001 2003 2005 2007 2009

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Total Inventory: Jul @ 3,984

Source: National Association of Realtors and Wells Fargo Securities,LLC


10/13


Home PricesS&P Case-Shiller Home Prices

Percent Decline from Local Market Peak

4.2%

7.9%

13.1%

13.5%

13.7%

19.6%

20.0%

20.3%23.6%

25.9%

26.0%

26.4%

34.6%

34.7%35.9%

41.8%

44.9%

47.7%

51.2%

56.7%

28.8%

28.4%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65%

Dallas

Denver

Cleveland

Boston

CharlotteAtlanta

New York City

PortlandSeattle

Chicago

Washington

Minneapolis

San Diego

San Francisco

Los AngelesTampa

Detroit

Miami

Phoenix

Las Vegas

C-10

C-20

Many of the closely followed home price measureshave posted monthly or quarterly increases,

suggesting the worst of the price declines are likelybehind us. Recent gains, however, have been driven

by a rise in sales volume fueled by the tax credit. A

similar pattern occurred in October and November,

when the initial tax credit was scheduled to expire.

Home prices will likely come under pressure in thecoming months as foreclosures and distressed

transactions account for a larger proportion of total

sales. Sellers are already slashing asking prices.

Price declines vary across regions. States with thehighest proportion of seriously delinquent

mortgages and high vacancy rates are tending to see

the largest price declines. S&P Case-Shiller National Home Price Index, NSA

Bars = Q/Q % Change Line = Yr/Yr % Change

-24%

-18%

-12%

-6%

0%

6%

12%

18%

88 90 92 94 96 98 00 02 04 06 08 10

-8%

-6%

-4%

-2%

0%

2%

4%

6%

National Home Price Index: Q2 @ 4.4% (Right Axis)

National Home Price Index: Q2 @ 3.6% (Left Axis)

Average and Median New Home Sale PriceIn Thousands

$100

$150

$200

$250

$300

$350

97 98 99 00 01 02 03 04 05 06 07 08 09 10

$100

$150

$200

$250

$300

$350

Average Sales Price: Jul @ $235,300

Median Sales Price: Jul @ $204,000

FHFA Home Price Indices

Non-Seasonally Adjusted, Year-over-Year Percent Change

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

92 94 96 98 00 02 04 06 08 10

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Home Price Index: Q2 @ -4.9%

Purchase-Only Index: Q2 @ -1.6%

Existing Single-Family Home PricesIn Thousands

$50

$100

$150

$200

$250

$300

93 95 97 99 01 03 05 07 09

$50

$100

$150

$200

$250

$300

Average Sale Price: Jul @ $233,400

Median Sale Price: Jul @ $183,400

Source: FHFA, NAR, S&P Corp, U.S. Department of Commerceand Wells Fargo Securities, LLC

10


11/13


11

Renovation & RemodelingResidential Investment

Year-over-Year Percent Change

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1996 1998 2000 2002 2004 2006 2008 2010

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Improvements: Q2 @ 0.3%

Res. Investment Ex. Improvements: Q2 @ 8.3%

Home improvements likely reached a cycle peak inJanuary and have moved sideways in recent

months. Recent activity is largely due to taxincentives for the purchase of energy-efficient

appliances and weatherization improvements.

The energy incentives are state administered andavailable on a first-come, first-served basis. Many

states, such as Florida, depleted their funds well

before the expiration date.

Another boon to improvements has been the surgeof foreclosure sales that have produced a steady

stream of homes in need of repair or being

converted into rental units.

Residential Investment

New Building

38.1%

Improvements

43.2%

Brokers'

Commissions

18.3%

Other0.4%

Q2-2010

Residential InvestmentBillions of Dollars

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Other: Q2 @ $1.3

Brokers' Commissions: Q2 @ $63.8

Improvements: Q2 @ $150.8

New Building: Q2 @ $133.1

Residential Investment

New Building

62.3%

Improvements

21.6%

Brokers'

Commissions

14.8%

Other

1.2%

Q2-2005

Residential ImprovementsYear-over-Year Percent Change

-30%

-20%

-10%

0%

10%

20%

30%

40%

94 96 98 00 02 04 06 08 10

-30%

-20%

-10%

0%

10%

20%

30%

40%

Residential Improvements: Jul @ 12.4%

Source: Joint Center for Housing Studies, U.S. Department ofCommerce and Wells Fargo Securities, LLC


12/13


Regional Housing TrendsNegative Equity Mortgages - By State

Percent of Mortgages Outstanding

15.7%

16.3%

18.4%

19.7%

19.7%

19.7%

20.3%

20.4%

22.2%

22.7%

23.7%

28.1%

32.8%

38.0%

46.4%

50.0%

68.1%

23.0%

0% 20% 40% 60% 80%

Oregon

Minnesota

New Hampshire

Colorado

Illinois

Ohio

Rhode Island

Utah

Maryland

Virginia

Idaho

Georgia

California

Michigan

Florida

Arizona

Nevada

US

As of August 26, 2010

States like Nevada, Arizona, Florida, Michigan andCalifornia, which tend to lead the nation in

foreclosures and the share of homes with negativeequity, are most at risk for additional price declines

during the second half of the year.

Nevada in particular seems to be the hardest hit with nearly 70 percent of homes underwater.

According to FHFA, homes prices in this state have

plunged upward of 50 percent and the foreclosure

rate is the highest in the country.

The prospect of additional price declines is makingthe appraisal process more perilous and may freeze

up the sales process in many challenged markets.

Mortgages 90+ Days Delinquent - By StatePercent of Mortgages Outstanding

3.7%

3.7%

3.7%

3.9%

4.0%

4.1%

4.1%

4.2%

4.3%

4.5%

4.8%

5.1%

5.4%

5.6%

5.6%

5.8%

7.3%

1.2%

0% 1% 2% 3% 4% 5% 6% 7% 8%

New York

Louisiana

Alabama

Massachusetts

Tennessee

Ohio

Rhode Island

Maryland

Illinois

Indiana

Georgia

Mississippi

Michigan

Arizona

California

Florida

Nevada

US


Mortgages in Foreclosure - By StatePercent of Mortgages Outstanding

5.5%5.7%6.1%

7.5%

9.8%

10.6%

13.9%

1.2%

0%

4%

8%

12%

16%

IllinoisGeorgiaMichiganCaliforniaArizonaFloridaNevadaUnited

States

0%

4%

8%

12%

16%


Homeowner Vacancy Rate - By StatePercent

2.6%

2.6%

2.7%

2.8%

3.0%

3.0%

3.0%

3.0%

3.2%

3.3%

3.3%

3.4%

3.4%

3.5%

3.7%

4.3%

4.5%

2.5%

0% 1% 2% 3% 4% 5%

Washington

Oklahoma

Idaho

Montana

Kansas

Alabama

South Carolina

Colorado

Ohio

Arkansas

Oregon

Michigan

Arizona

North Carolina

Georgia

Florida

Nevada

US

As of July 27, 2010

FHFA/OFHEO Home Price Index - By StatePercent Change, Peak to Trough

-44.7%

-49.1%-50.8%-50.8%-51.7%-52.4%-53.3%

-31.9%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Rhode

IslandArizonaMarylandFloridaNevadaCaliforniaHawaii

United

States

-60%

-50%

-40%

-30%

-20%

-10%

0%

Source: FHFA, CoreLogic, Mortgage Bankers Association, U.S.Department of Commerce and Wells Fargo Securities, LLC

12


13/13

W ells Fargo Secur ities, LLC Econom ics Group

Diane Schumaker-Krieg Global Head of Research& Economics

(704) 715-8437(212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]

Mark Vitner Senior Economist (704) 383-5635 [email protected]

Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected]

Scott Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected]

Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 [email protected]

Sam Bullard Senior Economist (704) 383-7372 [email protected]

Anika Khan Economist (704) 715-0575 [email protected]

Azhar Iqbal Econometrician (704) 383-6805 [email protected]

Ed Kashmarek Economist (612) 667-0479 [email protected]

Tim Quinlan Economist (704) 374-4407 [email protected]

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealerregistered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and theSecurities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and throughsubsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC,and Wells Fargo Securities International Limited. The information and opinions herein are for general information useonly. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does

Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon anysuch information or opinions. Such information and opinions are subject to change without notice, are for generalinformation only and are not intended as an offer or solicitation with respect to the purchase or sales of any security oras personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated

banks and is a wholly owned subsidiary of Wells Fargo & Company 2010 Wells Fargo Securities, LLC.

SECURITIES: NOT FDIC-INSURED NOT BANK-GUARANTEED MAY LOSE VALUE

wells fargo securities- housing chart book sep 2010

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