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Stan Humphries, PhD Chief Economist stan@zillow 206.470.7127

U.S. Real Estate Market Conditions: The Good, the Bad, and the Ugly Mid-Year Meetings The Counselors of Real Estate Seattle May 2010. Stan Humphries, PhD Chief Economist stan@zillow.com 206.470.7127. Current Market Performance. The Zillow Home Value Index: Comparison with Case-Shiller.

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Stan Humphries, PhD Chief Economist stan@zillow 206.470.7127

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  1. U.S. Real Estate Market Conditions: The Good, the Bad, and the UglyMid-Year Meetings The Counselors of Real EstateSeattle May 2010 Stan Humphries, PhD Chief Economist stan@zillow.com 206.470.7127

  2. Current Market Performance

  3. The Zillow Home Value Index: Comparison with Case-Shiller Peak-to-Current Change ZHVI: -23% Case-Shiller: -28% Case-Shiller only includes homes that have sold at least twice (and excludes all new construction) Case-Shiller includes foreclosure re-sales even though these are substantially different than non-distressed sales. ZHVI looks at all home values, regardless of what has sold or not. ZHVI does not include foreclosure re-sales.

  4. Home values in the United States Source: Zillow.com

  5. Foreclosures in the United States Source: Zillow.com

  6. Comparing the top metros Source: Zillow.com

  7. Markets which have stopped falling – will it last? Source: Zillow.com

  8. Markets which touched a bottom and then weakened Source: Zillow.com

  9. Hard-hit markets where improvement has stalled Source: Zillow.com

  10. Markets which were improving (or getting less bad) but have weakened Source: Zillow.com

  11. A look at the magnitude of the housing recession The magnitude and breadth of current housing recession is unprecedented in the post-Depression era Source: Zillow.com

  12. Phoenix foreclosures Source: Zillow.com

  13. Las Vegas foreclosures Source: Zillow.com

  14. Stockton foreclosures Source: Zillow.com

  15. Continuing Challenges for Housing Market

  16. America is flush with empty homes

  17. Pent-up supply? 7% of homeowners (5.3 million) want to sell if they see signs of improvement Current inventory level of for-sale homes is very high • We made some good progress reducing inventory levels last fall with tax credits • Did not work as well this year • April: Nearly twice as many homes added to market as were sold in month • Inventory levels back to July 2009 levels

  18. Lots of “shadow inventory” in the wings • 7.3 million mortgages either in foreclosure or delinquent as of March 2010. • Accounting for shadow inventory, there was 45% more supply than indicated in official NAR inventory numbers as of Sept 2009. • This discrepancy is growing over time meaning that, while official inventory has been falling, real inventory is essentially unchanged. Source: Mortgage Bankers Association; First American/Corelogic

  19. Negative equity among the largest metro markets Source: Zillow.com

  20. Negative equity + unemployment = more foreclosures Negative equity can only be worked down by sales/foreclosures, price appreciation or paying down mortgage balances We don’t expect much price appreciation near-term Unemployment forecasted to remain above 8% through end of 2012 Result: 3+ years of high unemployment visited on homeowners who can’t easily sell or refinance their mortgages

  21. When will mortgage rates rise? Source: Zillow.com; see real-time rates and historical charts at http://www.zillow.com/Mortgage_Rates/ Mortgage rates are currently helping the market We’d been expecting mortgage rates to be in the upper 5% range by end of year. Greece, Portugal, North Korea and complete lack of inflation pressure have helped keep interest rates low.

  22. Mortgages continue to reset and recast • Alt-A resets and Option ARM recasts have been a concern • Alt-A: Less worrisome now with low mortgage rate environment • Option ARM: Default rates have already been high in this product so fewer that will have to recast Source: Deutsche Bank Global Markets Research

  23. Conclusions Home values will continue to fall until Q3 2010. A likely total peak-to-trough decline of 26-28%. Further declines driven by foreclosures (themselves driven by negative equity and unemployment), an already high supply of for-sale homes, high overall vacancy rates, pent-up supply, and weaker demand after the homebuyer tax credits lapse due to demand-shifting. Very anemic appreciation after bottom is reached; may not appreciate at all in real terms for next 3-5 years.

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