Review of Regional Market Conditions and Trends

Review of Regional Market
Conditions and Trends
Charlottesville Area Association of Realtors

February 4, 2010
Virginia Housing Development Authority

The Charlottesville area
housing market has
begun a slow recovery
2
vhda.com | 800-227-VHDA
Home sales hit bottom in the 3rd Quarter,
but remain below the level of a decade ago
Existing Home Sales
Charlottesville Area
1,500
'06-2
1,173
1,200
900
'99-4
656
600 - 45%
'09-4
Four-Quarter
641
Rolling Average
300
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-4
-2
-4
-2
-4
-2
-4
-2
-4
-4
-2
-2
00
00
02
03
04
05
05
06
07
07
08
09
09
99
99
01
01
02
03
04
06
08
Source: VAR
3
The Charlottesville market continues
to track other “downstate” markets
Existing Home Sales Index
175
Index (1st Qtr 2003 = 100)
based on 4-quarter rolling average
100
25
-1
-3
-4
-2
-3
-1
-2
-4
-1
-2
-3
-4
-1
-2
-3
-4
-1
-2
-3
-4
-2
-3
-2
-1
-4
-3
-1
-4
06
07
07
08
09
03
03
03
03
04
04
04
04
05
05
05
05
06
06
06
07
07
08
08
08
09
09
09
Charlottesville-Central Valley Northern Tier (PDs 7, 8, 9 & 16) Greater Richmond
Greater Hampton Rds Roanoke-Blacksburg-Lynchburg
Source: VAR
4
Four things are needed
in order to achieve sustained
housing market growth:
1. Recovery of employment
2. Stabilization of home prices
3. Reduction in mortgage defaults
4. Revival of a stable private
mortgage market
5
Employment
6
Unemployment is up sharply, but
is well below rates in most markets
Unemployment Rates
U.S.
Culpeper MSA
Richmond M SA
Staunton-Waynesboro MSA
Virginia
Charlottesville MSA
Washington M SA (VA part)
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Source: Bureau of Labor Statistics and Virginia Employment Commission
Dec 2007 Dec 2009
7
Weak employment will likely
remain a significant market drag
• Area employment is stabilized by large public

and agricultural sectors, and a lower share of
manufacturing jobs than in other markets.
• However, employment and income levels
could suffer from prolonged state and local
fiscal distress.
• The losses in employment and income have
been steep and will take time to recoup.
8
The recovery in jobs will take longer
than in all but the 2001 recession
Data for the 2007 recession is through Nov 2009

9
Home Prices
10
Price changes generally lag
behind changes in sales volume
Example: Prince William Market Area

$500,000 1,500
25 months
Median Existing Home Price
$400,000 1,200
Existing Home Sales

(12-month rolling average)
$300,000 900
Home Sales
$200,000 600
Home Prices
$100,000 300
14 months
$0 0
Ap 2
Ap 4
Ap 8
9
Ap 99
Ap 0
Ap 1
Ap 03
Ap 5
Ap 6
Ap 7
Oc 0
Oc 1
Oc 2
O 3
Oc 4
Oc 5
Oc 6
Oc 7
Oc 8
O 9
Source: MRIS
t-0
t -0
t-0
t-0
t -0
t -0
t-0
t-0
-0
r-0
r-0
r-0
r-0
r-0
r-0
r-0
r-0
r-0
r-0
t-
-
ct
ct
Oc
11
Unsold inventory must first decline
in order to put a floor under prices
Example: Prince William Market Area

50% 20
M onths of
Unsold Inventory
25% 10
0% 0
-25% -10
Annual Change
in M edian Price
-50% -20
5
8
4
9
3
8
4
9
Source: MRIS
r-0
r-0
r-0
r-0
r-0
r-0
t-0
t-0
t-0
t-0
t-0
t-0
t-0
Ap
Ap
Ap
Ap
Ap
Ap
Oc
Oc
Oc
Oc
Oc
Oc
Oc
12
The Charlottesville area’s unsold inventory
is still large and must decline further
in order for home prices to stabilize
Annual Change in FHFA Existing Home Price Index
Charlottesville MSA
20%
15%
10%
5%
0%
-5%
-3
-1
-3
-1
-3
-1
-3
-1
-3
-1
-1
-3
-1
-3
-1
-3
-1
-3
01
01
02
02
03
03
04
04
05
05
06
06
07
07
08
08
09
09
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: Federal Housing Finance Agency (FHFA)

Calendar Year Quarter
13
In the Northern Tier, the reduction in
unsold inventory has occurred in two ways
Example #1: Prince W illiam Area Example #2: Greater Piedmont Area
Rising sales and falling listings Sales volum e rem ains weak,
have played equal parts in with inventory reduction m ostly
reducing the unsold inventory due to falling listings
2,000 575
1,750 500
1,500 425
New Listings New Listings
1,250 350
1,000 275
750 200
Existing Home Sales
500 Existing Home Sales
125
250 50
9 0 1 2 3 4 5 6 7 8 9
9
Source: MRIS / data reflect 12-month rolling averages c-9 ec-0 ec-0 ec-0 ec-0 ec-0 ec-0 ec-0 ec-0 ec-0 ec-0
c-9
c-0
c-0
c-0
c-0
c-0
c-0
c-0
c-0
c-0
c-0
De D D D D D D D D D D
De
De
De
De
De
De
De
De
De
De
De
14
Increased affordability is still needed in
Charlottesville to sustain increased sales
Ratio of Median Hom e Price to
Median Household Incom e • In the Northern Tier—
Charlottesville
especially in Pr. William—
price declines have
Hampton Rds returned affordability to
pre-boom levels.
Richmond
Pre-Boom:
• Downstate, prices are still
Roanoke April 2000
correcting (chart), with
Lynchburg
Peak of Boom:
June 2007 Charlottesville prices
Post Boom:
remaining most out-of-line
Danville
4th Quarter 2009
Historic affordability
threshold
with affordability norms.
Source: VAR and Census Bureau

15
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Home prices continue to face
several major headwinds
• Tightened credit and down payment requirements
offset declining sales prices.
• During the boom, rising prices in the adjacent and
much larger Northern Tier and Greater Richmond
markets supported price inflation in Charlottesville.
• Now the substantial inventory of distressed homes
in the Northern Tier and economic weakness in
Greater Richmond undercut the area’s ability to
sustain higher values.
• The federal tax credit has put a floor under sales
and prices, but has not generated a strong enough
market rebound to fully offset the strong foreclosure
and economic undertows.
16
Mortgage Defaults
17
Area foreclosures are rising,
but remain relatively low
Trustee Auction Notices
CulpeperMSA
Washington-Arlington-
AlexandriaMSA(VApart)
V
Vir
irgin
inia
ia
RichmondMSA
Feb 2010
Aug 2009
Cha
Charrlo
lottte
esv
sville
illeM
MS
SA
Staunton-WaynesboroMSA
0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00%

Share of Homes with a Mortgage
Source: RealtyTrac and Census Bureau

18
Rising area foreclosures have not
created a large “distressed” inventory
Inventory of Bank-owned Homes
CulpeperMSA
Washington-Arlington-
AlexandriaMSA(VApart)
Virginia
RichmondMSA Feb 2010

Aug 2009
CharlottesvilleMSA
Staunton-WaynesboroMSA
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

Share of Homes with a Mortgage
Source: RealtyTrac and Census Bureau

19
Lower area foreclosures are the
result of fewer high-risk loans
Subprime & Alt-A Share of Home M ortgages
Virginia M etropolitan Areas
Culpeper Micropolitan Areas

VA Beach-Norfolk-Newport News (VA pt.)
W inchester (VA pt.)
Richmond
W ashington-Arlington-Alexandria (VA pt.)
Roanoke
Danville
Lynchburg
Charlottesville
Harrisonburg
Kingsport-Bristol (VA pt.)
Blacksburg-Christiansburg-Radford
0% 5% 10% 15% 20%
Source: 1st American CoreLogic and Census Bureau

20
The recession was triggered by foreclosures
on high risk loans, but now unemployment
is driving a new wave of mortgage defaults
21
Source: Mortgage Bankers Association (MBA)
vhda.com | 800-227-VHDA 20
In the past, delinquency was driven
by job losses, and lagged recovery
Experience of Last Major Recession in Early 1990's
1.75% 7.0%
15 months
Serious Delinquency Rate
1.50% Peak in 6.0%
Unemployment Rate
(4-quarter rolling average)
4th Quarter 1993
Peak in
(4-quarter rolling average)
Unemployment 3rd Quarter 1992
1.25% 5.0%
Serious Delinquencies
1.00% 4.0%
0.75% 3.0%
19 1
19 2
19 3
19 4
19 1
19 2
19 3
19 4
19 1
19 2
19 3
19 4
19 1
19 2
19 3
19 4
19 1
19 2
19 3
-4
-
-
90
90
90
90
91
91
91
91
92
92
92
92
93
93
93
93
94
94
94
94
19
Source: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)
Calendar Year Quarter
22
This time, defaults led job losses, but
are still likely to trail a jobs recovery
Current Recession
6.0% 8.0%
5.0% 7.0%
Serious Delinquency Rate
Unemployment Rate
Seasonally Adjusted
4.0% 6.0%
Serious Delinquencies
3.0% 5.0%
2.0% 4.0%
Unemployment
1.0% 3.0%
0.0% 2.0%
20 2
20 4
20 -1
20 3
20 -4
20 -1
20 -2
20 -4
20 -2
20 -1
20 -3
20 -1
20 -3
20 -2
20 3
20 1
20 3
20 4
20 2
-4
-
-
-
-
05
05
05
06
06
06
06
07
07
07
07
08
08
08
09
09
05
08
09
09
20
Source: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)
Cale nde r Year Quarter
23
The wave of sub-prime resets is over,
but “option ARMs” are now at risk
Source: Loan Performance, Amherst Securities

24
A large majority of “option ARMs”
is substantially “under water”
Balance Distribution (by CLTV), January 2010
Source: Loan Performance, Amherst Securities

25
Problem loans, depressed prices and
unemployment will keep defaults high
• “Option ARM” loans pose major risk of loss.

Loan resets could generate “strategic” defaults
that would destabilize weak local markets.
• Distressed properties and tightened credit
standards continue to depress values, and keep
a large share of mortgages “under water.”
• Now, unemployment is driving growing numbers
of homeowners into default, especially those
who are under water and cannot sell.
26
Mortgage Markets
27
The mortgage market remains
highly reliant on federal intervention
• The private mortgage-backed securities market
remains dysfunctional, with access to affordable
capital still dominated by governmental entities
(the GSE’s and Ginnie Mae).
• Non-conforming / non-government loans—especially
jumbo mortgages—still pay premium prices.
• The federal government continues to stimulate the
market with historically low rates and tax credits.
• However, two competing goals are being balanced—
1) stimulus to the market & homeowner debt relief
versus 2) reduction in losses to FHA and the GSEs.
28
The stimulus tax credit is only partially
offsetting the impact of tighter credit
• Minimum credit scores, tighter lending ratios and risk-
based pricing—including higher mortgage insurance
premiums—are reducing the pool of first-time buyers.
• VHDA is continuing to provide a flow of flexible capital
through Ginnie Mae securitization and the sale of
tax-exempt housing bonds to the GSEs through the
Treasury’s bond support initiative.
• Our “Homebuyer Tax Credit Plus” and “FHA Plus”
programs are providing needed down payment
assistance.
• VHDA and other state housing finance agencies are
working with FHA to preserve flexible lending
standards while addressing the need for prudent risk
management.
29
In 2010, there are four challenges in
weaning the market off federal support
1. Maintaining a delicate balance between
market stimulus and curtailment of credit risk
2. Modifying distressed but viable loans on a
sustainable basis that does not merely
postpone lender losses
3. Containing “strategic” defaults
4. Enabling private capital markets to restart
without creating credit shortfalls and/or a
spike in mortgage rates
30
2010 brings major unresolved questions
as federal industry reform gets underway
– What impact will new federal regulatory
structures have on the availability and
affordability of mortgage financing?
– Can the private MBS and PMI markets
achieve sustained recovery?
– What is the future of Fannie Mae and
Freddie Mac?
– How large a role can and should FHA play?
31
What is the market outlook?
32
The Charlottesville area market is likely
to remain weak in 2010 and into 2011
• Home sales, while rising, are likely to remain below

the pre-boom levels of the first half of this decade.
• Prices will remain depressed until inventories are
further reduced and the foreclosure rate declines.
• The ongoing severity of loan defaults will depend on
how much further unemployment rises, how long
before jobs growth returns, and the magnitude of
further price declines.
33
Longer-term prospects for the
Charlottesville market are bright
• The local economy is strong and poised for growth.
• The region is projected to experience balanced
demographic growth—
– Household growth will be much stronger than in southern
and western parts of the state with less severe impact of
“graying” on growth as the population ages
– Nor will the region experience the growth challenges faced
by the Northern Tier.
• Nonetheless, the market will experience fundamental
demographic shifts with demand looking very
different from the recently ended “trade-up” boom.
34
Market demand will be dominated by
first-time buyers and early retirees
Projected Change in Adult Population by Age, 2005-2020
Charlottesville-Central Valley
Young Renters & Middle Age Empty Nester & Younger Older Seniors
1st-T ime Homebuyers T rade-up Homebuyers Senior Homeowners with Special Needs
10,217 10,285
8,687
7,169
4,266 4,809 4,521

3,726
2,573
1,811
209 267
-516
-3,233
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+
Age Group
Source: VEC and Census Bureau
35
Recovery depends as much on
federal actions as on traditional
demographic and economic drivers
• The federal restructuring of the mortgage market will
reset the playing field for who can obtain mortgage
credit and under what terms and conditions.
• In turn, this will drive who enters the home purchase
market and the type of home they choose to buy.
• Over the next decade, these changes, coupled with a
generational shift in demographic market drivers, will
fundamentally alter the housing market as we have
come to know it.
36

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Review of Regional Market

Conditions and Trends

Charlottesville Area Association of Realtors

Virginia Housing Development Authority

Washington M SA (VA part)

• Area employment is stabilized by large public

Data for the 2007 recession is through Nov 2009

Example: Prince William Market Area

Existing Home Sales

Example: Prince William Market Area

Source: Federal Housing Finance Agency (FHFA)

Source: VAR and Census Bureau

0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00%

Source: RealtyTrac and Census Bureau

RichmondMSA Feb 2010

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

Source: RealtyTrac and Census Bureau

Culpeper Micropolitan Areas

0% 5% 10% 15% 20%

Source: 1st American CoreLogic and Census Bureau

1.50% Peak in 6.0%

Unemployment 3rd Quarter 1992

Source: Loan Performance, Amherst Securities

Source: Loan Performance, Amherst Securities

• “Option ARM” loans pose major risk of loss.

• Home sales, while rising, are likely to remain below

4,266 4,809 4,521

Source: VEC and Census Bureau

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