TRENDS IN HOUSING

Mid-Year 2008

TRENDS IN HOUSING AT MID-YEAR 2008

Welcome to the eighth issue of Trends in Housing, a joint publication of MRIS and Delta Associates. This report provides a regular in-depth look at the issues that shape the Mid-Atlantic housing market. Inside this issue we present several regular features of Trends in Housing, including: An analysis of the Washington and Baltimore regional economies An examination of regional housing data, including a review of trends in the for-sale market An overview of the commercial real estate market as it relates to the regions housing market

In addition, we offer feature articles, which explore matters that affect housing in the Mid-Atlantic region. In this issue, our features are: The housing sectors impact on other industries Reaching the next generation of homebuyers

We hope you enjoy this publication, and we welcome your feedback. Best wishes for the rest of 2008.

Future quarterly reports will feature: David Charron President and CEO MRIS The differing housing needs of the areas demographic segments A look at trends in military housing needs

2 INSIDE THIS ISSUE

The Washington Regional Economy and Outlook___________________3 The Baltimore Regional Economy and Outlook_____________________5 The For-Sale Housing Market_____________________________________6 The Condominium Market _____________________________________11 Summary Data on the Mid-Atlantic Housing Market_________________12 One Piece of the Puzzle: Housings Role in the National Economy ___16 Harnessing the Power of the Web: Strategies to Reach Generation Y___17 The Commercial Real Estate Market_____________________________18 Methodology__________________________________________________23 About MRIS and Delta Associates ________________________________24

TRENDS IN HOUSING

MID -YEAR 2008

THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK

The Washington area economy continued to progress during the 2nd quarter, albeit at a slower pace than historical norms. Job growth during the past 12 months outpaced the same period in 2007. With a low unemployment rate and one of the strongest economic bases, the metro area remains one of the top economic centers in the nation. Job Growth With 3.0 million payroll jobs, the Washington metro area ranks the fourth-largest job base among metro areas, behind New York, the LA Basin and Chicago. Payroll employment increased 26,500 in the Washington metro area over the 12 months ending May 2008, ranking sixth among metro areas in the nation. This pace of growth, compared to the 15-year average of 53,400 per annum, feels like a significant slow down, especially after growth levels of 55,000 to 60,000 in 2003-2006. (See Figure 1) Job Growth by Sector The service-providing sector accounted for all of the net job growth in the Washington metro area during the 12 months ending May 2008. The goods-producing sector shed 6,600 jobs. The top three sectors leading job growth in the metro area over the past 12 months are Government, Professional and Business Services, and Education/Health. The Government sector added 12,200 new jobs in the past 12 months, of which 10,000 were at the local government level. The Professional and Business Services sector gained 11,400 jobs during the 12 months ending May 2008, below the 15-year average of 20,600. The Education and Health sector gained 8,400 new jobs in the previous 12 months, slightly above the 15-year average of 8,100. The Financial sector lost 4,000 jobs over the past 12 months, as the continued fallout from the Credit Crunch affected local institutions. Unemployment Rate The Washington area unemployment rate ticked up 70 basis points during the past 12 months to 3.5% in May 2008. The current unemployment rate remains below the average unemployment rate of the 1990s, which was 3.9%. The Washington metro area has the lowest unemployment rate among comparable metros and compares favorably to the national rate of 5.5% in May 2008. (See Figure 2)

3
PAYROLL JOB GROWTH LARGE METRO AREAS 12 MONTHS ENDING MAY 2008 UNEMPLOYMENT RATES LARGE METRO AREAS MAY 2007 VS. MAY 2008

T H E WA S H I N GTO N R E G I O N A L E C O N O M Y A N D O U T LO O K

Figure 1

Figure 2

Source: BLS, Delta Associates; July 2008.

Source: BLS, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK

Coincident Index The Washington Coincident Index, which represents the current state of the metropolitan area economy, was 115.3 in April 2008 which is below the 10-year average. Despite a cooling economy, the current index is higher than the cool-downs of 2002 and 1991. (See Figure 3) The Washington Regions Core Industries The Washington areas gross regional product (GRP) was $367.9 billion in 2007, an increase of 5.6% from revised 2006 figures. We expect the GRP to grow 2.5% in 2008. Approximately one-third of the GRP was generated by the Federal government the regions most important core industry. A core industry is one that imports capital and exports a good or service. Total Federal spending in the Washington metro area was up in 2007 to $122.3 billion, a 2.6% increase from 2006. (See Figure 4) Federal procurement1 spending increased 2.1% in 2007, after a 4.0% rise in 2006. Although procurement spending in the metro area remains solid, spending growth has eased significantly, after growing by 19.0% in 2004 and 22.6% in 2003. We estimate that procurement spending will increase 0.5% during 2008. As procurement spending growth eases, so does job growth, given that roughly 7,000 new jobs are created per $1 billion in additional procurement spending. Washington Area Economic Outlook
Note: Figures are estimates in current-year dollars. Procurement figures do not include US Postal Service and FAA purchases. Sources: Dr. Stephen Fuller, Delta Associates; July 2008.

Figure 3

COINCIDENT INDEX WASHINGTON MSA APRIL 2007 APRIL 2008

T H E WA S H I N GTO N R E G I O N A L E C O N O M Y A N D O U T LO O K

Source: GMU Center for Regional Analysis; July 2008.

Figure 4

CORE SECTORS OF THE ECONOMY WASHINGTON METRO AREA

We expect the Washington metro area economy to make modest gains in 2008, as the aftermath of the Credit Crunch continues to unfold. Although we expect growth to slow this year, we anticipate modestly improving conditions in 2009 and 2010 as the economy regains its footing.
The Professional and Business Services sector should continue to lead job growth. However, the Construction and Financial sectors could cut more jobs, as the Credit Crunch has impacted lending and housing starts. In consultation with Dr. Stephen Fuller of George Mason University, we project that 23,900 new payroll jobs will be created in the Washington area in 2008. Job growth will continue to rise in 2009 and 2010, with 29,000 and 42,500 new jobs, respectively. (See Figure 5)
1/Federal procurement is the governments outsourcing of work to the private sector and is the most important component of Federal spending.

Figure 5

PAYROLL JOB GROWTH WASHINGTON METRO AREA 2000 2010

Note: Data restated since 2000 consistent with redefinition of metro area in March 2005. Source: Dr. Stephen Fuller, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE BALTIMORE REGIONAL ECONOMY AND OUTLOOK

Economic conditions were moderate in the Baltimore metro area during the 1st half of 2008. The unemployment rate remains low at 4.1% in May 2008. The Professional and Business Services and Education/Health sectors led job growth in the past 12 months. Overall, the Baltimore metro area is expected to remain a stable economic generator in the near-term.
Job Growth by Sector Baltimore added 8,000 jobs in the 12 months ending May 2008. The top three sectors leading job growth in the Baltimore metro area were Professional and Business Services, Education/Health, and Leisure/Hospitality. The Professional/Business sector created 5,800 payroll jobs over the last year. Those gains were tempered somewhat by a loss of 2,300 jobs in the Financial Services sector. The Education/Health sector created 5,300 payroll jobs over the 12 months ending May 2008 in the Baltimore area. Of these new jobs, 87% (on a net basis) were created in the health field. The Leisure/Hospitality sector gained 2,000 jobs in the 12 months ending May 2008. Unemployment Rate The Baltimore area unemployment rate was 4.1% in May 2008, up from 3.4% one year prior. The current rate is low compared to similar metro areas and compares favorably to the national rate of 5.5% in May. The Baltimore Regions Core Industries

The Federal and State government represents 18.1% of the Baltimore metro areas gross regional product (GRP). The financial and professional services core industry is a comparable size. Baltimores GRP in 2007 exceeded $130 billion, growth of 2.5% from 2006. We expect similar growth in 2008. (See Figure 6)
T H E B A LT I M O R E R E G I O N A L E C O N O M Y A N D O U T L O O K

Baltimore Area Economic Outlook

We expect economic growth in the Baltimore area to continue its steady but slow growth in the remainder of 2008. We anticipate employment will increase gradually this year and in 2009, particularly in the Professional/Business Services and Education/ Health sectors. Growth should pick up notably during 2010, as the national economy picks up pace.
The Education/Health sector should remain one of the top producers of metro area jobs, as Johns Hopkins University and University of Maryland, Baltimore are economic powerhouses in the metro area and more baby boomers are taking advantage of health care resources as they age. However, the Financial and Construction sectors could take further hits.

We anticipate job growth will total 6,000 net new jobs in 2008. We expect growth to pick up during 2009, with 9,000 new payroll jobs and 14,000 new jobs in 2010.

Figure 6

CORE INDUSTRIES BALTIMORE AREA 2007

*GRP = Gross Regional Product Note: Core industry subcomponents were redefined in June 2007. Source: U.S. Conference of Mayors, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE FOR-SALE HOUSING MARKET

After a sluggish 1st quarter, the Washington housing market began to pick up steam in the 2nd quarter of 2008. Sales velocity increased as sellers cut prices to attract buyers off of the sidelines. However, the national economy has cast a shadow over the Washington market, as slower job growth and challenging credit access present hurdles to would-be buyers. As economic conditions still remain snug, buyer psychology turns instead to planning for rising food and gasoline prices instead of buying homes. But despite signs of a market underperforming historic averages, Washingtons for-sale housing market has largely outperformed the national downturn, and a strong regional economy will cushion the soft housing sector and position it for a strong rebound. Average metro-wide prices of homes sold in the 2nd quarter of 2008 were essentially flat from the 1st quarter but down 11.6% from the 2nd quarter of 2007. The average Washington area home price in June 2008 was $446,716, up 3.3% from revised March 2008 figures but down 12.7% from one year ago. Washingtons housing market is segmented geographically. Core homes (in the District, Arlington and Alexandria) experienced essentially flat prices; the 2nd quarter 2008 average price is 0.2% higher than one year earlier. The areas Inner ring (of Fairfax, Montgomery and Prince Georges counties and Falls Church and Fairfax cities) is seeing 12-month declines of 7.5%. The Outer suburbs (of Loudoun, Prince William and Frederick counties) experienced 12-month price declines of 23.7%, as foreclosures and excess
HOME SALES PRICE CHANGE WASHINGTON METRO BY SUB-AREA* 2005 - 2008

inventory have forced price cuts. Volume was generally stronger outside the Core, which pulled down the regions average price. (See Figure 7) According to Freddie Mac, the average 30-year fixed rate mortgage at the end of June 2008 was 6.46%, down 21 basis points from the same time one year earlier. Mortgage rates have hovered in the 6% range for two months as the credit market seeks direction and investors look to renew confidence in Fannie Mae and Freddie Mac. Rates fell to a new low of 5.48% in January 2008, following a 75-basis point cut in the Federal Funds rate from the Fed. However, lending requirements have become more stringent following national banking troubles tied to subprime mortgage lending. Not only have rates risen in the last six months but also mortgages may be more difficult for all but the most credit-worthy buyers to obtain. As a result, many would-be buyers have remained on the sidelines and out of the housing market. The current housing market is unlike any in the past decade, with historically low mortgage rates but greater obstacles to credit. Many Washington area counties are seeing price declines, yet inventory is rising as buyers try to time the market. REALTORS can help provide valuable assistance to both buyers and sellers as the market seeks direction. The average time on market in the Washington area is 103 days in the 2nd quarter, above the long-term average of 76 days. The average selling price in the 2nd quarter is 92% of list price, as sellers remain slow to lower prices to match buyer expectations in a shifting market. (See Figure 8)
MARKET CHANGES WASHINGTON METRO AREA AT 2ND QUARTER 2008

THE FOR- SALE HOUSING MARKET

Figure 7

Figure 8

*Core: DC, Arlington, Alexandria. Inner: Fairfax, Montgomery, Prince Georges and Falls Church and Fairfax cities. Outer: Loudoun, Prince William, Frederick. Source: National Association of Realtors, Delta Associates; July 2008. Source: National Association of Realtors, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE FOR-SALE HOUSING MARKET

FORECLOSURES: REMAIN AN ISSUE Foreclosures continue to drive prices down and inventory up, particularly in the outer suburbs. The Washington area foreclosure rate in Spring 2008 was 131 per 10,000 homes, up sharply from 6 per 10,000 in Spring 2006. By comparison, the national average in Spring 2008 was 87 foreclosures per 10,000. The Center for Regional Analysis reported in May that in addition to rising foreclosure rates in the outer counties, there are impending hot spots in parts of Fairfax and Montgomery counties that are expected to affect those markets later this year. Despite current market conditions, Washingtons sturdy job growth will position it well to weather the housing and economic downturn and emerge strong. The Federal government is considering a number of proposals to bolster the housing market. The Senate recently approved a housing bill that would authorize the Federal Housing Administration to insure up to $300 billion in new loans to families whose lenders agree to write down their mortgages to no more than 87% of a homes reduced value. The plan is designed to help homeowners who have fallen behind on mortgage payments but cannot refinance through traditional measures because their homes have fallen in value. The bill also proposes permanently raising the FHA loan limit which was raised to $729,500 in most metro areas through December 31 though the House and Senate differ on the new limit amounts. Furthermore, the Federal government is weighing a proposal from the Treasury Department to augment credit for Fannie Mae and Freddie Mac as the two institutions face questions about their capital reserves. In May, the pending-home sales index, a forwardlooking indicator of contracts signed (but not settled) for previously owned homes, fell 4.7% from the April reading. The May index, which is published by the National Association of Realtors, was 14.0% lower than in May 2007. Despite lower prices, the number of sales actually rose in some jurisdictions the 2nd quarter of 2008 compared with one year earlier. There were 2,197 sales in Prince William County in the 2nd quarter of 2008, up 67% from the 2nd quarter of 2007. Such market activity is a positive sign in an area trying to work through a high number of foreclosures. The increase in sales volume was paired with a 29% decline in average price over the same period, and the time on market rose from 114 days to 127 days as buyers remained cautious even amid lower prices. In contrast, the District has experienced price increases, but volume has declined and time on market has increased. Prices rose 6.3% in the 2nd quarter of 2008 from the 2nd quarter of 2007. The number of sales declined 28% in the same period, and time on market rose 10 days to 76, the regions long-term average. The stratified nature of the Washington area housing is demonstrated when looking at both average sales price and time on market. Though the regional average time on market is 104 days, it is just 75 days in the Core jurisdictions. In the Outer counties, time on market is 122 days. (See Figure 9)

THE FOR- SALE HOUSING MARKET

AVERAGE DAYS ON MARKET: EXISTING HOUSES WASHINGTON METRO BY SUB-AREA* 2005 THROUGH 2ND QUARTER 2008 Figure 9

*Core: DC, Arlington, Alexandria. Inner: Fairfax, Montgomery, Prince Georges and Falls Church and Fairfax cities. Outer: Loudoun, Prince William, Frederick. Source: MRIS, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE FOR-SALE HOUSING MARKET

There remains an imbalance in inventory in many parts of the Washington area. During the housing boom of 2002-2005, some jurisdictions had less than two months supply of housing at the then-current rate of sales, pushing prices up quickly. The Washington area has 7.4 months worth of housing inventory at June 2008 sales velocity, down from 10.8 months at the end of March 2008 but up from 6.8 months at June 2007. At the low end, Arlington and Alexandria both have 4.8 months worth of inventory; Frederick and Prince Georges have 11.7 and 17.1 months worth, respectively. Prince Georges County suffers from dualing pressures of rising inventory up 23% in June 2008 from June 2007 and sales that fell 35% in the same period. Prices have declined 11% in the county over the past year, but more adjustment is needed to work through the excess inventory. (See Figure 10) Buyers continue to benefit from the rising inventory and falling prices. Todays market gives buyers negotiating room on price, contingency clauses and home inspections. The Senate-passed housing package contains a credit of up to $8,000 for first-time homebuyers, adding an additional incentive for new purchasers. However, the credit markets continue to remain a hurdle for many buyers. According to John McClain of the Center for Regional Analysis at George Mason University, the kick-out rate for all housing types contracts cancelled before settlement was 23% in March 2008, after spiking to 66% in August 2007 as the seized financial markets hamstrung some sales. The March rate is higher than the 14% recorded one year earlier, but it is the lowest in nine months. Sellers are adjusting to the shifting market. Homes for sale in the Washington area averaged 104 days on the market in the 2nd quarter of 2008, above the long-term average of 76 days. Even as prices moderate, buyers may have difficulty obtaining financing at attractive terms due to problems in the national credit market. Sellers who can finance all or part of a buyers purchase may facilitate a quicker sale. Above all, sellers must be aggressive to generate a contract while remaining realistic about local market conditions. The Wall Street Journal recently outlined select strategies for motivated sellers, including hiring a REALTOR knowledgeable in the area, staging the interior for a strong first impression, and pricing below nearby comparable properties. The Washington area apartment market remains tight as potential buyers choose to rent and time their entry into the housing market. In the Washington area, the multi-family vacancy rate rose to 3.6% from 2.9% a year ago; rents increased 3.1% over the past 12 months. The shadow rental market of for-sale homes converted to rentals, as well as condominium projects converted to rentals, has augmented the supply available to renters. The Washington multifamily vacancy rate remains below the national rate of 5.6%.

8
MONTHS OF FOR-SALE INVENTORY WASHINGTON AREA JUNE 2007 VS. JUNE 2008 CONSTRUCTION STARTS AND BUILDING PERMITS* UNITED STATES 2000 THROUGH MAY 2008 Figure 11

THE FOR- SALE HOUSING MARKET

Figure 10

*For privately-owned housing units, seasonally adjusted and annualized. Source: Census Bureau, Delta Associates; July 2008.

*For privately-owned housing units. Through February 2008, annualized. Source: Census Bureau, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE FOR-SALE HOUSING MARKET

Supply remains above demand across the region, and builders have scaled back projects until equilibrium is restored. On existing projects, builders have cut prices and increased incentives to sell inventory. The number of building permits in the region has fallen further from 2007 levels, as conditions are unfavorable to builders in a market already working through excess inventory. Census data show that the number of permits for new housing construction in May 2008 nationally was down 36% from one year earlier. (See Figures 11 and 12) The tight national economy has affected builder confidence. The National Association of Home Builders/ Wells Fargo index of builder confidence fell to 18 in June, returning to the record low of December 2007 since the index began in 1985. An index below 50 indicates that more builders view sales conditions as poor than good. Home prices have fallen in many areas of the country. Rising prices for core consumer goods have reined in housing price growth; oversupply in some areas also has lowered prices. Lower prices in turn limit options for owner refinancing. According to Freddie Macs Quarterly Refinance Review, the volume of cash-out refinancings fell 19% from a revised $36 billion in the 4th quarter of 2007 to $29 billion in the 1st quarter of 2008. The median age of the refinanced loans was 2.2 years, and the median appreciation of the refinanced properties was 7% since the original loan had been taken out. In the 1st quarter of 2008, the share of cash-out refinancings 56% was the lowest since 2004. SNUG ECONOMY AFFECTS SPENDING Consumers are feeling the pinch of rising gasoline and food prices. The consumer price index rose 1.1% in June, the second-highest increase since 1982. Consumer prices rose 5% from June 2007, the highest rate since May 1991. Rising prices for core goods have constrained spending for other types of goods. The National Retail Federation reported that June 2008 retail industry sales, excluding gas stations, autos and restaurants, were up 0.2% from May and up 1.3% from June 2007. In the Washington metro area, the Office of Federal Housing Enterprise Oversight (OFHEO) reported a -5.1% annual change in home prices for the 12 months ending March 2008, compared to a decrease of 0.45% for all of 2007. OFHEO reported a national average home price decline of 3.1%. (OFHEO and NAR use different methodologies to calculate price changes.) Like many cities across the United States, the Washington area has seen downward pressure on prices, but it is particularly amplified by excess inventory and high foreclosure rates in the outer suburbs. (See Figure 13)

THE FOR- SALE HOUSING MARKET

The Washington metro area housing market continues to seek equilibrium, though many jurisdictions are slowly working through excess inventory through lower prices and rising volume. An analysis of MRIS data shows that total sold dollar value was $6.4 billion in the 2nd quarter of 2008, up from $3.9 billion in the 1st quarter of 2008 but down from $8.1 billion one year ago.

9
ANNUAL ESCALATION OF EXISTING HOME SALE PRICES

CONSTRUCTION BUILDING PERMITS BY STATE SELECTED MID-ATLANTIC JURISDICTIONS Figure 12 2000 THROUGH MAY 2008

Figure 13

*12-month percentage change through March 2008. Source: National Association of Realtors; July 2008. Source: National Association of Realtors; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE FOR-SALE HOUSING MARKET

The Washington area economy is experiencing sluggish economic conditions, with modest growth and job creation below the long-term average. Supply and demand are still out of balance in the Washington area housing market, as wages continue to catch up to the rate of home price appreciation during the housing boom. Furthermore, the Washington housing market suffers from a spatial mismatch, with demand rivaling supply in closer-in areas but a glut of unsold homes on the regions fringe.

By late 2008/early 2009 we expect that rising demand (generated by sturdy job growth, low interest rates, net migration, and a rising immigrant population) and a decline in existing home listings and new construction will stabilize pricing, leading to an uptick in sales activity. Conditions will improve first in the close-in communities, perhaps by early 2009, with recovery arriving in the outer counties by late 2009 or early 2010.

10

THE FOR- SALE HOUSING MARKET

TRENDS IN HOUSING

MID -YEAR 2008

THE CONDOMINIUM MARKET

Washington. Prices for new units in the region edged lower, but sales volume of new units in the District and Suburban Maryland is at its highest level in nine months. Sales volume (defined as net binding contracts written with security deposits up) during the 2nd quarter of 2008 was 449 new units.
The District had the highest average price per SF, and Prince William/Loudoun had the lowest. Montgomery County and the District had the highest sales volume. In Fairfax County & Falls Church, contract cancellations exceeded sales in the 2nd quarter. The currently marketing pipeline declined for its 9th straight quarter and has declined 46% from its peak in March 2006. At the same time, the inventory-to-sales ratio has increased from 2.1 years at the 1st quarter of 2006 to 7.3 years at mid-year 2008. Over 2,600 units (gross) were removed from the condo pipeline during the 2nd quarter. About 37% of those removals were projects at the selling stage of development. The 2nd quarter continued to see declines in inventory, as the market seeks equilibrium and works through excess inventory. At the current sales velocity, it will take about 7.3 years to sell the current inventory of 13,990 units. The inventory-to-sales ratio will likely increase in the short term in most of the metro area, but by the end of 2008, the ratio will start to decline. Price traction will start to occur by late 2008 or 2009 in most of the inner communities as the ratio approaches the 3.0-year range.

Baltimore. There were 59 new condo sales in the Baltimore metro area in the 2nd quarter of 2008. Sales activity during the past 12 months has dropped by 90% metro-wide compared to the prior 12-month period. New condo prices show a decrease of 1.5% metro-wide during the 12 months ending June 2008, once concessions are taken into account. Prices are up by 0.4% in the Northern Suburbs, but down by 0.1% in the Southern Suburbs and 2.3% in Baltimore City. Median condo resale prices in the Baltimore metro area declined 4.7%, though prices were up 2.2% in Harford County and 0.5% in Baltimore City. Concessions are down slightly metro-wide from last year. Concessions were cut by 130 basis points Southern Suburbs, while there was an increase in the Northern Suburbs and Baltimore City. Currently, the Northern Suburbs are offering the most concessions, at 5.3% of the average sales price.
The 36-month pipeline has been steadily declining for the past year. There are 3,780 unsold units currently marketing. In addition, there are 2,726 units planned with probable sales within the next 36 months. Despite the 17% drop in actively marketing inventory during the past three months, there is still an elevated level of inventory with slow absorption, so it is likely more condo projects will be delayed or removed from the pipeline in the months ahead. We look to 2010-11 as the period when price traction could return to the market. Until then, developers would be wise to convert to rental or pursue niche condo deals at exceptional locations of extraordinary design.
THE CONDOMINIUM MARKET

11

TRENDS IN HOUSING

MID -YEAR 2008

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET

CHANGE IN EXISTING HOME VALUES SELECT METRO AREAS 2003 - 2008 AVERAGE DAYS ON MARKET - EXISTING HOUSES WASHINGTON METRO AREA 1996 THROUGH 2ND QUARTER 2008 Figure 15

Figure 14

S U M M A R Y D ATA O N T H E M I D - AT L A N T I C H O U S I N G M A R K E T

Source: OFHEO, GMU Center for Regional Analysis, Delta Associates; July 2008.

Source: MRIS, GMU Center for Regional Analysis, Delta Associates; July 2008.

Summary: The Washington area saw a -5.1% change in existing home values for the 12 months ending March 2008 (per OFHEO data), below the national average of -3.1%.

Summary: The average time on the market in the 2nd quarter of 2008 was 104 days, down from 119 days at 1st quarter 2008 but up from 92 days at 2nd quarter 2007.

SALES VOLUME WASHINGTON METRO AREA, ALL HOUSING TYPES 1999 THROUGH 2ND QUARTER 2008 Figure 16

SALES PRICE CHANGE - TRAILING 12 MONTHS WASHINGTON METRO AREA JUNE 2007 vs. JUNE 2008 Figure 17

12

Source: MRIS, GMU Center for Regional Analysis, Delta Associates; July 2008.

Source: MRIS, Delta Associates; July 2008.

Summary: Through June, the 2008 sales volume was 23,330 homes. At this pace, annualized 2008 sales will be 16% lower than the 2007 volume. Sales in the 2nd quarter of 2008 were 11% lower than in the 2nd quarter of 2007.

Summary: Prices declined in each of the first six months of 2008, the first declines since May 2007. Prices fell 9.4% in April 2008 from April 2007. In May 2008, prices were 12.5% lower than in May 2007. Average home prices in June 2008 were 12.7% lower than June 2007.

TRENDS IN HOUSING

MID -YEAR 2008

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET

DISTRICT OF COLUMBIA HOUSING MARKET INDICATORS 2004 THROUGH 2ND QUARTER 2008 NORTHERN VIRGINIA HOUSING MARKET INDICATORS 2004 THROUGH 2ND QUARTER 2008

Figure 18

Figure 19

S U M M A R Y D ATA O N T H E M I D - AT L A N T I C H O U S I N G M A R K E T

Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Source: MRIS, Delta Associates; July 2008. Source: MRIS, Delta Associates; July 2008.

Summary: Prices rose 7.3% in the 2nd quarter from the 1st quarter of 2008 and 6.3% from one year earlier. The average time on market was 76 days for the 2nd quarter, compared with 86 days for 1st quarter. The annualized 2008 sales volume is 73% of the 2007 total.

Summary: The average price in the 2nd quarter of 2008 declined 1.8% from the previous quarter and 19.1% from 2nd quarter 2007. Time on market averaged 103 days in the 2nd quarter, down from 122 days in the 1st quarter 2007 but up from 99 days one year earlier. Annualized sales volume is nearly 97% of 2007 volume.

Figure 20

SUBURBAN MARYLAND HOUSING MARKET INDICATORS 2004 THROUGH 2ND QUARTER 2008

Figure 21

BALTIMORE AREA HOUSING MARKET INDICATORS 2004 THROUGH 2ND QUARTER 2008

13

Includes: Frederick, Prince Georges, and Montgomery Counties. Source: MRIS, Delta Associates; July 2008.

Includes: Anne Arundel, Carroll, Harford, Howard, and Baltimore Counties; Baltimore City. Source: MRIS, Delta Associates; July 2008.

Summary: Prices declined 3.7% in the 2nd quarter of 2008 compared with the same period in 2007. Average days on market fell to 115 from 126 in the previous quarter. Annualized sales volume for 2008 is down 38% from the 2007 total.

Summary: Average sales prices in the 2nd quarter of 2008 were up 6.0% from the 1st quarter but down 1.4% from the same period in 2007. Time on market fell to 118 days from 127 days in 1st quarter. Sales volume in 2008 is on pace to be 75% of the 2007 volume.

TRENDS IN HOUSING

MID -YEAR 2008

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET

DISTRICT OF COLUMBIA SINGLE-FAMILY SALES 2ND QUARTER 2007 vs. 2ND QUARTER 2008 NORTHERN VIRGINIA SINGLE-FAMILY SALES 2ND QUARTER 2007 vs. 2ND QUARTER 2008

Figure 22

Figure 23

S U M M A R Y D ATA O N T H E M I D - AT L A N T I C H O U S I N G M A R K E T

Thousands of Dollars

Thousands of Dollars
Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Source: MRIS, Delta Associates; July 2008.

Source: MRIS, Delta Associates; July 2008.

Figure 24

SUBURBAN MARYLAND SINGLE-FAMILY SALES 2ND QUARTER 2007 vs. 2ND QUARTER 2008

Figure 25

BALTIMORE AREA SINGLE-FAMILY SALES 2ND QUARTER 2007 vs. 2ND QUARTER 2008

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Thousands of Dollars
Includes: Frederick, Prince Georges, and Montgomery Counties. Source: MRIS, Delta Associates; July 2008.

Thousands of Dollars
Includes: Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City. Source: MRIS, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET

MEDIAN SOLD PRICE SELECTED WASHINGTON METRO AREA JURISDICTIONS JUNE 2007 vs. JUNE 2008 Figure 26 MEDIAN SOLD PRICE SELECTED BALTIMORE METRO AREA JURISDICTIONS JUNE 2007 vs. JUNE 2008 Figure 27

S U M M A R Y D ATA O N T H E M I D - AT L A N T I C H O U S I N G M A R K E T

Source: MRIS, Delta Associates; July 2008.

Source: MRIS, Delta Associates; July 2008.

Figure 28

AVERAGE DAYS ON THE MARKET 2ND QUARTER 2008

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Source: MRIS, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

ONE PIECE OF THE PUZZLE: HOUSINGS ROLE IN THE NATIONAL ECONOMY

The housing market is about more than just providing homes it is a linchpin of the national economy. When the housing market is up, its benefits are amplified in many sectors of the economy and when it declines, the pain may be felt in some surprising places. The financial industry is wedded to the housing industry, as it reaps profits from mortgage lending and collateralization. However, as the current subprime lending crisis has demonstrated, lender risk may be dispersed throughout the financial industry. Financial instruments such as collateralized debt obligation bonds spread risk among multiple creditors and buoyed returns when the market was strong, but failures in those products are now impacting banks of all sizes in all regions of the country. Job growth can help fuel housing demand, but the housing sectors performance can in turn influence certain employment sectors. The construction industry depends on the housing sectors performance to provide jobs to builders and specialty tradesmen. In the Washington area, the general construction jobs fell by 14,600 from a peak in June 2006 to May 2008. Specialized trade jobs declined by 7,200 from a peak in August 2006 to May 2008. Jobs in the trades, which contribute to remodeling and renovation projects, are also affected by home values and equity spending. In turn, suppliers of building materials, such as Home Depot and Lowes, have seen sales trend lower. A slowdown in housing often results in a slowdown in consumer spending as well. Current housing conditions have hit home furnishings retailers particularly hard. The retail chain Linens N Things filed for bankruptcy protection in May. The International Council of Shopping Centers reported that home furnishings and furniture stores accounted for 27% of the total 4,600 announced store closings in 2007. The ICSC projects that store closings in 2008 will be up 7% from 2007. Budget furnishings stores such as Ikea may fare better than upscale retailers, but shoppers at an Ikea opening in New York City told the Associated Press that they were focused on sales and smaller items instead of large purchases. Scaled-back consumer spending also results in fewer restaurant meals, fewer purchased services and fewer tips for service industry workers. On the flip side, housing is the countrys largest generator of wealth. By paying their mortgages, millions of Americans are not only paying for a place to live but investing in their future. As home prices rise, owners can withdraw equity to help bolster the economy, or they can simply maintain a home as an asset in part of a long-term investment strategy. Beyond home furnishings, housing performance can affect auto demand. Ford saw sales slump 28% in June, in part because of a tighter economic climate. Demand for pickups and other trucks fell by more than a third, which Ford officials attributed in part to a decline in building and trade workers. Demand for goods affects the distribution industry: when demand is high, shippers do well; when demand recedes, shippers see lower results. The railroad company CSX experienced a 3% decline in freight volume in the 2nd quarter of 2008. The Port Authority of New York and New Jersey reported a decline of 12.8% in import volume in March 2008 from the previous year. Though the housing market affects many different economic sectors, it is not the only catalyst for economic activity. However, it is woven deeply into the fabric of the national economy.

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O N E P I E C E O F T H E P U Z Z L E : H O U S I N G S R O L E I N T H E N AT I O N A L E C O N O M Y

TRENDS IN HOUSING

MID -YEAR 2008

HARNESSING THE POWER OF THE WEB: STRATEGIES TO REACH GENERATION Y

Late Summer in Washington tends to find fewer home buyers and sellers than the rest of the year which makes it a great time for REALTORS to refine their marketing tactics and prepare for the fall selling season. Buyers already greatly use the Internet as part of a home search: 84% of buyers used the Internet, according to the 2007 National Association of Realtors Profile of Home Buyers and Sellers. That number was up from 80% in the 2006 report. And the youngest buyers those in their 20s are even more likely to use the Internet when searching for a home. These buyers are ideal for todays market: if they have good credit, they can take advantage of lower prices and can often close quickly, as they do not have another home to sell. These youngest buyers tend to have different expectations for communication about home purchases than buyers even five years ago. Todays young buyers those in their 20s and 30s are more likely to communicate by e-mail or text message, for instance. They expect rapid results: an agent who waits a day to return an email may risk losing business to someone else who was faster. Deloitte Research, in a 2007 report, defines Generation Y as including people born between 1982 and 1993 consumers now aged 15 to 26. The 70 million members of Generation Y were the first to grow up completely with computers, and are fluent in instant messaging, text messaging and blogs. They pride themselves on accessibility and networking capabilities, and they value information. These are buyers who may have looked up recent sales in a neighborhood before asking a broker to show them a house. Gen Y expects everything on demand, according to the May 2008 issue of Consumer Insight magazine. For marketersand REALTORSthe challenge is to engage and maintain a relationship with Gen Y consumers. They are voracious consumers of information, surfing the Web an average of 22 times per month for more than 25 hours total, scanning an average 1,426 Web pages in that time. To capture attention of a potential buyer, REALTORS need to be certain that sites are updated, easy to navigate and present information clearly. High-quality photography of homes can have a profound impact. The big take-away on Gen Y is immediacy, according to Consumer Insight. These consumers want it want it customized and they want it now. When they are satisfied, they are likely to text their friends turning word of mouth into a rapid, digital asset. REALTORS can turn that need for immediacy into the foundation of a relationship by starting a blog to showcase listings. Another option is to develop a Facebook widget or an e-mail list to communicate timely information about properties and market conditions. Do not simply post links to news stories or property information easily obtained elsewhere Gen Y users will see this as spam and tune it out. If the information is unique and relevant, buyers will come to see you as a valuable contact. (See chart below)

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H A R N E S S I N G T H E P O W E R O F T H E W E B : S T R AT E G I E S T O R E A C H G E N E R AT I O N Y

ONLINE STRATEGY TIPS FOR REALTORS Update or redesign sales Web sites Improve photography skills: take a workshop course or invest in new equipment Create profiles on social networking sites such as Facebook, MySpace and LinkedIn Consider an online messaging strategy (such as a blog or a regular e-mail list) to communicate with buyers

TRENDS IN HOUSING

MID -YEAR 2008

THE COMMERCIAL REAL ESTATE MARKET

In the Washington metro area, a sturdy economy, consistent employment growth, healthy rent growth and the desirability of investors to own property in this metro help maintain Washingtons status as one of the top commercial real estate markets in the country. The Washington Area Office Market Rents: Increased an annualized 1.8% in the 1st half of the year. Investment sales: $2.4 billion in the 1st half of 2008, compared with a record $8.9 billion in the same period last year. Average sale price: $431/SF.

Despite softening conditions, the metro area remains one of the top performing markets in the nation. Although vacancy has risen over the past year, the metro area ranked 6th in lowest overall vacancy among large metros at mid-year 2008. Given these conditions, rents increased by an annualized 1.8% in the 1st half of 2008. The pipeline is up slightly from a year ago, though numerous projects remain scaled back or shelved given the cooling economic climate.
Mid-Year 2008 Washington office market highlights: Net absorption: 739,000 SF, compared to an average of 1.35 million SF per quarter in 2007. Overall vacancy rate: 10.0%, up from 9.1% a year ago. (See Figure 29) Space under construction: 18.9 million SF, up from 18.4 million SF a year ago. Space U/C is 27% pre-leased, down from 35% a year ago.

The Washington metro area office market should experience steady but softening conditions during the remainder of 2008. The metro area is in the correction phase of the cycle, as demand is light, vacancy is edging up, and rent growth is modest. Conditions are expected to remain moderate in 2009, with a pick up in 2010, as the metro economy strengthens.
Although demand should remain steady, we expect it will not be able to keep pace with the level of available space due to robust construction activity. Construction levels should ease over the next year, as rising construction costs, credit difficulties, and lackluster rent growth make new development harder to justify. Regardless, the Washington area office market remains a top-performing market in the nation, even under softer conditions.

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OFFICE VACANCY RATES SELECTED METRO AREAS 2ND QUARTER 2008

T H E C O M M E R C I A L R E A L E S TAT E M A R K E T

Figure 29

Source: CoStar, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE COMMERCIAL REAL ESTATE MARKET

The Baltimore Area Office Market

The Baltimore metro area office market experienced moderating conditions during the 2nd quarter of 2008. Although absorption picked up pace during the past three months, it was boosted by pre-leased deliveries. Vacancy edged up and rents reacted with minimal growth. Annualized, construction starts have eased compared to last year, but the development pipeline remains high. Overall, the Baltimore metro area is poised for stable but slowing conditions in the near-term.
Mid-Year 2008 Baltimore office market highlights: Net absorption: 606,000 SF, compared to 1.7 million SF in all of 2007. Overall vacancy rate: 11.6%, up from 11.4% one year ago. Space under construction: 4.2 million SF, up from 2.1 million SF one year ago. Space under construction is 34% pre-leased, down from 40% a year ago. Rents: Up 0.2% in 1st half of 2008, compared to 0.8% growth in 2007. Investment sales: $144 million in 1st half of 2008, compared to $978 million in all of 2007.

der of 2008. We project new supply will outpace demand in the next 24 months, as the economy sorts itself out. Job growth will be lower than the long-term average. Given these conditions, we anticipate rents will remain neutral in 2008, as vacancy rises and demand tapers. In the long term, the Baltimore metro area is well positioned for steady future growth.
The Washington Area Retail Market

The Washington metro areas retail market continues to draw its success from an educated, growing population earning above-average incomes, though it is slowing along with the national economy.
Though job and population growth both slowed in the Washington area in 2007, the region remains healthy and economically sound. Development of residential and commercial properties, sparked by job growth, has helped prop up demand for retail employees. However, declines in consumer spending have moderated the job market. In the 12 months ending May 2008, the Leisure/Hospitality sector added 1,200 jobs and the Retail sector shed 300 jobs. Although the cost of living here is somewhat higher than in other metro areas, Washingtonians have more disposable income for all kinds of retail goods. The Washington metro was among the leaders in average annual consumer expenditures for all types of goods in 2006, the most recent data available. The average annual expenditure in the Washington area was $58,236, 20% higher than the national average.
(See Figure 30)

T H E C O M M E R C I A L R E A L E S TAT E M A R K E T

We expect the Baltimore area office market to experience slow conditions during the remain-

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AVERAGE ANNUAL HOUSEHOLD EXPENDITURE SELECT METRO AREAS 2006 Figure 30

Source: BLS, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE COMMERCIAL REAL ESTATE MARKET

Incomes in the Washington metro area grew by 21.5% from 2000 to 2007, compared to 17.8% nationally. Compensation in the metro area has risen at a faster pace compared to other areas, as high-level positions are difficult to fill with qualified candidates due to a low unemployment rate; this has prompted companies to use high salaries as a lure. By 2012, the Washington metro areas average household income is projected to be $110,300, compared to $73,700 nationally. The Washington metro area has over 116.0 million SF of retail space, inclusive of all types of retail, in just over 1,000 shopping centers. Of that space, 52.6 million SF is in 301 grocery anchored shopping centers. Northern Virginia is home to 52% of the total metro retail inventory. (See Figure 31)

GROCERY-ANCHORED SHOPPING CENTER WASHINGTON METRO AREA - 2008 Figure 31 (MILLIONS OF SQUARE FEET)

Metro-wide vacancy remained chronically low at year-end 2007 at 2.28%, down slightly from 2.31%
one year ago. The year-end 2007 vacancy rate is 98 basis points lower than the long-term average vacancy rate of 3.26%. (See Figure 32)

Source: Delta Associates; July 2008.

T H E C O M M E R C I A L R E A L E S TAT E M A R K E T

GROCERY-ANCHORED SHOPPING CENTER VACANCY RATES Figure 32 1999 2007

Rental rates at grocery-anchored centers increased 3.9% in 2007, after rising 5.7% in 2006. Metro-wide average rents were $33.16/SF at yearend 2007, up from $31.91/SF 12 months earlier.
(See Figure 33)

The metro area has 24.3 SF of retail space per capita, compared to the national average of 20.0. The area remains underserved as the growing population continues to demand retail services, particularly in the District of Columbia where there is just 8.7 SF of retail space per capita. (See Figure 34) Just over half of the Washington area shopping centers are over 25 years old, while only 16% are aged ten years or less. Although new retail projects, such as DC USA, have entered the market, older centers remain the bulk of retail space. New centers, along with renovations to the existing stock, are necessary to keep up with demand. However, renovations might be slow to progress, given the long-term strength of the retail market.

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Note: Estimate Source: CoStar, Delta Associates; July 2008.

GROCERY-ANCHORED SHOPPING CENTER ASKING RENTS WASHINGTON METRO AREA 1999 2007 Figure 33

Source: Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE COMMERCIAL REAL ESTATE MARKET

Owners might be reluctant to contribute capital when returns are solid with or without renovations. This should start to shift as new centers deliver and customers are lured by updated product and a new mix of retail. ket, a ballooning pipeline of supply and a moderating jobs market. 2008 has brought better news: The pipeline of supply continues to decline from its peak in the 4th Quarter of 2007. Rents continue to edge up despite higher vacancy rates. Annualized Class A absorption exceeds 5,000 for the third quarter in a row. The shadow market seems to have run its course, with absorption and rents showing real strength for both Class A and B product.

The Washington metro area retail market remains one of the healthiest in the nation. Although consumers have retreated from purchasing non-essential goods during this economic cool down, the metro area retail market has experienced minor job losses. Given high disposable incomes in the area, vacancy rates were low and rents climbed during 2007 at grocery-anchored shopping centers. We expect the Washington area retail market will experience sturdy conditions over the next two years.
The Washington Area Apartment Market The Washington metro area continues to be one of the better apartment markets in the nation due to: 1. 2. 3. A solid job market, though it is cooling. A transient work force that has produced a large pool of Class A renters by choice. A stalled condo market that has turned would-be condo purchasers into renters.

Highlights of the Washington apartment market performance as of Mid-Year 2008: The regions stabilized vacancy rate for investment grade apartments (Class A and B) increased to 3.6% from 2.9% a year ago. The national vacancy rate is 5.6%; Washingtons is among the lowest in the nation. But it is an elevated rate by local historic standards. Rent increases over the past 12 months for all investment grade product remained below the long-term average of 4.5% per annum at 3.1% since June 2007. Class A rents grew by 1.8% during this period, compared to a decline of -0.3% at mid-year 2007.

T H E C O M M E R C I A L R E A L E S TAT E M A R K E T

This solid market experienced stresses during 2007 due to shadow rentals from a cooling housing mar-

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RETAIL SPACE PER CAPITA WASHINGTON METRO AREA 2008

Figure 34

Source: CoStar, U.S. Census, Delta Associates; July 2008.

TRENDS IN HOUSING

MID -YEAR 2008

THE COMMERCIAL REAL ESTATE MARKET

Annual Net Absorption, at 6,296 Class A and B apartments, continued to strengthen, from its slow down in late 2006 to mid 2007. Annual Class A absorption continued its upward climb to 5,676 units 2nd in the U.S. and the highest we have ever recorded for the Washington metro. Average monthly absorption at new projects declined slightly to 16 units per month. However this rate is still remarkable, as the number of projects marketing has nearly doubled since last year. Concessions at Class A projects continued to move higher, to 4.1% of face rent, compared to 2nd Quarter 2007, which was 3.6% of face rent. This upward trend began in the 1st Quarter of 2007. Pipeline: After rising from a historically low 18,000 units in 2005, pipeline ballooned to 36,951 units in December 2007, largely driven by the reversion of condominium projects. In the 1st Quarter of 2008, the pipeline began its cyclical decline, and has continued downward to 33,802 as of mid-year 2008. We believe this slow downward trend will continue throughout 2008. We will likely look back at 4th quarter 2007 as the peak of apartment pipeline during this business cycle. Concessions in the Baltimore region have risen slightly compared to the same time last year (4.0% compared to 3.0%). Average effective rents in the metro area are $1,342 ($1.35 per SF). This metro area has demonstrated slightly negative rent growth of 0.5% over the year, due in large part to the Southern Suburbs (down 1.0% from Mid-Year 2007). Effective rent growth in the Downtown submarket was again better than in the Fells Point/Inner Harbor area (-0.5% compared to -1.4%). Rent growth in the Baltimore suburbs was down only slightly by 0.4%. Supply pipeline metro-wide has trended downward by approximately 53 units since last quarter. Some 3,761 units are planned to deliver in the next 36 months in the Baltimore metro area (up from the 3,658 units planned this time last year). These counts exclude Baltimores southernmost suburbs: Anne Arundel and Howard Counties (whose units are al ready counted in the Washington metro pipeline).

T H E C O M M E R C I A L R E A L E S TAT E M A R K E T

The Baltimore Area Apartment Market The demand for rental housing has moderated as job growth in the Baltimore area has cooled and supply has increased. Apartment Market Highlights at Mid-Year 2008: Stabilized Class A vacancy has risen 220 basis points across the metro area, to 5.4%. Baltimores southern submarkets are up to 4.9% from 1.9% a year ago. Baltimores northern submarkets are up 160 basis points to 5.6%. Nonetheless, the Baltimore regions vacancy rate is slightly below the national average of 5.6%. Through mid-year 2008 vacancy rates in the Baltimore region have steadily increased from a low of 1.4% in the 3rd Quarter of 2006. As of June 2008 vacancy has continued this trend. Rent growth has slowed during this period as well. For the 2nd Quarter of 2008, vacancy in Baltimore City has increased to 6.8%; that is a 260 basis point increase over this time last year.

Lease-up pace for actively marketing projects in the Baltimore area averages 10 units per month per project. Projects that have recently stabilized have similar average lease-up paces of 11 per month for garden properties and nine per month for high-rise properties. Although the pipeline has moderated, we project that supply will slightly exceed the number of units that will be absorbed in the Baltimore area over the next 36 months. This suggests that while occupancy and rent growth will continue to be positive over the next three years, they will still warrant close monitoring.

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MID -YEAR 2008

METHODOLOGY
Single-Family Housing Data Northern Virginia is defined as Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Suburban Maryland is defined as Frederick, Montgomery, and Prince Georges Counties. The Washington Metro Area describes all of the jurisdictions listed above and the District of Columbia. The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City.
Bureau of Labor Statistics Metro Area Definitions

Commercial Real Estate Data Office, Apartments, Condominiums Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Suburban Maryland is defined as Frederick, Montgomery, and Prince Georges Counties. The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia. The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties, plus Baltimore City. Retail Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Suburban Maryland is defined as Montgomery and Prince Georges Counties. The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia.
Atlanta Atlanta-Sandy Spring-Marietta, GA Austin Austin-Round Rock, TX Boston Boston-Cambridge-Quincy, MA-NH (Metropolitan NECTA) Chicago Chicago-Naperville-Joliet, IL-IN-WI (Non-Metropolitan Division)
M E T H O D O LO GY

Dallas-Fort Worth Dallas-Forth Worth-Arlington, TX Denver Denver-Aurora, CO + Boulder, CO Houston Houston-Sugar Land-Baytown, TX LA Basin Los Angeles-Long Beach-Glendale, CA (Metropolitan Division) Riverside-San Bernardino-Ontario, CA Santa Ana-Anaheim-Irvine, CA (Metropolitan Division) New York New York-Northern New Jersey-Long Island, NY-NJ-PA Phoenix Phoenix-Mesa-Scottsdale, AZ San Antonio San Antonio, TX San Francisco Bay San Francisco-Oakland-Fremont, CA + San JoseSunnyvale-Santa Clara, CA South Florida Fort Lauderdale-Pompano Beach-Deerfield Beach, FL Miami-Miami Beach-Kendall, FL West Palm Beach-Boca Raton-Boyton Beach, FL Washington Washington-Arlington-Alexandria, DC-VA-MD-WV (Non-Metropolitan Division)

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TRENDS IN HOUSING

MID -YEAR 2008

ABOUT MRIS AND DELTA ASSOCIATES

MRIS Metropolitan Regional Information Systems, Inc. (MRIS) is the nations largest Multiple Listing Service. MRIS serves nearly 60,000 real estate professionals spanning Maryland, the District of Columbia, Northern Virginia, and parts of West Virginia and Pennsylvania a total of 22,000 square miles. Customers currently have access to nearly 100,000 active listings, an archive of over 1.7 million comparable listings and nearly 5 million public records containing tax, assessment, and deed transfer information about properties throughout the region. The cutting edge technology designed by MRIS keeps real estate professionals business ahead of the curve. MRIS is owned by 25 Shareholder REALTOR Associations and governed by brokers who rely heavily on input from the agents, brokers, and shareholders serving on vital committees. When measuring both listing and selling agent activity, MRIS subscribers generated more than $46 billion in sales volume and engaged in over 117,000 transactions in 2007. For more information on MRIS, please visit: mris.com Delta Associates Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals offering consulting and data services to the commercial real estate industry for over 25 years. The firms practice is organized in three related areas: Consulting, research and advisory services for commercial real estate projects, including market studies, market entry strategies, asset performance enhancement studies, preacquisition due diligence, and financial and fiscal impact analyses. Valuation services for real estate companies and fractional interests in them.
A B O U T M R I S A N D D E LTA A S S O C I AT E S

Subscription data for select metro regions for office, flex/industrial, retail, condominium, and apartment markets.

Deltas Trends in Housing team includes: Greg Leisch, Chief Executive; David Weisel, President, Consulting Division; Alexander (Sandy) Paul, National Research Director; and Ann Thompson, Senior Associate. For more information on Delta Associates, please visit DeltaAssociates.com

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Headquarters 9707 Key West Avenue Suite 200 Rockville, Maryland 20850 301.838.7100 Headquarters 500 Montgomery St. Suite 600 Alexandria, VA 22314 703.836.5700

2008 MRIS. All rights reserved. You may not copy nor disseminate this report. If quoted, proper attribution is required. Sources: Associated Press, Bureau of Labor Statistics, Census Bureau, Commerce Department, Consumer Insight, CoStar, Delta Associates, Dr. Stephen Fuller and John McClain, Center for Regional Analysis, Deloitte Research, Department of Energy, Federal Reserve, Freddie Mac, Mortgage Bankers Association, MRIS, NAHB, NAR, OFHEO, Port Authority of New York and New Jersey, Primary Mortgage Market Survey, RealtyTrac, Reuters, Shopping Center Directory, USA Today, The Wall Street Journal, The Washington Post.

TRENDS IN HOUSING

MID -YEAR 2008