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April 13, 2010

Economics Group

Special Commentary

Mark Vitner, Senior Economist


mark.vitner@wellsfargo.com ! 704.374.7034
Adam G. York, Economist
adam.york@wellsfargo.com ! 704.715.9660

Housing Chartbook: April 2010


Housing Still Faces a Very Long Road to Recovery
While there has been a surprising bit of good economic news during the first few months of 2010,
including stronger retail sales, a bounce-back in manufacturing activity, and even a small rise in
nonfarm employment, most of the data on the housing sector continue to be extremely
disappointing. The payback from the run-up in home sales this past fall, which was the original
deadline for the first-time homebuyers’ tax credit, has been even greater than expected. Sales of
new homes have fallen during each of the past 4 months and in February fell to the lowest levels
since statistics began being kept in 1963. Existing home sales have also tumbled in recent months,
and mortgage applications for the purchase of a home remain exceptionally weak.
The pullback in home sales has raised concerns the nascent recovery in housing has faltered, and
for good reason. From the start, the housing recovery has been on a very shaky foundation of tax
incentives, artificially low mortgage rates and unprecedented assistance to struggling
homeowners. None of these programs are sustainable. The real problems with the housing market
center around three fairly simple concepts. First, home sales were too strong during the boom
years, and demand was effectively pulled forward. Second, credit underwriting has tightened
considerably, effectively shutting out many potential buyers. And third, the deep recession, which
eliminated 8.4 million jobs and sent the unemployment rate up to 10 percent, led to a sharp
reduction in household formations and fundamentally reduced the demand for housing. The
painful truth is that there is no quick fix to any of these problems, and the recovery in housing is
likely to be longer and more arduous than many people currently expect.
Figure 1 Figure 2
New Home Sales Housing Starts
Seasonally Adjusted Annual Rate - In Thousands Millions of Units
1,500 1,500 2.4 2.4
New Home Sales: Feb @ 308,000
3-Month Moving Average: Feb @ 322,667
1,300 1,300 2.1 2.1
Forecast
1.8 1.8
1,100 1,100

1.5 1.5
900 900
1.2 1.2

700 700
0.9 0.9

500 500
0.6 0.6

300 300 0.3 0.3

100 100 0.0 0.0


89 91 93 95 97 99 01 03 05 07 09 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

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

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


Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

While none of this should come as a surprise to anyone associated with the housing industry, we
have been struck by some of the more upbeat forecasts for home sales and new home construction
we have seen in recent months. Many of these forecasts appear to be built around the signs of
stability that appear to be returning to some of the nation’s more troubled hot spots, including
California, Arizona, and south Florida. In many of these areas, home sales have risen, inventories
of new and existing homes for sale have decreased, and prices have increased. This improvement,
however, has come about amid unprecedented support of the housing market, including various
efforts to forestall foreclosures and numerous programs to provide subsidized mortgages. In
addition, there has been a great deal of investor buying, mostly via cash purchases. The net result
is that it is extremely difficult to get an accurate assessment of the health of the nation’s housing
market at this moment.
We remain concerned about the continuing deterioration in credit quality in the mortgage
market, particularly the growing disconnect between delinquency rates and foreclosures. The
proliferation of mortgage modification programs, along with some restraint on the part of lenders
in disposing of foreclosed properties has likely contributed to the seeming stability in home
prices. Since few of these-mortgage modification programs have been successful, many of these
homes may ultimately wind up in foreclosure, exerting renewed downward pressure on prices.
Even without an increase in foreclosures, the housing market remains oversupplied by roughly
two million housing units, which should continue to pull prices lower. We estimate housing prices
could fall an additional 6 to 8 percent from their current levels before they ultimately bottom out. 1
Our view continues to be that we will see a very gradual recovery in home sales and new home
construction over the next several years. We believe the worst has actually passed. While sales of
new homes hit an all-time low in February, the weather was unusually harsh that month, and
there have been fewer cancellations than there were a year ago. Builders are reporting solid gains
in buying traffic, particularly for first-time buyers. Sales should rise ahead of the ending of the
tax-credit program this spring. For the year as a whole, we feel confident sales will be modestly
better this year than they were last year, and next year will be modestly stronger than this year.
The housing market will not return to a position of strength until late next year or in 2012. By
then, inventories will have been worked off and job and income growth should have strengthened
to the point that household formations and the demand for housing should again increase.
Figure 3 Figure 4
All Loans 90+ Days Delinquent & Foreclosures Vacant Homes for Rent and Sale
Seasonally Adjusted In Millions, Non-Seasonally Adjusted
5.0% 5.0% 5.0 5.0
90+ Days Delinquent: Q4 @ 4.6% (Left Axis)
4.5% Started in Foreclosure: Q4 @ 1.1% (Right Axis) 4.5%

4.0% 4.0% 4.0 4.0

3.5% 3.5%

3.0% 3.0% 3.0 3.0

2.5% 2.5%

2.0% 2.0% 2.0 2.0

1.5% 1.5%

1.0% 1.0% 1.0 1.0

0.5% 0.5% Vacant Homes for Rent: Q4 @ 4.47M


Vacant Homes for Sale: Q4 @ 2.09M
0.0% 0.0% 0.0 0.0
1998 2000 2002 2004 2006 2008 1985 1989 1993 1997 2001 2005 2009

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

1Vitner, Mark and Iqbal, Azhar, Forecasting the U.S. House Prices Bottom: A Bayesian FA-VAR
Approach, American Economic Association Meeting, January 2010, Atlanta, GA.

2
National Economic & Financial Outlook
April 13, 2010

Actual Forecast
2006 2007 2008 2009 2010 2011
Real GDP, percent change 2.7 2.1 0.4 -2.4 3.0 2.5
Nonfarm Employment, percent change 1.8 1.1 -0.6 -4.3 -0.7 1.0
Unemployment Rate 4.6 4.6 5.8 9.3 9.9 9.5
Home Construction
Housing Chartbook: April 2010

Total Housing Starts, in thousands 1811.9 1341.8 900.3 553.4 650.0 820.0
Single-Family Starts, in thousands 1473.6 1035.8 615.8 440.4 510.0 620.0
Multi-Family Starts, in thousands 338.3 306.1 284.5 113.0 140.0 200.0
Home Sales
New Home Sales, Single-Family, in thousands 1049.3 768.7 481.3 371.5 400.0 520.0
Total Existing Home Sales, in thousands 6517.6 5674.7 4892.0 5157.9 5300.0 6080.0
Existing Single-Family Home Sales, in thousands 5711.7 4959.2 4337.5 4566.7 4660.0 5400.0
Existing Condominium & Townhouse Sales, in thousands 805.9 715.5 554.5 591.3 640.0 680.0
Home Prices
Median New Home, $ Thousands 243.1 243.7 230.4 213.9 208.0 211.5
Percent Change 3.8 0.3 -5.5 -7.1 -2.8 1.7
Median Existing Home, $ Thousands 221.9 215.5 195.8 172.5 168.0 171.0
Percent Change 2.0 -2.9 -9.2 -11.9 -2.6 1.8
FHFA (OFHEO) Home Price Index, Percent Change 7.3 1.9 -2.9 -4.0 -0.7 1.5
Case-Shiller C-10 Home Pric e Index, Percent Change 7.4 -4.4 -16.7 -12.9 -2.1 1.8
Interest Rates - Annual Averages
Prime Rate 7.96 8.05 5.08 3.25 3.30 5.30
Ten-Year Treasury Note 4.80 4.63 3.66 3.26 4.15 4.55
Conventional 30-Year Fixed Rate, Commitment Rate 6.41 6.34 6.04 5.04 5.85 6.15
One-Year ARM, Effective Rate, Commitment Rate 5.54 5.56 5.18 4.71 5.00 5.50
Forecast as of: April 7, 2010
Source: Federal Reserve Board, FHFA, MBA, NAR, S&P C orp, U.S. Department of C ommerce, U.S. Department of Labor
and Wells Fargo Securities, LLC

3
ECONOMICS GROUP
WELLS FARGO SECURITIES, LLC
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

Mortgage Rate
Mortgages 10%
Average Conventional 30-Year Commitment Rate
10%

! Mortgage applications for purchases collapsed late


9% 9%
last year along with sales activity as the originally
scheduled expiration of the first-time homebuyer
8% 8%
tax credit pulled sales forward. Purchase activity has
stabilized but has yet to make any substantial gains.
! Refinancing activity has also been relatively weak so
7% 7%

far this year despite historically low mortgage rates.


6% 6%
The sharp drop in mortgage rates in late 2008 drove
many consumers to refinance earlier last year and,
with rates now higher, there is little reason for 5% 5%

homeowners to refinance again. 30-Yr Conventional Mortgage: Mar @ 4.97%

! We expect mortgage rates to move even higher in


4%
93 95 97 99 01 03 05 07 09
4%

coming weeks, which should further reduce


refinancing activity. Home purchase applications
should get a lift from the first-time buyer tax credit. Net Percent of Banks Tightening Standards
Mortgages for Individuals
100% 100%
Mortgage Applications for Purchase All Mortgages (Through Q1-2007)
8-Week Moving Average, Seasonally Adjusted Prime Mortgages: Q1 @ 13.2%
500 500 80% Nontraditional Mortgages: Q1 @ 29.4% 80%

60% 60%
400 400

40% 40%
300 300

20% 20%

200 200
0% 0%

100 100 -20% -20%


Weekly Figure: Apr-2 @ 243.6
Up From 243.0 on Mar-26 1990 1994 1998 2002 2006 2010
Mort. Appl.: 8-Week Average: Apr 2 @ 223.3
8-Week Average Down 11.9% From Same Period Last Year
0 0
Mortgage Applications
94 96 98 00 02 04 06 08 10
8-Week Moving Average, Seasonally Adjusted
60% 60%
ARMs Percent of Loan Applications (Value): Apr 2 @ 8.4%

Mortgage Applications for Refinancing ARMs Percent of Loan Applications (Volume): Apr 2 @ 5.0%

4-Week Moving Average, Seasonally Adjusted 50% 50%


12,000 12,000
Weekly Figure: Apr-2 @ 2,251
Down from 2,708 on Mar-26
40% 40%
4-Week Average: Apr-2 @ 2,665
10,000 10,000
4-Week Average Down 49.1% from Same Period Last Year

30% 30%
8,000 8,000

20% 20%
6,000 6,000

10% 10%
4,000 4,000

0% 0%
2,000 2,000 2005 2006 2007 2008 2009 2010

0 0
Source: Moody’s Economy.com, Mortgage Bankers Association, NAR
94 96 98 00 02 04 06 08 10 and Wells Fargo Securities, LLC

4
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

Housing Starts
Single-Family Construction 2.4
In Millions
2.4
Housing Starts: 2010 @ 593K 2010 is YTD Average

! The pipeline of activity is still fairly sparse despite 2.1 2.1

the massive reduction in activity over the past


1.8 1.8
several years. Builders, however, have been filing for
more permits in recent months. Some may be trying 1.5 1.5
to capitalize on buyers who are newly eligible for a
1.2 1.2
homebuyers’ tax credit. This activity is likely to slow
in coming months as the window to complete and 0.9 0.9
close on homes ends in June.
! Still the worst of the declines in building activity are
0.6 0.6

behind us, and we expect construction to trend 0.3 0.3


higher as the economy strengthens. Single-family
0.0 0.0
starts will likely claw their way back above a 85 87 89 91 93 95 97 99 01 03 05 07 09
half-million units this year.
! Builder sentiment remains exceptionally low and is
a clear warning sign that the recovery will be slow. Single-family Housing Starts
SAAR, In Millions, 3-Month Moving Average
2.0 2.0
Single-family Building Permits
SAAR, In Millions, 3-Month Moving Average 1.8 1.8
2.0 2.0
1.6 1.6
1.8 1.8
1.4 1.4
1.6 1.6
1.2 1.2
1.4 1.4
1.0 1.0
1.2 1.2
0.8 0.8
1.0 1.0
0.6 0.6
0.8 0.8
0.4 0.4
Single-family Housing Starts: Feb @ 494K
0.6 0.6
0.2 0.2
90 92 94 96 98 00 02 04 06 08 10
0.4 0.4
Single-family Building Permits: Feb @ 504K
0.2 0.2
NAHB/Wells Fargo Housing Market Index
90 92 94 96 98 00 02 04 06 08 10 Diffusion Index
90 90

Single-family Housing Completions 80 80


Seasonally Adjusted Annual Rate, In Millions
2.0 2.0 70 70

1.8 1.8 60 60

50 50
1.6 1.6

40 40
1.4 1.4
30 30
1.2 1.2
20 20

1.0 1.0
10 10
NAHB Housing Market Index: Mar @ 15.0
0.8 0.8 0 0
87 89 91 93 95 97 99 01 03 05 07 09
0.6 0.6
Single-family Housing Completions: Feb @ 458K
0.4 0.4
Source: NAHB, U.S. Department of Commerce
87 89 91 93 95 97 99 01 03 05 07 09 and Wells Fargo Securities, LLC

5
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

Multi-family Housing Starts


Multi-Family Home Construction 450
SAAR, In Thousands, 3-Month Moving Average
450

! The apartment market is generally oversupplied and 400 400

facing stiff competition from condominiums and 350 350


other for-sale housing now being offered for rent.
300 300
At the same time, debt and equity financing for new
projects is still exceptionally hard to secure, and 250 250
appraisals are incorporating much more
200 200
conservative assumptions. The combination of these
factors has severely limited new construction. On 150 150

the plus side, demand is finally picking up,


100 100
particularly for garden apartments.
! While multi-family permits have struggled mightily,
50
Multi-family Housing Starts: Feb @ 92K
50

we expect some gains this year with builders starting 0 0


90 92 94 96 98 00 02 04 06 08 10
roughly 150,000 units. The challenging
fundamentals have likely caused activity to
overshoot to the downside. Multi-family Building Permits
SAAR, In Thousands, 3-Month Moving Average
600 600
NCREIF Apartment Property Index
Rate of Return
12% 12% 500 500

9% 9%
400 400

6% 6%

300 300
3% 3%

0% 0% 200 200

-3% -3%
100 100

-6% -6% Multi-family Building Permits: Feb @ 125K


0 0
-9% -9% 90 92 94 96 98 00 02 04 06 08 10
Apartment Index: Q4 @ -1.8%
-12% -12% Single & Multi-family Building Permits
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 SAAR, In Thousands, 3-Month Moving Average
2,000 800

Housing Vacancies 1,750 700


Millions of Units
7.0 7.0
1,500 600

6.0 6.0 1,250 500

5.0 5.0 1,000 400

750 300
4.0 4.0

500 200
3.0 3.0
250 Single-family Building Permits: Feb @ 504K (Left Axis) 100

2.0 2.0 Multi-family Building Permits: Feb @ 125K (Right Axis)


0 0
92 94 96 98 00 02 04 06 08 10
1.0 1.0
Vacant for Sale: Q4 @ 2.1M
Vacant for Rent: Q4 @ 4.5M
0.0 0.0
Source: NCREIF, U.S. Department of Commerce
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 and Wells Fargo Securities, LLC

6
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

Housing Affordability, NAR-Home Sales


Buying Conditions 190
Base = 100
190

! The extension and expansion of the first-time 180 180

homebuyers’ tax credit continues to bolster 170 170

affordability and buying plans. Unfortunately, the 160 160


end of the Fed’s MBS purchase program and the
150 150
recent weakness in the Treasury market have
pushed mortgage rates higher. 140 140

! Higher mortgage rates will compound the problem 130 130

for many buyers who are having trouble meeting 120 120

tougher underwriting criteria. Appraisals remain 110 110


tough, and down payment requirements are higher
100 Housing Affordability Index: Feb @ 176.0 100
than they were a few years ago. 6-Month Moving Average: Feb @ 171.5

! Buyer traffic in the NAHB survey has yet to show an


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

increase from the tax credit extension and


expansion. Traffic is expected to pick up this spring,
just ahead of when the credit is set to expire. Net Percent of Banks Tightening Standards
Mortgages for Individuals
100% 100%
U. Michigan Sentiment Home Buying Conditions All Mortgages (Through Q1-2007)
Index Prime Mortgages: Q1 @ 13.2%
100 100 80% Nontraditional Mortgages: Q1 @ 29.4% 80%
Home Buying Conditions: Mar @ 77.0

60% 60%
90 90

40% 40%
80 80

20% 20%

70 70
0% 0%

60 60 -20% -20%
1990 1994 1998 2002 2006 2010

50 50 Payment on Median Priced Single Family Home


1986 1990 1994 1998 2002 2006 2010 As a Percentage of Family Income
26% 26%

NAHB Expected Buyer Traffic 24% 24%


Percent
70% 70%
22% 22%

60% 60%
20% 20%

50% 50%
18% 18%

40% 40%
16% 16%

30% 30%
14% 14%

20% 20% Payment as a Percent of Income: Feb @ 14.2%


12% 12%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
10% 10%

Traffic of Expected Buyers: Mar @ 10.0%


0% 0%
Source: Federal Reserve Board, MBA, NAHB, NAR, University of
87 89 91 93 95 97 99 01 03 05 07 09 Michigan and Wells Fargo Securities, LLC

7
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

New Home Sales


New Home Sales 1,500
Seasonally Adjusted Annual Rate - In Thousands
1,500
New Home Sales: Feb @ 308,000

! New home sales unexpectedly set new all-time lows 1,300


3-Month Moving Average: Feb @ 322,667
1,300
in January and again in February as the weak
housing market combined with tough winter 1,100 1,100
weather kept buyers away. The extension and
expansion of the first-time homebuyers’ tax credit 900 900

has been unable to offset sales that were likely


pulled forward into last year. 700 700

! We expect sales will see some improvement in the 500 500


spring as newly eligible buyers look to take
advantage of the tax credit. Sales have a long way to 300 300
go, however, before they return to any kind of
“normal” level, and, with so few homes being built 100 100
89 91 93 95 97 99 01 03 05 07 09
it, may be several years in the future.
! Inventory levels have overshot their previous lows,
but may be finding a bottom at their current levels. Inventory of New Homes for Sale
New Homes for Sale at End of Month - In Thousands
600 600
Percentage of New Homes Completed in Inventory
Non-Seasonally Adjusted
550 550
50% 50%
New Homes Completed in Inventory : Feb @ 41.2%
500 500

45% 45%
450 450

40% 40% 400 400

350 350
35% 35%

300 300

30% 30%
250 250
New Homes for Sale: Feb @ 236,000

25% 25% 200 200


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

20% 20%
Months' Supply of New Homes
90 92 94 96 98 00 02 04 06 08 10 Seasonally Adjusted
14 14

Inventory of New Homes for Sale


New Homes for Sale at End of Month, 2002=100 12 12
220 220
Northeast: Feb @ 96.3
200 Midwest: Feb @ 52.1 200 10 10
South: Feb @ 84.8
West: Feb @ 67.1
180 180
8 8
160 160

140 140 6 6

120 120
4 4
100 100
Months' Supply: Feb @ 9.2
80 80 2 2
90 92 94 96 98 00 02 04 06 08 10
60 60

40 40 Source: U.S. Department of Commerce


97 98 99 00 01 02 03 04 05 06 07 08 09 10 and Wells Fargo Securities, LLC

8
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

Existing Home Resales


Existing Home Sales 7.5
Seasonally Adjusted Annual Rate - In Millions
7.5

! Existing home sales have yet to see any real help 7.0 7.0
from the extension and expansion of the first-time
homebuyer tax credit. Sales fell back to just 5.0 6.5 6.5

million units at an annual pace, but may see some


improvement in late spring as we run into the 6.0 6.0

expiration of the tax credit. Pending home sales did


5.5 5.5
see some improvement in February despite the poor
weather. The relationship between the two series,
5.0 5.0
however, has not been as tight recently.
! We still have significant concerns about the 4.5 4.5

sustainability of the housing recovery once all the Existing Home Sales: Feb @ 5.02 Million

stimulus is removed from the marketplace. With 4.0 4.0


1999 2001 2003 2005 2007 2009
higher mortgage rates and the end of the tax credit,
selling conditions are going to be much more
challenging in the second half of the year. Existing Single-Family Home Resales
Seasonally Adjusted Annual Rate - In Millions
7.0 7.0
Pending Home Sales Index
Year-over-Year Percent Change
40% 40%
6.0 6.0

30% 30%

5.0 5.0
20% 20%

10% 10% 4.0 4.0

0% 0%
3.0 3.0

-10% -10%
Existing Home Sales: Feb @ 4.4 Million
2.0 2.0
-20% -20%
86 88 90 92 94 96 98 00 02 04 06 08 10
Year-over-Year Change: Feb @ 17.3%
-30% -30%
Existing Condominium Resales
2002 2003 2004 2005 2006 2007 2008 2009 2010
Seasonally Adjusted Annual Rate - In Thousands
1000 1000

Inventory of Existing Homes for Sale


Existing Homes for Sale at End of Month, In Thousands 900 900
5,000 5,000

800 800
4,500 4,500

4,000 4,000 700 700

3,500 3,500
600 600

3,000 3,000
500 500

2,500 2,500 Condo Sales: Feb @ 650,000


400 400
99 00 01 02 03 04 05 06 07 08 09 10
2,000 2,000

Total Inventory: Feb @ 3,589


1,500 1,500
Source: National Association of Realtors
1999 2001 2003 2005 2007 2009 and Wells Fargo Securities, LLC

9
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

S&P Case-Shiller Home Prices


Home Prices Dallas
Percent Decline from Local Market Peak
7.3%
Denver 10.5%

!
Charlotte 13.8%
The worst of the home price declines are behind us, Boston 16.1%
Cleveland 16.5%
and many of the widely followed home price indices New York 20.6%
Portland 21.0%
have already posted monthly or quarterly increases. Atlanta 21.6%
Still, the improvement in home prices is extremely Seattle
Chicago
24.6%
25.8%
tenuous. Large numbers of foreclosed properties Minneapolis 28.3%
Washington 29.1%
still hang over the market, and there is an even Los Angeles 36.9%
San Diego 37.3%
larger supply of homes with seriously delinquent San Francisco 37.9%
mortgages potentially moving into foreclosure. Tampa
Detroit
42.0%
43.5%

! Tax-credit-driven activity has caused much of the


Miami
Phoenix
47.2%
50.9%
Las Vegas 55.8%
recent sales activity to occur at lower price points.
Fewer sales have taken place at the higher end. C-10 30.2%
C-20 29.6%
Prices may post renewed declines once long
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65%
distressed properties finally sell, which would pull
the S&P/Case-Shiller index back down. At the same
time the NAR indices could actually rise as a result. S&P Case-Shiller National Home Price Index, NSA
Bars = Q/Q % Change Line = Yr/Yr % Change
18% 6%
Average and Median New Home Sale Price
In Thousands
350 350 12% 4%

6% 2%
300 300
0% 0%

250 250 -6% -2%

-12% -4%
200 200

-18% -6%
National Home Price Index: Q4 @ -1.1% (Right Axis)
National Home Price Index: Q4 @ -2.5% (Left Axis)
150 150
-24% -8%
Average Sales Price: Feb @ $282,600 88 90 92 94 96 98 00 02 04 06 08
Median Sales Price: Feb @ $220,500
100 100
FHFA Home Price Indices
97 98 99 00 01 02 03 04 05 06 07 08 09 10 Non-Seasonally Adjusted, Year-over-Year Percent Change
14% 14%

12% 12%
Existing Single-Family Home Prices
In Thousands 10% 10%
$300 $300
8% 8%

6% 6%

$250 $250 4% 4%

2% 2%

0% 0%
$200 $200
-2% -2%

-4% -4%

$150 $150 -6% -6%


Home Price Index: Q4 @ -4.7%
-8% -8%
Purchase-Only Index: Q4 @ -1.3%
-10% -10%
$100 $100 92 94 96 98 00 02 04 06 08
Average Sale Price: Feb @ $210,200
Median Sale Price: Feb @ $164,300
$50 $50
Source: FHFA, NAR, S&P Corp, U.S. Department of Commerce
93 95 97 99 01 03 05 07 09 and Wells Fargo Securities, LLC

10
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP

Residential Investment
Renovation & Remodeling 30%
Year-over-Year Percent Change
30%

! Remodeling and housing improvements have also 20% 20%

been affected by the housing slump. While spending


10% 10%
is down less, homeowners are clearly less inclined to
make major improvements to their homes when 0% 0%
prices are flat or declining.
-10% -10%
! Spending is now much more focused on repairs than
on additions and upgrades. In addition, the torrent -20% -20%

of foreclosure sales has produced a steady stream of


-30% -30%
homes in need of repair.
! The more modest drop in outlays for improvements -40%
Improvments: Q4 @ -6.6%
-40%
Res. Investment Ex.-Improvements: Q4 @ -20.0%
means they now comprise a larger share of -50% -50%
residential investment. Spending will likely recover 1996 1998 2000 2002 2004 2006 2008

only modestly over the course of 2010, as consumers


are more likely to view their homes as an expense
rather than investment for the next few years. Residential Investment
Q4-2009
Other
Residential Investment Brokers' 0%
Commissions
Billions of Dollars
$900 $900 19%
Other: Q4 @ $0.1
$800 Brokers' Commissions: Q4 @ $68.6 $800
Improvements: Q4 @ $153.3
New Building
New Building: Q4 @ $134.5
$700 $700 38%

$600 $600

$500 $500

$400 $400

$300 $300

$200 $200 Improvements


43%
$100 $100

$0 $0
Residential Investment
1992 1994 1996 1998 2000 2002 2004 2006 2008 Q4-2004
Other
Brokers' 1%
Commissions
Residential Improvements 14%
Year-over-Year Percent Change
40% 40%

30% 30%

20% 20%
Improvements
22%

10% 10%

New Building
0% 0% 63%

-10% -10%

-20% -20%

Residential Improvements: Feb @ 4.3%


-30% -30%
Source: Joint Center for Housing Studies, U.S. Department of
94 96 98 00 02 04 06 08 10 Commerce and Wells Fargo Securities, LLC

11
Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research (704) 715-8437 diane.schumaker@wellsfargo.com


& Economics (212) 214-5070

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 john.silvia@wellsfargo.com


Mark Vitner Senior Economist (704) 383-5635 mark.vitner@wellsfargo.com
Jay Bryson, Ph.D. Global Economist (704) 383-3518 jay.bryson@wellsfargo.com
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