Virginia Housing Development Authority Review of Virginia Market Conditions and Foreclosure Trends What’s Ahead for Housing? A Symposium on Federal Housing Policy Change June 14, 2013

1 vhda.com | VHDA Where we are in the market recovery

2 vhda.com | VHDA Home sales continue to rise. April/May sales were strong following a slowing in the 1 st Qtr. Source: Virginia Association of Realtors (VAR)

3 vhda.com | VHDA The increase in home sales has been somewhat stronger downstate than in the Northern Tier. Source: Virginia Association of Realtors (VAR)

4 vhda.com | VHDA Nonetheless, NoVA’s extremely tight inventory is pushing up prices more than in other regions. Source: Federal Housing Finance Agency (FHFA)

5 vhda.com | VHDA Rising prices are alleviating negative equity, but it remains a constraint on for-sale inventories. Source: CoreLogic, a real estate data and analytics company

6 vhda.com | VHDA Investor sales remain high in the Northern Tier, but are much lower than elsewhere in the nation. Sources: MRIS (regional data), National Association of Realtors (U.S. data)

7 vhda.com | VHDA Tight inventory and difficulty in accessing credit are keeping first-time buyers on the sidelines. Source: National Association of Realtors (NAR)

8 vhda.com | VHDA Loan Performance Trends

9 vhda.com | VHDA New problem loans rates are declining, but are only half-way back to their long-term average. Source: Mortgage Bankers Association (MBA)

10 vhda.com | VHDA Likewise, long-term serious delinquency rates are only half way to their long-term average. Source: Mortgage Bankers Association (MBA)

11 vhda.com | VHDA The decline in serious delinquencies continues to closely track improvement in unemployment. Sources: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)

12 vhda.com | VHDA Subprime and ARM loans make up most of the 45% drop in foreclosures from the 2009 peak. Source: Mortgage Bankers Association (MBA)

13 vhda.com | VHDA Nonetheless, subprime and ARM loans remain a disproportionate share of foreclosures. Source: Mortgage Bankers Association (MBA)

14 vhda.com | VHDA The Northern Tier’s improved loan performance in not yet being seen in downstate markets. Source: Federal Reserve Bank of Richmond/Lender Processing Services (LPS) Applied Analytics

15 vhda.com | VHDA Northern VA’s number and share of problem loans has fallen, while Hampton Roads’ has risen. Source: Federal Reserve Bank of Richmond/Lender Processing Services (LPS) Applied Analytics

16 vhda.com | VHDA Distressed sales in Hampton Roads remain high, and continue to constrain increases in prices. Sources: National Association of Realtors (U.S. data), Tom Lawler, Economist, Calculated Risk Blog /MRIS (regional data)

17 vhda.com | VHDA Short sales are playing a bigger role in Greater Washington than they are nationwide. Source: National Association of Realtors (U.S. data), Tom Lawler, Economist, Calculated Risk Blog /MRIS (regional data)

18 vhda.com | VHDA Conclusions 1.Price rises are being driven by abnormal factors: –Low mortgage rates: Ongoing Federal Reserve bond purchases are keeping rates at historic lows. –Constrained inventories: Negative equity and fewer distressed sales are constraining listings of existing homes. 2.Despite market recovery, key undertows remain: –Lagging Fundamentals: Traditional housing and lending fundamentals — income, employment and household debt — continue to be weak. –Reluctant Buyers: Increases in traditional buyers, as well as sellers, are needed to support a sustained recovery.

19 vhda.com | VHDA Conclusions 3.The housing recovery still relies on federal stimulus. –Low mortgage rates remain critical to the restoration of positive owner equity and the mitigation of troubled loans. –However, the Federal Reserve cannot maintain current levels of mortgage bond purchases indefinitely. –The recovery will remain fragile until higher home prices can be sustained by economic fundamentals — i.e., rising incomes and more normal sales volumes and mortgage interest rates.