1. Housing and Mortgage Market Outlook for 2011 NC-CCIM Commercial Real Estate Panel Charlotte, NC March 30, 2011 Frank E. Nothaft Chief Economist

2. Office of the Chief Economist 1 1 Economic Growth, Household Formations Support Gradual Housing Recovery  Home buyer affordability high  30-year FRMs stay in 4.75% to 5.25% range for most of 2011  U.S. single-family price indexes likely to bottom by end of 2011  Home sales up about 5%, starts up about 10% in 2011  Rental market conditions gradually improve  Household formation pickup helps to absorb existing inventory  Vacancy rates are high but moving down from peak  Rents are stabilizing/beginning to rise in better markets, projects  FHA and GSEs support the bulk of lending  SF originations about one-third less in 2011, because of less refinance  Multifamily originations likely to increase in 2011 over 2010  Loan defaults remain high but will slowing recede

3. Office of the Chief Economist 2 Low Interest Rates & Lower Home Prices Have Increased Homebuyer Affordability Source: National Association of Realtors Composite Housing Affordability Index – (% of median priced home affordable on median income with conventional mortgage and 20% down), seasonally adjusted; Freddie Mac Primary Mortgage Market Survey ® and January 2011 Outlook. Affordability IndexMortgage Rate (Percent) NAR Affordability Index (left scale) 30-Year Fixed Mortgage Rate (right scale) Index = 100 means median income buys median priced home Forecast

4. Office of the Chief Economist 3 Household Growth Affected by Demographic and Economic Factors Household Growth Rate (Annual Percent Change) Sources: Bureau of Census, NBER, Harvard University (The State of the Nation’s Housing 2010, Table A-7) – Recession 1995-2010 Average Annual HH Growth= 1.0% Baby Boom Forms HHs 1966-81 Average Annual HH Growth= 2.2% Harvard JCHS 2010-2020 Projection HH Growth= 1.1%-1.3%

5. Office of the Chief Economist 4 More Purchase-Money but Less Refinance Result in 30% Decrease in 2011 SF Originations Sources: Freddie Mac, HUD, VA Total Single-Family Mortgage Originations (Billions of Dollars) Forecast

6. Office of the Chief Economist 5 National House Prices Have Experienced a Cumulative Decline of 24% Since June 2006 Quarterly Growth Rates (Numbers in Percentages) Note: National home prices use the Freddie Mac House Price Index (NSA), which is a value- weighted index based on Freddie Mac’s single-family portfolio. The index is a monthly series; quarterly growth rates are calculated as a 3-month change based on the final month of each quarter. Source: Freddie Mac

7. Office of the Chief Economist 6 Charlotte Metro Prices: A Cumulative Decline of 7% Since June 2006 (15% Since June 2008) Quarterly Growth Rates (Numbers in Percentages) Note: Philadelphia-Camden-Wilmington metro home prices use the Freddie Mac House Price Index (NSA). The index is a monthly series; quarterly growth rates are calculated as a 3-month change based on the final month of each quarter. Source: Freddie Mac

8. Office of the Chief Economist 7 7 Source: Freddie Mac House Price Index, NCREIF Property Index. NCREIF Apartment Appreciation (Annual Percent Change) Apartment Values Fell 30% from Peak, Then Rebounded Second Half of 2010 Freddie Mac House Price Index

9. Office of the Chief Economist 8 U.S. Unemployment Rate (8.9% in February) Expected to Decline Gradually Unemployment Rate (Percent) Forecast Sources: U.S. Department of Labor, Range projection midpoint of Federal Reserve Governors and Reserve Bank presidents as of January 2011 for fourth quarter of 2011 and 2012 (other quarters obtained through linear interpolation). – National Recession Nov-Dec 1982: 10.8% April 2000: 3.8% Oct 2009: 10.1% FOMC Median United States Charlotte, NC

10. Office of the Chief Economist 9 9 9 Single-family Serious Delinquencies Have Begun to Lessen, but Remain Very High Loans 90 Days or More Delinquent or in Foreclosure (percent of number) Source: Mortgage Bankers Association; “Prime Loans” includes Alt-A (Quarterly data not seasonally adjusted;1998Q1-2010Q4); Freddie Mac. Subprime Prime & Alt-A Freddie Mac

11. Office of the Chief Economist 10 Office of the Chief Economist Source: National Multi Housing Council (Last Update: January 2011) Market Tightness Index Market Unchanged Market Tighter Market Looser Survey question for Market Tightness Index: How are apartment market conditions in the local markets that you watch? “Tight” markets are those with low vacancies and high rent increases. Conditions obviously vary greatly from place to place, but on balance, apartment market conditions in your markets today are: 1) Tighter than three months ago 2) Looser than three months ago 3) About unchanged from three months ago 4) Don’t know or not applicable. Apartment Market Conditions Are Improving in Most Metro Areas

12. Office of the Chief Economist 11 Office of the Chief Economist Sources: Census Bureau and National Bureau of Economic Research Multifamily Housing Starts (Thousands of Units, Annualized) Multifamily Housing Starts (2+) Multifamily Housing Starts Down During 2009 with Condo, Rental Market Weakness Third Quarter 2005: 204 Thousand For Sale (2+) Office of the Chief Economist

13. 12 Sales Slump Has Pushed Homeowner Vacancy Rates To Record Levels Vacancy Rates for 2+ Units (Percent) – Recession 2+ units (Left Scale) 1 unit (Right Scale) Source: Bureau of Census (1971-1990:Annual Rates, 1991Q1–2010Q4:Quarterly Rates) Vacancy Rates for 1+ Units (Percent)

14. Office of the Chief Economist 13 Office of the Chief Economist Census Bureau Vacancy Rate (Percent) Source: Census Bureau (5 or more units), REIS (U.S. metro) REIS Rental Vacancy Rates Are Down From Peak, but Remain High 6.6% 10.4%

15. Office of the Chief Economist 14 Office of the Chief Economist Sources: Bureau of Labor and Statistics (rent of primary residence–Quarter Average, SA), REIS (U.S. metro) Rent Growth (Percent, Year-over-Year) CPI – Rent REIS – Effective Rent Vacancy Dip Has Led to Rent Growth Pick-up

16. Office of the Chief Economist 15 Office of the Chief Economist Vacancy Rate Above but Declining to Long- Term Average in Charlotte Source: REIS 2010Q4: 8.4% Charlotte Apartment Vacancy Rate Annual DataQuarterly Data Average Vacancy: 1990 – 2005: 7.4% Average Vacancy: 2009: 10.2%

17. Office of the Chief Economist 16 Office of the Chief Economist Rent Growth Has Recovered, but Remains Below Long-Term Average in Charlotte Source: REIS, effective rent 2010Q4: 2.4% Charlotte Apartment Rent Growth (Percent, Year-over-Year) Annual DataQuarterly Data Average Growth: 1990 – 2005: 2.5% Average Growth: 2009: -1.2%

18. Office of the Chief Economist 17 Office of the Chief Economist Banks’ Tightening of Lending Standards Has Abated for Homes and Commercial Real Estate Source: Federal Reserve Board's Senior Loan Officer Opinion Survey (all residential loans through 2007Q1, prime residential starting 2007Q2; commercial real estate includes construction and land development); Last update: January 31, 2011 Net Percentage of Banks Tightening Credit Standards During Three Previous Months Office of the Chief Economist

19. 18 Multifamily Originations Likely to Be Up in 2011 Sources: HMDA, OTS Thrift Financial Report, ACLI Investment Bulletin, MBA Commercial Mortgage Banker Origination Survey. Multifamily Mortgage Originations (Billions of Dollars) Forecast ?

20. Office of the Chief Economist 19 Office of the Chief Economist Multifamily Default Rates at Banks and Savings Institutions Have Begun to Decline Delinquent or Noncurrent ( Percent of Loans Outstanding) Note: Noncurrent loans – loans 90 days or more past due, or in nonaccrual status. Data before 1993 exclude savings institutions that file a Thrift Financial Report; $0.2 trillion outstanding as of December 31, 2010. Source: FDIC Noncurrent 3.7% 30-89 days past due 1.1%

21. Where to Get More Information Look for regular updates to our economic forecast, commentary and data at www.FreddieMac.com/news/finance Contact us at chief_economist@freddiemac.com Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Office of the Chief Economist, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Office of the Chief Economist attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. Information from this document may be used with proper attribution. Alteration of this document is prohibited. © 2011 by Freddie Mac.