1. Presentation to Greater Washington Commercial Association of REALTORS ® Tysons Corner, VA February 19, 2009 Presentation to Greater Washington Commercial Association of REALTORS ® Tysons Corner, VA February 19, 2009 Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Real Estate Market Outlook Through Economic Recession

2. Stimulus Package $789 billion … some good, some bad projects$789 billion … some good, some bad projects Housing stimulusHousing stimulus –$8,000 first-time buyer credit –Higher loan limit to $729,000 –Continuing low mortgage rates (viaTARP) Commercial stimulusCommercial stimulus –Preserve low capital gains tax rate –Suspend mark-to-market accounting –Fed buy CMBS (via TARP)

3. Economy Contracts GDP annualized growth rate Source: BEA Last Data Forecast

4. Consumers Tapped Out Personal Consumption annualized growth rate Source: BEA

5. Consumer Sentiment Source: University of Michigan

6. Stock Market Wealth ($8 trillion loss from peak) Source: WSJ SP 500 Index

7. Housing Valuation ($2 trillion loss in wealth from peak) Housing Valuation ($2 trillion loss in wealth from peak) $ billion Source: Federal Reserve, NAR estimate

8. Job Changes in U.S. Source: BLS One-month payroll job changes in thousands

9. Job Changes in Greater D.C. Source: BLS One-month payroll job changes in thousands

10. Retail Market Fundamentals In thousand sq. ft.

11. Retail Vacancy Rate

12. Retail Rent Growth

13. Retail Investment Market

14. Office Market Fundamentals In thousand sq. ft.

15. Office Vacancy Rate

16. Office Rent Growth

17. Office Investment Market

18. Exports and Imports $ billion Source: BEA

19. Industrial Market Fundamentals

20. Industrial Vacancy Rate

21. Industrial Rent Growth

22. Industrial Investment Market

23. Multifamily Market Fundamentals In thousand sq. ft.

24. Multifamily Vacancy Rate

25. Multifamily Rent Growth

26. Multifamily Investment Market

27. Cap Rates by Property Type

28. Housing Market

29. Recession Impact on Home Sales Source: NAR Existing Single-family Home Sales

30. Residential: Challenging Markets National Sales—Existing Homes.National Sales—Existing Homes. –Down 35% as of December from Sept 05 peak. –Down 3.5% 12 mo ending December 08. National Prices—Existing Homes.National Prices—Existing Homes. –Median Down 24% as of December 08 from July 2006 peak. –Median Down 15.3% 12 mo ending December 08. Sales—New Single Family Homes.Sales—New Single Family Homes. –National Down 75 % from October 2005 peak as of December ‘08. –National Down 45 % for 12 mo ending December 08. Real Estate Trends: Has Been A Weak Market.Real Estate Trends: Has Been A Weak Market. –Distressed Sales: Foreclosures--30%; Short Sales--15%. –Negative Equity: 30% of homes bought in last 5 years. –Homes Sold at loss: 30 % in past year. –First time homebuyers: 30% of market in December. –Prospective Buyer traffic: Down; Prospective Seller traffic: Up.

31. Housing Affordability Index (Higher numbers mean more people can afford to buy a home) Source: NAR; 2009 projection based on 5.2% mortgage rate

32. Good News--Affordability: U.S. Median Mortgage Payment (Principle and Interest) as Percent of Income Source: NAR %

33. Things Out of Whack at the Height of the Boom Home Price 1998 to 2006Home Price 1998 to 2006 –Case-Shiller Indexup 108% –OFHEO Indexup 75% –NAR medianup 64% Income 1998 to 2006Income 1998 to 2006 –Householdup 24% –Per Capitaup 31% –Hourly Wageup 29% Cost of Construction up 46%Cost of Construction up 46% Renter’s Rent up 31%Renter’s Rent up 31% The period covers from 1998 Q3 to 2006 Q3 if quarterly data is available, otherwise annual data.

34. How Much More Correction is Needed? Home Price 1998 to 2008Home Price 1998 to 2008 –Case-Shiller Indexup 67% –OFHEO Indexup 67% –NAR medianup 45% Income 1998 to 2008Income 1998 to 2008 –Householdup 34% –Per Capitaup 39% –Hourly Wageup 39% Cost of Construction up 39%Cost of Construction up 39% Renter’s Rent up 41%Renter’s Rent up 41% The period covers from 1998 Q3 to 2008 Q3 if quarterly data is available, otherwise annual data.

35. But Lower Rates Today 30-year fixed Mortgage Rates30-year fixed Mortgage Rates –1998 Around 7% with 1% fee –2008Around 6% with 0.5% fee –Similar underwriting standards now with 1998? Monthly Mortgage Payment for a median income household buying a median priced-homeMonthly Mortgage Payment for a median income household buying a median priced-home –199819% –200819% –Consider only rates and not fees

36. Birmingham vs Ft.Myers Home Price Source: NAR $ thousand

37. Overshooting and Collateral Damage Consumer Spending Contraction from Negative Wealth EffectConsumer Spending Contraction from Negative Wealth Effect Primary Foreclosure Determinant … Home PricesPrimary Foreclosure Determinant … Home Prices Mortgage Credit Loss … Multiplier Effect on Credit ContractionMortgage Credit Loss … Multiplier Effect on Credit Contraction Self-reinforcing pessimismSelf-reinforcing pessimism –Buyers sit on fence, Inventory builds, Prices fall, Foreclosures rise, Buyers sit on fence

38. Federal Budget Deficit $ million

39. Existing Home Sales—Outlook Continued The Economy—What is Needed for Recovery?The Economy—What is Needed for Recovery? –Interest Rates, Jobs, Financial Accountability, Risk Analysis, Confidence. –Possible turn in 2009 Q3/Q4. Housing Markets—What is Needed for Recovery?Housing Markets—What is Needed for Recovery? –Interest Rates, Jobs, Confidence. –Existing Home Sales—Possibilities and risks of an upturn in late 2009. –Changes in buyer perceptions and attitudes. Long term investment.Long term investment. Focus on value: home--not a house, lifestyle not a “flip”, realistic prices and expectations—not a speculation.Focus on value: home--not a house, lifestyle not a “flip”, realistic prices and expectations—not a speculation.

40. Oil Prices Lower

41. Economic Outlook 200820092010 GDP1.1%-1.9%1.8% CPI Inflation 3.9%-0.3%1.9% Unemployment Rate 5.7%8.1%8.4%

42. National Commercial Market Outlook 2008 to 20092008 to 2009 –Net absorption turns negative –Rising Vacancy Rates and Stagnant Rent –Markedly Fewer Transactions –Property Prices Falling … providing opportunities for parked cash –Apartments holding up better –Alabama to outperform national trends because of favorable demographic shifts 20102010 –Economic recovery –Pent-up and delayed transactions –Positive net absorption and rising rents

43. Local Housing Forecast Stimulus and falling inventory will help stabilize pricesStimulus and falling inventory will help stabilize prices Existing Home Sales bump of 30% to 40% in the second half compared to year beforeExisting Home Sales bump of 30% to 40% in the second half compared to year before Builders may not see a recovery till 2010Builders may not see a recovery till 2010

44. From the REALTOR® Perspective Addressing Current Market Conditions Trusted Resource for Real Estate Information.Trusted Resource for Real Estate Information. –Professional Advice. –Coming off of Unusual Boom Times. –Economy favorable, significant underlying demand. –A three to five year horizon is appropriate. –Bad economic news—a good time to buy. Adding Value.Adding Value. –Marketing: Realistic Pricing, targeting, segmentation, demographics, defining needs. –Staging—How many times do you make a first impression? Innovator.Innovator. –Technology Implementation. –Customer communications: Boomers, GEN-X, GEN-Y.

45. From the REALTOR® Perspective NAR an advocate for homeownership.NAR an advocate for homeownership. Strong representation in Washington.Strong representation in Washington. Online presence: www.realtors.org.Online presence: www.realtors.org. Homeownership and long-term value.Homeownership and long-term value. Lifestyle.Lifestyle. Long term investment.Long term investment. Building Community.Building Community. –Establishing a presence/active in community service. –Part of the backbone/establishment.

46. Information for a Competitive Edge