Dayton Area Local Market Report, Second Quarter 2013

Today's Market
Median Price (Red Line) and One-year Price Growth
$140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0
2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2

30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25%

Local Price Trends

Price Activity Current Median Home Price (2013 Q2)
1-year (4-quarter) Appreciation (2013 Q2) 3-year (12-quarter) Appreciation (2013 Q2) 3-year (12-quarter) Housing Equity Gain* 7-year (28 quarters) Housing Equity Gain* 9-year (36 quarters) Housing Equity Gain* *Note: Equity gain reflects price appreciation only

Dayton $113,800 5.7% 1.2% $1,400 -$6,800 -$5,900

U.S.
$203,033 12.2% 15.0% $26,433 -$23,767 $9,067

Local Trend
Prices are up from a year ago, but price growth is slowing Gains in the last 3 years have helped to pull the local market out of the postrecession price weakness

Conforming Loan Limit** $625,500 Most buyers in this market have access FHA Loan Limit $729,250 to government-backed financing Local Median to Conforming Limit Ratio not comparable Note: limits are current and include the changes made in November of 2012 and extended in November of 2013

Dayton $417,000 $271,250 27%

U.S.

Local NAR Leadership

The Dayton market is part of region 6 in the NAR governance system, which includes all of Ohio and Michigan. The 2013 NAR Regional Vice President representing region 6 is Robert Taylor.

Drivers of Local Supply and Demand

Local Economic Outlook 12-month Job Change (Jun) 12-month Job Change (May) 36-month Job Change (Jun) Current Unemployment Rate (Jun) Year-ago Unemployment Rate 1-year (12 month) Job Growth Rate

Dayton -300 -1,300 8,400 7.8% 7.9% -0.1%

U.S.
Not Job losses are a problem and will weigh Comparable on demand, but layoffs are declining, a Not trend that could help buyer confidence Comparable Not Dayton's unemployment rate lags the Comparable national average, but has improved relative to the same period last year 7.6% 8.2% 1.6% Local employment growth is poor and needs to improve

Share of Total Employment by Industry

Dayton Area

U.S.
Natural Resources/ #N/A #N/A Mining/Con struct Governme #N/A #N/A 5.1% Other nt Manufac 8.9% Services 15.2% 4.1% Trade/T Leisure & 19.1% Hospitality Informa2.0% 11.0%
Natural 5.1%

Natural 11.8 Resources/ #N/A #N/A Mining/Con struct #N/A #N/A 3.1% Governmen t Manufacturing 10.6% 40.4 16.7% Other Trade/Transpo 17.4% 66.3 Services 2.3% 8.7 Information 3.9%
Natural Resour 3.1%

Manufacturi ng 10.6% Trade/Tran sportation/U tilities 17.4% Information 2.3% Financial Activities 4.7%
96.9%

Manufacturi ng 8.9%

Leisure & Financial Act

Hospitality

4.7% 13.0% 18.2%

17.9
49.3 69.3 38.1 14.8 & Prof.

Financi 5.9% Profess13.8% Educat 15.0% Leisure11.0% & Health Other S4.1% Services Govern15.2% #N/A #N/A #N/A #N/A
15.0% Educational

10.0% Prof. & Busin

Trade/Tran sportation/ Utilities 19.1%

Educ. & Heal

10.0% Leisure & Ho Educ. & 3.9% Other Service Health

Services 16.7% Government18.2% #N/A #N/A

#N/A Goods Producing #N/A

Business 63.5 Services 13.0%

Profession al & 100.0% Business Services 13.8%

Information Financial 2.0% Activities 5.9%

12-month Employment Change by Industry in the Dayton Area (Jun - 2013) NA Information -200 NA NA -1,100 NA 1,800 Financial Activities Prof. & Business Services Educ. & Health Services Leisure & Hospitality Other Services Government

-300 600 700 0 -1,100 -400 -300

Natural Resources/Mining/Construction Natural Resources and Mining Construction Manufacturing Service Providing Excluding Government Trade/Transportation/Utilities

State Economic Activity Index 12-month change (2013 - Jun) 36-month change (2013 - Jun)

Ohio 1.6% 7.5%

U.S.
2.9% 8.5% Ohio's economy is growing, but decelerated from last month's 1.76% change and lags the rest of the nation

New Housing Construction

Local Fundamentals 12-month Sum of 1-unit Building Permits through Jun 2013 8-year average for 12-month Sum of 1-Unit Building Permits Single-Family Housing Permits (Jun 2013) 12-month sum vs. a year ago

Dayton 724

U.S.
not comparable

The current level of construction is 33.6% below the long-term average Reduced construction will limit new

1,090

not comparable supply to the market, allowing demand

to catch up with inventory more quickly -7.5% 27.4% Construction continues to decline from last year

Construction: 12-month Sum of Local Housing Permits

(Historical Average Shown in Red Dashed Line)

3,000 2,500 2,000 1,500 1,000 500 0

While new construction is the traditional driver of supply in real estate, foreclosures and short-sales now have a strong impact on inventories, particularly at the local level. Rising inventories, through construction or distressed sales, place downward pressure on the median home prices.

State Total Foreclosure Rate vs. U.S Average

(U.S. Average in Blue Dashed Line)

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

Source: Mortgage Bankers' Association

Affordability
Long-Term Trend: Ratio of Local Mortgage Servicing Cost to Income
(Local Historical Average Shown in Red, U.S. Average in Green)

30% 25% 20% 15% 10% 5% 0%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Monthly Mortgage Payment to Income

Ratio for 2012 Ratio for 2013 Q2 Historical Average

Dayton 5.7% 6.3% 10.1%

U.S.
13.2% 14.9% 20.7% Historically strong, but weaker than the first quarter of 2013 More affordable than most markets

Recent Trend - Local Mortgage Servicing Cost to Income

(Historical Average Shown in Red Dashed Line)

12% 10% 8% 6% 4% 2% 0% 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2

Median Home Price to Income

Ratio for 2012 Ratio for 2013 Q2 Historical Average

Dayton 1.0 1.1 1.3

U.S.
2.4 2.7 2.7 The price-to-income ratio rose, but is better than the historic average Affordable compared to most markets

Ratio of Local Median Home Price to Local Average Income

(Local Historical Average Shown in Red, U.S. Average in Green)

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

The Mortgage Market

30-year Fixed Mortgage Rate and Treasury Bond Yield
280 240 200 160 120 80 40 0
2008 Q2 Q4 2009 Q2 Q4 2010 Q2 Q4 2011 Q2 Q4 2012 Q2 Q4 2013 Q2

7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

Spread (left axis)

30-Year FRM (Right axis)

10-Year Treasury Bond (Right Axis)

The average rate for the 30-year fixed rate mortgage rose 20 basis points to 3.7% in the second quarter of 2013. However, the headline figure does not illuminate the dramatic shift in rates at the tail-end of this period. The spread between the 10-year Treasury and 30-year fixed rose over the second quarter by about 14 basis points (0.14%), likely a reflection of the growing strength in the housing market and suggestions of an early exit of the Fed from purchases of mortgage backed securities. Ben Bernanke hinted at just such a move in the middle of June, which sent Treasury and mortgage rates up more than one percentage point above their mid-May lows. This spike in rates is largely not reflected in the second quarter figures, but will show up in the third quarter. The sharp rise in rates had the effect of delaying some home purchases as potential buyers paused to take stock of affordability conditions in the wake of strong price appreciation combined with the jump in rates. Sales were brisk for the majority of the quarter as record low mortgage rates which bottomed at 3.3% in May pushed affordability to all-time highs.

A Closer LookHomeownership
State and National (red) Homeownership Rates Over Time
74% 72% 70% 68% 66% 64% 62% 60% 58%

Source: FHFA
Homeownership Rate
Q2 2013 Q2 2012 2004

Ohio

U.S.

67.7% 67.5% 73.1%

65.0% 65.5% 69.0%

Down from the local peak from 2005, but stronger than a year ago

The national homeownership rate has fallen dramatically in the wake of the housing bubble. Homeownership peaked at 69.0% in 2004 after averaging 65.2% over the prior two decades. The national figure eased to 65.0% in the first quarter of 2013 where it remained for the second quarter. A dramatic increase in foreclosures and shortsales that resulted from a sharp drop in prices, weak lending standards, and a surge of layoffs contributed to the decline. Furthermore, weak household formation, tepid job growth, and tight lending standards have exacerbated the problem. This sea change has moved many former owners into rentals or into multi-family living situations with family members or friends. In Ohio, the annual homeownership rate peaked at 73.3% in 2005 after averaging 70.1% from 1993 through 2003. The homeownership rate reached 67.7% in the second quarter of 2013, 0.2 percentage points above the level from the second quarter of 2012. While an expanding economy and rate of household formation will increase home sales over the coming decade, the homeownership rate is likely to fluctuate around an equilibrium much lower than the peak of the boom reflecting a more healthy balance between renting and owning.

Geographic Coverage for this Report

The Dayton area referred to in this report covers the geographic area of the Dayton metro area as officially defined by the Office of Management and Budget of the U.S. Government. The official coverage area includes the following counties:

Greene County, Miami County, Montgomery County, and Preble County

More information on the OMB's geographic definitions can be found at http://www.whitehouse.gov/omb/inforeg_statpolicy/