Washington, DC Area

Metro Market Report, Second Quarter 2009

Today's Market…
Median Price (Red Line) and One-year Price Growth
$500,000 40%
$450,000
30%
$400,000
$350,000 20%
$300,000 10%
$250,000
$200,000 0%
$150,000 -10%
$100,000
-20%
$50,000
$0 -30%
2000 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009
Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2

Washington, DC U.S. Local Trend

Price Activity
Current Median Home Price (2009 Q2) $319,200 $174,433
Prices are down from a year ago, but
1-year Appreciation (2009 Q2) -14.0% -16.2% pp
appear to have stabalised
3-year Appreciation (2009 Q2) -28.1%
28 1% 4 3%
4.3%
3-year (12-quarter) Housing Equity Gain -$124,700 $7,233
Those who bought early in the boom still
7-year (28 q) Housing Equity Gain $82,000 -$39,633 hold some equity
9-year (36 q) Housing Equity Gain $137,600 $6,800

Conforming Loan Limit $729,250 $729,250 Most buyers in this market have access
Ratio of Conforming to Local Median 44% not comparable to government backed finacing

State Home Sales (Red Line) and Sales Growth

1,000s
16 30%
14 20%
12 10%
10
0%
8
-10%
6
4 -20%

2 -30%
0 -40%
2000 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009
Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2

Home Sales and Construction Growth D.C. U.S.

*State Existing Home Sales Local sales are slow, but they have out
5.6% -2.9%
(2009
( Q2 vs 2008 Q2)) p
performed g
the national average
 Drivers of Local Supply and Demand…
Local Economic Outlook Washington, DC U.S.
Not
1-year Job Additions (Jul) -19,700 Over the last 12 months, local
Comparable
employment has fallen sharply and will
Not
3-year Job Additions (Jul) 25,400 create a drag on demand
Comparable
1-year (12 month) Job Growth Rate -0.7% -2.6% Respectable compared to other markets
3-year (36 month) Job Growth Rate 0.9% -0.9% The rate of job loss is decelerating

State Economic Activity Index D.C. U.S.

12-month change (2009 - Jul) NA -3.3%
NA
36-month change (2009 - Jul) NA -0.2%

Local Fundamentals Washington, DC U.S.

12-month Sum of 1-unit Building Permits through The current level of construction is 70.8%
8,823 not comparable
Jul 2009 (1,000s) below the long-term average
Excess supply reduction could result in
Long-term average for 12-month Sum of 1-Unit price escalation over the longer-term if, in
30,244 not comparable
Building Permits (1,000s) the future, there is rapid and robust
increase in demand
** Single-Family
g y Housing
g Permits (Jul
( 2009)) Low construction will help
p to maintain a
-14.4%
14 4% -39.0%
39 0%
12-month sum vs. a year ago tight supply and to stablize prices

Construction: 12-month Sum of Local Housing Starts

(Historical Average Shown in Red Dashed Line)
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Affordability
Affordability - Local Mortgage Servicing Cost-to-Income
(Historical Average Shown in Red Dashed Line)
25%

20%

15%

10%

5%

0%
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Monthly Mortgage Payment to Income Washington, DC U.S.

Ratio for 2008 16.7% 19.5% Improving and historically strong; should
Ratio for 2009 Q2 13.9% 15.0% help demand for housing
Historical Average 18.0% 23.2% Good relative to the nation

Recent Trend - Local Mortgage Servicing Cost to Income

(Historical Average Shown in Red Dashed Line)
25%

20%

15%

10%

5%

0%
2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2
Median Home Price to Income Washington, DC U.S.
Ratio for 2008 6.1 7.1 Local affordability has improved and is
Ratio for 2009 Q2 5.6 6.1 below the historical average
Historical Average 5.8 7.2 Good compared to national average

Ratio of Local Median Home Price to Local Average Income

(Historical Average shown in Red Dashed Line)
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

The Mortgage Market

30-year Fixed Mortgage Rate and Treasury Bond

3.00 7.0
6.5
2.50 6.0
2.00 5.5
5.0
1.50 4.5
4.0
1.00 3.5
0.50 3.0
2.5
0.00 2.0
2004 Q2 Q4 2005 Q2 Q4 2006 Q2 Q4 2007 Q2 Q4 2008 Q2 Q4 2009 Q2

Spread (left axis) 30-Year FRM (Right axis) 10-Year Treasury Bond (Right Axis)

With the demise of Lehman Brothers in the fall of 2008, risk in the financial markets surged as depicted by the blue bar
above. Mortgage rates fell as prospects for growth withered. Recently, rates have flat-lined while the 10-year Treasurey
bond rate is on the rise. This reduction of the spread between these two rates is a signal that the financial markets view the
mortgage industry as less risky.
 Looking Deeper….
State Total Foreclosure Rate vs. U.S Average
(U.S. Average in Blue Dashed Line)
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%

Source: Mortgage Bankers' Association

Monthly Market Data -

June 2009 Washington, DC U.S.
12.5
12.6
Market Share: % The Washington, DC market has higher
% 87.4% 87.5%
Prime (blue) vs. exposure to subprime loans than the
Subprime + Alt-A 87.4 87.5 average market
% %
12.6% 12.5%
There has been a large local increase
1.3 1.3% 2.2%
PRIME: 0.5 2.2% versus a year ago
Foreclosure + REO % % 1.1%
Rate Compared to the nationional average,
0.5% 1.1%
Jun-08 Jun-09 Jun-08 Jun-09 today's local rate is low

There has been a large local increase

20.5% 18.4%
SUBPRIME: 20.5 18.4 versus a year ago
15.4 17.6 %
Foreclosure + REO %
% %
Rate Locally, today's foreclosure rate is low
15.4% 17.6%
Jun-08 Jun-09 Jun-08 Jun-09 relative to the nationional average

A large local increase occurred compared

9.1% 14.0%
ALT-A: 9.1% 14.0 to a year ago
Foreclosure + REO %
4.2% 8.0%
Rate Today's local rate is low compared to the
4.2% 8.0%
Jun-08 Jun-09 Jun-08 Jun-09 national average

The "foreclosure + REO rate" is the number of mortgages, by metro area, that are either in the foreclosure process or have completed
the foreclosure process and are owned by banks divided by the total number of mortgages for that area.
Source: First American CoreLogic, LoanPerformance data