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Economics Group
Special Commentary
1.5 1.5
900 900
1.2 1.2
700 700
0.9 0.9
500 500
0.6 0.6
Source: FHFA, NAR, S&P Corp, U.S. Department of Commerce and Wells Fargo Securities, LLC
While none of this should come as a surprise to anyone associated with the housing industry, we
have been struck by some of the more upbeat forecasts for home sales and new home construction
we have seen in recent months. Many of these forecasts appear to be built around the signs of
stability that appear to be returning to some of the nation’s more troubled hot spots, including
California, Arizona, and south Florida. In many of these areas, home sales have risen, inventories
of new and existing homes for sale have decreased, and prices have increased. This improvement,
however, has come about amid unprecedented support of the housing market, including various
efforts to forestall foreclosures and numerous programs to provide subsidized mortgages. In
addition, there has been a great deal of investor buying, mostly via cash purchases. The net result
is that it is extremely difficult to get an accurate assessment of the health of the nation’s housing
market at this moment.
We remain concerned about the continuing deterioration in credit quality in the mortgage
market, particularly the growing disconnect between delinquency rates and foreclosures. The
proliferation of mortgage modification programs, along with some restraint on the part of lenders
in disposing of foreclosed properties has likely contributed to the seeming stability in home
prices. Since few of these-mortgage modification programs have been successful, many of these
homes may ultimately wind up in foreclosure, exerting renewed downward pressure on prices.
Even without an increase in foreclosures, the housing market remains oversupplied by roughly
two million housing units, which should continue to pull prices lower. We estimate housing prices
could fall an additional 6 to 8 percent from their current levels before they ultimately bottom out. 1
Our view continues to be that we will see a very gradual recovery in home sales and new home
construction over the next several years. We believe the worst has actually passed. While sales of
new homes hit an all-time low in February, the weather was unusually harsh that month, and
there have been fewer cancellations than there were a year ago. Builders are reporting solid gains
in buying traffic, particularly for first-time buyers. Sales should rise ahead of the ending of the
tax-credit program this spring. For the year as a whole, we feel confident sales will be modestly
better this year than they were last year, and next year will be modestly stronger than this year.
The housing market will not return to a position of strength until late next year or in 2012. By
then, inventories will have been worked off and job and income growth should have strengthened
to the point that household formations and the demand for housing should again increase.
Figure 3 Figure 4
All Loans 90+ Days Delinquent & Foreclosures Vacant Homes for Rent and Sale
Seasonally Adjusted In Millions, Non-Seasonally Adjusted
5.0% 5.0% 5.0 5.0
90+ Days Delinquent: Q4 @ 4.6% (Left Axis)
4.5% Started in Foreclosure: Q4 @ 1.1% (Right Axis) 4.5%
3.5% 3.5%
2.5% 2.5%
1.5% 1.5%
Source: Mortgage Bankers Association, U.S. Department of Commerce and Wells Fargo Securities, LLC
1Vitner, Mark and Iqbal, Azhar, Forecasting the U.S. House Prices Bottom: A Bayesian FA-VAR
Approach, American Economic Association Meeting, January 2010, Atlanta, GA.
2
National Economic & Financial Outlook
April 13, 2010
Actual Forecast
2006 2007 2008 2009 2010 2011
Real GDP, percent change 2.7 2.1 0.4 -2.4 3.0 2.5
Nonfarm Employment, percent change 1.8 1.1 -0.6 -4.3 -0.7 1.0
Unemployment Rate 4.6 4.6 5.8 9.3 9.9 9.5
Home Construction
Housing Chartbook: April 2010
Total Housing Starts, in thousands 1811.9 1341.8 900.3 553.4 650.0 820.0
Single-Family Starts, in thousands 1473.6 1035.8 615.8 440.4 510.0 620.0
Multi-Family Starts, in thousands 338.3 306.1 284.5 113.0 140.0 200.0
Home Sales
New Home Sales, Single-Family, in thousands 1049.3 768.7 481.3 371.5 400.0 520.0
Total Existing Home Sales, in thousands 6517.6 5674.7 4892.0 5157.9 5300.0 6080.0
Existing Single-Family Home Sales, in thousands 5711.7 4959.2 4337.5 4566.7 4660.0 5400.0
Existing Condominium & Townhouse Sales, in thousands 805.9 715.5 554.5 591.3 640.0 680.0
Home Prices
Median New Home, $ Thousands 243.1 243.7 230.4 213.9 208.0 211.5
Percent Change 3.8 0.3 -5.5 -7.1 -2.8 1.7
Median Existing Home, $ Thousands 221.9 215.5 195.8 172.5 168.0 171.0
Percent Change 2.0 -2.9 -9.2 -11.9 -2.6 1.8
FHFA (OFHEO) Home Price Index, Percent Change 7.3 1.9 -2.9 -4.0 -0.7 1.5
Case-Shiller C-10 Home Pric e Index, Percent Change 7.4 -4.4 -16.7 -12.9 -2.1 1.8
Interest Rates - Annual Averages
Prime Rate 7.96 8.05 5.08 3.25 3.30 5.30
Ten-Year Treasury Note 4.80 4.63 3.66 3.26 4.15 4.55
Conventional 30-Year Fixed Rate, Commitment Rate 6.41 6.34 6.04 5.04 5.85 6.15
One-Year ARM, Effective Rate, Commitment Rate 5.54 5.56 5.18 4.71 5.00 5.50
Forecast as of: April 7, 2010
Source: Federal Reserve Board, FHFA, MBA, NAR, S&P C orp, U.S. Department of C ommerce, U.S. Department of Labor
and Wells Fargo Securities, LLC
3
ECONOMICS GROUP
WELLS FARGO SECURITIES, LLC
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
Mortgage Rate
Mortgages 10%
Average Conventional 30-Year Commitment Rate
10%
60% 60%
400 400
40% 40%
300 300
20% 20%
200 200
0% 0%
Mortgage Applications for Refinancing ARMs Percent of Loan Applications (Volume): Apr 2 @ 5.0%
30% 30%
8,000 8,000
20% 20%
6,000 6,000
10% 10%
4,000 4,000
0% 0%
2,000 2,000 2005 2006 2007 2008 2009 2010
0 0
Source: Moody’s Economy.com, Mortgage Bankers Association, NAR
94 96 98 00 02 04 06 08 10 and Wells Fargo Securities, LLC
4
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
Housing Starts
Single-Family Construction 2.4
In Millions
2.4
Housing Starts: 2010 @ 593K 2010 is YTD Average
1.8 1.8 60 60
50 50
1.6 1.6
40 40
1.4 1.4
30 30
1.2 1.2
20 20
1.0 1.0
10 10
NAHB Housing Market Index: Mar @ 15.0
0.8 0.8 0 0
87 89 91 93 95 97 99 01 03 05 07 09
0.6 0.6
Single-family Housing Completions: Feb @ 458K
0.4 0.4
Source: NAHB, U.S. Department of Commerce
87 89 91 93 95 97 99 01 03 05 07 09 and Wells Fargo Securities, LLC
5
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
9% 9%
400 400
6% 6%
300 300
3% 3%
0% 0% 200 200
-3% -3%
100 100
750 300
4.0 4.0
500 200
3.0 3.0
250 Single-family Building Permits: Feb @ 504K (Left Axis) 100
6
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
for many buyers who are having trouble meeting 120 120
60% 60%
90 90
40% 40%
80 80
20% 20%
70 70
0% 0%
60 60 -20% -20%
1990 1994 1998 2002 2006 2010
60% 60%
20% 20%
50% 50%
18% 18%
40% 40%
16% 16%
30% 30%
14% 14%
7
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
45% 45%
450 450
350 350
35% 35%
300 300
30% 30%
250 250
New Homes for Sale: Feb @ 236,000
20% 20%
Months' Supply of New Homes
90 92 94 96 98 00 02 04 06 08 10 Seasonally Adjusted
14 14
140 140 6 6
120 120
4 4
100 100
Months' Supply: Feb @ 9.2
80 80 2 2
90 92 94 96 98 00 02 04 06 08 10
60 60
8
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
! Existing home sales have yet to see any real help 7.0 7.0
from the extension and expansion of the first-time
homebuyer tax credit. Sales fell back to just 5.0 6.5 6.5
sustainability of the housing recovery once all the Existing Home Sales: Feb @ 5.02 Million
30% 30%
5.0 5.0
20% 20%
0% 0%
3.0 3.0
-10% -10%
Existing Home Sales: Feb @ 4.4 Million
2.0 2.0
-20% -20%
86 88 90 92 94 96 98 00 02 04 06 08 10
Year-over-Year Change: Feb @ 17.3%
-30% -30%
Existing Condominium Resales
2002 2003 2004 2005 2006 2007 2008 2009 2010
Seasonally Adjusted Annual Rate - In Thousands
1000 1000
800 800
4,500 4,500
3,500 3,500
600 600
3,000 3,000
500 500
9
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
!
Charlotte 13.8%
The worst of the home price declines are behind us, Boston 16.1%
Cleveland 16.5%
and many of the widely followed home price indices New York 20.6%
Portland 21.0%
have already posted monthly or quarterly increases. Atlanta 21.6%
Still, the improvement in home prices is extremely Seattle
Chicago
24.6%
25.8%
tenuous. Large numbers of foreclosed properties Minneapolis 28.3%
Washington 29.1%
still hang over the market, and there is an even Los Angeles 36.9%
San Diego 37.3%
larger supply of homes with seriously delinquent San Francisco 37.9%
mortgages potentially moving into foreclosure. Tampa
Detroit
42.0%
43.5%
6% 2%
300 300
0% 0%
-12% -4%
200 200
-18% -6%
National Home Price Index: Q4 @ -1.1% (Right Axis)
National Home Price Index: Q4 @ -2.5% (Left Axis)
150 150
-24% -8%
Average Sales Price: Feb @ $282,600 88 90 92 94 96 98 00 02 04 06 08
Median Sales Price: Feb @ $220,500
100 100
FHFA Home Price Indices
97 98 99 00 01 02 03 04 05 06 07 08 09 10 Non-Seasonally Adjusted, Year-over-Year Percent Change
14% 14%
12% 12%
Existing Single-Family Home Prices
In Thousands 10% 10%
$300 $300
8% 8%
6% 6%
$250 $250 4% 4%
2% 2%
0% 0%
$200 $200
-2% -2%
-4% -4%
10
Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLC
April 13, 2010 ECONOMICS GROUP
Residential Investment
Renovation & Remodeling 30%
Year-over-Year Percent Change
30%
$600 $600
$500 $500
$400 $400
$300 $300
$0 $0
Residential Investment
1992 1994 1996 1998 2000 2002 2004 2006 2008 Q4-2004
Other
Brokers' 1%
Commissions
Residential Improvements 14%
Year-over-Year Percent Change
40% 40%
30% 30%
20% 20%
Improvements
22%
10% 10%
New Building
0% 0% 63%
-10% -10%
-20% -20%
11
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