Economic Focus

IMPACT OF REOS ON THE HOUSING MARKET

Here are some very interesting observations by Brad Hunter of Metrostudy Report: There is downward pressure on home prices - According to estimates it will take 3 years for the market to absorb excess existing home inventory, provided the economy gains some momentum. New homes are not subject to as much downward pressure Estimates are that new home prices fall about half the percentage as existing homes. The excess inventory (REO) consists of older homes, not new homes. Builder inventory is now low in most communities. REO will remain a serious problem: While the downward trend that had begun in 2006 is leveling off, but due to efforts to slow down the introduction of REO in the market. REO is now being brought to the market at a much faster pace. CoreLogic estimates that only about 0ne-fourth of the REO are on the MLS. That would place a shadow inventory of over 400,000 REO units. It is estimated that at the current clearance pace it will take 33 months to clear this REO inventory. Then we have to take into account the estimated 2.100,000 units in foreclosure as of the end of Q1. Conservative estimates of 1.6 million homes are 90-days delinquent and will be added to the inventory burden. Additionally, there are nearly 2 million more loans whose borrowers are upside down by 50%, or at least $150,000. Fannie
RELEASE DATE Mon 08/29 8:30 am et Mon 08/29 10:00 am et Tue 08/30 9:00 am et Tue 08/30 10:00 am et Tue 08/30 2:00 pm et Wed 08/31 7:00 am et Thu 09/01 Thu 09/01 8:30 am et Thu 09/01 10:00 am et Thu 09/01 10:00 am et Fri 09/02 8:30 am et
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for the week of August 29, 2011 Volume 15, Issue 34

Key Economic Reports Released This Week
ECONOMIC INDICATORS RELEASED BY Bur. of Econ. Analysis Dept. of Commerce National Association of Realtors S&P Case-Shiller HPI Conference Board Federal Reserve Board Mortgage Bankers Association of America Automobile Manufacturers Bur. of Labor Statistics Department of Labor National Association of Purchasing Mgt. Bureau of the Census Dept. of Commerce Bur. of Labor Statistics Department of Labor CONSENSUS 1 SURVEY Income 0.3% Outlays 0.4% -0.3% -4.8% 53.5% N/A N/A Vehicles 12.0M 405k 50.0% 0.1% Wt. *** ** * ** **** * ** * ** ** INFLUENCE ON INTEREST RATES

Personal Income & Outlays for July 11 Pending Home Sales Index for June 11 Case-Shiller HPI for June 11 Y/Y Consumer Confidence for August 11 FOMC Minutes for 08/10 meeting MBA Mtg Apps Survey for week ending 08/26 Motor Vehicle Sales for August 11 Jobless Claims for week ending 08/27 ISM (NAPM) Mfg Index for August 11 Construction Spending for July 11 Employment Situation for August 11

If above consensus If below consensus If above consensus If below consensus

Undetermined

If above consensus If below consensus

Determines Policy Undetermined

Survey courtesy of Insight Economics, LLC

Payrolls 95k **** Unemp 9.1% * Low Importance ** Moderate Importance *** Important **** Ver y Important

If above consensus If below consensus If above consensus If below consensus If above consensus If below consensus If above consensus If below consensus If above consensus If below consensus

Mae, Freddie and FHA are selling about 130,000 Reo units per quarter. Then you can add to that the inventory held by FDIC-insured banks and thrifts and private-label securitized lenders. If all were sold at that same rate the number would about 250,000 per quarter, or 1 million units per year added to the market. Brad Hunter concludes, This all leads me to believe that we will get a second down-leg in Case-Shiller over the next year, but probably not a drastic one. Were 1/3 off the peak now. If we go down another 10%, then the total peak-to-trough decline will end up being 40%. Overall, I think weve got another three years before we work through the remaining excess housing supply (assuming no double-recession). As we draw down the supply, the amount of price pressure will ease.
Jessica Lombardo Loan Officer Hi-Tech Mortgage 2184 McCulloch Boulevard, # A Lake Havasu City, AZ 86403 jessica@hi-techmortgage.com Office: 866.768.5626 Cell: 916.548.8533 Fax: 916.372.2518