October 2007

Keeping Current Matters™

 Supply

Months supply of inventory on the market

Source: NAR

9
8

7
6

5
4

3
2
December 2003 August 2005 July 2007
1
Inventory vs Sales - Aug

36,309

3,119
Inventory Sales
 Demand

7.5 Actual Sales 2007 NAR Projections (month to month)

7
Houses sold in millions

6.5

5.5
Source: NAR
5 2004 2005 2006 Jan Feb March April May June July Aug

Actual sales August 2006 vs. August 2007 were off 12.8%
 Demand

9/29/2007
 Value
9/28/2007 Nationally, Moody's is projecting an average price decline
of 7.7 percent. That's a jump from the 6.6 percent total
price drop that the company was forecasting in June and
more than twice that of last October's forecast of a 3.6
percent price decrease.

"The housing market is in a free fall," said Mark Zandi,

chief economist with Moody's Economy.com
 Value
9/10/2007 Since 1994, Kenneth Heebner, has managed the $1.7 billion
CGM Realty Fund. It has the best 10-year record of all real-
estate-focused mutual funds, up an average 19.7% a year
during the past decade, according to Morningstar Inc.

Fall 2006: “I see about a 50% decline in the inflated

coastal markets.”
September 2007: “I think the decline in housing prices
will be broader and deeper than I originally thought.”

- as quoted in the Wall Street Journal

 Value

"In markets where home prices almost doubled in

9/22/2007 four years, you could easily see price cuts of
20% to 30%," said Thomas Lawler, a housing
economist based in Vienna, Va.
 Value

9/2007 "This recession in housing is more severe than the 1990

and 1991 downturn…and it will be longer in duration."

Ms. Zelman
President
Zelman & Associates
a housing related research firm
 Value

9/16/2007 Alan Greenspan, the former chairman of the Federal

Reserve, told the Financial Times that US house prices are
likely to fall significantly from their present levels and the
decline "is going to be larger than most people expect."
 Value

9/9/2007 Goldman Sachs noted that it is bearish on the housing

market seeing home prices 13% to 14% over-valued.
Goldman is of the opinion that it could take "several"
years for home prices to reach fair value.
 I could have just used my imagination !

“It is the Law that any difficulties

that can come to you at any time,
no matter what they are, must be
exactly what you need most at the
moment, to enable you to take the
next step forward by overcoming
them. The only real misfortune,
the only real tragedy, comes
when we suffer without learning
that lesson."
- Emmet Fox Challenge is good for the soul!
Value
 Value
9/29/2007
 Rates

Source for historical rates: Freddie Mac

8.5

7.5

6.5

5.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
 Rates

Source: HSH
 The Fed Cut

U.S. Mergers and Acquisitions in 2007

 The Fed Cut

9/19/2007
 The Fed Cut

“With unusual flair, the Federal Reserve slashed short-

term interest rates by a more-than-expected 1/2 point.
The average 30-year fixed-rate mortgage responded
by rising, closing the nation's leading survey of
9/21/2007 mortgage prices at an average 6.80%.”
Mortgage Crisis
 Mortgage Crisis

The benefits of a better FICO score are dramatic for mortgages. Raising a
score from a range of 580-619 to 660-699 could save someone with a 30-
year, $300,000 fixed mortgage $5,148 in one year, according to Fair
Isaac's Web site.
 Foreclosures

Up 115% from
last August!
“The jump in foreclosure filings
this month might be the
beginning of the next wave of
increased foreclosure activity”
RealtyTrac Chief Executive
James J. Saccacio said.
 Foreclosures

First American Corp.’s Christopher Cagan has done

research which investigates the correlation between
foreclosures as a percentage of total sales and the size
of the discount buyers typically receive when purchasing
foreclosure properties. For example, in areas where
foreclosure sales accounted for 0.5 percent of total sales,
the median discount was 3.8 percent; whereas in areas
where foreclosures made up 8.9 percent of sales, the
median discount was 20.0 percent.
 Vacancy Rate

“As of June 30, the non-owner occupied (loans to buyers

9/6/2007 who do not plan to live in the house) share of defaulted
loans (90 days of more past due or in foreclosure) was 32
percent in Nevada, 25 percent in Florida, 26 percent in
Arizona and 21 percent in California, compared with 13
percent in the rest of the nation. These investors are
much more likely to default on their mortgages if they
see the value of their investments falling due to falling
home prices.”
 Vacancy Rate

FOR ACCIDENTAL LANDLORDS

Here's some advice for novices from property managers, agents and other experts:

• Talk to the neighbors: Make sure they know you'll be renting and encourage them to tell you about
9/21/2007 any issues that come up. Then check back in from time to time to make sure everything's working out.

• Know the laws: State and local governments regulate everything from how many smoke detectors
must be installed in a house to how long landlords have to return tenants' security deposits. Failing to
know the rules can lead to lawsuits, civil penalties or worse.

• Keep up with maintenance: Many owners assume that since a property is a rental, they don't need to
worry about routine maintenance. Not so, say experts. Keeping up with repairs will help draw better
tenants and will prevent bigger maintenance bills down the line.

• Study the market: Rental agents say many landlords set their rents based on their expenses, rather
than on what the market will bear. Then they wonder why their units don't rent.

• Vet prospective tenants: Credit scores alone aren't enough. Dig into credit reports, verify income and
make sure to call references. But make sure not to run afoul of discrimination laws, which bar landlords
from rejecting tenants based on age, marital status and other factors.

--Ben Casselman
 The Good News

40

The graph shows the 30

amount of subprime
adjustable-rate
mortgages hitting
resets
20
(in billions of dollars)
10

Source: First American

0
2007 2008
 The Good News

Countrywide Financial Corp, the largest U.S. mortgage lender,

9/24/2007 said on Monday it expects to modify terms on nearly 25,000
home loans this year to help people avoid foreclosures. The
company said it has already modified more than 17,000 home
loans this year, and provided assistance on about 35,000
mortgages, including through repayment plans, postponements
of payments and refinancings.
 The Good News

“It proves there is a pent up demand. There are home

buyers out there who are willing to buy a home if
they think they are getting an attractive price.”
– Larry Sorsby, CFO
After selling 2,100 homes in three days
(10 times greater than their weekly average)
during a 30% off sale.