- The housing market showed signs of improvement in the first quarter of 2011 compared to 2010, though sales were still down in many areas due to the end of the homebuyer tax credit. - Job growth and economic factors like rising stock markets and rents are expected to support a more stable housing market going forward, with annual sales growth projected around 4% without tax credits. - However, uncertainty remains around potential policy changes in Washington and high unemployment could continue hindering the recovery.

1. Housing Market and Economic Outlook Lawrence Yun, Ph.D. Chief Economist NATIONAL ASSOCIATION OF REALTORS® Presentation at JP Morgan Chase Event & Chicago Association of REALTORS ® Chicago, IL July 21, 2011

2. U.S. Annual Existing Home Sales …Ready to Breakout?

3. Monthly Existing Home Sales Tax Credit Impact

4. Pending Existing Home Sales Index 2010 to 2011 Tax Credit Impact

6. Midwest Weather Impact

8. New Home Sales (Pending contracts, not Closings) In thousands

9. U.S. Housing Starts Housing Starts in thousands

10. Chicago MSA Housing Permits

11. Newly Built Home Inventory In thousands

12. New Home Price vs. Existing Home Price 30% premium rather than 10-15% normal premium 12 month moving average Existing Home Price New Home Price

14. Total U.S. Payroll Jobs – Modest Recovery In thousands 7 million below prior peak In thousands

15. North Dakota Jobs In thousands

16. Texas Payroll Jobs – Fully Recovered In thousands

17. Chicagoland Payroll Jobs – Recovery? In thousands

18. Weekly Fresh Unemployment Claims … Not Going under 400,000 In thousands In thousands

19. Financial Asset at $50 trillion … Full Recovery Source: Federal Reserve

20. Realtors Reporting Rising Apartment Rents

21. CPI Apartment Rent

22. Home Price vs Rent (index = 100 in 1980)

23. # of Serious Delinquent Mortgages … Mostly Borrowers prior to 2009 (90+ days late or in foreclosure process) In 2010, there were 1.5 million distressed sales … need to wait 2.7 years

24. Distress Sales: 30% to 40% of Transactions Will Remain Significant for Next 2 years

25. One U.S. Dollar gets …

26. U.S. Home Price after Currency Conversion

28. Real Estate as Inflation Hedge? (single-family home price in blue vs CPI in red) Good inflation hedge in the past before the housing bubble/bust

29. Upside Potential Surprise

30. Average Credit Score for Loan Origination 15% to 20% Higher Sales Normal 2009 2010 If Fannie 720 761 762 720 Freddie 720 757 758 720 FHA 650 682 698 660

31. QE2 … to keep rates low … are inconsequential if too strict underwriting standards Fannie and Freddie Backed Mortgage Loan Performance Source: Federal Housing Finance Agency Fannie Mae Vintage Cumulative Default Rate after 18 months 2002 3.1% 2003 2.5% 2004 4.6% 2005 4.8% 2006 11.6% 2007 28.7% 2008 12.6% 2009 1.2% Freddie Mac Vintage Cumulative Default Rate after 18 months 2002 2.7% 2003 1.2% 2004 2.0% 2005 1.8% 2006 6.0% 2007 22.3% 2008 13.7% 2009 1.1%

32. Downside Potential Surprise

34. Current Savings Rate = 6% Takes 9 years to save $20,000 based on average $2,200 per year Takes 14 years to save $32,000 (20% of today’s median price)

36. CPI Inflation and PPI Inflation (% change from one year ago) Prices falling on consumer electronic products : Smartphone1 = $200 to Smartphone2 = $200 is computed as falling prices; even though your wallet did not get any relief

37. Broad Inflationary Pressure Indicator % change from one year ago Consumer Price Index 3.4% Producer Price Index (Finished Product) 7.0% Producer Price Index (Intermediate Product) 11.0% Producer Price Index (Crude Product) 25.5% Dow Jones Commodity Spot Price Index 38.1% Gold Price Around Record High Price

38. # Unemployed (looking but cannot find job)

39. Adults in the Labor Force (Rest are not looking for job and officially not included in unemployment rate)

40. Government Spending and Tax Receipts $ billion

41. Government Default?

42. Consumer Confidence Index