CAAR Conference Presentation 6 August 2009

Update on Market
Challenges
Charlottesville Area Association of Realtors
August 6, 2009
Virginia Housing Development Authority

Four inter-related factors
continue to hold back recovery in
the Charlottesville area market:
1. Home prices
2. Foreclosures
3. Mortgage credit
4. Consumer confidence
2
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Home Prices
3
Area home sales have fallen to a
decade low, but may be near bottom
Existing Home Sales
Charlottesville Area
1,500
1,173
1,200
900
622
600 - 47%
624
Four-Quarter
Rolling Average
300
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
99
00
01
01
02
03
04
04
05
06
07
07
08
09
99
00
02
03
05
06
08
Source: VAR
4
Charlottesville and other markets
are trailing NoVA by 12 months
Existing Home Sales Index
175
Northern Tier Peak 12 mos. Other Markets Peak
2nd Qtr 2005 2nd Qtr 2006
Index (1st Qtr 2003 = 100)
100
36 mos. ?
Northern Tier Peak to Trough Trough
36 mos.
25
-1
-4
-3
-1
-4
-1
-2
-3
-4
-2
-3
-4
-1
-2
-3
-1
-2
-4
-2
-3
-1
-2
-3
-4
-1
-2
03
04
05
06
07
08
08
09
03
03
03
04
04
04
05
05
05
06
06
06
07
07
07
08
08
09
Northern Tier Greater Hampton Rds Greater Richmond
Charlottesville-Central Valley Roanoke-Blacksburg-Lynchburg
Index based on four-quarter rolling average

5 Source: VAR
Price changes generally lag behind
changes in sales volume
Example: Prince William Market Area
$500,000 1,500
25 months
Median Existing Home Price
$400,000 1,200
Existing Home Sales

(12-month rolling average)
$300,000 900
Home Sales
$200,000 600
Home Prices
$100,000 300
14 months
$0 0
D -02
D -07
09
D -99
D -00
D -01
D -03
D -04
D -05
D -06
D -08
Ju 8
Ju 0
Ju 1
Ju 2
Ju 3
Ju 5
Ju 6
Ju 7
Ju 8
Ju 9
Ju 4
-9
-9
-0
-0
-0
-0
-0
-0
-0
-0
-0
n-
n
n
n
n
ec
ec
ec
ec
ec
ec
ec
ec
ec
ec
ec
D
Source: MRIS
6
Unsold inventory must first decline
in order to put a floor under prices
Example: NVAR Market Area
(Arlington-Alexandria-Falls Church-Fairfax)
45% 15
Mos. Unsold
Inventory
30% 10
15% 5
0% 0
-15% -5
Annual Change
in Median Price
-30% -10
8
8
99
00
01
02
03
04
05
06
07
08
09
c-9
c-0
c-0
c-0
c-9
c-0
c-0
c-0
c-0
c-0
c-0
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
De
De
De
De
De
De
De
De
De
De
De
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Source: MRIS
7
Needed inventory reductions
are occurring in different ways
Prince William Area Fairfax, Arlington & Alexandria
Rising sales and falling listings Sales volume remains weak,
have played equal parts in with inventory reduction mostly
reducing the unsold inventory due to steeply falling listings
2,000 4,500
1,750 4,000
New Listings
1,500 3,500
New Listings
1,250 3,000
1,000 2,500
750 2,000
Existing Home Sales Existing Home Sales
500 1,500
250 1,000
99
00
01
02
03
04
05
06
07
08
09
99
00
01
08
02
03
04
05
06
07
09
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
n-
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Ju
Source: MRIS
8
Affordability has been a main factor
in how the inventory corrects
Ratio of Median Home Price to • In Prince William,
Median Household Income
the sharp rebound in
Alexandria
sales is due to the
Arlington
return of affordability
Fairfax
to historic norms.
Pre-Boom:
Loudoun
Loudoun April 2000
Peak of Boom:
• However, in
Stafford
May 2006
Alexandria, Arlington
Spotsylvania
Spotsylvania Post Boom:
June 2009
and Fairfax,
Pr. William
Historic affordability
affordability is still
threshold
hampering sales to
0.0 1.0 2.0 3.0 4.0 5.0 6.0
first-time buyers.
Source: MRIS and Census Bureau
9
Downstate, prices remain above
historic norms in many markets
Ratio of Median Home Price to
Median Household Income In particular, the
Charlottesville
Charlottesville,
Hampton Roads
Hampton Rds
and Richmond
Richmond
Pre-Boom:
markets remain
overpriced
April 2000
Roanoke
Peak of Boom:
Lynchburg
June 2007
relative to historic
levels of
Post Boom:
2nd Quarter
Danville 2009
Historic affordability
threshold
affordability.
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Source: VAR & Census Bureau

10
Charlottesville price adjustments
lag adjacent Northern VA markets
Median Existing Home Price by MLS Area
$400,000
$300,000 Charlottesville
Prince William
Greater Piedmont
$200,000 Fredericksburg
$100,000
-4
-2
-4
-4
-2
-2
-2
-2
-2
-2
-2
-2
-4
-4
-2
-4
-4
-4
-4
-4
99
00
07
08
09
00
01
01
02
02
03
03
04
04
05
05
06
06
07
08
Source: CAAR, VAR and MRIS
11
Charlottesville will more likely follow
the NVAR market than Pr. William
• The Charlottesville area’s 13-month inventory of
unsold homes remains very high.
• In order for sales to increase significantly as they
have in Prince William, prices must fall further to
expand affordability.
• However, the area has little inventory of
distressed bank-owned homes to drive down
prices.
• Therefore, listings will likely continue to contract
and prices fall at a moderate rate until a more
normal supply/demand balance is achieved.
12
Foreclosures
13
Loan defaults continue to rise,
and are at an historic level
Share of Virginia Loans Seriously Delinquent
(Loans 90+ Days Delinquent including Loans in Foreclosure Processing)
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
19 -1
19 -1
19 6-1
19 -1
19 4-1
19 -1
20 -1
20 -1
19 1-1
19 2-1
19 -1
19 5-1
19 -1
19 -1
19 0-1
19 -1
19 -1
19 3-1
19 -1
19 -1
19 7-1
20 9-1
20 0-1
20 -1
20 3-1
20 4-1
20 -1
20 -1
20 8-1
-1
80
83
87
98
01
05
84
88
89
91
92
95
96
02
06
07
09
8
8
8
8
9
9
9
0
0
0
0
19
Calendar Year Quarter
Source: Mortgage Bankers Association (MBA)

14
Problem loans, falling prices and
unemployment will keep defaults high
• The foreclosure crisis began with unprecedented
defaults on weakly underwritten sub-prime and
“alt-A” low documentation loans.
• Declining markets and rising inventories of
foreclosed homes continue to depress home
values, and those price declines are putting a
very large share of mortgages “under water.”
• Now, unemployment is also driving increasing
numbers of homeowners into default, especially
those who are underwater and cannot sell.
15
At the start of 2008, foreclosures
were heavily concentrated in NoVA
Foreclosure Activity
January through April 2008
CAAR
Number of homes lenders sold
at auction or took ownership of
Less than 25
25-100
101-200
201-400
Greater than 400
Source: RealtyTrac
16
In 2009, foreclosures are impacting
a widening number of local
markets
Foreclosure Activity
January through April 2009
CAAR
Number of homes lenders sold
at auction or took ownership of
Less than 25
25-100
101-200
201-400
Greater than 400
Source: RealtyTrac
17
So far, the Charlottesville area has
experienced a low foreclosure rate
Washington-Arlington-AlexandriaMSA(VApt.)
WinchesterMSA(VApt.)
VABeach-Norfolk-NewportNews MSA(VApt.)
RichmondMSA
Bank-owned Homes
DanvilleMSA
Trustee Sales
RoanokeMSA
HarrisonburgMSA
Blacksburg-Christiansburg-RadfordMSA Charlottesville has relatively few
Cha
Charlot
rlottte
esville
svilleMMSA
SA homes going to trustee sale, and little
build-up of foreclosed inventory
LynchburgMSA
Kingsport-Bristol MSA(VApt.)
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

Share of Homes with a Mortgage
Source: RealtyTrac and Census Bureau
18
Unemployment has risen sharply,
but is lower than in other markets
Unemployment Rates for Virginia's Metropolitan Areas
Danville
Blacksburg
Kingsport-Bristol (VApt)
Winchester (VApt)
Richmond
Lynchburg
Roanoke
HamptonRoads (VApt)
Harrisonburg
Charlottte
Charlot esville
sville
Washington, DC (VApt)
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Jun 2009 Jun 2008
Source: Virginia Employment Commission
19
The Charlottesville area also has a
low share of sub-prime mortgages
Sub-prime Share of Mortgage Loans
Winchester MSA(VApt.)
RichmondMSA
RoanokeMSA
DanvilleMSA
LynchburgMSA
Charlot
Charlottte
esville
svilleMMSA
SA
HarrisonburgMSA
Blacksburg-Christiansburg-RadfordMSA
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
Source: 1st American CoreLogic and Census Bureau

20
The region’s share of alt-A loans is
higher and poses future risks
Alt-A Share of Mortgage Loans
Winchester MSA(VApt.)
Charlottte
Charlot esville
svilleMMSA
SA
RichmondMSA
LynchburgMSA
RoanokeMSA
HarrisonburgMSA
DanvilleMSA
Blacksburg-Christiansburg-RadfordMSA
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Source: 1st American CoreLogic and Census Bureau

21
The wave of sub-prime resets is over,
but other loan types are now at risk
Source: Credit Suisse, IMF Global Financial Stability Report, September 2007
22
Mortgage Credit
23
In the short run, the return to
sound lending practices is painful
• Everyone agrees that sound lending
practices must be restored.
• However, the near-term pain associated
with the removal of easy credit is severe.
• Today’s policy dilemma is how to
reinvigorate the market without putting in
place a new set of distortions that will lead
to future market problems.
24
The mortgage market remains
highly reliant on federal intervention
• The private mortgage-backed securities market
remains dysfunctional, with access to affordable
capital dominated by governmental entities (the
GSE’s and Ginnie Mae).
• Non-conforming / non-government loans—especially
jumbo mortgages—still pay premium prices.
• The federal government continues to stimulate the
market with historically low rates and tax credits.
• However, the stimulus is off-set by continued
tightening of underwriting standards to keep a lid on
escalating loan losses by the GSEs and FHA.
25
First-time buyers still struggle
to enter the market
• Affordability remains a barrier due to tightened
lending standards.
• Young households are especially impacted by
unemployment and under-employment—this is
off-setting the stimulus impact of the federal
home purchase tax credit.
• In Northern Virginia, unemployment remains low
and affordability has increased, but 1st-time
buyers are having trouble competing against
investors with cash.
26
VHDA is helping to make the federal
tax credit work for first-time buyers
• The federal stimulus home purchase tax credit does
not address the critical need of first-time buyers for the
up-front cash needed at closing.
• VHDA has created a “Homebuyer Tax Credit Plus”
program to address that need.
– VHDA provides a second mortgage on FHA loans for down
payment and closing costs at 0% interest with no payments
for the first12 months.
– The borrower can either repay the loan from the proceeds of
their federal tax credit, or else choose to have the loan
amortized over 30-years at the same interest rate as the first
mortgage.
27
As with other stimulus measures, the
federal tax credit remains a challenge
• Efforts to “monetize” the credit—such as
VHDA’s “Homebuyer Tax Credit Plus” loans—
require specialized Truth in Lending.
• This has weakened lenders’ willingness to
participate since the tax credit sunsets at the
end of November.
• A large share of VHDA lenders are now on
board—nonetheless, in July, the $8.7 million in
Tax Credit Plus reservations was just over 10%
of VHDA’s total monthly loan production.
28
Consumer Confidence
29
There has been a dramatic shift in
demand from the peak of the boom
Projected Change in Adult Population by Age, 2005-2020
Charlottesville-Central Valley
Young Renters & Middle Age Empty Nester & Younger Older Seniors
1st-Time Homebuyers Trade-up Homebuyers Younger Homeowners with Special Needs
10,217 10,285
8,687
7,169
4,266 4,809 4,521

3,726
2,573
1,811
209 267
-516
-3,233
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+
Age Group
Source: VEC and Census Bureau
30
The hope for fuller market recovery
now lies with first-time homebuyers
• Renewed affordability creates opportunity
for first-time buyers to enter the market.
• However, if they are to do so in significant
numbers, then they must be given renewed
confidence that:
– Credit is available under terms and conditions
that provide long-term sustained affordability
– Home purchase still provides tangible benefits
– The risks of homeownership are manageable
31
VHDA is building homebuyers’
knowledge and confidence
• VHDA requires all of its borrowers to participate
in free homeownership education—either
through face-to-face classes or on-line courses.
• Homeownership education classes are offered
statewide and in a variety of languages.
• This spring, VHDA carried out a statewide
marketing campaign to increase awareness of,
and participation in, homebuyer education—the
result was a 120% increase in class participation.
32
There is more to do to re-instill the
confidence of first-time buyers
• The industry must work together to motivate
qualified potential buyers in the face of uncertain
employment and declining home prices.
• This requires a common focus on the traditional
core values of homeownership:
 Security of tenure
 Stability in housing costs arising from
long-term, fixed rate financing
 Pride of ownership and control of one’s
living environment
33
What is the near-term
market outlook?
34
Charlottesville’s market will likely
continue to correct into 2010
• Home sales are still declining, but may
be nearing bottom.
• The price correction is still ongoing, and
will likely continue until inventories are
reduced—prices must fall further to
reflect the significant shift in demand.
• The impact of loan defaults will depend
on how much unemployment rises and
the magnitude of further price declines.
35

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Update on Market

Virginia Housing Development Authority

Index based on four-quarter rolling average

Existing Home Sales

Source: VAR & Census Bureau

Calendar Year Quarter

Source: Mortgage Bankers Association (MBA)

0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Source: 1st American CoreLogic and Census Bureau

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Source: 1st American CoreLogic and Census Bureau

4,266 4,809 4,521

Source: VEC and Census Bureau

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