altos research fall 2010 webcast - when does the housing recovery start

8/8/2019 Altos Research Fall 2010 Webcast - When Does the Housing Recovery Start

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Presented by:

Scott Sambucci

Vice President, Market Analytics

Copyright Altos Research | www.altosresearch.com | 12/09/2010



This material is for distribution for marketing purposes only and should not be relied upon by any person forinvestment or financial decisions. This material is provided for informational purposes only and does not constitute asolicitation in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover,it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor aninvitation to respond to it by making an offer to enter into an investment agreement.

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This material is not intended to be relied upon as a forecast, research or investment advice, and is not arecommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinionsexpressed are as of November 2010 and may change as subsequent conditions vary. The information and opinionscontained in this material are derived from proprietary and nonproprietary sources deemed by Altos Research to be

reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that anyforecasts made will come to pass. This document contains general information only and is not intended to representgeneral or specific investment advice. The information does not take into account your financial circumstances. Anassessment should be made as to whether the information is appropriate for you having regard to your objectives,financial situation and needs.

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What to expect in 2011 and why Implications of Dodd-Frank, GSEs, Mortgages

& Taxes, QE2, Robo-signing Impacts on RMBS & Whole Loans Home Prices vs. Home Values




180+ Metropolitan Statistical Areas (and growing every month)covering 20,000+ zip codes

2 million active listings updated every week

Market Analytics & Leading Indicators available by zip code, city,county, MSA, state and nationally

All data & market analytics for each geography (zip, city, metro)independently calculated




0-12 month Forecasting Median Price Price of New Listings Price of Listings Absorbed Market Action Index

List-to-Sale Ratios

6-18 month forecasting Percent Price Decreased/Increase Magnitude Price Decreased/Increase Inventory Percent Relisted Days-on-market (mean and median) Tic/Trend/Peakiness/Troughiness

12-24 month forecasting Year-over-Year Price Year-over-Year Inventory Year-over-Year Percent Price Decreased Year-over-Year Days-on-Market

This list in a partial list of marketstats published weekly, with over400 coincidental & leadingindicators available

Altos Research also providesmarket analytics based onProperty Characteristics: Square Footage # Beds/Baths

Lot Size & Age Price per Bedroom/Bathroom Price per Square Foot (mean &

median)




Whole Loan Asset Portfolios RMBS Portfolios

REO Disposition Mortgage Origination & Servicing Valuation & Appraisal Equity Researchers Risk Management Homebuilders & Developers Insurance



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-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

% change Ask Price % change CSXR

Correlation with 4-month lead = 0.705



We’ll get some type of seasonal bounce – wealways do. The size andscope will likely be small ascompared to 2009, but it will

be a breather



• Tax credit stimulated demand temporarily Fewersellers required price reductions to sell.

• Sellers are feeling distressed again Price Reductions

on the rise and nearly back to crash levels.



Robo-signing QE2

Dodd-Frank Mortgage Rates Mortgage Interest

Rate deduction




Banks were selling into market strength seenfrom Homebuyer Tax Credit

Market picked up, and banks increased therate of foreclosures to get assets through thepipeline




Difficult to see effects Baked into prices?

Home Price Inflation - A Counterfactualargument

(Note: See Altos Research White Paper:“QE2 & the Housing Market”)




In 2004 alone, Fannie Mae and Freddie Mac purchased$175,000,000,000 in subprime mortgage securities, whichaccounted for 44 percent of the market that year, and from 2005through 2007, Fannie Mae and Freddie Mac purchasedapproximately $1,000,000,000,000 in subprime and Alt-A loans,while Fannie Mae’s acquisitions of mortgages with less than 10percent down payments almost tripled.

The conservatorship for Fannie Mae and Freddie Mac haspotentially exposed taxpayers to upwards of $5,300,000,000,000worth of risk.

The hybrid public-private status of Fannie Mae and Freddie Macis untenable and must be resolved to assure that consumers areoffered and receive residential mortgage loans on terms thatreasonably reflect their ability to repay the loans and that areunderstandable and not unfair, deceptive, or abusive.




Would lead to an increasing 3.5% downpayment mortgages as FHA market share

rises Any significant downward shift in prices will

lead to negative equity situations. Would force government to further bolster

the market until we reach the Keynesianendpoint in 201?, 202?, 203?

No political will to seek ST pain of alternative




2009-10:Definitely helped the market, butwas temporarily. Diminishing effect in ‘10 vs.

‘09. May make sense to re-introduce in 2012 or ‘13 Mortgage interest deduction: appears here to

stay. (See NAR/MBAA uproar, Deficitreduction committee)

Unequivacally shows that tax credits doimpact markets




(A) 2008 Trough to Peak = 20% increase (B) 2010 Trough to Peak = 30% increase (C) Assuming a 25% rise in Spring 2011, that will bring inventory back to

crash levels Higher inventoryDownward price pressure


200,000

220,000

240,000

260,000

280,000

300,000

320,000

340,000

360,000

(Projected)

A

B C



Not just the number of homes, but the quality of homes Bifurcated Market - Don’t confuse price with value. Prices

will fall not only because of demand weakness but theavailable stock

This might also case a quick jump in perceived home

values because of cash infused to asset




Even 2.0-2.5% GDP growth is growth More people should have jobs in Dec ‘11 than

Dec ‘10 Even the hint of higher mortgage rates may

scare a few buyers into the market. (SeeCongressional Tax Debate)

Mortgage rate increases still put them athistorical lows The good news is that we know more bad

news is here




Nationally, prices will be lower by 5-10% Some seasonal bounce in Q1, Q2. Bounce will

likely be more like 2008, 2010

2011 will mean lower prices because of: Rising Inventory Quality of Inventory Less Demand (homeownership rates, consumer

exhaustion, consumer trepidation) The Contrarian Argument - There’s nothing but

bad news out there, so that must mean we’rehitting the trough




• All markets are not equal• Do your research: “one-size-fits-all” model will lead your astray• Wide Distribution of 4- and 12-week price changes over 20,000

zip codes in the Altos Research Market Analytics Platform




Phoenix 85057 Home Prices Altos Forecast

BPO based on June comps $184,000

Altos real-time market data




Not yet. But it won’t be down forever. 2011: Expect 5-10% downside 2012-2014ish Stabilize and slowly rise as unemployment lags

(see Bernanke, “60 minutes” interview)

Mix of elevated unemployment, high inventory,

and low quality will keep prices low even astransactions pick up over time

Good for getting in as long as you don’t need toget out




All data files available for download as .CSV file for easyintegration into any spreadsheet model or databaseapplication.


altos research fall 2010 webcast - when does the housing recovery start

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