Insufficient and Negative Equity Lack Of Equity Impedes The Real Estate Market Mark Fleming Chief Economist December, 2011
70% 60% 50% 40% 30% Negative Equity Highly Concentrated Negative Equity Share, Q3 2011 10.7 million households Nearly $700 billion dollars of mortgage debt Top 5 states account for 5.5 million households, $329 billion dollars US Average 22% 20% 10% 0% Nevada Arizona Florida Michigan Georgia California Virginia Ohio Maryland Colorado Idaho Illinois Utah Rhode Island New Hampshire Washington Oregon South Carolina Tennessee Minnesota Missouri New Jersey Wisconsin Massachusetts Delaware North Carolina Washington, DC New Mexico Alabama Connecticut Nebraska Arkansas Indiana Kansas Texas Iowa Hawaii Kentucky Alaska Oklahoma Montana Pennsylvania North Dakota New York Negative Equity Share Near Negative Equity Share
100% Twenty two Million Households Have Insufficient Equity Distribution of Home Equity, Q3 2011 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% NV AZ FL MI GA CA MS MD VA OH ID US IL RI CO UT NH WA OR MN NJ MO MA SC TN LA WI DE DC NM CT WY NC AL IN NE HI KS AR TX IA KY MT ME PA AK OK ND NY WV Less than 80% 80%-100% 100%+
40.0% Leverage and Property Type are Differentiating Characteristics Negative Equity Share by Loan Characteristic, Q3 2011 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1st Only 1st and Junior Purchase Refi SFR Condo Owner Investor
Typically Negative Equity Loan is No Junior, SFR, Refinance, Owner Occupied Number of Negative Equity Loans, Q3 2011 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000-1st Only 1st and Junior Purchase Refi SFR Condo Owner Investor
Majority of Negative Equity Dollars in SFR, Refinance, Owner Occupied Aggregate Dollar Value of Negative Equity, Q3 2011 700 600 500 Billions 400 300 200 100-1st Only 1st and Junior Purchase Refi SFR Condo Owner Investor
Existence of Junior Liens Significantly Increases Negative Equity Average CLTV By Price Tier and Leverage Type, Q3 2011 160% 140% 120% 100% 80% 60% 40% 20% 0% 0 to $100k $100k to $200k $200k to $300k $300k to $400k $400k to $500k $500k to $600k $600k to $700k $700k to $800k $800k to $900k $900k to $1M $1M+ 1st Only LTV 1st and Junior LTV
6.00 Nine Million Negative Equity Households In 100K-400K Price Range Number of Negative Equity Households by Price Tier, Q3 2011 5.00 4.00 Millions 3.00 2.00 1.00 0.00 0 to $100k $100k to $200k $200k to $300k $300k to $400k $400k to $500k $500k to $600k $600k to $700k $700k to $800k $800k to $900k to $900k $1M $1M+
Depth of Price Declines Eventually Caught Up With Non-Leveraged Number of Negative Equity Households by Leverage Type, Q3 2011 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 1st and Junior 1st Only
Negative Equity Risk Has Shifted to Owner Occupied Households Number of Negative Equity Households By Occupancy Status, Q3 2011 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Investor Occupied Owner Occupied
Negative Equity Severely Restricts Refinancing Opportunities Percent of Loans with Rates Above 5%, Q3 2011 85% 80% Positive Equity Negative Equity 75% 70% 65% 60% 55% 50% 45% 40% 0-80 80-85 85-90 90-95 95-97 97-100 100-110 110-125 125+ Current Combined LTV Segment
Negative Equity Reduces Good Sales Non-distressed sales volumes are lower for deeply indebted markets Source: CoreLogic Q2 2011
Negative Equity Projection When Marker Increases Past Zero = Positive Equity, Q1 2010 Projection $100,000 $50,000 $- $(50,000) $(100,000) $(150,000) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Atlanta-Sandy Springs-Marietta GA Boston-Quincy MA Cape Coral-Fort Myers FL Dallas-Plano-Irving TX Detroit-Livonia-Dearborn MI Lancaster PA Las Vegas-Paradise NV Pittsburgh PA Washington-Arlington-Alexandria DC Riverside-San Bernardino-Ontario CA
Will Prices Ever Grow Again? House Price Appreciation Expected to Turn Positive in 2013 HPA 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Source: CoreLogic, Sept 2011 SFC YOY SFCXD YOY
Depth and Duration of Housing Recessions Significant current and past state level housing recessions Cumulative Price Movement Since Inception of Price Decline 100.0 90.0 80.0 70.0 60.0 50.0 40.0 1 2 3 4 5 6 7 8 9 10 11 Time in Years US Current CA Early 1990s LA Mid 1980s MA early 1990s TX Mid 1980s NV Current CA Current Source: CoreLogic, September 2011