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April 13, 2010
Economics Group
Housing Still Faces a Very Long Road to RecoveryWhile there has been a surprising bit of good economic news during the first few months of 2010,including stronger retail sales, a bounce-back in manufacturing activity, and even a small rise innonfarm employment, most of the data on the housing sector continue to be extremely
disappointing. The payback from the run-up in home sales this past fall, which was the originaldeadline for the first-time homebuyers tax credit, has been even greater than expected. Sales ofnew homes have fallen during each of the past 4 months and in February fell to the lowest levelssince statistics began being kept in 1963. Existing home sales have also tumbled in recent months,and mortgage applications for the purchase of a home remain exceptionally weak.
The pullback in home sales has raised concerns the nascent recovery in housing has faltered, andfor good reason. From the start, the housing recovery has been on a very shaky foundation of taxincentives, artificially low mortgage rates and unprecedented assistance to strugglinghomeowners. None of these programs are sustainable. The real problems with the housing marketcenter around three fairly simple concepts. First, home sales were too strong during the boom
years, and demand was effectively pulled forward. Second, credit underwriting has tightenedconsiderably, effectively shutting out many potential buyers. And third, the deep recession, whicheliminated 8.4 million jobs and sent the unemployment rate up to 10 percent, led to a sharp
reduction in household formations and fundamentally reduced the demand for housing. Thepainful truth is that there is no quick fix to any of these problems, and the recovery in housing islikely to be longer and more arduous than many people currently expect.
Figure 1
New Home SalesSeasonally Adjusted Annual Rate - In Thousands
100
300
500
700
900
1,100
1,300
1,500
89 91 93 95 97 99 01 03 05 07 09
100
300
500
700
900
1,100
1,300
1,500
New Home Sales: Feb @ 308,000
3-Month Moving Average: Feb @ 322,667
Figure 2
Housing StartsMillions of Units
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
Forecast
Source: FHFA, NAR, S&P Corp, U.S. Department of Commerce and Wells Fargo Securities, LLC
Special Commentary
Mark Vitner, Senior [email protected]! 704.374.703
Adam G. York, [email protected]! 704.715.9660
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2
While none of this should come as a surprise to anyone associated with the housing industry, wehave been struck by some of the more upbeat forecasts for home sales and new home construction
we have seen in recent months. Many of these forecasts appear to be built around the signs ostability that appear to be returning to some of the nations more troubled hot spots, includingCalifornia, Arizona, and south Florida. In many of these areas, home sales have risen, inventoriesof new and existing homes for sale have decreased, and prices have increased. This improvement,
however, has come about amid unprecedented support of the housing market, including variousefforts to forestall foreclosures and numerous programs to provide subsidized mortgages. Inaddition, there has been a great deal of investor buying, mostly via cash purchases. The net resultis that it is extremely difficult to get an accurate assessment of the health of the nations housingmarket at this moment.
We remain concerned about the continuing deterioration in credit quality in the mortgagmarket, particularly the growing disconnect between delinquency rates and foreclosures. Theproliferation of mortgage modification programs, along with some restraint on the part of lendersin disposing of foreclosed properties has likely contributed to the seeming stability in homeprices. Since few of these-mortgage modification programs have been successful, many of thesehomes may ultimately wind up in foreclosure, exerting renewed downward pressure on pricesEven without an increase in foreclosures, the housing market remains oversupplied by roughlytwo million housing units, which should continue to pull prices lower. We estimate housing prices
could fall an additional 6 to 8 percent from their current levels before they ultimately bottom out.
Our view continues to be that we will see a very gradual recovery in home sales and new homeconstruction over the next several years. We believe the worst has actually passed. While sales ofnew homes hit an all-time low in February, the weather was unusually harsh that month, andthere have been fewer cancellations than there were a year ago. Builders are reporting solid gainsin buying traffic, particularly for first-time buyers. Sales should rise ahead of the ending of thetax-credit program this spring. For the year as a whole, we feel confident sales will be modestly
better this year than they were last year, and next year will be modestly stronger than this yearThe housing market will not return to a position of strength until late next year or in 2012. Bythen, inventories will have been worked off and job and income growth should have strengthenedto the point that household formations and the demand for housing should again increase.
Figure 3
All Loans 90+ Days Delinquent & ForeclosuresSeasonally Adjusted
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
1998 2000 2002 2004 2006 2008
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
90+ Days Delinquent: Q4 @ 4.6% (Le ft Axis)
Started in Foreclosure: Q4 @ 1.1% (Right Axis)
Figure 4
Vacant Homes for Rent and SaleIn Millions, Non-Seasonally Adjusted
0.0
1.0
2.0
3.0
4.0
5.0
1985 1989 1993 1997 2001 2005 2009
0.0
1.0
2.0
3.0
4.0
5.0
Vacant Homes for Rent: Q4 @ 4.47M
Vacant Homes for Sale: Q4 @ 2.09M
Source: Mortgage Bankers Association, U.S. Department of Commerce and Wells Fargo Securities, LLC
1 Vitner, Mark and Iqbal, Azhar, Forecasting the U.S. House Prices Bottom: A Bayesian FA-VARApproach, American Economic Association Meeting, January 2010, Atlanta, GA.
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Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLCApril 13, 2010 ECONOMICS GROUP
RealGDP,percentcha
nge
2.7
2.1
0.4
-2.4
3.0
2.5
Nonfarm
Employment,
percentchange
1.8
1.1
-0.6
-4.3
-
0.7
1.0
UnemploymentRate
4.6
4.6
5.8
9.3
9.9
9.5
HomeConstruction
TotalHousingStarts
,inthousands
1811.9
1341.8
900.3
553.4
65
0.0
820.0
Single-FamilyStarts,inthousands
1473.6
1035.8
615.8
440.4
51
0.0
620.0
Multi-FamilyStarts,inthousands
338.3
306.1
284.5
113.0
14
0.0
200.0
HomeSales
New
HomeSales,Sin
gle-Family,inthousands
1049.3
768.7
481.3
371.5
40
0.0
520.0
TotalExistingHomeSales,inthousands
6517.6
5674.7
4892.0
5157.9
530
0.0
6080.0
ExistingSingle-FamilyHomeSales,inthousands
5711.7
4959.2
4337.5
4566.7
466
0.0
5400.0
ExistingCondominium
&TownhouseSales,inthou
sands
805.9
715.5
554.5
591.3
64
0.0
680.0
HomePrices
MedianNew
Home,$
Thousands
243.1
243.7
230.4
213.9
20
8.0
211.5
PercentChange
3.8
0.3
-5.5
-7.1
-
2.8
1.7
MedianExistingHome,$Thousands
221.9
215.5
195.8
172.5
16
8.0
171.0
PercentChange
2.0
-2.9
-9.2
-11.9
-
2.6
1.8
FHFA(OFHEO)Home
PriceIndex,PercentChange
7.3
1.9
-2.9
-4.0
-
0.7
1.5
Case-ShillerC-10Ho
mePriceIndex,PercentChange
7.4
-4.4
-16.7
-12.9
-
2.1
1.8
InterestRates-AnnualAverages
PrimeRate
7.96
8.05
5.08
3.25
3
.30
5.30
Ten-YearTreasuryN
ote
4.80
4.63
3.66
3.26
4
.15
4.55
Conventional30-Yea
rFixedRate,CommitmentRa
te
6.41
6.34
6.04
5.04
5
.85
6.15
One-YearARM,Effec
tiveRate,CommitmentRate
5.54
5.56
5.18
4.71
5
.00
5.50
Forecastasof:April7,20
10
Source:FederalReserveBoard,FHFA,MBA,NAR,S&PCorp,U.S.DepartmentofCommerce,U.S.DepartmentofLabor
andWellsFargoSecurities,LLC
3
NationalEc
onomic&FinancialOutlook
Actual
F
orecast
2011
201
0
2009
2008
2007
2006
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MortgagesMortgage Rate
Average Conventional 30-Year Commitment Rate
4%
5%
6%
7%
8%
9%
10%
93 95 97 99 01 03 05 07 09
4%
5%
6%
7%
8%
9%
10%
30-Yr Conventional Mortgage: Mar @ 4.97%
! Mortgage applications for purchases collapsed latelast year along with sales activity as the originally
scheduled expiration of the first-time homebuyertax credit pulled sales forward. Purchase activity has
stabilized but has yet to make any substantial gains.! Refinancing activity has also been relatively weak so
far this year despite historically low mortgage rates.
The sharp drop in mortgage rates in late 2008 drove
many consumers to refinance earlier last year and,
with rates now higher, there is little reason for
homeowners to refinance again.! We expect mortgage rates to move even higher in
coming weeks, which should further reduce
refinancing activity. Home purchase applications
should get a lift from the first-time buyer tax credit. Net Percent of Banks Tightening StandardsMortgages for Individuals
-20%
0%
20%
40%
60%
80%
100%
1990 1994 1998 2002 2006 2010
-20%
0%
20%
40%
60%
80%
100%
All Mortgages (Through Q1-2007)
Prime Mortgages: Q1 @ 13.2%
Nontraditional Mortgages: Q1 @ 29.4%
Mortgage Applications for Purchase8-Week Moving Average, Seasonally Adjusted
0
100
200
300
400
500
94 96 98 00 02 04 06 08 10
0
100
200
300
400
500
Weekly Figure: Apr-2 @ 243.6Up From 243.0 on Mar-26Mort. Appl.: 8-Week Average: Apr 2 @ 223.38-Week Average Down 11.9% From Same Period Last Year
Mortgage Applications
8-Week Moving Average, Seasonally Adjusted
0%
10%
20%
30%
40%
50%
60%
2005 2006 2007 2008 2009 2010
0%
10%
20%
30%
40%
50%
60%
ARMs Percent of Loan Applications (Value): Apr 2 @ 8.4%
ARMs Percent of Loan Applications (Volume): Apr 2 @ 5.0%Mortgage Applications for Refinancing4-Week Moving Average, Seasonally Adjusted
0
2,000
4,000
6,000
8,000
10,000
12,000
94 96 98 00 02 04 06 08 10
0
2,000
4,000
6,000
8,000
10,000
12,000Weekly Figure: Apr-2 @ 2,251
Down from 2,708 on Mar-26
4-Week Average: Apr-2 @ 2,665
4-Week Average Down 49.1% from Same Period Last Year
Source: Moodys Economy.com, Mortgage Bankers Association, NARand Wells Fargo Securities, LLC
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Single-Family ConstructionHousing Starts
In Millions
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
85 87 89 91 93 95 97 99 01 03 05 07 09
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
Housing Starts: 2010 @ 593K 2010 is YTD Average
! The pipeline of activity is still fairly sparse despitethe massive reduction in activity over the past
several years. Builders, however, have been filing formore permits in recent months. Some may be trying
to capitalize on buyers who are newly eligible for a
homebuyers tax credit. This activity is likely to slow
in coming months as the window to complete and
close on homes ends in June.
! Still the worst of the declines in building activity are behind us, and we expect construction to trend
higher as the economy strengthens. Single-family
starts will likely claw their way back above a
half-million units this year.
! Builder sentiment remains exceptionally low and isa clear warning sign that the recovery will be slow. Single-family Housing Starts
SAAR, In Millions, 3-Month Moving Average
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
90 92 94 96 98 00 02 04 06 08 10
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Single-family Housing Starts: Feb @ 494K
Single-family Building PermitsSAAR, In Millions, 3-Month Moving Average
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
90 92 94 96 98 00 02 04 06 08 10
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Single-family Building Permits: Feb @ 504K
NAHB/Wells Fargo Housing Market Index
Diffusion Index
0
10
20
30
40
50
60
70
80
90
87 89 91 93 95 97 99 01 03 05 07 09
0
10
20
30
40
50
60
70
80
90
NAHB Housing Market Index: Mar @ 15.0
Single-family Housing CompletionsSeasonally Adjusted Annual Rate, In Millions
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
87 89 91 93 95 97 99 01 03 05 07 09
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Single-family Housing Completions: Feb @ 458K
Source: NAHB, U.S. Department of Commerceand Wells Fargo Securities, LLC
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Multi-Family Home ConstructionMulti-family Housing Starts
SAAR, In Thousands, 3-Month Moving Average
0
50
100
150
200
250
300
350
400
450
90 92 94 96 98 00 02 04 06 08 10
0
50
100
150
200
250
300
350
400
450
Multi-family Housing Starts: Feb @ 92K
! The apartment market is generally oversupplied andfacing stiff competition from condominiums and
other for-sale housing now being offered for rent.At the same time, debt and equity financing for new
projects is still exceptionally hard to secure, and
appraisals are incorporating much more
conservative assumptions. The combination of these
factors has severely limited new construction. On
the plus side, demand is finally picking up,
particularly for garden apartments.! While multi-family permits have struggled mightily,
we expect some gains this year with builders starting
roughly 150,000 units. The challenging
fundamentals have likely caused activity to
overshoot to the downside. Multi-family Building PermitsSAAR, In Thousands, 3-Month Moving Average
0
100
200
300
400
500
600
90 92 94 96 98 00 02 04 06 08 10
0
100
200
300
400
500
600
Multi-family Building Permits: Feb @ 125K
NCREIF Apartment Property IndexRate of Return
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
Apartment Index: Q4 @ -1.8%
Single & Multi-family Building Permits
SAAR, In Thousands, 3-Month Moving Average
0
250
500
750
1,000
1,250
1,500
1,750
2,000
92 94 96 98 00 02 04 06 08 10
0
100
200
300
400
500
600
700
800
Single-family Building Permits: Feb @ 504K (Left Axis)
Multi-family Building Permits: Feb @ 125K (Right Axis)
Housing VacanciesMillions of Units
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Vacant for Sale: Q4 @ 2.1M
Vacant for Rent: Q4 @ 4.5M
Source: NCREIF, U.S. Department of Commerceand Wells Fargo Securities, LLC
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Buying ConditionsHousing Affordability, NAR-Home Sales
Base = 100
90
100
110
120
130
140
150
160
170
180
190
92 94 96 98 00 02 04 06 08 10
90
100
110
120
130
140
150
160
170
180
190
Housing Affordability Index: Feb @ 176.0
6-Month Moving Average: Feb @ 171.5
! The extension and expansion of the first-timehomebuyers tax credit continues to bolster
affordability and buying plans. Unfortunately, theend of the Feds MBS purchase program and the
recent weakness in the Treasury market have
pushed mortgage rates higher.
! Higher mortgage rates will compound the problemfor many buyers who are having trouble meeting
tougher underwriting criteria. Appraisals remain
tough, and down payment requirements are higher
than they were a few years ago.
! Buyer traffic in the NAHB survey has yet to show anincrease from the tax credit extension and
expansion. Traffic is expected to pick up this spring,
just ahead of when the credit is set to expire. Net Percent of Banks Tightening StandardsMortgages for Individuals
-20%
0%
20%
40%
60%
80%
100%
1990 1994 1998 2002 2006 2010
-20%
0%
20%
40%
60%
80%
100%
All Mortgages (Through Q1-2007)
Prime Mortgages: Q1 @ 13.2%
Nontraditional Mortgages: Q1 @ 29.4%
U. Michigan Sentiment Home Buying ConditionsIndex
50
60
70
80
90
100
1986 1990 1994 1998 2002 2006 2010
50
60
70
80
90
100
Home Buying Conditions: Mar @ 77.0
Payment on Median Priced Single Family Home
As a Percentage of Family Income
12%
14%
16%
18%
20%
22%
24%
26%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
12%
14%
16%
18%
20%
22%
24%
26%
Payment as a Percent of Income: Feb @ 14.2%
NAHB Expected Buyer TrafficPercent
0%
10%
20%
30%
40%
50%
60%
70%
87 89 91 93 95 97 99 01 03 05 07 09
0%
10%
20%
30%
40%
50%
60%
70%
Traffic of Expected Buyers: Mar @ 10.0%
Source: Federal Reserve Board, MBA, NAHB, NAR, University ofMichigan and Wells Fargo Securities, LLC
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New Home SalesNew Home Sales
Seasonally Adjusted Annual Rate - In Thousands
100
300
500
700
900
1,100
1,300
1,500
89 91 93 95 97 99 01 03 05 07 09
100
300
500
700
900
1,100
1,300
1,500
New Home Sales: Feb @ 308,000
3-Month Moving Average: Feb @ 322,667! New home sales unexpectedly set new all-time lowsin January and again in February as the weak
housing market combined with tough winter weather kept buyers away. The extension and
expansion of the first-time homebuyers tax credit
has been unable to offset sales that were likely
pulled forward into last year.
! We expect sales will see some improvement in thespring as newly eligible buyers look to take
advantage of the tax credit. Sales have a long way to
go, however, before they return to any kind of
normal level, and, with so few homes being built
it, may be several years in the future.
! Inventory levels have overshot their previous lows,but may be finding a bottom at their current levels. Inventory of New Homes for Sale
New Homes for Sale at End of Month - In Thousands
200
250
300
350
400
450
500
550
600
97 98 99 00 01 02 03 04 05 06 07 08 09 10
200
250
300
350
400
450
500
550
600
New Homes for Sale: Feb @ 236,000
Percentage of New Homes Completed in InventoryNon-Seasonally Adjusted
20%
25%
30%
35%
40%
45%
50%
90 92 94 96 98 00 02 04 06 08 10
20%
25%
30%
35%
40%
45%
50%
New Homes Completed in Inventory : Feb @ 41.2%
Months' Supply of New Homes
Seasonally Adjusted
2
4
6
8
10
12
14
90 92 94 96 98 00 02 04 06 08 10
2
4
6
8
10
12
14
Months' Supply: Feb @ 9.2
Inventory of New Homes for SaleNew Homes for Sale at End of Month, 2002=100
40
60
80
100
120
140
160
180
200
220
97 98 99 00 01 02 03 04 05 06 07 08 09 10
40
60
80
100
120
140
160
180
200
220
Northeast: Feb @ 96.3
Midwest: Feb @ 52.1
South: Feb @ 84.8
West: Feb @ 67.1
Source: U.S. Department of Commerceand Wells Fargo Securities, LLC
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Existing Home SalesExisting Home Resales
Seasonally Adjusted Annual Rate - In Millions
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
1999 2001 2003 2005 2007 2009
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Existing Home Sales: Feb @ 5.02 Million
! Existing home sales have yet to see any real helpfrom the extension and expansion of the first-time
homebuyer tax credit. Sales fell back to just 5.0million units at an annual pace, but may see some
improvement in late spring as we run into the
expiration of the tax credit. Pending home sales did
see some improvement in February despite the poor
weather. The relationship between the two series,
however, has not been as tight recently.
! We still have significant concerns about thesustainability of the housing recovery once all the
stimulus is removed from the marketplace. With
higher mortgage rates and the end of the tax credit,
selling conditions are going to be much more
challenging in the second half of the year. Existing Single-Family Home ResalesSeasonally Adjusted Annual Rate - In Millions
2.0
3.0
4.0
5.0
6.0
7.0
86 88 90 92 94 96 98 00 02 04 06 08 10
2.0
3.0
4.0
5.0
6.0
7.0
Existing Home Sales: Feb @ 4.4 Million
Pending Home Sales IndexYear-over-Year Percent Change
-30%
-20%
-10%
0%
10%
20%
30%
40%
2002 2003 2004 2005 2006 2007 2008 2009 2010
-30%
-20%
-10%
0%
10%
20%
30%
40%
Year-over-Year Change: Feb @ 17.3%
Existing Condominium ResalesSeasonally Adjusted Annual Rate - In Thousands
400
500
600
700
800
900
1000
99 00 01 02 03 04 05 06 07 08 09 10
400
500
600
700
800
900
1000
Condo Sales: Feb @ 650,000
Inventory of Existing Homes for SaleExisting Homes for Sale at End of Month, In Thousands
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1999 2001 2003 2005 2007 2009
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Total Inventory: Feb @ 3,589
Source: National Association of Realtorsand Wells Fargo Securities, LLC
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Home PricesS&P Case-Shiller Home Prices
Percent Decline from Local Market Peak
7.3%10.5%
13.8%
16.1%16.5%
20.6%
21.0%
21.6%24.6%
25.8%
28.3%29.1%
36.9%
37.3%37.9%
42.0%
43.5%
47.2%50.9%
55.8%
30.2%
29.6%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65%
Dallas
DenverCharlotte
Boston
ClevelandNew York
Portland
AtlantaSeattle
Chicago
Minneapolis
Washington
Los Angeles
San Diego
San Francisco
Tampa
Detroit
Miami
Phoenix
Las Vegas
C-10
C-20
! The worst of the home price declines are behind us,and many of the widely followed home price indices
have already posted monthly or quarterly increases.Still, the improvement in home prices is extremely
tenuous. Large numbers of foreclosed properties
still hang over the market, and there is an even
larger supply of homes with seriously delinquent
mortgages potentially moving into foreclosure.! Tax-credit-driven activity has caused much of the
recent sales activity to occur at lower price points.
Fewer sales have taken place at the higher end.
Prices may post renewed declines once long
distressed properties finally sell, which would pull
the S&P/Case-Shiller index back down. At the same
time the NAR indices could actually rise as a result. S&P Case-Shiller National Home Price Index, NSA
Bars = Q/Q % Change Line = Yr/Yr % Change
-24%
-18%
-12%
-6%
0%
6%
12%
18%
88 90 92 94 96 98 00 02 04 06 08
-8%
-6%
-4%
-2%
0%
2%
4%
6%
National Home Price Index: Q4 @ -1.1% (Right Axis)
National Home Price Index: Q4 @ -2.5% (Left Axis)
Average and Median New Home Sale PriceIn Thousands
100
150
200
250
300
350
97 98 99 00 01 02 03 04 05 06 07 08 09 10
100
150
200
250
300
350
Average Sales Price: Feb @ $282,600
Median Sales Price: Feb @ $220,500
FHFA Home Price Indices
Non-Seasonally Adjusted, Year-over-Year Percent Change
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
92 94 96 98 00 02 04 06 08
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Home Price Index: Q4 @ -4.7%
Purchase-Only Index: Q4 @ -1.3%
Existing Single-Family Home PricesIn Thousands
$50
$100
$150
$200
$250
$300
93 95 97 99 01 03 05 07 09
$50
$100
$150
$200
$250
$300
Average Sale Price: Feb @ $210,200
Median Sale Price: Feb @ $164,300
Source: FHFA, NAR, S&P Corp, U.S. Department of Commerceand Wells Fargo Securities, LLC
10
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Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLCApril 13, 2010 ECONOMICS GROUP
11
Renovation & RemodelingResidential Investment
Year-over-Year Percent Change
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1996 1998 2000 2002 2004 2006 2008
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Improvments: Q4 @ -6.6%
Res. Investment Ex.-Improvements: Q4 @ -20.0%
! Remodeling and housing improvements have alsobeen affected by the housing slump. While spending
is down less, homeowners are clearly less inclined tomake major improvements to their homes when
prices are flat or declining.
! Spending is now much more focused on repairs thanon additions and upgrades. In addition, the torrent
of foreclosure sales has produced a steady stream of
homes in need of repair.
! The more modest drop in outlays for improvementsmeans they now comprise a larger share of
residential investment. Spending will likely recover
only modestly over the course of 2010, as consumers
are more likely to view their homes as an expense
rather than investment for the next few years. Residential Investment
New Building
38%
Improvements
43%
Brokers'
Commissions
19%
Other
0%
Q4-2009
Residential InvestmentBillions of Dollars
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1992 1994 1996 1998 2000 2002 2004 2006 2008
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Other: Q4 @ $0.1
Brokers' Commissions: Q4 @ $68.6
Improvements: Q4 @ $153.3
New Building: Q4 @ $134.5
Residential Investment
New Building
63%
Improvements
22%
Brokers'
Commissions
14%
Other
1%
Q4-2004
Residential ImprovementsYear-over-Year Percent Change
-30%
-20%
-10%
0%
10%
20%
30%
40%
94 96 98 00 02 04 06 08 10
-30%
-20%
-10%
0%
10%
20%
30%
40%
Residential Improvements: Feb @ 4.3%
Source: Joint Center for Housing Studies, U.S. Department ofCommerce and Wells Fargo Securities, LLC
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Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg Global Head of Research& Economics
(704) 715-8437(212) 214-5070
John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]
Mark Vitner Senior Economist (704) 383-5635 [email protected]
Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected]
Scott Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected]
Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 [email protected]
Sam Bullard Economist (704) 383-7372 [email protected]
Anika Khan Economist (704) 715-0575 [email protected]
Azhar Iqbal Econometrician (704) 383-6805 [email protected]
Adam G. York Economist (704) 715-9660 [email protected]
Ed Kashmarek Economist (612) 667-0479 [email protected]
Tim Quinlan Economist (704) 374-4407 [email protected]
Kim Whelan Economic Analyst (704) 715-8457 [email protected]
Yasmine Kamaruddin Economic Analyst (704) 374-2992 [email protected]
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registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and theSecurities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and throughsubsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC,and Wells Fargo Securities International Limited. The information and opinions herein are for general information useonly. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities,LLC assume any liability for any loss that may result from the reliance by any person upon any such information oropinions. Such information and opinions are subject to change without notice, are for general information only and arenot intended as an offer or solicitation with respect to the purchase or sales of any security or as personalizedinvestment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a
wholly owned subsidiary of Wells Fargo & Company 2010 Wells Fargo Securities, LLC.
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