Housing Chart Book

8/9/2019 Housing Chart Book

1/12

This report is available on wellsfargo.com/research and on Bloomberg WFEC

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

Housing Chartbook: April 2010


2/12

Housing Chartbook: April 2010 WELLS FARGO SECURITIES, LLCApril 13, 2010 ECONOMICS GROUP

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.


3/12


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


4/12


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

4


5/12


5

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


6/12


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

6


7/12


7

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


8/12


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

8


9/12


9

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


10/12


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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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

[email protected]

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]

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer

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.

SECURITIES: NOT FDIC-INSURED NOT BANK-GUARANTEED MAY LOSE VALUE

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