Houston-Baytown-Sugar Land AreaLocal Market Report, First Quarter 2010

Local Trend

Today's Market…

3-year (12-quarter) Appreciation (2010 Q1)

Prices are above the level from 12 months ago and growing-0.5%1-year (4-quarter) Appreciation (2010 Q1) 8.4%

-22 1%2 0%

Current Median Home Price (2010 Q1)

U.S.Price Activity

Houston

$150,100 $166,733

$0$20,000$40,000$60,000$80,000

$100,000$120,000$140,000$160,000$180,000

-8%-6%-4%-2%0%2%4%6%8%10%12%

2010 Q1

Q32009 Q1

Q32008 Q1

Q32007 Q1

Q32006 Q1

Q32005 Q1

Q32004 Q1

Q32003 Q1

Q32002 Q1

Q32001 Q1

Median Price (Red Line) and One-year Price Growth

State Existing Home Sales (2010 Q1 vs 2009 Q1)

Most buyers in this market have access to government-backed finacingFHA Loan Limit $271,050

11.4%

$417,000Conforming Loan Limit*

3-year (12-quarter) Appreciation (2010 Q1)

U.S.Home Sales TexasSales growth during the first quarter

remains sluggish

$2,9007-year (28 quarters) Housing Equity Gain

$729,250

*Note: the 2009 loan limits for FHA and the GSEs were extended through 2010.36%

5.8%

-$47,333$20,900 -$467

3-year (12-quarter) Housing Equity Gain-22.1%2.0%

$31,800

This area has held onto a modest improvement in equity despite the

national market decline$22,733

not comparable

$417,000

9-year (36 quarters) Housing Equity Gain

Local Median to Conforming Limit Ratio

$0$20,000$40,000$60,000$80,000

$100,000$120,000$140,000$160,000$180,000

-8%-6%-4%-2%0%2%4%6%8%10%12%

2010 Q1

Q32009 Q1

Q32008 Q1

Q32007 Q1

Q32006 Q1

Q32005 Q1

Q32004 Q1

Q32003 Q1

Q32002 Q1

Q32001 Q1

Median Price (Red Line) and One-year Price Growth

0

100

200

300

400

500

600

700

-25%-20%-15%-10%-5%0%5%10%15%20%25%

2010 Q1

Q32009 Q1

Q32008 Q1

Q32007 Q1

Q32006 Q1

Q32005 Q1

Q32004 Q1

Q32003 Q1

Q32002 Q1

Q32001 Q1

State Home Sales (Red Line) and Sales Growth1,000s

(2010 Q1 vs 2009 Q1) remains sluggish

$0$20,000$40,000$60,000$80,000

$100,000$120,000$140,000$160,000$180,000

-8%-6%-4%-2%0%2%4%6%8%10%12%

2010 Q1

Q32009 Q1

Q32008 Q1

Q32007 Q1

Q32006 Q1

Q32005 Q1

Q32004 Q1

Q32003 Q1

Q32002 Q1

Q32001 Q1

Median Price (Red Line) and One-year Price Growth

0

100

200

300

400

500

600

700

-25%-20%-15%-10%-5%0%5%10%15%20%25%

2010 Q1

Q32009 Q1

Q32008 Q1

Q32007 Q1

Q32006 Q1

Q32005 Q1

Q32004 Q1

Q32003 Q1

Q32002 Q1

Q32001 Q1

State Home Sales (Red Line) and Sales Growth1,000s

#N/A #N/A Natural 13.6%

Natural Resour 3.8% 87.7 Natural 0.5%

Construction 7 3% 168 1 Constru 4 2%

Not Comparable

-19,400

9.7%

-4.0%

8.6%

Unemployment has risen since the same period last year, but Houston's labor

market has been more resilient than the national average8.5%

U.S.

Not Comparable

12-month Job Change (Feb)

Job losses are a problem and will weigh on demand, but layoffs are declining which could help buyer confidence

12-month Job Change (Mar) -60,200

Year-ago Unemployment Rate

U.S.Local Economic Outlook

Not Comparable

Drivers of Local Supply and Demand…

Houston

6.8%

1-year (12 month) Job Growth Rate -2.3%

-77,900

36-month Job Change (Mar)

Current Unemployment Rate (Mar)

Weak, but better than most markets

Share of Total Employment by IndustryHouston-Baytown-Sugar Land Area

Trade/Transportation/Uti

lities22.2%Other

Services4 0%

Government

16.6%

Trade/Transportation/U

tilities8.9%

Other Services10.0%

Government

4.1%

Construction 7.3% 168.1 Constru 4.2%

Trade/Transpo 22.2% 508.3 Trade/T 8.9%

Information 1.5% 33.2 Informa18.8%

Financial Act 6.0% 137 Financi2.1%

Prof. & Busin 15.2% 347.8 Profess5.8%

Educ. & Heal 13.3% 303.7 Educat 12.8%

Leisure & Ho 10.2% 233.1 Leisure15.1%

Other Service 4.0% 91.2 Other S10.0%

Government 16.6% 378.9 Govern4.1%

Prof. & Business Services -16,80012,300-1,900-1,0005,400

NA-1,300

-23,100-12,700-2,000-3,100

Educ. & Health ServicesLeisure & HospitalityOther Services

U.S.

12-month Employment Change by Industry in the Houston-Baytown-Sugar Land Area

Natural Resources/Mining/Construct

GovernmentFinancial Activities

Natural Resources and MiningConstructionTrade/Transportation/Utilities

-1.2%

-5.6%

The economy of Texas is weaker than the rest of the nation, but improved

modestly from last month

Texas

-4.3%

-2.1%

36-month change (2010 - Mar)

12-month change (2010 - Mar)

State Economic Activity Index

Information

Trade/Transportation/Uti

lities22.2%

Information1.5%

Financial Activities

6.0%

Prof. & Business Services15.2%

Educ. & Health

Services13.3%

Leisure & Hospitality

10.2%

Other Services

4.0%

Government

16.6%

Trade/Transportation/U

tilities8.9%

Information18.8%

Financial Activities

2.1%

Professional &

Business Services

5.8%

Educational & Health Services12.8%

Leisure & Hospitality

15.1%

Other Services10.0%

Government

4.1%

The current level of construction is 39.0% below the long-term average

-6.1%

not comparable

U.S.Houston

39,817

24,275 not comparable

Construction

Construction is down from last year, but appears to have bottomed.

Reduced construction will limit new supply to the market, allowing demand to

catch up with current supply and foreclosures more quickly

-0.4%Single-Family Housing Permits (Mar 2010) 12-month sum vs. a year ago

Local Fundamentals

12-month Sum of 1-unit Building Permits through Mar 2010

Long-term average for 12-month Sum of 1-Unit Building Permits

10,000

20,000

30,000

40,000

50,000

60,000

Construction: 12-month Sum of Local Housing Permits (Historical Average Shown in Red Dashed Line)

0

10,000

20,000

30,000

40,000

50,000

60,000

Construction: 12-month Sum of Local Housing Permits (Historical Average Shown in Red Dashed Line)

0

10,000

20,000

30,000

40,000

50,000

60,000

Construction: 12-month Sum of Local Housing Permits (Historical Average Shown in Red Dashed Line)

Monthly Mortgage Payment to Income

22.6% More affordable than most markets

7.9%Houston

7.7%10.7%

Ratio for 2008Ratio for 2010 Q1Historical Average

14.4%

U.S.15.3% Historically strong, but weaker than the

fourth quarter of 2009

Affordability

0%

5%

10%

15%

20%

25%

30%

2009200720052003200119991997199519931991

Ratio of Local Mortgage Servicing Cost to Income (Local Historical Average Shown in Red, U.S. Average in Green)

Ratio for 2010 Q12.4

Houston

1.3

Ratio for 2009

Historical Average

Median Home Price to Income

1.2

2.7 Affordable compared to most markets2.21.2

Local affordability has improved, but could be better

U.S.

0%

5%

10%

15%

20%

25%

30%

2009200720052003200119991997199519931991

Ratio of Local Mortgage Servicing Cost to Income (Local Historical Average Shown in Red, U.S. Average in Green)

0%

2%

4%

6%

8%

10%

12%

2010 Q12009 Q42009 Q32009 Q22009 Q12008 Q42008 Q32008 Q2

Recent Trend - Local Mortgage Servicing Cost to Income(Historical Average Shown in Red Dashed Line)

0%

5%

10%

15%

20%

25%

30%

2009200720052003200119991997199519931991

Ratio of Local Mortgage Servicing Cost to Income (Local Historical Average Shown in Red, U.S. Average in Green)

0%

2%

4%

6%

8%

10%

12%

2010 Q12009 Q42009 Q32009 Q22009 Q12008 Q42008 Q32008 Q2

Recent Trend - Local Mortgage Servicing Cost to Income(Historical Average Shown in Red Dashed Line)

The Mortgage Market

2 5

3.06.57.0

30-year Fixed Mortgage Rate and Treasury Bond Yield (%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2009200720052003200119991997199519931991

Ratio of Local Median Home Price to Local Average Income (Local Historical Average Shown in Red, U.S. Average in Green)

Signs of economic strength during the first quarter pressed up on the 10-year Treasury yield, while Fed purchases of mortgage backed securities helped to keep long-term mortgage rates low. The spread between the 30-year fixed rate mortgage and the 10-year Treasury continued to shrink through the first quarter of 2010 as a result. In the first two months of the second quarter, new concerns about domestic employment growth and international banking issues have sent investors clamoring to long-term Treasuries for safety, easing inflation concerns (temporarily) and sending the yield sliding. Private demand for mortgage backed securities rose in wake of the Treasury's cessation of its mortgage purchase program, muting upward pressure on long-term mortgage rates. Figures for the second quarter, due out in a few months, will likely show a flat or slightly wider spread between the 10-year Treasury and 30-year FRM. The debt crisis in Greece and fear of a contagion have caused long-term Treasury yields to tumble as nervous investors sought a shelter. The decline in the Treasury yield has not been matched by moderating mortgage rates leading to a increase in the spread.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2.02.53.03.54.04.55.05.56.06.57.0

2010 Q1Q32009 Q1Q32008 Q1Q32007 Q1Q32006 Q1Q32005 Q1

30-year Fixed Mortgage Rate and Treasury Bond Yield (%)

Spread (left axis) 30-Year FRM (Right axis) 10-Year Treasury Bond (Right Axis)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2009200720052003200119991997199519931991

Ratio of Local Median Home Price to Local Average Income (Local Historical Average Shown in Red, U.S. Average in Green)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2.02.53.03.54.04.55.05.56.06.57.0

2010 Q1Q32009 Q1Q32008 Q1Q32007 Q1Q32006 Q1Q32005 Q1

30-year Fixed Mortgage Rate and Treasury Bond Yield (%)

Spread (left axis) 30-Year FRM (Right axis) 10-Year Treasury Bond (Right Axis)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2009200720052003200119991997199519931991

Ratio of Local Median Home Price to Local Average Income (Local Historical Average Shown in Red, U.S. Average in Green)

Monthly Market Data

Foreclosures by Type

Looking Deeper….

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

State Total Foreclosure Rate vs. U.S Average(U.S. Average in Blue Dashed Line)

Source: Mortgage Bankers' Association

85.8% 3.2% 11.0% 88.5% 5.2% 6.3%

1.3% 2.7%

0.9% 2.3%

8.2% 17.9%

7.1% 18.0%

4.6% 14.8%

4.2% 14.5%

Source: First American CoreLogic, LoanPerformance data

The February rate for Houston is low compared to the national average

The "foreclosure + REO rate" is the number of mortgages, by metro area, that are either in the foreclosure process or have completed the foreclosure process and are owned by banks divided by the total number of mortgages for that area.

ALT-A: Foreclosure + REO

Rate

A large local increase occurred compared to August of last year

Compared to the national average, today's local rate is low

There was a substantial increase versus August of this year

SUBPRIME: Foreclosure + REO

Rate

Monthly Market Data - February 2010

PRIME: Foreclosure + REO

Rate

Market Share: Prime (blue), Alt-A

(green), and Subprime (red)

Locally, today's foreclosure rate is low relative to the national average

There has been a large local increase versus a year ago

Delinquencies by TypeU.S.

The Houston market has a lower share of subprime loans than the average market,

but rising prime foreclosures are becoming a problem

Houston

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

State Total Foreclosure Rate vs. U.S Average(U.S. Average in Blue Dashed Line)

Source: Mortgage Bankers' Association

1.3%

0.9%

Feb-10Aug-09

2.7%2.3%

Feb-10Aug-09

8.2%7.1%

Feb-10Aug-09

4.6%4.2%

Feb-10Aug-09

17.9%

18.0%

Feb-10Aug-09

14.8%14.5

%

Feb-10Aug-09

85.8%

3.2% 11.0%

88.5%

5.2%

6.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

State Total Foreclosure Rate vs. U.S Average(U.S. Average in Blue Dashed Line)

Source: Mortgage Bankers' Association

1.3%

0.9%

Feb-10Aug-09

2.7%2.3%

Feb-10Aug-09

8.2%7.1%

Feb-10Aug-09

4.6%4.2%

Feb-10Aug-09

17.9%

18.0%

Feb-10Aug-09

14.8%14.5

%

Feb-10Aug-09

85.8%

3.2% 11.0%

88.5%

5.2%

6.3%

5.4% 4.5% 4.0% 7.6% 6.3% 4.9%

4.2% 3.3% 3.0% 6.5% 5.2% 3.8%

1.3% 0.9% 0.7% 2.7% 2.3% 1.7%

Source: First American CoreLogic LoanPerformance data

Houston U.S.Monthly Market Data - February 2010

Prime Foreclosures and Delinquencies in Process

Prime: 60-day Delinquent

Prime: 90-day Delinquent

The share of local 60-day delinquencies rose suggesting that the 90-day

delinquency rate is likely to rise in the near future

Houston's 90-day delinquency rate climbed faster than the national average suggesting a bulge of foreclosures in the

future

Rising 60 and 90-day delinquency rates will press up on local prime foreclosures

rates in the near future.

Prime: Foreclosure +

REO Rate

5.4%

4.5%

4.0%

Feb-10Aug-09Feb-09

7.6%6.3%4.9%

Feb-10Aug-09Feb-09

6.5%5.2%3.8%

Feb-10Aug-09Feb-09

1.3%0.9

%0.7%

Feb-10Aug-09Feb-09

2.7%2.3%1.7%

Feb-10Aug-09Feb-09

4.2%3.3%3.0%

Feb-10Aug-09Feb-09

Source: First American CoreLogic, LoanPerformance data

Austin County, Brazoria County, Chambers County, Fort Bend County, Galveston County, Harris County, Liberty County, Montgomery County, San Jacinto County, and Waller County

More information on the OMB's geographic definitions can be found at http://www.whitehouse.gov/omb/inforeg_statpolicy/

The Houston area referred to in this report covers the geographic area of the Houston-Baytown-Sugar Land metro area as officially defined by the Office of Management and Budget of the U.S. Government. The official coverage area includes the

following counties:

Geographic Coverage

5.4%

4.5%

4.0%

Feb-10Aug-09Feb-09

7.6%6.3%4.9%

Feb-10Aug-09Feb-09

6.5%5.2%3.8%

Feb-10Aug-09Feb-09

1.3%0.9

%0.7%

Feb-10Aug-09Feb-09

2.7%2.3%1.7%

Feb-10Aug-09Feb-09

4.2%3.3%3.0%

Feb-10Aug-09Feb-09