Today's Market…

Grand Rapids Area Local Market Report, Fourth Quarter 2009

Today's Market...

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

$160,000

20%

$140,000 $120,000 $100,000

10% 0%

$80,000

-10%

$60,000 $40,000 $20,000

-20% -30%

$0

-40%

2000 Q2 2001 Q2 2002 Q2 2003 Q2 2004 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Q2 2009

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Price Activity Current Median Home Price (2009 Q4) 1-year Appreciation (2009 Q4) 3-year Appreciation (2009 Q4)

3-year (12-quarter) Housing Equity Gain 7-year (28 quarters) Housing Equity Gain 9-year (36 quarters) Housing Equity Gain

Grand Rapids

$89,900 11.7% -30.6% -$39,600 -$36,200 -$20,900

U.S.

Local Trend

$173,500 -4.0% -5.2% -$9,600

-$47,600 -$4,767

Prices are above the level from 12 months ago and growing

The price slump wiped out all of the equity gained during the housing boom

Conforming Loan Limit*

$417,000

$729,250

Local Median to Conforming Limit Ratio

22%

not comparable

*Note: the 2009 loan limits for FHA and the GSEs were extended through 2010.

Most buyers in this market have access to government-backed finacing

State Home Sales (Red Line) and Sales Growth

1,000s

250

20%

15% 200

10%

150

5%

0%

100

-5%

50

-10%

-15%

0

-20%

2000 Q2 2001 Q2 2002 Q2 2003 Q2 2004 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Q2 2009

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Home Sales and Construction Growth

State Existing Home Sales (2009 Q4 vs 2008 Q4)

Michigan 13.9%

U.S.

27.2%

The sales level is much higher than a year ago and growing.

Drivers of Local Supply and Demand...

Local Economic Outlook

Grand Rapids

1-year Job Change (Dec)

-12,100

1-year Job Change (Nov)

-12,800

3-year Job Change (Dec)

Current Unemployment Rate (Dec) Year-ago Unemployment Rate

1-year (12 month) Job Growth Rate

-25,500

12.2% 9.0% -3.2%

U.S.

Not Comparable

Not Comparable

Not Comparable

10.0%

7.4%

-4.3%

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

Grand Rapids's unemployment situation is worse than the national average and

weighs on confidence

Weak, but better than most markets

State Economic Activity Index 12-month change (2009 - Dec) 36-month change (2009 - Dec)

Michigan -10.4% -20.2%

U.S.

-2.2% -1.3%

The economy of Michigan is weaker than the rest of the nation, but improved modestly from last month

Local Fundamentals 12-month Sum of 1-unit Building Permits through

Dec 2009

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

Single-Family Housing Permits (Dec 2009) 12-month sum vs. a year ago

Grand Rapids 784 3,712

-22.1%

U.S.

not comparable

The current level of construction is 78.9% below the long-term average

Excess supply reduction could result in not comparable price escalation over the longer-term if, in

the future, there is rapid and robust increase in demand

-23.7%

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

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000

0

Construction: 12-month Sum of Local Housing Permits

(Historical Average Shown in Red Dashed Line)

Affordability

Affordability - Local Mortgage Servicing Cost-to-Income

(Local Historical Average Shown in Red, U.S. Average in Green)

30%

25%

20%

15%

10%

5%

0% 1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Monthly Mortgage Payment to Income Ratio for 2008

Ratio for 2009 Q4 Historical Average

Grand Rapids 6.1% 6.2% 11.8%

U.S.

15.4% 14.8% 22.6%

Historically strong and an improvement over the third quarter of this year

More affordable than most markets

Recent Trend - Local Mortgage Servicing Cost to Income

14%

(Historical Average Shown in Red Dashed Line)

12%

10%

8%

6%

4%

2%

0% 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4

Median Home Price to Income Ratio for 2009

Ratio for 2009 Q4 Historical Average

Grand Rapids 2.5 2.5 3.8

U.S.

6.2 6.1 7.2

Local affordability has improved and is below the historical average

Affordable compared to most markets

Ratio of Local Median Home Price to Local Average Income

(Local Historical Average Shown in Red, U.S. Average in Green) 10.0

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

1991 1993 1995 1997 1999 2001 2003 2005 2007

2009

The Mortgage Market

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

3.0

7.0

6.5

2.5

6.0

2.0

5.5

5.0

1.5

4.5

4.0

1.0

3.5

0.5

3.0

2.5

0.0

2.0

2004 Q4 Q2 2005 Q4 Q2 2006 Q4 Q2 2007 Q4 Q2 2008 Q4 Q2 2009 Q4

Spread (left axis)

30-Year FRM (Right axis)

10-Year Treasury Bond (Right Axis)

The spread between the 30-year fixed rate mortgage and the 10-year Treasury is now at comfortable, pre-crisis levels. However, the Federal Reserve and Treasury will stop buying mortgage backed securities (MBS) on March 31st. The agencies had been buying MBS to keep mortgage rates low. Consequently, the end of the program has some market observers concerned about a possible increase in rates. However, the Fed has slashed its purchases of MBS in recent weeks and the private sector has scooped up any remaining MBS. With yields on other investments low, the returns on the MBS, even at 5%, are desirable. The Fed has promised that it stands ready to intervene in the market, presumably by resuming purchases, in case there is a sudden increase in mortgage rates. Low mortgage rates have been critical to the

improved home sales that are at the core of the housing market and economic recovery.

Looking Deeper....

5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0%

State Total Foreclosure Rate vs. U.S Average

(U.S. Average in Blue Dashed Line)

Source: Mortgage Bankers' Association

Monthly Market Data November 2009

Grand Rapids

U.S.

Market Share:

Prime (blue) vs. Subprime + Alt-A

PRIME:

Foreclosure + REO Rate

8.2%

91.8 %

11.7 91.8% %

8.2%

88.3%

88.3 %

11.7%

1.7 %

Oct-09

2.3 2.3% %

1.7%

Nov-09

2.1%

2.6%

2.6%

2.1%

Oct-09

Nov-09

The Grand Rapids market has a lower share of subprime loans than the average market, but rising prime foreclosures are

becoming a problem

There was a substantial increase versus October of this year

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

SUBPRIME:

Foreclosure + REO Rate

17.3 %

Oct-09

15.7%

15.7 %

17.3%

Nov-09

18.4 18.0%

%

18.0

%

18.4%

Oct-09

Nov-09

The local foreclosure rate has fallen relative to last month

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

ALT-A:

Foreclosure + REO Rate

11.1 %

Oct-09

10.5%

10.5 %

11.1%

Nov-09

14.8%

14.8

14.0

%

%

14.0%

Oct-09

Nov-09

Relatively little local change versus October of this year

The November rate for Grand Rapids 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.

Source: First American CoreLogic, LoanPerformance data

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