PMI’S MONTHLY ANALYSIS OF ECONOMIC,
HOUSING, AND MORTGAGE MARKET CONDITIONS
ISSUE 9 VOLUME 2 Oct 2009
Inside this Issue
ƒ The Outlook
ƒ Special Topic: Have
Home Prices Fully
Corrected?
ƒ Housing Market
Indicators
ƒ Mortgage Market
Indicators
ƒ Regional Roundup
ƒ Region in Focus:
The West
ƒ The PMI Forecast
Contributors
ƒ David W. Berson.
Ph.D., Chief Economist
and Strategist
ƒ Brett G. Soares,
Economic Analyst
ƒ Marguerite Nicholson,
Executive Assistant II
The Outlook
While the economy continues to expand, recent economic data suggest that the pace of growth will
be slow and the trend will only be unevenly upward. As a result, the slow growth “U” shaped or
perhaps even the double-dip “W” shaped outlooks appear to be more likely than the fast growth
“V” shaped one. Most of the data still show that the economy is moving forward, however, so the
U shaped recovery is still more likely than the W – at least for now. A huge drop in business
inventories, as a result of uncertainty about the severity of the financial bust, has been a key
ingredient in the severity of the economic downturn. But now that financial markets are
beginning to heal and sales to stabilize, the inventory correction should end – giving a boost to the
economy over the second half of this year. Indeed, this is likely one of the primary reasons for the
jump in the various purchasing manager indices over the past several months. For growth to
continue in 2010 at a reasonable pace, however, we will need to see a pickup in consumer
spending, business fixed investment spending, or further gains in trade.
(Continued on page 2)
Figure 1: Job Losses Have Slowed Sharply,
but Unemployment is Still Rising
10 4 00
9 2 00
8 0
Thousands
Percent
7 -20 0
Change in Payroll Employment
6 (Right Axis) -40 0
5 -60 0
Civilian Unemployment Rate
4 (Left Axis) -80 0
02 03 04 05 06 07 08 09
Source: Bureau of Labor Statistics/Haver Analytics
Special Topic: Have Home Prices Fully Corrected?
Home prices surged over the 2001-2007 period, rising far beyond a sustainable pace. But how
much did these prices get out of line with historical trends? Moreover, how close are they now,
after having fallen substantially, to what could be considered a normal level? Most importantly,
have home prices fallen sufficiently so that we can say that they are fairly valued today? And if
not, how much more do they still have to decline?
(Continued on page 12)
 The Outlook (continued from cover page)
Nonfarm payroll employment fell by 263,000 in
September, the twenty-first consecutive monthly decline
and a jump from the previous month (see figure 1). The
details of the report were not especially positive:
• The unemployment rate rose to 9.8 percent (the
highest level since mid-1983).
• Average hours worked (a leading indicator of the
direction of hiring) slipped to a cyclical low of
33.0 (the same as in May 2009).
• Average hourly earnings increased by a weak 0.1
percent.
• But positively, the August drop in payrolls was
revised from 216,000 to 201,000 – the smallest
decline in a year.
Even with the worsening reflected in the September
employment report, the trend in the job market remains
positive. We expect nonfarm payrolls to finally stop falling
in the first quarter of next year, but gains after that are
likely to be grudging. The four-week average of weekly
unemployment claims (a smoothed leading indicator of the
monthly employment readings) has continued to slowly
improve. The beginning-of-October figure of 539,750 was
the lowest since, and is significantly better than, early-
April’s 658,750 – the peak for this cycle. Still, sustained
weekly unemployment claims above about 450,000 suggest
further labor market declines.
Two of the most improved measures of business activity
slipped last month – although both still signal an
expansion. The manufacturing survey index from the
Institute for Supply Management (ISM) edged down to
52.6 in September, the first decline this year. That is still
above the 50.0 level that indicates an expanding
manufacturing sector, however, and much higher than the
43.0 reading that denotes an expanding economy.
Moreover, the ISM’s non-manufacturing survey index rose
to 50.9 in September – its first plus-50 reading since last
September. This is the highest level in three years and the
first time it had been over 50 since January 2008. New
orders for non-defense capital goods excluding aircraft – a
proxy for future business capital spending – fell by 0.9
percent in August. Even with this decline, the average thus
far for the third quarter is 2.1 percent above the second
quarter. And equivalent data on shipments – a proxy for
current capital spending – show little change in the third
quarter despite a 2.0 percent drop in August.
We have slightly lowered our forecast for real GDP
growth in the second half of 2009 to a range of 2.0-3.0
percent. Once the inventory affect is finished, growth
may cool a bit unless other sectors of the economy
expand more quickly. Fiscal policy will certainly
remain expansionary next year, if not more than this
year, helping keep growth up – and the Fed is unlikely
to tighten monetary policy if economic activity slows
appreciably. Consumer and business fixed investment
spending should increase next year, keeping the
expansion going – but ongoing deleveraging should
keep growth modest. We continue to project a below-
trend pace of growth of around 2.5 percent growth for
next year, before finally getting to a slightly above-
trend pace of 3.0-3.5 percent in 2011. This will allow
the unemployment rate to slowly decline and credit
markets to improve further, but these growth rates
would still be slower than usual coming out of a
recession.
Housing: Home sales were mixed for August, matching
the more mixed data for the overall economy. New home
Page 2
sales rose by 0.7 percent to 429,000 units (seasonally
adjusted annual rate, or SAAR), the fifth consecutive
monthly gain and the highest sales pace since September
2008. New sales were only 3.4 percent below their year-
earlier levels in August. On the other hand, total existing
home sales (single-family plus condominiums) fell for the
first time in five months, down by 2.7 percent to 5.10
million units (SAAR) – but up by 3.5 percent from a year
earlier. According to the National Association of Realtors
(NAR), while existing sales continue to be aided by strong
foreclosure and short sales, their share of the market has
fallen to around 30 percent – indicating that most of the
recent pickup in sales is for “normal” home sales.
Increasingly, first-time buyers are finding purchasing a
home is competitive with renting, given the sharp rise in
affordability. Single-family housing starts slipped for the
first time since January – down by 3.0 percent to 479,000
units (SAAR). Multifamily starts are still severely
depressed, and continued their zigzag pattern with an
increase of 25.3 percent to 119,000 units (SAAR).
Leading indicators of home sales rose again over the past
month, suggesting that the near-term trend in home sales
will be upward. NAR’s pending home sales index climbed
for a seventh consecutive month in August, and is at the
highest level since March 2007. The National Association
of Homebuilders’ (NAHB) housing market index inched up
to 19 in August, the highest level (albeit still quite low)
since May 2008. Finally, purchase activity in the Mortgage
Bankers Association’s (MBA) weekly applications survey
edged up again in September. Moreover, it jumped in early
October to the highest level since early January, although
purchase applications are the only one of the leading
indicators that is below year-earlier levels.
Repeat-transaction home price indices (HPIs) all rose in the
most recent month, suggesting that house price declines
are, at worst, moderating and perhaps have bottomed
(although we think the former is more likely for now). The
20-city S&P/Case-Shiller HPI rose for a second
consecutive month in July, up by 1.2 percent – although it
is down by 13.3 percent from a year earlier. The Federal
Housing Finance Agency’s (FHFA) purchase-only HPI
rose for a third consecutive month in July, up by 0.4
percent – and it is down by 4.2 percent from a year earlier.
Finally, the First American CoreLogic Loan Performance
HPI (LP HPI), the broadest of all of these measures, rose
for a fifth consecutive month in July – up by 0.6 percent,
but down by 5.9 percent from a year earlier.
We continue to project modest increases in home sales
over the course of the year in response to high levels of
affordability, investors and first-time buyers taking
advantage of distressed sales, improving demographics,
and a pickup in the economy. There is a risk that the
pickup in sales could stall, or worse, if the temporary
first-time homebuyer tax credit is allowed to expire at
the end of November 2009. Despite the sharp drop
early in the year, we project existing home sales to be
little changed from last year (although to rise by nearly
11 percent on a fourth-quarter-to-fourth quarter basis,
reflecting improving sales over the course of the year).
New home sales, which have to compete with
foreclosures, are projected to decline by 18.6 percent in
2009 (but to rise by 12.5 percent measured fourth-
quarter-to-fourth-quarter). Sales should rise more
strongly in 2010, especially in the second half of the
year, when the job market finally starts to improve and
credit markets function better – with existing sales
climbing by 9.5 percent and new sales up by 24.1
percent.
(Continued on page 3)
 The Outlook (continued from page 2)

The ongoing oversupply of homes on the market Mortgage Markets: Along with the drop in other long-term
continues to put downward pressure on house prices, interest rates, yields on 30-year fixed-rate mortgages
although the pickup in sales has tempered this. We (FRMs) have also declined. Data from the weekly Freddie
project median existing home prices to fall by another Mac Primary Mortgage Market Survey show that rates have
12.1 percent this year, although the biggest declines are dropped to under 5.00 percent – the lowest levels since last
likely behind us. House prices should finally stabilize May. These declines in rates have spurred an increase in
next year as excess inventories are drawn down, both purchase and refinance mortgage applications, although
resulting in little change in prices over the course of the latter has been bigger. Rates are only about 20 basis
2010. points above their all-time lows of last spring, and declines
to that level would likely generate another surge in
Interest Rates and Financial Markets: In response to
refinancing – as well as help spur more home sales.
signs that the Federal Reserve will leave monetary policy
unchanged for an extended period of time but remove As with interest rates in general, and riskier assets in
liquidity and raise rates more quickly than expected when it particular, yields on jumbo mortgages have also fallen.
does finally tighten, long-term interest rates have edged From their peak last October, jumbo mortgage rates have
downward. More mixed signs of a pickup in the economy declined by about 140 basis points. The spread between
also helped push rates down, despite a huge supply of new conforming and jumbo rates has also dropped – from a peak
Treasury debt in the market. With yields on shorter term of about 160 basis points in the spring to around 120 basis
debt fixed by unchanged Fed policy, longer-term yields have points today (see figure 2). While a substantial decline, this
fallen by 20 basis points since early September and now are spread is still extremely wide – with a spread in normal
down by about 50 basis points from early August. Even markets of around 25 basis points. As a result, instead of
with this recent sharp drop in rates, yields on 10-year jumbo rates at around 5.25 percent, given the current level
Treasury notes are still approximately 50 basis points above of conforming rates, they are at about 6.20 percent today –
the levels of last March. and this is one of the reasons why the jumbo market remains
moribund. Until a functioning secondary market for jumbo
Yields on riskier assets also continue to drop. For example,
loans redevelops, or depository institutions have sufficient
yields on Moody’s BAA-rated corporate bonds have fallen
capital to add jumbo mortgages to their portfolios, the jumbo
by about 335 basis points from their peak last October – as
market will lag behind the rest of the mortgage market.
fixed-income investors continue to shift out of safer assets in
response to expectations of continued economic growth, and We project a rise of about 27 percent in mortgage
thus lower probabilities of default. Spreads between BAA- originations in 2009 to $2.30 trillion, although an
rated bonds and 10-year Treasury notes have declined to the increase in the refinance share to 64 percent of the
lowest levels since January 2008, and probably will fall market means that more than all of the gain is for
further as they remain historically high. refinancings. Purchase activity is expected to decline
this year by 4.7 percent. In 2010, however, while total
With no change in Fed policy anticipated in the near-term,
originations are projected to decline by 17.4 percent,
short-term rates should remain close to current levels for
purchase activity is expected to increase by 14.7 percent.
a while. Long-term rates, however, are projected to edge
The refi share is expected to drop to 50 percent as home
upward over the next year in response to a pickup in
sales rise, and home prices finally stabilize. Purchase
borrowing demand and expectations of eventual Fed
originations are expected to rise for several years, as the
tightening, although low inflation should moderate any
housing market continues to recover. The ARM share
increases and rates are starting from a lower level than we
of originations should stay in single-digits this year, but
anticipated. Ultimately, both long- and (especially) short-
finally edge up to around 10 percent by the end of 2010
term rates will rise substantially once the Fed begins to
as the jumbo market begins to recover and FRM-ARM
tighten in earnest – with the yield curve beginning to
spreads widen relative to 2009.
flatten at that time. Yields on riskier assets should
continue to slip over the coming year as investors reduce
their default expectations in a growing economy.

Figure 2: Jumbo/Conforming Spreads Falling

(But Still High)
1.6 1.6

1.2 1.2
Percentage Points

Percentage Points

0.8 0.8

0.4 0.4

0.0 0.0
05 06 07 08 09

Source: Wall Street Journal / Haver Analytics

Page 3
 Housing Market Indicators
HOME SALES M ED IAN HOME PR IC ES
(THOUSANDS OF UNITS) ($)
7500 1400 240000 280000
Total Existing Total Existing
(Left Axis) (Left Axis)
1200
6750 260000
220000
1000
6000 240000

800 200000
New
5250 (Right Axis) 220000
600 New
180000 (Right Axis)
4500 200000
400

3750 200 160000 180000

05 06 07 08 09 05 06 07 08 09

Source: National Association of Realtors/ Census Bureau/ Haver Analytics Source: National Association of Realtors/ Census Bureau/ Haver Analytics

% Change Existing New % Change Existing New

Aug-08 to Aug-09 3.45 -3.38 Aug-08 to Aug-09 -12.55 -11.67
July-09 to Aug-09 -2.67 0.70 July-09 to Aug-09 -2.09 -9.46

NOTES:
• Despite the modest falloff in August existing sales, total home sales continue to trend upward

• Significant progress has been made in reducing the number of homes for sale, but it remains too high.

• The bottom in home prices hasn’t been reached yet, but it’s getting closer.

HOUSING STAR TS
MON TH S’ SU PP LY OF HOM ES (THOUSANDS OF UNITS)
12. 5 12. 5 450 2000
Total Existing
(Left Axis)
375 1600
10. 0 10. 0

300 1200

7. 5 7. 5
New 225 Multi-Family 800
(Right Axis) (Left Axis)
5. 0 5. 0
150 400
Single-Family
(Right Axis)
2. 5 2. 5 75 0
05 06 07 08 09 05 06 07 08 09

Source: National Association of Realtors/ Census Bureau /Haver Analytics Source: U.S. Census Bureau / Haver Analytics

Months Existing New Single Multi

% Change
Family Family
August 2008 10.6 11.1 Aug-08 to Aug-09 -21.73 -49.79
August 2009 8.5 7.3 July-09 to Aug-09 -3.04 25.26

Page 4
 Mortgage Market Indicators
MOR TGA GE A PP LICA TI ONS MOR TGA GE RA TES
(INDEX: MARCH 16, 1990 = 100) (%)
8000 600 7. 50 7. 50
Purchase Refinance 30-Year
(Right Axis) (Left Axis) Fixed Rate
525 6. 75 6. 75
6000

450 6. 00 6. 00

4000

375 5. 25 5. 25

2000 1-Year
300 4. 50 Adjustable 4. 50
Rate

0 225 3. 75 3. 75
05 06 07 08 09 05 06 07 08 09

Source: Mortgage Bankers Association / Haver Analytics Source: Freddie Mac / Haver Analytics

30-Year 1-Year
% Change Purchase Refinance Percent
Fixed Adjustable
Sep-08 to Sep-09 -18.81 57.16 September 2008 6.04 5.14
Aug-09 to Sep-09 2.97 31.71 September 2009 5.06 4.59

NOTES:
• Mortgage rates have dropped over the past few months, but FRM rates are still above their early-year lows.

• Refinance applications have responded modestly to lower rates, and purchase applications even more modestly.

• Subprime foreclosures started fell in the second quarter, perhaps a sign that the worst is over for this segment.

R EFI/ARM SHAR ES P ERC EN T O F MOR TGA GES:

(%) FOR ECLOSUR ES STAR TED
37. 5 90 8.0%
ARM Share
(Left Axis) All Loans
80
7.0%
30. 0 Prime
6.0% Subprime
70
22. 5 5.0% 4.70%
4.49%
Refinance Share 60 4.0%
(Right Axis)
15. 0
50 3.0%

7. 5 2.0%
40 1.47%
1.19% 1.07%
1.0% 0.67%
0. 0 30
05 06 07 08 09 0.0%

Source: Mortgage Bankers Association / Haver Analytics

2008 Q2 2009 Q2
Source: Mortgage Bankers Association / Haver Analytics

Percent Refinance ARM

September 2008 45.88 3.62
September 2009 62.47 6.17

Page 5
 Regional Roundup
12-MONTH CHANGE IN PAYROLL EMPLOYMENT
AUGUST 2009
Michigan -7.9% Vermont -3.9%
Arizona -7.4% Wisconsin -3.9%
Nevada -6.5% Kansas -3.7%
Indiana -6.0% Hawaii -3.6%
Georgia -6.0% Maine -3.6%
Oregon -5.8% West Virginia -3.3%
Delaware -5.4% Pennsylvania -3.3%
Idaho -5.3% Iowa -3.2%
North Carolina -5.2% Massachusetts -3.2%
Illinois -5.1% Mississippi -3.1%
Ohio -5.1% Virginia -3.0%
Alabama -5.0% New Jersey -3.0%
California -4.9% Missouri -2.9%
Florida -4.8% New Hampshire -2.8%
Colorado -4.7% Texas -2.8%
Kentucky -4.6% Oklahoma -2.7%
Utah -4.4% Maryland -2.4%
Minnesota -4.4% Arkansas -2.3%
Tennessee -4.3% New York -2.1%
Connecticut -4.2% Louisiana -1.5%
-7.9% to -5.0%
-5.0% to -3.0% United States -4.1% Nebraska -1.4%
-3.0% to 0.0% South Carolina -4.1% South Dakota -1.3%
0.0% to 0.3%
New Mexico -4.0% Montana -0.7%
Rhode Island -4.0% Alaska 0.0%
Washington -4.0% North Dakota 0.2%
Source: Bureau of Labor Statistics / Haver Analytics
Wyoming -3.9% District of Columbia 0.3%

NOTES:
• Job growth continues to weaken in most of the country, although declines have moderated a bit in California and Florida.

• Home price declines are moderating in much of the U.S.

• The number of state with double-digit house price declines has dropped to seven.

12-MONTH GROWTH IN HOUSE PRICES

JULY 2009
Nevada -24.5% New Mexico -3.2%
Florida -22.3% Wyoming -3.0%
Arizona -14.2% Wisconsin -3.0%
California -13.1% Colorado -2.8%
Illinois -12.9% Vermont -2.6%
Rhode Island -11.9% Virginia -2.5%
Oregon -10.7% Kentucky -2.4%
Ohio -9.6% Iowa -2.4%
Maryland -9.6% Tennessee -2.2%
Washington -9.3% North Carolina -1.8%
District of Columbia -9.0% South Carolina -1.5%
New Hampshire -8.8% Montana -1.0%
New Jersey -8.5% Alaska -0.8%
Maine -7.8% Indiana -0.8%
Connecticut -7.0% Missouri -0.6%
Minnesota -6.8% Mississippi -0.6%
Georgia -6.2% New York -0.6%
Alabama -6.0% Nebraska -0.3%
United States -5.9% Arkansas -0.2%
-24.5% to -10.0%
-10.0% to -5.0% Utah -5.7% Oklahoma 0.4%
-5.0% to 0.0% Michigan -5.1% Kansas 0.5%
0.0% to 6.0%
Pennsylvania -4.7% Texas 1.1%
Hawaii -4.6% South Dakota 1.3%
Massachusetts -4.0% North Dakota 1.5%
Source: First American CoreLogic, LoanPerformance HPI Delaware -3.9% Louisiana 3.0%
Idaho -3.9% West Virginia 6.0%

Page 6
 Regional Roundup
SUBPRIME SHARE OF MORTGAGES
2 N D QUARTER 2009
North Dakota 4.03% Missouri 10.12%
Montana 4.67% South Carolina 10.22%
South Dakota 5.46% Georgia 10.41%
Vermont 5.90% Kentucky 10.44%
Wyoming 6.85% Oklahoma 10.46%
Iowa 7.21% Maryland 10.50%
Idaho 7.65% Connecticut 10.53%
Nebraska 7.69% Hawaii 10.55%
Minnesota 7.88% California 10.82%
Washington 7.89% West Virginia 10.98%
Virginia 8.09% United States 11.00%
Arkansas 8.12% Illinois 11.01%
New Mexico 8.17% Rhode Island 11.37%
Oregon 8.35% Maine 11.43%
District of Columbia 8.39% New York 11.58%
Wisconsin 8.44% Texas 11.63%
Kansas 8.57% Michigan 11.86%
Alabama 8.59% Tennessee 11.92%
Utah 8.82% Pennsylvania 12.14%
North Carolina 8.89% Louisiana 12.43%
4.00% to 8.00% Colorado 9.09% Indiana 12.45%
8.00% to 10.00%
10.00% to 12.00% Alaska 9.11% Arizona 12.65%
12.00% to 16.00% Massachusetts 9.26% Ohio 13.07%
New Jersey 9.41% Mississippi 13.65%
Source: Mortgage Bankers Association / Haver Analytics
New Hampshire 9.69% Nevada 14.59%
Note: Subprime share is the ratio of subprime loans to total loans in a state. Delaware 9.73% Florida 15.28%

NOTES:
• The subprime share of mortgages is only modestly correlated with home price declines.

• The number of seriously delinquent subprime mortgages continues to increase.

• The subprime performance in the “sand states” is among the worst in the country.

SERIOUSLY DELINQUENT SUBPRIME MORTGAGES

2 N D QUARTER 2009
Alaska 7.79% Washington 21.53%
Wyoming 14.06% Georgia 22.06%
North Dakota 15.02% Delaware 22.38%
Texas 15.06% Mississippi 22.56%
Nebraska 16.00% Idaho 22.86%
Kansas 16.45% Indiana 23.80%
Oklahoma 16.46% Vermont 23.90%
West Virginia 16.81% Ohio 24.14%
Arkansas 16.96% District of Columbia 25.29%
North Carolina 17.09% Minnesota 25.45%
Colorado 17.35% Hawaii 26.29%
South Dakota 18.04% Maine 26.35%
Missouri 18.56% Connecticut 26.45%
Louisiana 19.08% Michigan 26.46%
New Mexico 19.26% United States 26.52%
Montana 19.27% Wisconsin 26.93%
Alabama 19.45% New York 27.33%
Tennessee 19.73% Maryland 27.43%
Pennsylvania 19.83% Rhode Island 28.54%
7.79% to 18.00%
18.00% to 22.00% South Carolina 19.94% Illinois 29.89%
22.00% to 26.00% Iowa 20.23% Massachusetts 30.64%
26.00% to 42.50%
Kentucky 20.35% Arizona 31.65%
New Hampshire 20.48% New Jersey 32.75%
Virginia 20.54% California 32.87%
Source: Mortgage Bankers Association / Haver Analytics Utah 20.99% Nevada 38.01%
Oregon 21.23% Florida 42.50%

Page 7
 Region in Focus: The West
The West region has been hard hit by the recession and is arguably the worst performing region of the nation, with
many of the worst housing markets. Of the four states with the largest peak-to-trough house price declines (thus
far), three are in this region – Arizona, California, and Nevada – with drops of 37.1, 45.1, and 48.3 percent,
respectively. Jobs continue to be cut and the unemployment rate is climbing. Foreclosure rates are at all-time highs.
Despite this bad news, there are some positive data emanating from the West region. Over the past year home sales
have increased at a faster rate than the rest of the country. The energy sector states have not been hit as hard by the
recession as the rest of the country. The technology sector looks as if a turnaround will happen in the near future.
Still the region has many problems and the prospect of a sharp recovery is likely quite low.

The labor market in the West region has weakened in response to the housing-driven recession. Regional job
losses have occurred in all sectors except education and health services. The region’s unemployment rate rose to
10.6 percent in August, the highest of all the four Census Regions, up from 6.5 percent a year earlier. Over the
same period, the national unemployment rate increase to 9.7 percent from 6.2 percent.
REGION IN FOCUS
According to the National Association of Realtors (NAR), home sales in the West region decreased by 2.5 percent
*The West region includes in the second quarter from the first quarter. The West was the only region that had declining home sales in the
AK, AZ, CA, CO, HI, ID, second quarter. Despite this recent decline, however, the West was the only region with an increase in home sales
MT, NM, NV, OR, UT, over the past year, rising by 11.8 percent in the second quarter of 2009 from a year earlier. The median sales price
WA, and WY. of existing single-family homes sold in the West rose to $225,600 in the second quarter, up by 1.3 percent but still
down by 11.5 percent from a year earlier. From their 2007 peak, existing home prices in the West have dropped by
**All Region in Focus 37.1 percent, despite the small second quarter gain.
graphs contain data
Credit quality in the West region has performed slightly worse than the national average. According to the
gathered from BLS, First
Mortgage Bankers Association (MBA), the rate of foreclosures started in the region remained unchanged at 1.78
American CoreLogic,
percent (not-seasonally adjusted, or NSA) during the second quarter of 2009. This compares with a national
LoanPerformance HPI,
average of 1.36 percent. Seriously delinquent loans were 8.93 percent of the total, which was above the national
and MBA.
average of 7.97 percent. At the end of the second quarter, 6.74 percent of all conventional prime mortgages and
29.33 percent of conventional subprime mortgages in the West were seriously delinquent. The national averages
were 5.44 and 26.52 percent, respectively. While the West had worse credit quality in many areas, it did have a
better delinquency rate on all loans at 8.40 percent, compared with the national average of 8.86 percent

Nevada
While some parts of the country have shown signs of
an economic rebound, Nevada has shown very little
improvement. The pace of job losses has accelerated –
and coupled with a growing labor force this has
resulted in a rapidly rising unemployment rate. Home
sales have been increasing, but foreclosure rates are
exceptionally high – placing continuing downward
pressure on home prices. Nevada’s economy lacks
industrial diversity and is over-reliant on tourism and
gaming. If a serious recovery is to take place in the
state, tourism and gaming will need to increase
significantly – something that is unlikely to occur in
the next year as people continue to feel uncomfortable
about their financial security.
Nevada’s job market has performed much worse than
the national average. In August, the state’s
unemployment rate climbed to 13.2 percent, more than
triple its last low of 4.2 percent in March 2006.
Construction has been hit very hard with 59,000 job
losses, a 40.5 percent decline since the peak in
February 2006. There have also been dramatic job cuts
in Nevada’s key leisure and hospitality sector, with
34,000 job losses – a 10.0 percent drop since the peak
in December 2007. The unemployment rates in the
states’ metropolitan statistical areas (MSAs) have also
increased dramatically. In Las Vegas-Paradise, the
state’s largest MSA, the unemployment rate was 13.5
percent compared with 7.1 percent a year earlier. The
unemployment rate in Reno-Sparks, the second largest
Page 8 MSA, rose from 6.6 to 12.4 over the same period.
While economic conditions in Nevada remain poor,
home sales have been improving, helped by sales of
distressed properties. According to Moody’s
Economy.com, existing single-family home sales rose
by 2.3 percent in the second quarter and by 76.7 percent
from a year earlier. The best performing MSA was Las
Vegas-Paradise, with home sales up by 12.7 percent
from the prior quarter. Despite the sharp increase of
sales in the state, two of the three MSAs in Nevada had
decreasing home sales in the second quarter compared
with the first. Home sales dropped by 26.4 percent in
Reno-Sparks, while sales in Carson City plummeted by
62.1 percent.
According to data from First American CoreLogic’s
LoanPerformance House Price Index (LP HPI), home
prices in Nevada declined by 24.5 percent for the 12
months ending in July 2009, significantly worse than
the national decline of 5.9 percent. House price
performance in the state continues to be nearly the worst
in the nation. All three of the state’s MSAs suffered
double-digit house price declines. The Las Vegas-
Paradise MSA had the largest decrease, dropping by
25.4 percent over the 12 months ending in July. The
Reno-Sparks MSA also had a very large 12-month
decrease, dropping by 21.6 percent, while the Carson
City MSA was the best performing although it still had
a large decline of 17.5 percent.
(Continued on page 9)
 Region in Focus: The West
Nevada (continued from page 8)
Credit quality in Nevada is perhaps the worst in the 20.0
15.62
nation. According to the MBA, the rate of foreclosures Nevada 13.2
9.7
started in the state was 3.70 percent (NSA) during the 10.0 U.S. 7.97
second quarter of 2009, up by thirty five basis points
from the prior quarter and the highest of any state. This 0.0
compares with a national average of 1.36 percent. -5.9
Seriously delinquent loans were 15.62 percent, which -10.0
is well above the national average of 7.97 percent. At
the end of the second quarter, 12.42 percent of all -20.0
conventional prime mortgages and 38.01 percent of -24.5
-30.0
conventional subprime mortgages in Nevada were
House Price Unemployment Seriously
seriously delinquent. The national averages were 5.44
Appreciation Rate August 2009 Delinquent
and 26.52 percent, respectively. It also had a worse July 08 - July 09 Mortgages 2009Q2
delinquency rate on all loans at 12.14 percent,
compared with the national average of 8.86 percent.

Utah
Utah’s economy remains weak, but it has performed
better by most measures than the national average.
While payroll employment continues to fall, the rate of
the decline has slowed. The unemployment rate
continues to be below the national average. The
housing market rebound in Utah, however, has been
held back by an oversupply of homes, tight credit
markets, and high unemployment rates. Construction
jobs have accounted for over half of the job losses
within the state.
decrease of 5.9 percent. While national home prices
have risen in each of the past five months, home prices
in Utah have increased in each month since December
2008. Despite this recent increase, all but one of the
state’s MSAs has seen falling home prices in the past
year. The MSAs of Salt Lake City, Ogden-Clearfield,
Provo-Orem, and St. George, have seen house price
drops of 6.0, 3.2, 8.4, and 14.3 percent, respectively.
Only the Logan MSA has had an increase in home
prices over that 12 month period, up by 0.8 percent.

The unemployment rate in Utah has increased, but at a Credit quality in Utah is significantly better than the
slower pace than the national average. In July the national average. According to the MBA, the rate of
state’s unemployment rate averaged 6.0 percent, foreclosures started in the state was 1.17 percent
significantly lower than the national average of 9.7 (NSA) during the second quarter of 2009, rising by 11
percent. The unemployment rate in the states’ largest basis points from a quarter ago. This compares with a
MSA, Salt Lake City, increased to 6.2 percent, up from national average of 1.36 percent. The delinquency rate
3.7 percent a year earlier. The second largest MSA, on all mortgages in the state was 6.90 percent, slightly
Ogden-Clearfield, saw a rise in its unemployment to less than the national average of 8.86 percent.
6.3 percent – up from 4.0 percent over the same period. Seriously delinquent loans were 5.35 percent, modestly
The MSA with the worst unemployment rate was St. below the national average of 7.97 percent. At the end
George, at 7.9 percent. of the second quarter, 3.71 percent of all conventional
prime mortgages and 20.99 percent of conventional
Single-family existing home sales in Utah have subprime mortgages in Utah were seriously delinquent.
remained weak in the last couple of years. Even so, The national averages were 5.44 and 26.52 percent,
sales picked up in the second quarter. According to respectively.
Moody’s Economy.com, existing single-family home
sales in the state increased in the second quarter by a
stout 13.7 percent from the first quarter. Still, home 12.0
Utah 9.7
sales in the state were down by 10.9 percent from a 7.97
year earlier – much worse than the national decline of 8.0 U.S.
6.0
5.35
2.2 percent over that period. Home sales increased in
4.0
all five of Utah’s MSAs during the second quarter,
with sales in Salt Lake City up by 11.0 percent. Home
0.0
sales increased the most in Ogden-Clearfield, rising by
a significant 30.8 percent. The laggard in the state was
-4.0
St. George with home sales increasing by 4.8 percent.
-5.7 -5.9
-8.0
According to data from LP’s HPI, home prices in Utah
House Price Unemployment Seriously
decreased by 5.7 percent in the 12 months ending in Appreciation July Rate August 2009 Delinquent
July, performing similarly to the national average 08 - July 09 Mortgages 2009Q2

Page 9
 Region in Focus: The West
Washington
While Washington’s downturn has slowed, it is still
not in the recovery stage yet. The unemployment
rate is catching up to the national average. The
housing market declined later than in most states so
we expect it to recover later as well. While some
states in the West region have had a home sales
rebound over the past year, Washington home sales
remain weak. It is possible that a portion of
Washington’s commercial aircraft business could
move elsewhere, further dampening any economic
recovery.
Labor markets in Washington, like many of the west
coast states, continue to weaken and perform worse
than the national average. The construction and
manufacturing sectors have been hit especially hard,
losing approximately 29,000 and 28,000 jobs in the
past year, respectively. Surprisingly, the leisure and
hospitality sector has performed well – increasing
by almost 10,000 jobs over the past year. In August,
the state’s unemployment rate averaged 9.2 percent,
higher than its year-ago rate of 5.4 percent, but
lower than the national average of 9.7 percent. The
state’s largest MSA, Seattle-Bellevue-Everett, had
an unemployment rate 8.7 percent. The Longview-
Kelso MSA had the highest unemployment rate in
the state at 13.4 percent. The lowest unemployment
rate in the state belongs to the tri-cities of the
Richland-Kennewick-Pasco MSA at 6.5 percent.
Single-family existing home sales in Washington
have been weak, declining in ten of the past twelve
quarters. According to Moody’s Economy.com,
single-family home sales decreased by 19.9 percent
during the four quarter period ending in the second
quarter 2009. Much like Utah, however,
Washington displayed some improvement in the
second quarter – increasing by 10.8 percent. Eleven
of the twelve MSAs in Washington had home sales
gains over the same period, with five of those
obtaining double-digit gains. The Seattle-Bellevue-
1 12.0
Washington 9.2
8.0 U.S.
4.0
0.0
-4.0
-5.9
-8.0
-9.3
-12.0
House Price Unemployment
Appreciation Rate August 2009
July 08 - July 09
Page 10
Everett and Tacoma MSAs had home sales growth
of 6.6 and 4.4 percent, respectively. Home sales
increased the most in Kennewick-Pasco-Richland,
rising by 30.1 percent. The one MSA that had
declining home sales was Wenatchee-East
Wenatchee, with home sales decreasing by a paltry
0.2 percent.
Home prices in Washington have been in a
downward spiral for over the past year, declining at
a faster rate than the national average. According to
data from LP’s HPI, home prices in Washington
have decreased by 9.3 percent in the 12 months
ending in August, performing much worse than the
national average decline of 5.9 percent. Over that
period, Seattle-Bellevue-Everett had house price
losses of 11.0 percent. Mount Vernon-Anacortes
was the worst performing MSA in the state, with
price declines of 12.0 percent. Only one of the
state’s eleven MSAs had home price growth over
the past year, Kennewick-Pasco-Richland, up by 4.7
percent.
Like Utah, credit quality in Washington is
significantly better than the national average.
According to the MBA, the rate of foreclosures
started in the state was 1.09 percent (NSA) during
the second quarter of 2009, up by 35 basis points
from the prior quarter. This compares with a
national average of 1.36 percent. The delinquency
rate on all mortgages in the state was 5.82 percent,
far less than the national average of 8.86 percent.
The share of seriously delinquent loans in
Washington was 4.72 percent, which is much below
the national average of 7.97 percent. At the end of
the second quarter, only 3.09 percent of all
conventional prime mortgages and 21.53 percent of
conventional subprime mortgages in Washington
were seriously delinquent. The national averages
were 5.44 and 26.52 percent, respectively.
9.7
7.97
4.72
Seriously
Delinquent
Mortgages 2009Q2
Selected Housing / Economic Indicators

House Price Appreciation

Unemployment Rate* Annualized Quarterly Rate** Housing Vacancy Rate
State MSA Aug-09 Jul-09 2nd Qtr 09 1st Qtr 09 2nd Qtr 09 1st Qtr 09
Alaska 8.3 8.2 -4.20 -0.14 13.57 13.79
Arizona 9.1 9.2 1.08 -23.34 10.42 10.80
Region in Focus: The West –

Phoenix-Mesa-Scottsdale 8.6 8.7 -0.54 -25.41 7.34 7.71

Tucson 8.2 8.6 3.71 -16.39 5.20 5.63
California 12.2 11.9 0.13 -23.31 6.08 6.32
Bakersfield 14.3 14.4 -5.38 -19.17 6.94 7.07
Fresno 14.6 15.0 -10.42 -19.59 5.71 6.03
Los Angeles-Long Beach-Glendale 12.4 12.6 5.99 -23.41 3.26 3.50
Oakland-Fremont-Hayward 11.4 11.5 5.43 -27.63 4.80 5.01
Riverside-San Bernardino-Ontario 14.5 14.5 -28.12 -30.27 9.37 9.57
Sacramento-Arden-Arcade-Roseville 11.9 12.0 -2.66 -16.42 7.29 7.62
San Diego-Carlsbad-San Marcos 10.4 10.4 11.65 -13.06 6.38 6.48
San Francisco-San Mateo-Redwood City 9.5 9.4 13.79 -15.58 3.81 4.03
San Jose-Sunnyvale-Santa Clara 11.8 12.0 7.96 -27.88 3.09 3.32
Santa Ana-Anaheim-Irvine 9.6 9.6 21.96 -19.31 3.63 3.85
Stockton 15.7 16.0 -31.99 -30.23 3.07 3.70
Colorado 7.3 7.8 17.83 -12.27 10.74 10.95
Colorado Springs 8.3 7.6 16.69 -10.74 9.75 9.99
Denver-Aurora 8.0 7.4 18.98 -8.71 6.47 6.68
Hawaii 7.2 7.0 -10.94 -1.23 16.47 16.48
Honolulu 6.0 6.1 -12.40 3.00 12.37 12.38
Idaho 8.9 8.8 -9.21 1.63 13.55 13.69
Boise City-Nampa 9.9 9.6 -17.54 -4.18 8.28 8.51
Montana 6.6 6.7 -2.90 2.37 11.78 11.93
Nevada 13.2 12.5 -26.96 -25.40 13.47 13.51
Las Vegas-Paradise 13.5 13.1 -26.41 -27.20 14.63 14.62
New Mexico 7.5 7.0 -4.90 0.16 15.14 15.17
Oregon 12.2 11.8 1.03 -14.61 8.22 8.52
Portland-Vancouver-Beaverton 11.8 11.3 4.68 -15.54 3.88 4.22
Utah 6.0 6.0 -10.56 -2.02 8.66 8.79
Ogden-Clearfield 6.3 6.3 -7.01 -0.58 6.68 6.80
Salt Lake City 6.2 6.0 -11.90 -1.82 6.93 7.09
Washington 9.2 8.9 6.15 -15.39 9.20 9.32
Seattle-Bellevue-Everett 8.7 8.7 0.60 -16.87 7.79 7.92
Tacoma 9.3 8.9 7.52 -12.49 8.53 8.61
Wyoming 6.6 6.5 -5.64 -1.95 15.22 15.30
United States 9.7 9.4 13.16 -16.85 11.47 11.58

Page 11
Source: Bureau of Labor Statistics / First American CoreLogic, LoanPerformance HPI / U.S. Census Bureau / Moody's Economy.com / Haver Analytics
*State, Regions, and U.S. unemployment rates are seasonally adjusted. MSA unemployment rates are not seasonally adjusted
 Special Topic (Continued from cover page)

As with other goods and services, house prices
depend on demand and supply. Over a long
period of time, however, the growth rate in home
prices should conform to income growth –
otherwise houses would become either
increasingly unaffordable or more affordable. In
fact, over long periods home price growth and
income growth tend to be similar. Figure 1
shows the year-over-year growth rate of the First
American CoreLogic Loan Performance (LP
HPI) house price index, compared with the
growth in nominal disposable personal income
per capita (YPC). We consider the LP HPI to be
the best overall measure of house values, and it is
certainly the most comprehensive. Similarly, we
view YPC as the best measure of income, as it is
also the most comprehensive.
Over the 1983-2001 period, the LP HPI grew at
an average annual rate of 4.7 percent, while YPC
increased by 5.0 percent. We chose this period to
look at home prices because before 1983 inflation
boosted prices, while after 2001 the housing
bubble boosted them. Thus 1983-2001 is a
period of more “normal” housing activity and
house price gains. Using the Federal Housing
Finance Agency’s (FHFA) purchase-only HPI,
house prices over the 1991-2001 period (these
data begin in 1991) rose at a 4.1 percent average
annual rate, while YPC increased at a 4.3 percent
pace – a similar relationship to the broader income
and home price measures presented above.
If we assume that the growth rate of home prices
over the 1983-2001 period for the LP HPI (and
1991-2001 for the FHFA HPI) was reasonable
given the growth rate of income, then we can use
that trend rate to determine what house prices
would have been, on average, beyond 2001 in the
absence of their actual sharp run-up. Figure 2
(see pg. 13) shows the actual levels of the LP HPI
through July 2009, as well as the long-term trend
based on the 1983-2001 house price data. The
impact of the housing bubble is clearly evident in
this chart, with the LP HPI about 35 percent
above the long-term trend at its peak. At their
recent bottom earlier this year, the LP HPI was
only about 10 percent above its long-term trend, a
significant – but not complete – closing of the
gap. Figure 3 (see pg. 13) shows the same
relationships for the FHFA purchase-only HPI.
At the height of the housing bubble, the FHFA
HPI was about 24 percent above its long-term
trend, while earlier this year it was only 8.5
percent above.
(Continued on pg. 13)

Figure 1: House Prices vs. Disposable

Personal Income per Capita
15 15

Disposable Personal
10 Income per Capita 10
Percent Change – Year to Year

Percent Change – Year to Year

5 5

0 0

-5 -5

House Prices
-10 (LP HPI) -10

-15 -15
85 90 95 00 05
Source: Bureau of Economic Analysis / First American CoreLogic,
LoanPerformance HPI / Haver Analytics

Page 1112
Page
 Special Topic (Continued from page 12)

While the trend data from both the LP HPI and
the FHFA HPI suggest that the bulk of the home
price declines are behind us, both also suggest
that house prices have still not reached their long-
term trend levels. How they get from today’s
levels to their trend levels is important. If, for
example, the owners and/or servicers of the large
number of vacant and foreclosed homes not yet
for sale decide to dump their properties onto the
market, then we could see home prices reach their
long-term trend levels quickly. More likely,
however, is that these owners/servicers will
continue to put these properties on the market at a
more measured pace in order to avoid additional
sharp drops in home prices. In this case, home
prices would be relatively flat for the next several
years, as the trend level caught up with the actual
level of prices. In an environment of rising home
sales and falling unsold inventories, as we have
today, this is a more likely scenario than one in
which home prices fall significantly further from
here.

Figure 2: LoanPerformance HPI

400
HPI
Post 2001 HPI 350.4
350
1983-2001 Trend

300
287.6

250
244.8
227.5
200

150

100

50

0
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan

Source: First American CoreLogic, LoanPerformance HPI

Figure 3: FHFA Purchase-only HPI

250
HPI
223.7
Post 2001 HPI
1991-2001 Trendline
200 200.1

181.2
170.6
150

100

50

0
1991 - 1993 - 1995 - 1997 - 1999 - 2001 - 2003 - 2005 - 2007 - 2009 - 2011 - 2013 - 2015 -
Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan

Source: Federal Housing Finance Administration / Haver Analytics

Page 13
 2008 2009 2010
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2010 2011
Economic Outlook
Real GDP Growth 1 -0.7 1.5 -2.7 -5.4 -6.4 -0.7 3.0 2.1 1.9 2.2 2.9 3.1 -1.9 -0.6 2.5 3.3
Consumer Price Inflation 2 4.5 4.5 6.2 -8.3 -2.4 1.3 3.2 1.3 1.0 1.5 1.7 2.0 3.8 -0.4 1.5 1.9
Civilian Unemployment Rate 4.9 5.4 6.1 6.9 8.1 9.3 9.6 10.0 10.2 10.1 9.8 9.6 5.8 9.3 9.9 9.0
Interest Rates
30-year Fixed Rate Mortgage (%) 5.87 6.09 6.31 5.87 5.06 5.03 5.16 5.00 5.05 5.10 5.25 5.45 6.04 5.06 5.21 6.00
The PMI Forecast

1-year Adjustable Rate Mortgage (%) 5.14 5.19 5.21 5.16 4.88 4.84 4.75 4.80 4.85 4.90 4.95 5.00 5.18 4.82 4.93 5.70
10-year Treasury Note (%) 3.67 3.88 3.86 3.25 2.75 3.30 3.53 3.30 3.40 3.50 3.70 3.95 3.67 3.22 3.64 4.65
Housing Market
Existing Sales (Thousands of Units) 4927 4900 5007 4740 4583 4757 5210 5250 5180 5320 5450 5550 4913 4950 5420 5960
New Sales (Thousands of Units) 564 510 460 391 338 372 430 440 420 440 490 540 485 395 490 580
Median Existing Home Price Change (%) 3 -4.3 4.8 -3.1 -10.3 -7.3 4.1 2.1 -2.5 -4.0 4.5 2.5 -1.0 -9.0 -12.1 0.3 1.5
Mortgage Market
Single Family Originations (Billions of $) 500 580 410 320 470 720 600 510 430 560 530 380 1810 2300 1900 1800
Refinancing Share (%) 60 52 40 57 75 59 62 64 55 50 48 47 52 64 50 38
ARM Share (%) 10 8 8 2 3 3 5 7 7 8 9 10 7 4 9 11
All forecasted values are in bold
1 Quarterly = annualized percent change ; Annual = Q4 / Q4
2 Quarterly = annualized percent change ; Annual = Year Avg. / Year Avg.
3 Quarterly = percent change ; Annual = Year Avg. / Year Avg.
Cautionary Statement:
Statements in this document that are not historical facts, or that relate to future plans, events or performance are "forward-looking" statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements include our expectations with respect to the economy, employment trends, interest
rates, and the housing, financial, and mortgage markets. Readers are cautioned that forward-looking statements by their nature involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future. Many factors could cause actual results and developments to differ materially from those

Page 14
expressed or implied by forward-looking statements. Such factors include, among others, national or regional recessions, credit market disruptions, changes in interest
rates, housing prices and employment rates, foreclosure trends, financial and mortgage market performance, and regulatory and legislative developments. Other risks and
uncertainties are discussed in our SEC filings, including our Annual Report Form 10-K for the year ended December 31, 2008 (in Item 1A) and our quarterly report on
Form 10-Q for the quarter ended June 30, 2009, filed August 7, 2009. We undertake no obligation to update forward-looking statements.