Riverside Area

Local Market Report, Third Quarter 2009

Today's Market…
Median Price (Red Line) and One-year Price Growth
$450,000 50%
$400,000 40%
$350,000 30%
$300,000 20%
10%
$250,000
0%
$200,000
-10%
$150,000 -20%
$100,000 -30%
$50,000 -40%
$0 -50%
2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009
Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3

Riverside U.S. Local Trend

Price Activity
Current Median Home Price (2009 Q3) $168,100 $178,267
Prices are still down from a year ago, but
1-year Appreciation (2009 Q3) -26.0% -11.5% p g
are improving
3-year Appreciation (2009 Q3) -58.8%
58 8% 0 7%
0.7%
3-year (12-quarter) Housing Equity Gain -$239,900 $1,233
The decline has wiped out most of the
7-year (28 quarters) Housing Equity Gain -$12,900 -$45,533 equity gained during the housing boom
9-year (36 quarters) Housing Equity Gain $28,800 $3,833

Conforming Loan Limit* $500,000 $729,250 Most buyers in this market have access
Local Median to Conforming Limit Ratio 34% not comparable to government-backed finacing
*Note: the 2009 loan limits for FHA and the GSEs were extended through 2010.

State Home Sales (Red Line) and Sales Growth

1,000s
700 100%
600 80%
500 60%
400 40%
300 20%
200 0%
100 -20%
0 -40%
2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009
Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3

Home Sales and Construction Growth California U.S.

Sales growth during the third quarter
State Existing Home Sales
3.9% 5.9% remains sluggish compared to the
((2009 Q3 vs 2008 Q3))
national average
 Drivers of Local Supply and Demand…
Local Economic Outlook Riverside U.S.
Not
1-year Job Change (Sep) -70,800 Job losses are a problem and will weigh
Comparable
on demand, but layoffs are declining
Not
1-year Job Change (Aug) -71,500 which could help buyer confidence
Comparable
Not
3-year Job Change (Sep) -138,700 Riverside's unemployment situation is
Comparable
14.2% 9.8% worse than the national average and
Current Unemployment Rate (Sep)
weighs on confidence
Year-ago Unemployment Rate 9.1% 6.2%
1-year (12 month) Job Growth Rate -5.9% -3.1% Weak compared to other markets

State Economic Activity Index California U.S.

The economy of California is weaker than
12-month change (2009 - Sep) -4.7% -3.2%
the rest of the nation, but improved
36-month change (2009 - Sep) -4.1% -1.1% modestly from last month

Local Fundamentals Riverside U.S.

12-month Sum of 1-unit Building Permits through The current level of construction is 85.6%
4,365 not comparable
Sep 2009 (1,000s) below the long-term average
Excess supply reduction could result in
Long-term average for 12-month Sum of 1-Unit price escalation over the longer-term if, in
30,350
, not comparable
p
Building Permits (1,000s)
(1 000s) the future
future, there is rapid and robust
increase in demand
Single-Family Housing Permits (Sep 2009) Low construction will help to maintain a
-40.9% -34.9%
12-month sum vs. a year ago tight supply and to stabilize prices

Construction: 12-month Sum of Local Housing Permits

(Historical Average Shown in Red Dashed Line)
60,000
50,000
40,000
30,000
20,000
10,000
0
Affordability
Affordability - Local Mortgage Servicing Cost-to-Income
(Historical Average Shown in Red Dashed Line)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Monthly Mortgage Payment to Income Riverside U.S.

Ratio for 2008 22.2% 19.5% Historically strong, but weaker than the
Ratio for 2009 Q3 14.5% 15.6% second quarter of this year
Historical Average 25.6% 23.2% Weak relative to the nation

Recent Trend - Local Mortgage Servicing Cost to Income

(Historical Average Shown in Red Dashed Line)
35%
30%
25%
20%
15%
10%
5%
0%
2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3
Median Home Price to Income Riverside U.S.
Ratio for 2008 8.1 7.1 Local affordability has improved and is
Ratio for 2009 Q3 5.8 6.2 below the historical average
Historical Average 8.3 7.2 More expensive than most markets

Ratio of Local Median Home Price to Local Average Income

(Historical Average shown in Red Dashed Line)
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

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 Q3 Q1 2005 Q3 Q1 2006 Q3 Q1 2007 Q3 Q1 2008 Q3 Q1 2009 Q3

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 bond fell again in the third quarter and
stands close to the historic average. This decline of the spread suggests that the financial markets view the risk on
mortgage debt as close to a "normal" state and that the private sector will buy up excess demand if yields rise.
Consequently, the Fed is likely to phase out its program of buying up mortgages in the secondary market to keep rates low,
leaving the private sector to fill the void. Mortgage rates are likely to rise in first or second quarter of 2010 as the Fed exits
the mortgage market.
 Looking Deeper….
State Total Foreclosure Rate vs. U.S Average
(U.S. Average in Blue Dashed Line)
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%

Source: Mortgage Bankers' Association

Monthly Market Data -

August 2009 Riverside U.S.
12.3 The Riverside market has higher
22.9
Market Share: % exposure to subprime loans than the
% 77.1% 87.7%
Prime (blue) vs. average market, but rising prime
77.1 87.7
Subprime + Alt-A foreclosures are also becoming a
% %
22.9% 12.3% problem

There was a substantial increase versus

5.2 5.2% 2.3%
PRIME: 4.3 2.3% July of this year
% 1.7%
Foreclosure + REO %
Rate The current local rate is high compared
4.3% 1.7%
Jul-09 Aug-09 Jul-09 Aug-09 with the current U.S. average

The local foreclosure rate has fallen

25.3% 18.0%
SUBPRIME: 31.5
25.3
18.8 relative to last month
% % 18.0
Foreclosure + REO % %
Rate The current local rate is high given the
31.5% 18.8%
Jul-09 Aug-09 Jul-09 Aug-09 U.S. average

Relatively little local change versus July

20.9% 14.5%
ALT-A: 20.9 14.5 of this year
19.3 % 12.1 %
Foreclosure + REO % % The current rate for Riverside is high
Rate
19.3% 12.1% compared with the up-to-date U.S.
Jul-09 Aug-09 Jul-09 Aug-09
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