Commentary 2

Released:
The Numbers That Drive Real Estate 3
March 4, 2011
Recent Government Action 10
Topics for Home Buyers, Sellers, and Owners 13

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KW Research
 Commentary
Gradual progress in the housing market continues at a steady pace without government support. The
market has shown remarkable improvement from the initial drop after the expiration of the home
buyer tax credit this past July. Although higher-than-normal distressed sales skew the overall picture of
home prices downward, inventory continues to shrink and sales continue to rise. The rock-bottom
interest rates of 2010 are likely to trend upward. As economists anticipate rates at or above 6% by the
end of 2012, buyers are moving off the sidelines and into the market.

A good sign for long-term market stability is that the median down payment on conventional
mortgages has risen to 22%, up from 4% in 2006 and slightly above the 20% standard in the 1990s.
This may keep buyers looking in slightly lower price ranges, but it is a good sign of future sustainability
for homeowners and banks alike. There are still ample opportunities for those who would like down
payments below 20%, including some conventional mortgages and those backed by the Federal
Housing Administration, Veterans Affairs, and the Department of Agriculture’s Rural Development
loans.

As the economy improves, stimulus efforts by the government and the Federal Reserve Board will
gradually wind down, which typically means rising interest rates. Meanwhile, buyers continue to
benefit from historically favorable buying conditions and sellers are encouraged by increased
market stability.

KW Research 2
 Home Sales 4

The Numbers That Home Price 5

Inventory 6
Drive Real Estate Mortgage Rates 8
Affordability 9

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KW Research
 Home Sales
In Millions

The increasing trend in existing home sales activity continued through January, and for the first time
rose above year-ago levels when the home buyer tax credit was in effect. This marks the sixth
monthly increase since July when the tax credit expired, and indicates a recovery that’s gaining a
firmer footing without government support.

Extended and Expanded Home Buyer Tax Credit Second Gradual Recovery Without
Renewed November 7, 2009 Tax Tax Credit
Must have had contract signed by April 30, 2010 Credit
Must have close by June 30, 2010 Expired

5.68
5.44 5.36
5.09 January ’10-’11
4.64
4.41
January ’09-’10 3.86

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Latest Data Release: February 23, 2011

Source: National Association of Realtors KW Research 4
 Home Price
In Thousands

Home prices softened in January with median home prices decreasing slightly to $158,800 - 3.7%
below the year-ago level. Contributing to this is a larger share of distressed homes sales, which
accounted for 37% of sales in January compared to 30%-35% throughout much of 2010. Prices and
mortgage rates remain favorable for buyers.

$182.8

$171.5
$169.5
0 $168.8
09-’ 1
$164.9 ary ’
Janu
January ’10-’11 $158.8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Latest Data Release: February 23, 2011

Source: National Association of Realtors KW Research 5
 Inventory - Number of homes available for sale
In Millions

Housing inventory continues to contract. There are now 3.38 million homes on the market, down
5.1% from December and only 3% above year-ago levels. More and more buyers are taking
advantage of today’s exceptional affordability conditions. Expected improvements in lending
standards and job growth will create great opportunities for buyers and investors.

4.12
4.01
3.86
January ’09-’10
3.89 3.38
3.28 3.63
January ’10-’11

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Latest Data Release: February 23, 2011

Source: National Association of Realtors KW Research 6
 Supply of Inventory
In Months

The uptick in home sales and a shrinking inventory pared down the month’s supply to 7.6 months,
a decrease of 7.3% from December and 1% from year-ago levels. This is the lowest level in more
than a year and marks the first time since July that the month’s supply is below where it was the
previous year. Months of inventory has declined steadily (64%) from its peak of 12.5 months in
July and is now back to pre-tax credit expiration levels. The supply of inventory is not far from a
seller’s market, which is less than 6 month’s supply.

12.5
10.6
January ’09-’10

7.6
7.7 8.0 8.2
January ’ 10-’11

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Latest Data Release: February 23, 2011

Source: National Association of Realtors KW Research 7
 Mortgage Rates
30-Year Fixed

Mortgage rates jumped above 5% for the first time since April 2009 in January. While rates dipped
back to just below 5%, they are expected to continue an upward trend throughout the year. As
overall economic recovery remains on track, rates will likely rise to keep inflation in check. Buyers
wanting to capture the savings in monthly payments that a historically low interest rate affords are
expected to take advantage of excellent buying conditions.

Historical Average – 8.9%

4-Feb 8-Apr
5.01% 5.21% 13-May 16-Dec 3-Feb
4.93% 11-Nov 4.83%
1-Year Average – 4.67%
4.81%
26-Aug 4.17%
4.36%

Source: Freddie Mac KW Research 8

 The percentage of a median family’s income required
Affordability - to make mortgage payments on a median-priced home
Percentage of Income
Housing affordability hit a new record in January. The relationship between mortgage rates, home
prices, and family income is the most favorable on record for buying. The home price-to-income ratio
continues to remain well below the historical standard. Stabilizing home prices and rising interest rates
are expected to reverse the recent affordability trend.

19.8% 18.6% 19.4% 18.4% 18.6% 19.9% 22.8% 21.5% 19.0% 13.6% 13.9% 13.1%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Affordability as of January every year. Calculations assume a 20% down payment.
Source: National Association of Realtors
KW Research 9
 Recent FHA to Increase Insurance Premiums 11

Government Action

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KW Research
 FHA to Increase Insurance Premiums
The Federal Housing Administration (FHA) will be increasing mortgage insurance
premiums that its borrowers pay each year by 0.25% starting April 18, 2011.

Loans backed by the FHA currently account for more than one-third of all new loans, up
from only 2% in 2006. The FHA has taken several steps to strengthen its financial
standing since September 2009, when it indicated that reserves would fall below the
2% minimum. Measures taken in January 2010 include raising the upfront insurance
fees by 0.5%, capping seller contributions to buyers closing costs at 3%, down from 6%,
and requiring a higher down payment for those with poor credit.

As the FHA remains a great option among first time home buyers, those with smaller
down payments, and those with spotty credit, its strength and continued viability of
FHA is key to the housing market. Upcoming changes to FHA insurance premiums also
mean that buyers who are out looking and who intend to use FHA financing will want
to finalize their deal and close before April 18.

Sources: The Wall Street Journal, Bloomberg, Forbes KW Research 11

 Topics for Home Buyers, Preparing to Sell 13
Sellers, and Owners

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KW Research
Preparing to Sell
Preparing your home for sale in a buyer’s market can seem daunting, but these five tips will help you
get the best price in the least amount of time.

1. Organizing and cleaning is crucial when prepping a home for sale. Potential home buyers have a
more positive reaction to homes that are clutter-free and give them the feeling that the home is
“move-in ready.”

2. Presale home inspection can inform you of any trouble areas within your home that can stand
out to potential buyers. An inspection can also help you make any repairs necessary before
future open houses.

3. Determine replacement estimates before listing your home, even if you are not planning on
making the replacements yourself. This information can help buyers to make informed decisions.

4. Have your warranties ready – especially for all those home appliances that will stay within the
home after the sale.

5. Curb appeal is a crucial factor because it determines first impressions. A negative first
impression can cloud their entire opinion about the home.

KW Research 13
Your Local Market

Although it is important to stay informed about what is going on in the national

economy and housing market, many different factors impact the real estate
market in your own area.

Talk to your KW associate for assistance interpreting the

conditions in your local market.

KW associates are equipped with the knowledge and information to help you
navigate the home-buying or selling process in this challenging market.

KW Research 14
About Keller Williams Realty

Founded in 1983, Keller Williams Realty, Inc., is

an international real estate company with more
than 80,000 associates and 686 offices across the
United States and Canada. The company began
franchising in 1991 and, after years of
phenomenal growth and success, became the
third-largest U.S. residential real estate firm in
2009.
The company has succeeded by treating its
www.kw.com
associates as partners and sharing its knowledge,
policy control, and company profits on aKW Research 15
The opinions expressed in This Month in Real Estate are intended to supplement opinions on real estate expressed by local and
national media, local real estate agents, and other expert sources. You should not treat any opinion expressed in This Month in
Real Estate as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of
opinion. Keller Williams Realty, Inc., does not guarantee and is not responsible for the accuracy or completeness of information,
and provides said information without warranties of any kind. All information presented herein is intended and should be used for
educational purposes only. Nothing herein should be construed as investment advice. You should always conduct your own
research and due diligence and obtain professional advice before making any investment decision. All investments involve some
degree of risk. Keller Williams Realty, Inc., will not be liable for any loss or damage caused by your reliance on information
contained in This Month in Real Estate.

KW Research 16