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ECONOMIC OUTLOOK

Over twenty years of proven expertise and trend analysis in evaluating residential property values.

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Local Market Monitor covers over 300 housing markets throughout the US. Our market reports are updated quarterly and contain a 12-month home price forecast, Equilibrium Home Price, as well as other key market metrics. Each report provides a complete historical view of home prices. We make it easy for you to quickly gain insight into home value trends through our powerful reports, graphs and analysis. You can easily sort markets by various metrics, allowing you to quickly:

• Set credit policy based on market risk for home equity and residential construction lending
• Determine the value of a portfolio of home mortgages
• Develop marketing programs based on how quickly prices are changing in the local market and stay ahead of pricing pressures
• Identify the floor for prices in a declining market
• Indentify markets with growth opportunities in advance
• Determine the future value for OREO property to help establish sales prices
• Identify and contact distressed borrowers in advance and modify the most at-risk mortgages first

Forecasted and historical home value data for each market is provided in both graphical form and in file format that can be easily loaded into spreadsheets or other programs for further analysis and reporting.

HOME PRICE FORECAST

Local Market Monitor's Home Price Forecasting Model forecasts home price changes one year into the future. Our forecast starts with the calculation of the current Equilibrium Home Price for a local market. Then the current actual home price in that market, based on raw HMDA data from the FFIEC, is compared with the Equilibrium Home Price. If the current price is close to the Equilibrium Price, a market is considered to be balanced, however if the current price is much higher or lower than the Equilibrium Price, the market is either over or under priced.

The forecasting equations have the same components, but with different weights depending on the difference between the current actual home price and the calculated Equilibrium Home Price:

• In balanced markets, income growth is the primary factor determining future home values. Local income growth is projected by Local Market Monitor based on current local job growth and overall growth of the national economy.
• In over-priced markets, the momentum of home value changes is more important than income growth in determining future home values.
• In under-priced markets, income growth is the dominant factor determining future prices.

The key to Local Market Monitor's ability to accurately forecast home prices is our proprietary concept of Equilibrium Home Prices. The Equilibrium Home Prices are based on the observation that in the long run, local home prices are closely linked to local income. The extent to which actual prices are higher than the Equilibrium Home Price is a measure of how much adjustment will eventually take place and a measure of the risk that actual home prices will fall.  This tool serves as an early warning system for potential mortgage risks.

By comparing the actual home prices in a market to the Equilibrium Home Price, Local Market Monitor classifies local markets into one of three categories:

• Balanced Market - home values are within 15% of the Equilibrium Home Price
• Over-priced Market - home values are over the Equilibrium Home Price by 15% or more
• Under-priced Market - home values are under the Equilibrium Home Price by 15% or more

In all unbalanced markets examined by Local Market Monitor over the previous several decades, actual home prices always eventually return to the Equilibrium Home Price, although the adjustment process usually requires several years.