Waterloo-Cedar Falls Area Local Market Report, Fourth Quarter 2012

Today's Market
Median Price (Red Line) and One-year Price Growth
$140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0
2003 Q2 2004 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4

30% 25% 20% 15% 10% 5% 0% -5% -10% -15%

Local Price Trends Waterloo/C. Falls Price Activity Current Median Home Price (2012 Q4) $120,900
1-year (4-quarter) Appreciation (2012 Q4) 3-year (12-quarter) Appreciation (2012 Q4) 3-year (12-quarter) Housing Equity Gain* 7-year (28 quarters) Housing Equity Gain* 9-year (36 quarters) Housing Equity Gain* *Note: Equity gain reflects price appreciation only

U.S.
$178,833 10.2% 4.6% $7,867 -$46,533 -$2,400

Local Trend
Prices continue to grow relative to last year This area has held onto positive equity growth despite the national market decline

2.5% 6.3% $7,200 $14,600 $34,400

Conforming Loan Limit** FHA Loan Limit Local Median to Conforming Limit Ratio Note: limits are current and include the changes made in November of 2011 and extended in November of 2012

Waterloo/C. Falls U.S. $417,000 $729,250 Most buyers in this market have access $417,000 $417,000 to government-backed financing not comparable 29%

Local NAR Leadership

The Waterloo-Cedar Falls market is part of region 8 in the NAR governance system, which includes all of Minnesota, Iowa, North Dakota, South Dakota, and Nebraska. The NAR Regional Vice President representing region 8 is Jo Jenkins ABR, CRB CRS, GRI.

Drivers of Local Supply and Demand

Local Economic Outlook 12-month Job Change (Dec) 12-month Job Change (Nov) 36-month Job Change (Dec) Current Unemployment Rate (Dec) Year-ago Unemployment Rate 1-year (12 month) Job Growth Rate

Waterloo/C. Falls -500 -400 2,400 5.2% 5.5% -0.5%

U.S.
Not Comparable Not Comparable Not Comparable 7.8% 8.5% 1.7% Emplyoment continues to decline and will weigh on demand in some areas Unemployment in Waterloo/C. Falls is better than the national average and improving Local employment growth is poor and needs to improve

Share of Total Employment by Industry

Waterloo-Cedar Falls Area #N/A #N/A #N/A #N/A #N/A #N/A

U.S. #N/A #N/A

Manufacturi ng 8.9%

#N/A #N/A Governmen Manufacturing t 20.7% 18.8% Trade/Transpo 21.6%

Manufacturi ng 20.7% 17.2

18

#N/A Governme #N/A

#N/A Leisure &

Hospitality Financial Act 8.9%

#N/A 6.0% 7.7%

nt Manufac8.9% 16.4% Trade/T Leisure & 19.3% Hospitality #N/A #N/A 10.0%

5
6.4

Financi 5.9% Profess13.4%

Trade/Tran sportation/U tilities 21.6%
#N/A

Trade/Tran sportation/ Utilities 19.3%

Prof. & Busin Educ. & Heal

16.3% 13.6 Educ. & 8.9% 7.4 Leisure & Health Ho #N/A Services #N/A Prof. & Financial 16.3% Business Activities Government 18.8% 15.6 Services 6.0% #N/A #N/A 7.7% #N/A #N/A Goods Producing

Educat 15.4%
Educational Leisure10.0% & Health #N/A #N/A Services 15.4%

Financial Activities 5.9% Profession

Govern16.4% #N/A #N/A #N/A #N/A

#N/A al &
Business Services 13.4%
NA 0 100 -100 -100 NA -700

12-month Employment Change by Industry in the Waterloo-Cedar Falls Area (Dec - 2012) NA Information NA NA NA 300 NA 400 Financial Activities Prof. & Business Services Educ. & Health Services Leisure & Hospitality Other Services Government

Natural Resources/Mining/Construction Natural Resources and Mining Construction Manufacturing Service Providing Excluding Government Trade/Transportation/Utilities

State Economic Activity Index 12-month change (2012 - Dec) 36-month change (2012 - Dec)

Iowa 1.7% 5.3%

U.S.
2.7% 7.7% Iowa's economy is growing, but decelerated from last month's 1.99% change and lags the rest of the nation

New Housing Construction

Local Fundamentals 12-month Sum of 1-unit Building Permits through Dec 2012 8-year average for 12-month Sum of 1-Unit Building Permits Single-Family Housing Permits (Dec 2012) 12-month sum vs. a year ago

Waterloo/C. Falls 344

U.S.
not comparable

The current level of construction is 02.9% below the long-term average Reduced construction will limit new

354

not comparable supply to the market, allowing demand

15.4%

24.3%

to catch up with the inventory more Construction is on the rise relative to last year, suggesting that the local inventory has stabilized

Construction: 12-month Sum of Local Housing Permits

(Historical Average Shown in Red Dashed Line)

600 500 400 300 200 100 0

While new construction is the traditional driver of supply in real estate, foreclosures and short-sales now have a strong impact on inventories, particularly at the local level. Rising inventories, through construction or distressed sales, place downward pressure on the median home prices.

State Total Foreclosure Rate vs. U.S Average

(U.S. Average in Blue Dashed Line)

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

Source: Mortgage Bankers' Association

Composition of Mortgaged Homes in Local Area

Monthly Market Data - December 2012

Waterloo/C. Falls
21,411

U.S.
49,481,756 There are nearly 19.2 prime loans for every subprime mortgage in the Waterloo/C. Falls market, which is more than the national average of 14.7 suggesting that subprimes make up a smaller share of the local market than on average.

Prime Mortgages Outstanding (estimate)

Subprime Mortgages Outstanding (estimate) Source: First American CoreLogic, LoanPerformance data

1,112

3,366,415

Subprime Foreclosure and Delinquency Rates

Monthly Market Data December 2012

Waterloo/C. Falls
17.8% 17.8% 20.3%
17.8 % Jun-12 17.8 % Dec-12 20.3 % Dec-11 30.7 3%

U.S.
25.5% 27.5% 30.7%
27.5 4% Jun-12 25.5 1% Dec-12

Subprime: 90-day Delinquent

Waterloo/C. Falls's 90-day delinquency rate climbed faster than the national average over the most recent 6-month period

Dec-11

7.3%

9.9% 10.6%
9.92 % 7.33 %

Subprime: Foreclosure + REO Rate

10.56 %

Dec-11

Jun-12

Dec-12

10.4% 12.9% 13.9% The decline in the foreclosure rate over 13.9 the most recent 6-month period is likely 12.8 10.3 5% 8% to change coarse and rise in the near 5% future as evidenced by the increase in Dec-11 Jun-12 Dec-12 the 90-day delinquency rate

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

Prime Foreclosure and Delinquency Rates

Monthly Market Data December 2012

Waterloo/C. Falls
2.8% 2.9% 2.81 2.9%
% 2.87 % Jun-12 Dec-12 2.93 % 5.90 %

U.S.
5.3% 5.7%
5.68 % Jun-12

5.9%
5.29 % Dec-12

Prime: 90-day Delinquent

The 90-day delinquency rate in Waterloo/C. Falls fell over the 6-month period ending in December

Dec-11

Dec-11

1.4%

1.6%
1.60 %

1.4%

2.4%
2.70 % Dec-11

2.7%
2.73 %

2.7%
2.40 % Dec-12

Prime: Foreclosure + REO Rate

1.42 %

1.39 %

Dec-11

Jun-12

Dec-12

Jun-12

The recent decline of the 90-day delinquency rates suggests that local foreclosure rates will continue to decline in the near future.

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

Affordability
Long-Term Trend: Ratio of Local Mortgage Servicing Cost to Income
(Local Historical Average Shown in Red, U.S. Average in Green)

30% 25% 20% 15% 10% 5% 0%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Monthly Mortgage Payment to Income

Ratio for 2012 Ratio for 2012 Q4 Historical Average

Waterloo/C. Falls 6.1% 5.9% 8.8%

U.S.
13.2% 12.6% 20.7% Historically strong and an improvement over the third quarter of 2012 More affordable than most markets

Recent Trend - Local Mortgage Servicing Cost to Income

(Historical Average Shown in Red Dashed Line)

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4

Median Home Price to Income

Ratio for 2012 Ratio for 2012 Q4 Historical Average

Waterloo/C. Falls 1.1 1.1 1.2

U.S.
2.4 2.4 2.7 The price-to-income ratio has fallen 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)

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

The Mortgage Market

30-year Fixed Mortgage Rate and Treasury Bond Yield
280 240 200 160 120 80 40 0
2007 Q4 Q2 2008 Q4 Q2 2009 Q4 Q2 2010 Q4 Q2 2011 Q4 Q2 2012 Q4

7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

Spread (left axis)

30-Year FRM (Right axis)

10-Year Treasury Bond (Right Axis)

The New Year brought a new outlook to the mortgage market. Rates inched up modestly from late December. The consensus was that the economy is more robust and poised for modest to moderate growth through the end of 2013, which would pull up on the 10-year Treasury and mortgages rates in turn. Concerns about sequestrations impact on the economy were priced in and many analysts appeared optimistic that the House and Senate would be able to come to a compromise, avoiding any major shock waves to the economy and financial markets. However, mortgage rates jumped in late December on hints that the Federal Reserve might slow or stop its large scale purchases of mortgage backed securities (MBS). These fears proved unfounded as the Federal Reserve reasserted its program in January to maintain its purchases of MBS at $40 billion a month for an unspecified period. These purchases are important as they increase demand for mortgages, which in turn lowers the rates paid at the retail end by homebuyers. These two trends are fighting each other as Fed purchases press down on rates that should be following the economic news upward. The result has been a decline in the spread between the 10-year Treasury and average rate 30-year fixed mortgage as reported by Freddie Mac. Rates are likely to remain low as sequestration is more likely to come to fruition and uncertainty in Europe remains.

A Closer LookPersonal Bankruptcy

Annual Growth of Personal Bankruptcies
50% 40% 30% 20% 10% 0% -10% -20%
2007 2008 2009 2010 2011 2012

Source: Census
Personal Bankruptcy Filiings 2012 2011

Iowa

United States

Iowa 35,493 38,603

U.S.
1,181,016 1,363,015 Bankruptices in Iowa fell by a smaller percentage than the national average between 2011 to 2012.

Personal bankruptcies tend to rise during periods of economic distress due to job loss and loss or reduction of income. Not surprisingly, this pattern was evident during this most recent economic downturn when bankruptcies rose nationally to a peak of 1.537 million in 2010. In Iowa, bankruptcies peaked in 2009 at 47290. However, the volume of bankruptices eased by -24.9% to 35493 in 2012. The decline in bankruptcies is a reflection of improved consumer balance sheets. However, consumers are also dealing with battered FICO scores and the stringent lending environment requires hightened credit and reserve standards constraining many would-be home buyers.

Geographic Coverage for this Report

The Waterloo/C. Falls area referred to in this report covers the geographic area of the Waterloo-Cedar Falls metro area as officially defined by the Office of Management and Budget of the U.S. Government. The official coverage area includes the following counties:

Black Hawk County, Bremer County, and Grundy County

More information on the OMB's geographic definitions can be found at http://www.whitehouse.gov/omb/inforeg_statpolicy/