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					                                  Tucson Area
                    Local Market Report, Second Quarter 2012
         Today's Market…
                               Median Price (Red Line) and One-year Price Growth
             $300,000                                                                                      40%

             $250,000                                                                                      30%
                                                                                                           20%
             $200,000
                                                                                                           10%
             $150,000
                                                                                                           0%
             $100,000
                                                                                                           -10%
               $50,000                                                                                     -20%
                      $0                                                                                   -30%
                            2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012
                             Q2      Q2      Q2      Q2      Q2      Q2      Q2      Q2      Q2      Q2


                                                      Local Price Trends
Price Activity                                        Tucson             U.S.                 Local Trend
            Current Median Home Price (2012 Q2)       $147,800         $181,133
                                                                                     Prices continue to grow relative to last
         1-year (4-quarter) Appreciation (2012 Q2)      8.3%             7.4%                         year
        3-year (12-quarter) Appreciation (2012 Q2)     -15.1%            3.9%
          3-year (12-quarter) Housing Equity Gain*    -$26,300          $6,767         The local housing price correction
         7-year (28 quarters) Housing Equity Gain*    -$80,700         -$39,267        eliminated all of the equity gained
         9-year (36 quarters) Housing Equity Gain*                                         during the housing boom
                                                      -$11,400          $4,100
*Note: Equity gain reflects price appreciation only



                                                       Tucson            U.S.
Conforming Loan Limit**                               $417,000            $729,250
                                                                                       Most buyers in this market have access
                  FHA Loan Limit                      $417,000            $417,000
                                                                                          to government-backed financing
Local Median to Conforming Limit Ratio                  35%             not comparable
Note: limits are current and include the changes made in November of 2011



Local NAR Leadership
The Tucson market is part of region 11 in the NAR governance system, which includes all of Wyoming, Colorado, New
Mexico, Arizona, Utah, and Nevada. The NAR Regional Vice President representing region 11 is Michael Labout CRS,
ePro, GRI.
       Drivers of Local Supply and Demand…

Local Economic Outlook                                    Tucson               U.S.
                                                                              Not
                       12-month Job Change (Jun)             4,400
                                                                           Comparable         Employment has held up and is on an
                                                                              Not                       upward trend
                       12-month Job Change (May)             1,500
                                                                           Comparable
                                                                              Not
                       36-month Job Change (Jun)             -5,500                           Unemployment in Tucson is better than
                                                                           Comparable
                                                                                               the national average and improving
                  Current Unemployment Rate (Jun)            7.7%              8.2%
                     Year-ago Unemployment Rate              9.1%              9.1%           Local employment growth is poor and
               1-year (12 month) Job Growth Rate             1.3%              1.4%                    needs to improve


                               Share of Total Employment by Industry
                        Tucson Area                                                                 U.S.

    #N/A             #N/A                                                 #N/A     #N/A
                                                                             Natural
                        Natural                                            Resources
Natural Resour    0.5% Resources
                               1.9          Constructio                   Natural 0.6%
                                                                                             Constructio
                                                                           and Mining            n                 Manufacturi
                       and Mining               n
                                                                              0.6%                                    ng
Construction      4.8%   0.5% 16.9            4.8%
                                            Manufacturi                              Governme 0.6%
                                                                          Constru 0.6%                               9.1%
         Governmen
                                                ng                            Other     nt
Manufacturing t   6.6%        23.1             6.6%                       Manufac9.1% 15.6%
            19.9%                                                            Services
Trade/Transpo    16.1%          56                                            4.1%
                                                                          Trade/T 19.1%
                                              Trade/Tran
        Other                                                          Leisure &                                            Trade/Tran
Information       1.1%         3.9            sportation/U                Informa2.0%
      Services                                                         Hospitality                                          sportation/
                                                 tilities
        4.1%                                                            10.7%                                                 Utilities
Financial Act     5.1%       17.6               16.1%                     Financi 5.9%                                        19.1%
      & Busin
Prof. Leisure &     13.4%          46.8                  Information      Profess13.5%
    Hospitality
Educ. & Heal        16.6%          57.7          Financial 1.1%           Educat 15.0%
      11.8%                                      Activities
Leisure & Ho       11.8%           41.1            5.1%                    Educational
                                                                          Leisure10.7%
                                         Prof. &                                                                            Information
Other Service       4.1%           14.3                                     & Health
                                                                          Other S4.1%
                   Educ. &              Business                             Services                 Profession     Financial 2.0%
                    Health
Government         19.9%
                   Services        69.2 Services
                                              94.6%                          15.0%
                                                                          Govern15.6%               #N/A al &        Activities
                                         13.4%                                                         Business       5.9%
#N/A                16.6%
                    #N/A                                                   #N/A #N/A                   Services
#N/A                 #N/A                                                  #N/A #N/A                    13.5%
                              12-month Employment Change by Industry in the Tucson Area (Jun - 2012)
Goods Producing                                         NA             Information                                      -300
  Natural Resources/Mining/Construction                       NA             Financial Activities                       300
        Natural Resources and Mining                           0             Prof. & Business Services                  1,000
        Construction                                         2,000           Educ. & Health Services                   -1,300
  Manufacturing                                               -300           Leisure & Hospitality                      2,400

Service Providing Excluding Government                        NA             Other Services                             -200

  Trade/Transportation/Utilities                              -900           Government                                 1,700



        State Economic Activity Index                     Arizona              U.S.
                                                             2.7%              2.7%            The economy of Arizona is growing
           12-month change (2012 - Jun)
                                                                                              more slowly than the rest of the nation,
           36-month change (2012 - Jun)                      1.0%              5.9%             but improved modestly from last
                                       New Housing Construction
             Local Fundamentals                      Tucson              U.S.
12-month Sum of 1-unit Building Permits through                                       The current level of construction is
                                                      1,796         not comparable
                  Jun 2012                                                            64.6% below the long-term average
                                                                                       Reduced construction will limit new
   8-year average for 12-month Sum of 1-Unit
                                                      5,069         not comparable supply to the market, allowing demand
                Building Permits
                                                                                      to catch up with the inventory more
                                                                                      Construction is on the rise relative to
   Single-Family Housing Permits (Jun 2012)
                                                      10.8%             11.2%          last year, suggesting that the local
         12-month sum vs. a year ago
                                                                                             inventory has stabilized

                          Construction: 12-month Sum of Local Housing Permits
                                       (Historical Average Shown in Red Dashed Line)
         12,000

         10,000

          8,000

          6,000

          4,000

          2,000

               0




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

                              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
         Composition of Mortgaged Homes in Local Area
        Monthly Market Data - May 2012                   Tucson                  U.S.
                                                                                              There are nearly 17.6 prime loans for
    Prime Mortgages Outstanding (estimate)               192,701             48,892,651     every subprime mortgage in the Tucson
                                                                                            market, which is more than the national
                                                                                                average of 14.4 suggesting that
  Subprime Mortgages Outstanding (estimate)              10,949              3,405,908       subprimes make up a smaller share of
                                                                                               the local market than on average.

Source: First American CoreLogic, LoanPerformance data



              Subprime Foreclosure and Delinquency Rates
Monthly Market Data -
     May 2012                       Tucson                            U.S.
                             22.7%        27.3% 29.3%          28.6% 31.4% 31.5%
                             29.3      27.3                  31.5         31.3                 The 90-day delinquency rate for
Subprime: 90-day              %
                                                 22.7
                                                             4%
                                        %         %                       6%       28.6     subprime mortgage in Tucson fell over
   Delinquent                                                                      0%         the 6-month period ending in May
                           May-11     Nov-11    May-12      May-11    Nov-11      May-12


                              8.4%            9.7% 10.7%       13.6% 14.0% 13.5%
    Subprime:                                                             14.0
                                                                                               The recent decline of the 90-day
                            10.66      9.74      8.37        13.5                   13.5     delinquency rates suggests that local
                             %          %                                 3%
   Foreclosure +                                  %          3%                     9%         foreclosure rates will continue to
     REO Rate                                                                                      decline in the near future.
                           May-11     Nov-11    May-12      May-11    Nov-11       May-12


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 -
     May 2012                       Tucson                            U.S.
                               4.6%           5.1%   5.2%          5.6%     5.9%     5.9%
                             5.18      5.12                               5.91              The 90-day delinquency rate in Tucson
   Prime: 90-day              %         %        4.62
                                                             5.87
                                                              %            %       5.57      fell over the 6-month period ending in
    Delinquent                                    %                                 %                         May
                           May-11     Nov-11    May-12      May-11    Nov-11      May-12


                              1.9%            1.9%   1.9%         2.7%      2.7%     2.8% The rise in the prime delinquency rate
      Prime:                                                 2.83
                                                                                          over the 6-month period ending in May
                                                 1.94
                             1.92      1.93       %           %           2.74      2.72  is likely to change coarse and ease as
   Foreclosure +              %         %                                  %         %         fewer prime loans were 90-day
     REO Rate                                                                               delinquent over the same 6-month
                           May-11     Nov-11    May-12      May-11    Nov-11       May-12
                                                                                                           period.
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%
                  1993      1995     1997     1999      2001    2003      2005    2007      2009     2011




Monthly Mortgage Payment to Income                   Tucson            U.S.
               Ratio for 2011                         8.7%             14.2%     Historically strong, but weaker than the
             Ratio for 2012 Q2                        8.7%             14.1%                first quarter of 2012

             Historical Average                      16.0%             21.4%       More affordable than most markets




                         Recent Trend - Local Mortgage Servicing Cost to Income
                                      (Historical Average Shown in Red Dashed Line)
            18%
            16%
            14%
            12%
            10%
             8%
             6%
             4%
             2%
             0%
                    2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2




       Median Home Price to Income                   Tucson            U.S.
               Ratio for 2011                         1.4               2.4       The price-to-income ratio rose, but is
             Ratio for 2012 Q2                        1.6               2.5         better than the historic average
             Historical Average                       2.1               2.7      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
                        1993        1995         1997        1999       2001      2003     2005       2007        2009        2011




                                              The Mortgage Market
                            30-year Fixed Mortgage Rate and Treasury Bond Yield
                  280                                                                                                        7.0%
                  240                                                                                                        6.0%
                  200                                                                                                        5.0%
                  160                                                                                                        4.0%
                  120                                                                                                        3.0%
                   80                                                                                                        2.0%
                   40                                                                                                        1.0%
                    0                                                                                                        0.0%
                        2007 Q2     Q4      2008 Q2     Q4    2009 Q2    Q4     2010 Q2   Q4    2011 Q2     Q4     2012 Q2



                                  Spread (left axis)          30-Year FRM (Right axis)         10-Year Treasury Bond (Right Axis)



Mortgage rates continued their downward trajectory in the 2nd quarter of 2012 on news of domestic economic softening
and weak employment growth, but more largely renewed weakness in Europe. The two trends drove the 10-year
Treasury rate sharply lower, which was followed by the average 30-year fixed rate mortgage, but not in lockstep. As a
result the spread between the two rose, which is typical when rates fall sharply due to increase interest rate risk on the
part of mortgage investors whose costs rise as borrowers refinance. Regulatory concerns are also causing originators to
hold onto more of the spread. Despite the low rates, access to them remains tight with average FICOs scores today well
above what they were prior to the housing boom and bust. Rates are likely to remain historically low through the end of
the year as concerns on Europe are likely to reemerge. Furthermore, the Federal Reserve has made it clear that it
intends to keep long-term mortgage rates low through 2013 and into 2014. The result should be an environment of
historically low mortgage rates though there may be some upward drift by year’s end.
A Closer Look…Underwater Mortgages

                         Share of Homes In or Near Negative Equity: Q1 2012
             50%
             45%
             40%
             35%
             30%
             25%
             20%
             15%
             10%
              5%
              0%
                                    In Negative Equity                         Near Negative Equity

          Source: Corelogic


             Share of Mortgages                          Arizona          U.S.
              In Negative Equity                         43.4%            23.7%        The share of mortgaged homeowners
                                                                                       underwater in Arizona is greater than
             Near Negative Equity                         5.0%            4.9%                the national average.



The strong price growth this spring has had an important impact on the housing market. Rising prices lifted many
homeowners out of negative equity, improving confidence, enabling them to sell without a loss, and reducing the risk that
they might roll into foreclosure. Stronger prices make short sales more attractive to banks and alleviate the weight of
distressed sales on the sale prices of neighboring homes. According to Corelogic, the number of underwater
homeowners eased by roughly 700,000 to 11.4 million in the 1st quarter of 2012 or roughly 23.7% of all mortgaged
homeowners. An additional 2.3 million were in near-negative equity or had less than 5% equity, also a decline from the
4th quarter. However, given the large number of low-down payment FHA purchases in recent years, this latter figure is
less threatening. Statewide, 43.4% of mortgaged homeowners in Arizona or roughly 561,000 owe more on their
mortgage than the home is worth. Another 5% or nearly 65,000 have less than 5% equity in their home.




                        Geographic Coverage for this Report
The Tucson area referred to in this report covers the geographic area of the Tucson 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:


                                                           Pima County


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

				
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