The Housing Outlook

Presented by:

Mark M. Zandi,Chief Economist

Presented by:

Mark M. Zandi,Chief Economist

April 26, 2007

2

Median existing house price, % change year ago, 05Q4-06Q4

Decline

> 3%

< 3%

The Housing Correction is in Full Swing…

3

…and Has Another Year to Run

200

205

210

215

220

225

230

05 06 07 08

Sources: Realtors, Moody's Economy.com

Median existing house price, $ ths, SA

4

# of Excess Housing Units, Ths.

0

250

500

750

1,000

'04 '05 '06

New Unsold

Existing Vacant For Sale

Sources: Census,Moody's Economy.com

Bulging Inventories Must Be Worked Off

5

Stunning Erosion in Mortgage Credit Quality…

1.75

2.00

2.25

2.50

2.75

3.00

00 01 02 03 04 05 06 060.3

0.4

0.5

0.6

Sources: Equifax, Moody's Economy.com

Default rate (R)

Delinquency rate (L)

% of residential mortgage debt, $

6

...In an Increasing Number of Areas...

Change in mortgage delinquency rate, 07Q1-05Q4

Sources: Equifax, Moody's Economy.com

Over 120 bp

48 bp to 120 bp

Less than 48 bp

U.S. = 83 bp

7

...Particularly In Recent Subprime Vintages

0.00

0.01

0.02

0.03

0.04

0.05

0.06

3 4 5 6 7 8 9 10 11 12# of months of seasoning

Subprime ARM cumulative losses,by vintage year% of original balanceSource: Moody’s Investors Service 1999

2000

2001 2002

2003

2004

2005

2006

8

0

10

20

30

40

50

60

01 02 03 04 05 06

Prime IO/optionAlt/aSubprime

Source: Credit Suisse

Share of securitized purchase mortgage originations

More Credit Problems are Coming...

9

...as Resetting Mounts...

Mortgage debt outstanding facing first payment reset, $ bil

0

10

20

30

40

50

60

07 08

Prime AgencyUnsecuritized OptionAlt-a Subprime

Source: Credit Suisse

10

...and Mortgage Lenders Tighten

-20

-10

0

10

20

30

40

90 92 94 96 98 00 02 04 06

Source: Federal Reserve Senior Loan Officer Survey

Net % of banks tightening mortgage loan standards