Economic and Market Watch Report

3rd Quarter, 2002

*Click on a County to view economic and real estate information at the county and zip code level

2002 Trend MLS and NATIONAL ASSOCIATION OF REALTORS

Reproduction, reprinting, or retransmission in any form is prohibited without written permission.

Trend MLS Economic and Market Watch Report

TReND is one of the ten largest regional Multiple Listing Services (MLS) in the country, delivering MLS data services to over 18,000 real estate professionals throughout a thirteen county network. TReND is committed to providing real estate professionals with superior real estate market information services and making technology accessible through education, communication, and support. The TReND family of e-products and services: MLSWeb, REALIST.com, The GoTReND! Private Network, WyldFyre Listings, and www.trendmls.com provides the knowledge, technology, and service REALTORS need to succeed in todays competitive real estate marketplace. TReND is pleased to introduce the Economic and Market Watch Report designed to help real estate practitioners identify current and future economic and real estate trends that affect our industry.

Index
Local Report........2
Pennsylvania Berks County2 Bucks County3 Chester County.4 Delaware County..5 Montgomery County6 Philadelphia County.7 New Jersey Burlington County...8 Camden County...9 Gloucester County...10 Mercer County.....11 Salem County...12 Delaware Kent County.13 New Castle County..14

Trends..........15 Chief Economists Commentary........17 Local Forecast.........19 Economic Monitor..........21

Local Report

Berks County
Buyer's Market 1 2 3 4 5 Seller's Market

Labor Market:
The labor market continues to be lackluster. Two thousand jobs were lost this quarter pushing the unemployment rate up to 5.9% from 5.7%. Despite these layoffs, the unemployment rate remains at relatively low levels by historical standards. The labor market is expected to weaken further, however, before it turns back up. Consequently, this pattern of layoffs should continue into the winter resulting in another increase in the unemployment rate.

Housing Market:

Q2 '02
Median Price

Q3 '02 $155,000 3,910 1,925 1,050 18

Q4 '02

$150,000 4,100 1,750 1,200 16

# Homes on the Market # Homes Sold # New Homes Built Avg # days on Market

Data by Zip-codes
Zip Code 14566 14567 14568 14569 14570 14571 14572 14573 14574 14575 14576 14577 14578 14579 14580 14581 14582 14583 14584 14585 14586 14587 14588 Median Price $135,000 $137,000 $146,000 $150,200 $135,200 $137,500 $136,000 $142,500 $136,500 $140,500 $144,500 $148,500 $152,500 $156,500 $160,500 $164,500 $168,500 $172,500 $176,500 $180,500 $184,500 $188,500 $192,500 Price Change (1 Year) 2.0% 1.0% 7.0% 10.0% -0.5% 5.0% 9.0% 2.0% 3.7% 6.0% 8.3% 10.6% 12.9% 15.2% 17.5% 19.8% 22.1% 24.4% 26.7% 29.0% 31.3% 33.6% 35.9% Total # Homes Sold (Quarter) 500 1,400 1,900 750 920 2,700 1,203 1,539 732 1,465 2,198 2,931 3,664 4,397 5,130 5,863 6,596 7,329 8,062 8,795 9,528 10,261 10,994 % change in # homes sold (1 Year) 6% 30% -2% 10% -16% 9% 7% -5% 13% 18% 23% 28% 33% 38% 43% 48% 53% 58% 63% 68% 73% 78% 83% Average Days on Market 31 20 35 30 27 23 27 32 29 26 23 20 17 14 11 8 5 2 5 16 7 10 13 % of asking price (sold/list price) 100.0% 105.0% 99.7% 102.0% 110.0% 99.9% 100.1% 100.3% 102.0% 99.6% 97.2% 94.8% 92.4% 90.0% 87.6% 85.2% 82.8% 80.4% 78.0% 75.6% 73.2% 70.8% 68.4%

Trends
Full Price v. Price Concessions
By Lawrence Yun, Senior Research Forecaster Experience and common sense tell us that price concessions may be in order for a home that remains on the market for an extended period of time. Sales data from the Philadelphia and Wilmington metropolitan area certainly supports that. Despite the relative strength of the regional market, price concessions by way of an acceptable offer below the asking price or a reduction in the asking price, are not unusual for listings that are more than 30 days old. An examination of home sales data within the TReND MLS service area, revealed that full price sales during the third quarter of 2002 typically occurred within the first 14 days on the market. For homes listed for more than two weeks, but less than a month, a typical concession was very minor. In fact, the price concession averaged about one percent of the purchase price. But for homes that are listed for more than 90 days, concessions averaged a full six percent of the original asking price.

Full Price?
Percent of Sales Price 102% 100% 98% 96% 94% 92% 90% 7 days or less 8 to 14 days 15 to 30 days 31 to 60 days 61 to 90 days more than 90 days

Days on Market

How Much Does Price Decline Over Time? For those homes listed for less than 14 days, a surprising three percent were sold for less than 90 percent of the original asking price. As time on market increases, so do the number of homes being sold for less than 90 percent of the original asking price. The number of homes selling for less than 90 percent of the What % of homes were sold with at least 10% price original asking price more than doubles when concession? comparing homes that sold within the first 35% 30 days and homes that sold within 31-60 30% 25% days. Furthermore, a whopping 30 percent 20% of the homes that were on the market for 15% more than 90 days were sold at less than 90 10% percent of the asking price. Real estate 5% 0% professionals should take note of 7 days or 8 to 14 15 to 30 31 to 60 61 to 90 more than acceleration in price concessions typically less days days days days 90 days found after 30 and 90 days on the market. Days on Market The percentage of homes that required discounts steadily increase with the length of days a home was on the market. Days on Market is a function of Price While this might seem rather intuitive, it is not quite that clear. In fact, modestly priced and high-end homes typically have higher average days on market than moderately priced homes. This might be a function of fewer buyers in the market for these types of homes or the need for more repairs for moderately priced homes or a host of other factors. What is clear though, is that homes that were priced over $400,000 took an average of 33 days to sell during the third quarter of 2002. Historically, this is unprecedented but when compared to homes listed between $100,000 and $200,000, it took an
Percent of Sold Homes

15

Trends
Percent of Sold Homes

average of 15 days to sell. The same is true of homes priced under $100,000, which averaged 30 days on the market prior to being sold.

Percentage of homes sold within 5% of listing price

(low-end and high-end homes are difficult to price)

For homes priced above $400,000, only 60 percent were sold for more than 95 percent of their original asking price. $100,000 100,001 Similarly, 58 percent of homes priced or less to under $100,000 sold for more than 95 150,000 percent of their original asking price. By comparison, nearly 80 percent of homes sold between $100,000 and $200,000 received more than 95 percent of their original asking price.

85% 80% 75% 70% 65% 60% 55% 50%

150,001 to 200,000

200,001 to 250,000

250,001 300,001 to to 300,000 350,000

350,001 400,001 and over to 400,000

Sales Price

Conclusions Time on market is primarily a function of supply and demand. As real estate professionals, we try and evaluate the market demand and the relative competition (supply) in order to price a property. The more unique the property, the more difficult it is to price. This is especially true for what statisticians call outliers. In real estate, an outlier would be properties that are priced at the extreme ranges of the market (ie. Under $100,000 or significantly above $400,000). Outliers are more difficult to price since they typically have a smaller segment of buyers with a distinct set of preferences. As such, it may be necessary and beneficial to educate sellers that properties priced in these categories might take longer to sell.

16

Chief Economists Commentary

A Birds Eye View

By David Lereah, Chief Economist
If you were able to take flight, soar 10,000 feet above the earth and look down at the U.S. economy you could be surprised at what you saw. What you would see is an economy that is fundamentally sound with favorable prospects. Consumers are spending money on goods and services. Business inventories are relatively lean. Borrowing costs those headline- making interest rates are near historic lows. Both the housing and automobile markets are flourishing. Foreign capital is flowing freely. Unemployment is well below six percent, and inflation is relatively tame. Putting all this together, one would conclude that the view from 10,000 feet of this low inflation/low interest rate environment presents a favorable backdrop for a robust recovery. So whats wrong with this picture? Why is the economy struggling to lift itself up from the recession of 2001? Upon closer inspection other items come into view. Lets take a look at some of them. The U.S. equities market continues to be in retreat; company stock values have dropped collectively by more than $7 trillion since March 2000. The industrial sector is displaying unusual weakness at this stage of the recovery. The manufacturing sector is contracting once again, as measured by a 49.5 ISM Index for September (below 50 reflects contraction). Consumer confidence, as measured by the Conference Board Consumer Confidence Index has fallen for the fourth consecutive month (September). The labor markets continue to display unusual sluggishness in a recovery, averaging only 40,000 payroll gains per month since May.

All of these factors help explain why the economy continues along its sluggish path, but they do not tell the full story. The Bounce Theory Historically, recovery periods usually have a strong bounce back effect from recessions. Since 1970 there have been four recovery periods (excluding the present one). GDP growth during the first year in each of those recovery periods was well above 3 percent actually, averaging 4.6 percent growth for the four recoveries taken as a whole. But according to most projections, including our own NAR forecast (see page 6), the 2002 recovery will experience about 2.5 percent GDP growth, significantly lower than previous recoveries. So why is there no bounce back effect in todays economy? While the economy appears to be fundamentally and structurally sound, there doesnt seem to be much vigor in economic activity theres no oomph. There are some intangible factors that might help explain todays lackluster performance. First, the economy continues to absorb the residual effects from the bursting of the technology bubble. After climbing to higher and higher heights of both investment and profitability throughout the 1990s, the technology sector finally hit the ceiling and crashed. The magnitude of the fall more than equaled its ascent, and it has generated a significant amount of disruption for many sectors of the economy.

17

Chief Economists Commentary

Similarly, the economy continues to be negatively influenced from the fallout of the equities market. The positive wealth effect of the 1990s stock market has now turned negative and is exerting downward pressure on consumer spending. The stock market decline has cut household wealth (from peak to trough) by $7 trillion from March 2000. Based on the Federal Reserves estimates of the stock markets wealth effect, this translates into about a $280 billion reduction in consumer spending. That, in turn, slows economic activity. And finally, there is that intangible factor that currently casts a dark shadow across the U.S. economy negative psychology. The combination of a plunging stock market, corporate scandals and the fight against terrorism and potential war with Iraq weighs very heavily on peoples minds, generating uncertainty and shattering confidence both impediments to an economic recovery. But there are still some good views from 10,000 feet. Housing is one. In spite of the war on terror, stock market slides, and falling consumer confidence, people are still out there buying homes. With interest rates at historically low levels and demand for homeownership unwavering, existing home sales are poised to set a record in 2002. There may be some things that dont look so nice when were flying so high, but other scenes like people buying homes and becoming homeowners are beautiful to behold.

Real Estate Outlook

18

Forecast

The Forecast
By Lawrence Yun, Senior Research Forecaster
Consumer spending zoomed ahead by a full percentage point in July. More importantly, real inflation-adjusted spending rose 0.8 percent. Consumers account for two thirds of the economy, so this large one-month increase assures us that the third quarter GDP will grow solidly. In addition, business spending which has contracted for nearly two years now appears to have turned a corner. New orders for durable goods increased by 8.7 percent in July to their highest level in 16 months. The impressive gain was broad-based and not just in the expected categories of motor vehicles (from zero-interest incentives) and military aircraft (from the war on terrorism). Orders for primary metals, heavy machinery, computers, electronic products, and civilian aircraft all contributed to the hefty increase. A steady boost from government spending also helps in fully awaking the economy. Is the mortgage rate honeymoon over? Economic growth is coming at a critical point for housing. The magical influence of low mortgage rates can no longer be counted on alone to keep housing activity at its current record-setting levels. Robust housing demand during the short-lived recession arose as affordability conditions actually improved from lower mortgage rates in 2001 and then stayed at high levels in 2002. But the current 40-year-low rates have a very little room to move downward, meaning no further help to affordability. At the same time, home price appreciation of 8.1 percent in the first quarter and 7.5 percent in the second quarter is easily outrunning income growth.This misalignment will cut into future affordability conditions. shifting from on prices in 2003 bonds do not like pressure economic recovery, leading to moneyinflation! And the Federal budget deficit means an additional player competing to borrow funds. Mortgage rates will likewise be rising. The 30-year fixed rate will steadily rise from 6.3 percent to 7.3 percent by the beginning of 2004. But even though the average rate will be higher, 7.3 percent is still favorable. There have been only two times in the past 30 years, when mortgage rates averaged under 7.3 percent for the year. Local Market Philadelphia The Philadelphia metro region has 26,400 fewer jobs as of August compared to one year ago. Consequently, the local unemployment rate has risen from 4.6 percent to 5.5 percent over the one-year cycle. But the worst of the job market conditions appear over. The national economic recovery will feed into the Philly region. Even though the job growth in the third quarter appears minimal, it is an improvement compared to job losses that have taken place. By the fourth quarter, job creation in the tune of 3,000 is a possibility. A much more solid job creation can be expected in 2003. Expect about 9,000 net new jobs in 2003.

The jobs will be coming in at just the right time. As mentioned, interest rates will be heading higher in 2003. So some of the slack in housing demand from rising mortgage rates will be neutralized by new household formations arising from job creations. The net effect will be for home sales to decline by 1.1 percent in 2003. This is not bad at all considering that home sales had increased in excess of 2 percent in the past two Jobs, jobs, jobs ... The next impetus to housing demand can only come years. from job creation. Hence, a solid economic growth from this point onwards is vital in keeping housing Home prices will likely have risen a strong 10.3% demand alive. The projected strong economic by the years end, which will be one of the highest growth will force a downward trajectory to the appreciation rates in recent memory. The falling unemployment rate. The unemployment rate will mortgage rates have fueled home sales. fall from 6.1 percent in the current quarter to 5.4 Home prices will continue to rise even as home percent by the end of 2003. sales take a slight breather in 2003. The median home price is projected to be $188,800, an Whats Ahead increase of 4.9% from 2003. The amount of new The interest rate forecast is upward. Why? There home construction coming into the market is still is a confluence of factors. It is likely that the on the low side while the inventory of home sales Federal Reserve will hike the short-term rate by are near historical lows. This limited supply of next summer. Corporate profits will improve with homes will continue to fuel home price to march bonds to stocks. Economic expansion will put ahead.

19

Forecast

Economic and Housing Outlook: October 2002

2001
IV U.S. Economy Annual Growth Rate Real GDP Nonfarm Payroll Employment Consumer Prices Real Disposable Income Consumer Confidence Percent Unemployment Interest Rates, Percent Fed Funds Rate 3-Month T-Bill Rate Prime Rate 30-Year Government Bond Mortgage Rates, percent 30-Year Fixed Rate 1-Year Adjustable Housing Indicators Thousands Existing Single-Family Sales New Single-Family Sales Housing Starts Single-Family Units Multifamily Units Percent Change -- Year Ago Existing Single-Family Sales New Single-Family Sales Housing Starts Single-Family Units Multifamily Units Median Home Prices Thousands of Dollars Existing Home Prices New Home Prices Percent Change -- Year Ago Existing Home Prices New Home Prices Philadelphia Region Payroll Jobs (in thousands) Home Sales Home Prices (in thousand$) Percent Change -- Year Ago Payroll Jobs Home Sales Home Prices 2.7 -2.4 -0.3 -7.6 88.3 5.6 2.1 1.9 5.2 5.3 6.8 5.2 I 5.0 -1.1 1.4 14.5 101.2 5.6 1.7 1.7 4.8 5.6 7.0 5.1 II 1.3 -0.2 3.4 3.6 108.4 5.9 1.8 1.7 4.8 5.8 6.8 4.8

2002
III 3.2 0.1 2.0 3.2 97.2 6.0 1.7 1.5 4.7 5.2 6.3 4.4 IV 2.7 1.5 2.5 2.8 95.1 5.9 1.5 1.4 4.5 5.2 6.2 4.3 I

2003
II 3.5 2.0 2.4 3.4 108.2 5.4 2.0 1.8 5.0 5.5 6.7 4.9 III 3.5 1.7 2.3 2.8 109.8 5.3 2.3 2.1 5.3 5.7 6.9 5.1 IV 2.7 1.5 2.6 2.3 109.9 5.4 2.8 2.6 5.8 5.8 7.2 5.5

2004
I 3.1 1.5 2.2 3.1 111.8 5.4 3.0 2.8 6.0 5.8 7.2 5.6 2000 3.8 2.2 3.4 4.8 138.9 4.0 6.2 5.8 9.2 5.9 8.1 7.0 2001 0.3 0.0 2.8 1.8 106.6 4.8 3.9 3.4 6.9 5.5 7.0 5.8 2002 2.4 -0.8 1.6 4.4 100.5 5.9 1.7 1.6 4.7 5.4 6.6 4.6 2003 3.1 1.4 2.3 3.5 107.4 5.5 2.1 2.0 5.1 5.6 6.8 5.0

3.3 1.7 2.0 4.8 101.8 5.7 1.5 1.5 4.5 5.3 6.4 4.6

5,240 927 1,573 1,258 315 2.1 -0.9 1.9 2.7 -1.5

5,783 907 1,725 1,371 354 8.6 -4.5 7.1 8.5 1.7

5,537 955 1,667 1,328 338 3.9 7.3 2.6 2.8 1.8

5,336 958 1,599 1,259 340 1.3 10.4 -0.2 -1.4 4.3

5,203 896 1,619 1,290 328 -0.7 -3.3 2.9 2.6 4.2

5,245 917 1,669 1,321 348 -9.3 1.1 -3.3 -3.7 -1.6

5,267 916 1,675 1,312 362 -4.9 -4.1 0.5 -1.2 7.1

5,301 908 1,659 1,294 366 -0.7 -5.2 3.8 2.7 7.7

5,320 886 1,608 1,245 364 2.3 -1.2 -0.6 -3.6 10.8

5,290 863 1,570 1,211 359 0.9 -5.9 -5.9 -8.3 3.0

5,152 877 1,569 1,231 338 -1.8 -0.3 -4.4 -5.5 -0.3

5,296 909 1,603 1,273 330 2.8 3.6 2.2 3.4 -2.4

5,465 929 1,652 1,312 340 3.2 2.2 3.1 3.1 3.0

5,283 907 1,653 1,293 360 -3.3 -2.4 0.1 -1.4 5.9

148.5 173.2 6.6 1.3

151.0 187.2 8.1 10.8

157.8 185.0 7.5 4.8

162.1 177.1 7.4 3.1

158.5 186.8 6.7 7.8

158.3 188.9 4.9 0.9

164.3 191.6 4.1 3.6

167.6 193.6 3.4 9.3

165.3 196.2 4.3 5.0

166.0 197.8 4.9 4.7

139.0 169.0 4.3 5.0

147.8 175.2 6.3 3.7

157.8 183.7 6.8 4.9

164.3 192.7 4.1 4.9

2433 18193 162.3

2373 15395 166.3

2400 22234 181.6

2387 22294 191.0

2412 18200 176.1

2370 14860 175.6

2410 21880 190.7

2399 22190 199.8

2431 18370 184.0

2420 15140 183.7

2398 74904 152.4

2407 76608 163.2

2393 78123 180.0

2402 77300 188.8

-0.5% 0.2% 7.9%

-0.8% 6.6% 10.2%

-1.2% 3.9% 11.6%

-1.0% -1.2% 10.9%

-0.8% 0.0% 8.5%

-0.1% -3.5% 5.6%

0.4% -1.6% 5.0%

0.5% -0.5% 4.6%

0.8% 0.9% 4.5%

2.1% 1.9% 4.6%

1.5% n/a n/a

0.4% 2.3% 7.1%

-0.6% 2.0% 10.3%

0.4% -1.1% 4.9%

Quarterly figures are seasonally adjusted annual rates for national forecast. Source: Forecast produced using Macroeconomic Advisers quarterly model of the U.S. economy and NAR Housing Model of the housing sector. Assumptions and simulations by Dr. David Lereah and Dr. Lawrence Yun.

20

Economic Monitor
This table reflects data available through October 4, 2002.

Monthly Indicator

Recent Statistics

Likely Direction Over the Next Six Months

Forecast
Low inflation is holding down mortgage rates.

Mortgage Rates Thirty-year fixed mortgage rates decreased to

6.09% the sixth consecutive monthly decrease. This is the lowest level since 1972 and 73 basis points lower than last September. One-year adjustable mortgage rates declined to 4.29%

July Aug Sep June July Aug June July Aug June July Aug July Aug Sep July Aug Sep June July Aug June July Aug

6.49 6.29 6.09 5.10 5.37 5.28 996 977 996 1,692 1,645 1,609 54 107 -43 374.3 360.6 369.5 129.3 132.7 134.4 +0.1% +0.1% +0.3%

Existing Home Sales declined in August to a seasonally adjusted annualized rate of 5.28 units a 1.7% slip from Julys level. While the 3month moving average (5.25 million units) is lower than in the preceding three months, it is still very close to last years record home sales volume of 5.3 million. New Home Sales Contrary to expectations, new home sales rose
as existing homes sales and housing starts slipped. New sales continued strong, increasing 1.9% in August to 996,000 units a new record as Julys figure was revised downward.

Low rates will continue to support home sales.

The wealthy are getting hit in the stock market. Rising housing permits will put an end to the decline of starts. Work hours are up; jobs are next.

Housing Starts declined 2.2% in August to 1.61 million seasonally

adjusted annualized units. Single family starts declined 4.4% while multifamily starts increased 6.3%. With June and July figures revised downward, this is the third consecutive monthly decline, but starts overall remain high.

Employment Growth The economy shrank by 43,000 jobs in

September the first monthly decline in the last five months. August figures were revised upward to a fairly strong gain of 107,000. Real estate and mortgage banking employment each increased by 6,000 each, showing the strength of the housing sector.

Purchase Applications Purchase applications advanced

2.5% in September to 369.5 the third strongest reading year to date. Purchase activity is still robust. Historically low mortgage rates and the variety of mortgage products keep homebuyers in the market.

Applications will easily set a record in 2002.

Housing Affordability Housing affordability rose to 134.4 in

August. Despite the increase in the median price of an existing singlefamily home, the rise in the index was due to the decline in the mortgage rates.

Forty-year low mortgage rates will neutralize rising home prices.

Notes: All rates are seasonally adjusted. Existing home sales, new home sales and housing starts are shown in thousands. Employment growth is shown as month-to-month change in thousands. Inflation is shown as month-to-month percent change in the Consumer Price Index. Sources: NAR, Bureau of the Census, Bureau of Labor Statistics, Mortgage Bankers Association, and Freddie Mac.

Inflation The Consumer Price Index increased 0.3% in August. The Housing Index also increased 0.3% home price appreciation has increased, but low mortgage rates have limited increases in monthly payments. The core index (excluding Food and Energy) increased 0.3% as well.

Not an issue, given excess capacities at U.S. factories.

Consumer Confidence and Sentiment

Consumer Confidence and consumer sentiment, two measures of the degree of comfort consumers feel in their employment and financial prospects, are very important determinants of short-run home sales activity. The Consumer Confidence Index, published by the Conference Board, evaluates how consumers feel about their present situation and future expectations. Consumer Sentiment, published by the University of Michigan Consumer Research Center, is based on a survey of 500 consumers who are asked questions about personal finances, business and buying conditions. The two measures tend to move in the same direction. But the consumer confidence index usually records sharper declines and increases. In September, both indicators declined for a fourth consecutive month, with consumer confidence lower than its level of a year ago and consumer sentiment higher than last Septembers reading. By Hristina Toshkova

Real Estate Outlook

21