Buffalo-Niagara Falls Area Local Market Report, First Quarter 2013

Today's Market
Median Price (Red Line) and One-year Price Growth
$160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0
2004 Q3 2005 Q3 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1

20% 15% 10% 5% 0% -5% -10%

Local Price Trends

Price Activity Current Median Home Price (2013 Q1)
1-year (4-quarter) Appreciation (2013 Q1) 3-year (12-quarter) Appreciation (2013 Q1) 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

Buffalo $120,300 8.1% 12.9% $13,700 $25,800 $32,700

U.S.
$176,033 11.2% 5.8% $9,667 -$40,867 -$5,033

Local Trend
Prices are up from a year ago, but price growth is slowing Gains in the last 3 years have extended the trend of positive price growth after the recession

Conforming Loan Limit** $625,500 Most buyers in this market have access $729,250 FHA Loan Limit to government-backed financing Local Median to Conforming Limit Ratio not comparable Note: limits are current and include the changes made in November of 2012 and extended in November of 2013

Buffalo $417,000 $276,250 29%

U.S.

Local NAR Leadership

The Buffalo-Niagara Falls market is part of region 2 in the NAR governance system, which includes all of New York, New Jersey, and Pennsylvania. The 2013 NAR Regional Vice President representing region 2 is Dominic J. Cardone.

Drivers of Local Supply and Demand

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

Buffalo 1,400 1,400 12,300 8.5% 8.8% 0.3%

U.S.
Not Comparable Not Comparable Not Comparable 7.6% 8.2% 1.6% Employment growth has eased, but remains positive Buffalo's unemployment rate lags the national average, but has improved relative to the same period last year Local employment growth is poor and needs to improve

Share of Total Employment by Industry

Buffalo-Niagara Falls Area

U.S.
Natural 4.8% #N/A #N/A

Natural 15.5 2.9% Resources/ Mining/Con #N/A #N/A struct Manufacturi #N/A Governmen #N/A2.9% ng t 9.3% Manufacturing 50.3 17.0%9.3%
Natural Resour Trade/Transpo Other Services Information 4.3% 18.2% 1.4% 5.9% 13.5% 17.4% 98.8

#N/A #N/A Governme

7.4 32
73 94.3

Leisure & Financial Act

Prof. & Busin 10.2% Educ. & Heal

Hospitality

Trade/Tran sportation/U tilities 18.2% Information Financial 1.4%

nt Other Manufac8.8% Services 16.4% 4.0% Trade/T 18.9% Leisure & Informa2.0% Hospitality 10.3%

Natural Resources/ Mining/Con struct 4.8%

Manufacturi ng 8.8%

Financi 5.8%

Profess13.6% Educat 15.3% Leisure10.3% & Health Other S4.0% Services

15.3% Govern16.4% #N/A #N/A #N/A #N/A Educational

Trade/Tran sportation/ Utilities 18.9%

Leisure & Ho 10.2% Educ. & 4.3% Other Service Health

Services 17.0% Government
#N/A #N/A Goods Producing

17.4% #N/A
#N/A

55.2 Activities 5.9% 23.2 Prof. & Business 92.1 Services 97.1% 13.5%

Profession al & 100.0% Business Services 13.6%

Information Financial 2.0% Activities 5.8%

12-month Employment Change by Industry in the Buffalo-Niagara Falls Area (Mar - 2013) NA Information -1,900 NA NA -600 NA 700 Financial Activities Prof. & Business Services Educ. & Health Services Leisure & Hospitality Other Services Government

-200 500 1,700 600 2,400 0 -1,800

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

State Economic Activity Index 12-month change (2013 - Mar) 36-month change (2013 - Mar)

New York 2.0% 11.7%

U.S.
2.8% 8.3% New York's economy is growing, but decelerated from last month's 2.43% change and lags the rest of the nation

New Housing Construction

Local Fundamentals 12-month Sum of 1-unit Building Permits through Mar 2013 8-year average for 12-month Sum of 1-Unit Building Permits Single-Family Housing Permits (Mar 2013) 12-month sum vs. a year ago

Buffalo 694

U.S.
not comparable

The current level of construction is 19.4% below the long-term average Reduced construction will limit new

861

not comparable supply to the market, allowing demand

23.7%

25.6%

to catch up with inventory more quickly 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)

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 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)

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 - February 2013

Buffalo
158,568

U.S.
48,760,866 There are nearly 17.8 prime loans for every subprime mortgage in the Buffalo market, which is more than the national average of 15.8 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

8,917

3,085,634

Subprime Foreclosure and Delinquency Rates

Monthly Market Data February 2013

Buffalo
22.9% 23.5% 23.0%
23.5 % 22.9 % Feb-13 28.9 1%

U.S.
24.8% 26.9% 28.9%
26.8 7% Aug-12 24.8 2% Feb-13

Subprime: 90-day Delinquent

23.0 % Feb-12

The 90-day delinquency rate for subprime mortgage in Buffalo fell over the 6-month period ending in February

Aug-12

Feb-12

11.8%

12.4% 11.8%
12.41 % 11.80 %

10.1% 12.1% 13.7%

13.6 7% Feb-12 12.1 2% Aug-12 10.0 6% Feb-13

Subprime: Foreclosure + REO Rate

11.82 %

Feb-12

Aug-12

Feb-13

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

Prime Foreclosure and Delinquency Rates

Monthly Market Data February 2013

Buffalo
4.6% 4.4% % 4.0%
4.35 % Aug-12 Feb-13 4.61 5.81 %

U.S.
5.1% 5.6%
5.56 % Aug-12

5.8%
5.10 % Feb-13

Prime: 90-day Delinquent

3.96 % Feb-12

Buffalo's 90-day delinquency rate climbed faster than the national average over the 6-month period ending in February.

Feb-12

2.6%

2.4%
2.41 %

2.1%

2.3%
2.83 % Feb-12

2.7%
2.70 %

Prime: Foreclosure + REO Rate

2.05 %

2.56 %

Feb-12

Aug-12

Feb-13

Aug-12

2.8% The increase in the prime foreclosure rate over the 6-month period ending in 2.30 February is likely to continue as % evidenced by the increase in 90-day delinquency rate over the same 6Feb-13 month 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%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Monthly Mortgage Payment to Income

Ratio for 2012 Ratio for 2013 Q1 Historical Average

Buffalo 6.4% 5.8% 9.3%

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

Recent Trend - Local Mortgage Servicing Cost to Income

(Historical Average Shown in Red Dashed Line)

12% 10% 8% 6% 4% 2% 0% 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1

Median Home Price to Income

Ratio for 2012 Ratio for 2013 Q1 Historical Average

Buffalo 1.2 1.1 1.2

U.S.
2.4 2.3 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
2008 Q1 Q3 2009 Q1 Q3 2010 Q1 Q3 2011 Q1 Q3 2012 Q1 Q3 2013 Q1

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)

Mortgage rates edged higher in the first quarter of 2013 following an upward surge in the 10-year Treasury. A slew of positive economic news and anticipation of a robust long-term recovery gave MBS and bond market analysts hopes for steady appreciation in rates. As a result, the spread between the two long-term rates eased modestly. However, weaker employment, GDP and consumer confidence news emerged in late March and early April, which deflated the average rate for the 30-year fixed rate mortgage. A modest pull-back in refinancing coupled with near-term economic weakness should keep rates low through summer before they track upward through the end of the year. The Bank of Japan is reportedly purchasing large volumes of its own debt which is expected to spur debt traders to purchase more Ginnie Mae backed assets as an alternative, which should also help to put downward pressure on mortgage rates. While there has been a recent trend toward low downpayment loans in the conforming space, pulling some market share from the FHA, the average FICO score on these originations remains very high. Credit will remain tight until the market receives regulatory clarity from final QRM and Basel III rules.

A Closer LookHARP Refinances

Agency Refinances with Loan-to-Value Greater than 105 (deaply under water)
3,000 2,500 2,000 1,500 1,000 500 January 2013 2012 New York Since April, 2009 January 2013 2012 United States Since April, 2009 5 101 158 195 2,064 2,689

Source: FHFA
HARP Loan Modifications 2012 and January 2013 Prior to 2012

New York 106 52

U.S.
2,259 430 Underwater HARP modifications in New York rose by 104% since 2011 compared to the prior 34-month period.

The Home Affordable Refinance Program (HARP) was started in April of 2009 as a means for homeowners to take advantage of lower mortgage rates. Refinances have the double benefit of reducing the likelihood of default by making payments more affordable as well as boosting personal spending and the economy. Only homeowners with mortgages owned by Fannie Mae or Freddie Mac can participate. The program had limited initial success as the sharp price declines in the hardest hit areas resulted in average loan-to-value ratios above the program's cap of 125%. In December of 2011, this cap was eliminated and program participation surged. In New York, the number of refinances with an LTV greater than 125% surged 104% over the 13-month period ending in January of 2013 compared to the 34-month period from the inception of HARP to the change in LTV rules. This trend trailed the national pattern over this same period. The wave of refinances has helped to stabilize the distressed market and home prices, helping consumer confidence and demand. However, it may also extend the time the owners stay in their homes past the 6-year historical average resulting in slower turnover and exacerbating inventory shortages. Tight inventories will help to fuel price growth that will unlock more underwater borrowers with time.

Geographic Coverage for this Report

The Buffalo area referred to in this report covers the geographic area of the Buffalo-Niagara 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:

Erie County and Niagara County

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