Back to the Future Anirban Basu, Chief Economist, ABC October 27, 2010

Trading Places

15-Year & 30-Year Fixed Mortgage Rates January 1995 through September 2010 Source: Freddie Mac

U.S. New Home Sales January 1999 through August 2010 Source: Economy.com, Census Bureau

U.S. Housing Starts January 1999 through September 2010 Source: Economy.com

Mortgage Banker’s Association Mortgage Applications Purchase Index January 2006 – September 17, 2010 Source: Economy.com

Source: Federal Reserve Board Commercial Real Estate Loans January 2001 through September 2010

Source: The American Institute of Architects Architecture Billings Index December 2007 through September 2010

Source: ABC ABC’s National Backlog Average November 2008 through July 2010 July 09 - July 10: +19.7%

Nonresidential Construction Put-in-Place June 2006 through August 2010 Source: U.S. Census Bureau Oct. 2008: $719.0 billion Aug. 2010: $562.7 billion -21.7%

National Nonresidential Construction Spending by Subsector August 2010 v. August 2009 Source: U.S. Census Bureau

National Nonresidential Construction Spending by Subsector 2007 through 2010 Source: U.S. Census Bureau +19.1%

Inputs to Construction PPI January September 2010 Source: Bureau of Labor Statistics

Key Commodity Prices January September 2010 Source: BLS: EIA

Baltimore-Towson MSA Annual Nonresidential Construction Value * Source: McGraw Hill 2008Q3: -0.5% *Forecast: July 2010 through 2014

Baltimore Market View 3 rd Quarter 2010 Source: CB Richard Ellis 2008Q3: -0.5% IndicatorOfficeIndustrial Retail (2 nd Quarter) Inventory (SF)63,247,311152,037,19668,825,300 Overall Vacancy Rate (%)17.5%12.7%6.8% Quarter Net Absorption (SF) 30,633NA114,760 YTD Net Absorption (SF)65, ,264466,097 Under Construction (SF) 1,110,641 (8 buildings out of 15 in Harford County) 409,024144,842 Avg. Asking Dir. Lease Rate ($/SF/YR) $22.33$4.40$22.03

Ferris Bueller’s Day Off

Source: Bureau of Labor Statistics Net Change in U.S. Jobs, BLS January 2001 through September /10: -95k Between September 2009 and September 2010, the nation gained 344 thousand jobs.

Source: Bureau of Labor Statistics National Nonfarm Employment by Industry Sector Groups December 2007 v. September 2010 All told 7,750K Jobs Lost

Source: Wells Fargo U.S. Unemployment Rate: June 10’ =9.5% Jobs Seekers Ratio by Industry 2001 Recovery vs Recovery

Source: Wells Fargo U.S. Unemployment Rate: June 10’ =9.5% Peak Unemployment Rate by Industry 2001 Recession vs Recession

National Construction Employment Monthly Net Change February September 2010 Source: Bureau of Labor Statistics

Maryland Nonfarm Employment by Industry Sector Groups (NSA) September 2009 v. September 2010 Absolute Change Source: Bureau of Labor Statistics MD Total: +23.6K; +0.9% US Total: +344K; +0.3%

Baltimore-Towson MSA Nonfarm Employment by Industry Sector Groups (NSA) September 2009 v. September 2010 Absolute Change Source: Bureau of Labor Statistics Baltimore Total: +12.8K; +1.0% MD Total: +23.6K; +0.9% US Total: +344K; +0.3%

Baltimore-Towson MSA Construction Employment January 2000 through September 2010 Source: Bureau of Labor Statistics

Washington, DC MSA Nonfarm Employment by Industry Sector Groups (NSA) September 2009 v. September 2010 Absolute Change Source: Bureau of Labor Statistics DC MSA Total: +59.8K; +2.0% US Total: +344K; +0.3%

Unemployment Rates, Largest 20 Metros(NSA) August 2010 Source: Bureau of Labor Statistics RankMSAURRankMSAUR 1 Washington-Arlington-Alexandria, DC-VA-MD-WV6.211 Chicago-Joliet-Naperville, IL-IN- WI9.8 2 Minneapolis-St. Paul-Bloomington, MN- WI7.012St. Louis, MO-IL9.9 3Boston-Cambridge-Quincy, MA-NH7.613 Atlanta-Sandy Springs-Marietta, GA10.4 4Baltimore-Towson, MD8.214 San Diego-Carlsbad-San Marcos, CA10.6 5Dallas-Fort Worth-Arlington, TX8.414 San Francisco-Oakland-Fremont, CA10.6 6Seattle-Tacoma-Bellevue, WA8.516 Los Angeles-Long Beach-Santa Ana, CA12.1 7Houston-Sugar Land-Baytown, TX8.717 Tampa-St. Petersburg-Clearwater, FL New York-Northern New Jersey-Long Island, NY-NJ-PA8.818 Miami-Fort Lauderdale-Pompano Beach, FL12.8 9Phoenix-Mesa-Glendale, AZ9.119Detroit-Warren-Livonia, MI Philadelphia-Camden-Wilmington, PA- NJ-DE-MD9.420 Riverside-San Bernardino-Ontario, CA14.8

Source: Bureau of Labor Statistics U.S. Unemployment Rate: June 10’ =9.5% Unemployment Rates, U.S. States (SA) September 2010 RankStateRateRankStateRateRankStateRate 1NORTH DAKOTA3.718ALASKA7.834TENNESSEE9.4 2SOUTH DAKOTA4.418LOUISIANA7.836NORTH CAROLINA9.6 3NEBRASKA4.618WISCONSIN7.837ARIZONA9.7 4NEW HAMPSHIRE5.521TEXAS8.138DISTRICT OF COLUMBIA9.8 5VERMONT5.822COLORADO8.238MISSISSIPPI9.8 6HAWAII6.322NEW MEXICO8.240ILLINOIS9.9 7KANSAS6.624NEW YORK8.341GEORGIA10.0 8IOWA6.825DELAWARE8.441OHIO10.0 8VIRGINIA6.825MASSACHUSETTS8.443INDIANA10.1 8WYOMING6.827ALABAMA8.943KENTUCKY OKLAHOMA6.928IDAHO9.045OREGON MINNESOTA7.028PENNSYLVANIA9.046SOUTH CAROLINA MONTANA7.428WASHINGTON9.047RHODE ISLAND MARYLAND7.531CONNECTICUT9.148FLORIDA UTAH7.532WEST VIRGINIA9.249CALIFORNIA ARKANSAS7.733MISSOURI9.350MICHIGAN MAINE7.734NEW JERSEY9.451NEVADA14.4

Recent and Potential Stimulus Measures August: $26 billion to aid state payrolls with $10 billion for education and about $16 billion for Medicaid. September: Small Business Jobs Act: would create a $30 billion lending fund to help with spending and hiring, and provide $12 billion in tax cuts. September: Proposed House bill, Housing Opportunity and Mortgage Equity Act would enable many homeowners to cut their monthly mortgage payments by refinancing at lower mortgage rates or for longer fixed terms or both. September: QE2 Possibility: The Federal Reserve is considering new tactics for the purchase of long-term U.S. Treasury securities. This in addition to the March 2009 measure by the Fed to buy $1.7 trillion worth of Treasury and mortgage-backed securities over a six to nine month period.

Source: Center on Budget and Policy Priorities RankState%RankState%RankState% 1 Nevada56.6%18 Pennsylvania16.3%35 Montana9.3% 2 New Jersey37.4%19 Utah15.6%36 California9.1% 3 Illinois36.1%20 New York15.5%36 Kansas9.1% 4 Arizona35.3%21 Maryland15.0%38 Kentucky9.1% 5 Maine32.1%22 Mississippi14.6%39 South Dakota9.0% 6 Vermont31.1%23 Washington13.9%40 Michigan8.8% 7 North Carolina30.5%24 Rhode Island13.2%41 Massachusetts8.5% 8 Connecticut29.2%25 Hawaii12.9%42 Alabama8.2% 9 Oregon29.0%26 Texas12.8%42 Virginia8.2% 10 Minnesota26.4%27 Oklahoma12.4%44 Wyoming8.0% 11 Wisconsin25.3%28 Delaware11.7%45 New Mexico6.0% 12 Georgia24.3%29 Ohio11.6%46 West Virginia3.5% 13 New Hampshire23.4%30 Louisiana11.1%47 Idaho3.3% 14 South Carolina22.6%31 Tennessee10.0%48 District of Columbia1.7% 15 Florida22.2%32 Indiana9.9% 16 Colorado21.2%33 Nebraska9.7% 17 Iowa18.6%34 Missouri9.3% Projected State Budget Shortfalls for FY 2011 As Percentage of FY 2010 Budget Alaska, Arkansas, and North Dakota are not anticipated to experience short falls in FY Combined gaps of $260 billion for 2011 and The numbers suggest that when all is said and done, states will have to deal with total budget shortfalls of some $260 billion for 2011 and 2012 combined.

Election Watch National Overview: The Cook Political Report Source: The Cook Political Report 2008Q3: -0.5% House of Representatives Races Senate Races Governor Races House: Republic net gain of at least 40 seats. Turnover of 39 seats would tip majority to Republicans. Senate: Republican net gain of 7 to 9 seats. Currently there are 57 D’s, 2 I’s, and 41 R’s. Governor: Republican net gain of 6 to 8 seats. Currently there are 26 D’s and 24 R’s

Return to Oz Stimulus, stimulus, stimulus; This was the worst of it from a broader economic perspective; Recovery for office, retail and other construction components being stimulated indirectly is probably at least two years away (probably more); Unemployment will peak between 10.0 and 10.7 percent next year; Commodity prices beginning to surge; Too soon to tell if broader inflation will be problematic – deflation could be the bigger issue; & 2011????