1. House Prices: Boom or Bust? Richard A. Brown Chief Economist Federal Deposit Insurance Corporation October 25, 2006 2006 Fall Construction Forecast Conference National Association of Home Builders

4. The number of FDIC boom markets rose from 63 in 2004 to 89 in 2005.

6. The housing markets showing year over year price declines are concentrated in the Midwest. Source: OFHEO Housing Price Index MSAPercent change in Metro-Area OFHEO Home Price Index June 2005 – June 2006 Sandusky, Ohio(4.15) Brownsville, Texas(2.82) Ann Arbor, Michigan(1.28) Anderson, Indiana(1.10) Kokomo, Indiana(0.84) Detroit, Michigan(0.61) Greeley, Colorado(0.35) Muncie, Indiana(0.15) Jackson, Michigan(0.02) Saginaw, Michigan(0.01)

7. Source: FDIC calculations based on OFHEO Home Price Index 89 FDIC Boom Markets for 2005 377 U.S. Metro Areas FDIC “boom” housing markets are now starting to look much more like the rest of the nation.

9. Problem loans at FDIC-insured institutions are both at their lowest level in 23 years. Source: FDIC

10. Source: Mortgage Bankers Association, Office of Federal Housing Enterprise Oversight Regardless of home price trends, subprime ARMs are already under stress from rising interest rates.

11. By Assets By Institution 64% 30% Subprime* Failures 1998 - 2004 Source: FDIC. *Subprime lenders are identified by FDIC Division of Supervision and Consumer Protection. Subprime lenders have figured prominently in FDIC-insured failures since 1998.

12. Nontraditional mortgage originations have leveled off as a percent of total nonprime originations.

19. Discussion