1. Declining Market - Reduction in Real Estate Values
   Real Estate Values may soften if the following signs occur:
   • Interest Rates increase; Affordability decreases
   • Sales volume slows down; Inventory increases
   • Sellers market becomes buyers market
   • Seller concessions appear
   • Notices of Default increase
   • Home builder stocks fall
   • Decline in housing starts
   • Foreclosures and Defaults increase
   • Developers cancel land purchase escrows.
2. Stabilization/Stagnation
   Even though all of the above signs exist, we must understand the true meaning of those signs. It could be that a stagnation scenario exists. For example:
   • Interest Rates increase. Although 30-year fixed rates have increased, they have only increased 1% over the last 18 months, to approximately 6.5% today. This is still historically low and affordable.
   • Notices of Default increase. Although the percentage of defaults has increased, the actual number of defaults is historically low. In addition, a high percentage of these defaults apply to HELOC’s (Home Equity Lines of Credit) at high Loan to Value ratios which TAP does not originate.
   • Sales volume and inventory. Although sales volume is down, inventory is up, and seller concessions are apparent, these are all representative of a “normal” market place as opposed to the abnormally aggressive market we have experienced over the past few years.
     
3. Increase in Values
   • World events could trigger interest rate reductions like 9/11 when the Feds lowered rates to stimulate economic growth.
   • If the economy slows down substantially and inflation falls significantly, the Feds will likely reverse their strategy by lowering rates. This could intern reverse the signs reflected in 1 above, resulting in a stimulated economy and Real Estate Market.

Alliance Portfolio has prepared for all three (3) of the economic and real estate market scenarios that could take place.