Delmarva Outlook 2015

Delmarva Outlook 2015 Presented by: William McCain W.R. McCain & Associates, Inc. Real Estate Valuation & Consultation 205 Executive Plaza Salisbury, MD 21804 (410) 742-3201 www.wrmccain.com

W. R. McCain & Associates, Inc. 27 Years in Business 21 Person Staff with an average of 12 years of appraisal experience Over 10,000 Commercial Assignments Over 45,000 Residential Assignments Valued over $13 Billion of Real Estate 2

Unemployment Rate (Average during the year) 12 Percentage 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Unemployment Rate is simply the number of unemployed people divided by the number of people in the labor force; based upon household data. The unemployed people have to be looking for a job to be counted as being in the labor force. If they stopped looking for a job then they are counted as being out of the labor force and not unemployed. 3 Source: Bureau of Labor Statistics website (data seasonally adjusted)

Jobs (8 million lost 10 million gained) In thousands 4

Source: DE Department of Labor, Bureau of Labor Statistics, MD Department of Labor, SWED 5

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Homebuilder Confidence (NAHB Market Index) 8

Single Family Housing Starts Thousand units ½ the Normal 9

Annual Home Sales 10

New Home Sales Share 11

Distressed Property Sales 12

Renter Households over 10 years (Increased by 8 million) In thousands 13

Homeowner Households over 10 years (Decreased by 2 million) In thousands 14

Inventory of Homes for Sale 15

Median Price reflects the middle price of all homes sold during a period. In normal times where types of homes do no change measurably from on period to the next, then the median price can be a good gauge about home price appreciation or depreciation. However, the median price can also be a reflection not about price change appreciation but about the type of homes being sold. If, for example, mostly distressed properties are being sold then the median will be low. If mostly high-end homes are being sold, then the median will be high. Supply and Demand dynamics impact both new and existing home prices. But new home prices are also to a greater degree impacted by changes in the cost of construction, such as commodity prices and labor costs. 16 Source: FRED website

Economic Forecast 2013 2014 Likely 2015 Forecast 2016 Forecast GDP Growth 2.2% 2.5% 2.7% 2.9% Job Growth +2.3 million +2.5 million +2.5 million +2.6 million CPI Inflation 1.5% 1.6% 2.7% 3.3% Consumer Confidence 10-year Treasury 73 87 95 98 2.5% 2.6% 3.2% 4.3% 17

Housing Forecast 2013 2014 2015 Forecast 2016 Forecast Housing Starts 925,000 1.0 million 1.16 million 1.4 million New Home Sales Existing Home Sales Median Price Growth 430,000 440,000 620,000 700,000 5.1 million 4.9 million 5.6 million 5.4 million + 11.5% + 5.3% + 3.9% + 4% 30-year Rate 4.0% 4.0% 4.9% 6.0% Underwriting Standards Strict Strict Transition Normal 18

30-year Mortgage Rates 19

U.S. House Price Performance By State September 2013 to September 2014 Source: Freddie Mac website 20

Lower Shore Housing Average Sale Price Somerset Years 2003 2014 21 Source: MD Association of Realtors

Lower Shore Housing Average Sale Price Wicomico Years 2003-2014 22 Source: MD Association of Realtors

Lower Shore Housing Average Sale Price Worcester Years 2003-2014 Source: MD Association of Realtors 23

Lower Shore Housing Average Sale Price Somerset Wicomico Worcester % change % change % change YE 2003 99,717 160,723 264,823 YE 2004 124,800 25.17% 184,111 14.55% 340,485 28.57% YE 2005 153,141 22.70% 191,467 4.00% 398,407 17.01% YE 2006 205,892 34.45% 216,875 13.27% 422,561 6.06% YE 2007 184, 352-10.46% 220,029 1.45% 407,154-3.65% YE 2008 161,335-12.49% 208,400-5.29% 374,456-8.03% YE 2009 175,780 8.95% 188,685-9.46% 335,026-10.53% YE 2010 114,217-35.02% 161,527-14.39% 300,625-10.27% YE 2011 127,540 11.66% 146,126-9.53% 276,403-8.06% YE 2012 124,750-2.19% 152,816 4.58% 266,266-3.67% YE 2013 129,325 3.67% 156,517 2.42% 264,249-0.76% YE 2014 119,651-7.48% 147,085-6.03% 248,866-5.82% Source: MD Association of Realtors 24

Lower Shore Housing Average Sale Price Sussex County Years 2004-2014 25 Source: Del MLS

Lower Shore Housing Average Sale Price Kent County Years: 2004-2014 26 Source: Trend MLS

Lower Shore Housing Average Sale Price Sussex Kent Price % Change Price % Change YE 2004 340,938 180,833 YE 2005 401,628 17.80% 213,916 18.29% YE 2006 387,024-3.64% 240,416 12.39% YE 2007 402,426 3.98% 239,666-0.31% YE 2008 374,844-6.85% 224,500-6.33% YE 2009 339,395-9.46% 207,750-7.46% YE2010 341,329 0.57% 196,583-5.38% YE 2011 326,420-4.37% 178,916-8.99% YE 2012 314,865-3.54% 179,000 0.05% YE 2013 326,737 3.77% 187,091 4.52% YE 2014 339,936 4.04% 193,127 3.23% Source: DE MLS and Trend MLS 27

$350,000 Lower Shore Housing Average Sale Price Northampton $325,000 $300,000 $275,000 $250,000 $225,000 $200,000 $175,000 $150,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Years 2005-2014 28 Source: Navica system

$300,000 Lower Shore Housing Average Sale Price Accomack $250,000 $200,000 $150,000 $100,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Years: 2005-2014 Source: Navica system 29

Mid/Upper Shore Housing Average Sale Price Dorchester Kent Queen Anne's Talbot Caroline % change % change % change % change % change YE 2006 252,987 0.78% 380,744 15.11% 453,103 5.61% 584,628 3.17% 258,464 12.33% YE 2007 218,662-13.57% 362,777-4.72% 489,132 7.95% 665,137 13.77% 232,821-9.92% YE 2008 279,622 27.88% 395,334 8.97% 436,219-10.82% 634,377-4.62% 216,810-6.88% YE 2009 196,233-29.82% 287,507-27.27% 353,331-19.00% 576,079-9.19% 205,506-5.21% YE 2010 199,132 1.48% 262,757-8.61% 349,884 -.98% 534,367-7.24% 172,576-16.02% YE 2011 186,321-6.43% 284,641 8.33% 330,955-5.41% 448,077-16.15% 143,418-16.9% YE 2012 168,843-9.4% 304,089 6.83% 372,692 12.61% 507,775 13.32% 166,217 15.9% YE 2013 162,874-3.54% 298,291-1.91% 379,122 1.73% 484,077-4.67% 154,584-7.00% YE 2014 154,923-4.88% 296,050-0.75% 366,134-3.43% 442,193-8.65% 148,506-3.93% Source: MD Association of Realtors 30

Lower Shore Housing Unit Sales Somerset Single Family, Condos & Town homes 300 250 200 150 100 50 2003 2004 2005 2006 2007 208 2009 2010 2011 2012 2013 2014 Yearly Comparison 2003-2014 31 Source: MD Association of Realtors

Lower Shore Housing Unit Sales Wicomico Single Family, Condos & Town homes 1,150 1,100 1,050 1,000 950 900 850 800 750 700 650 600 550 500 2003 2004 2005 2006 2007 208 2009 2010 2011 2012 2013 2014 Yearly Comparison 2003-2014 32 Source: MD Association of Realtors

Lower Shore Housing Unit Sales Worcester Single Family, Condos & Town homes 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Yearly Comparison 2003-2014 Source: MD Association of Realtors 33

Lower Shore Housing Unit Sales Sussex Single Family, Condo & Town Homes 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Yearly Comparison 2003-2014 Source: DE MLS 34

2,750 Lower Shore Housing Unit Sales Kent Single Family, Condos & Town homes 2,500 2,250 2,000 1,750 1,500 1,250 1,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Yearly Comparison 2003-2014 Source: Trend MLS 35

Eastern Shore of VA Housing Unit Sales 800 700 600 500 400 300 200 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Yearly Comparison 2003-2014 36 Source: Navica MLS

Mid/Upper Shore Housing Unit Sales 900 800 700 600 500 400 300 Dorchester Kent Caroline Queen Anne's Talbot 200 100 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 37 Source: Maryland Association of Realtors

Lower Shore Active Listings Somerset New & existing Single Family homes, Condos, Town homes Active listing data is as of December 31 st of each year 38 Source: Flex MLS

Lower Shore Active Listings Wicomico New & existing Single Family homes, Condos, Town homes Active listing data is as of December 31 st of each year 39 Source: Flex MLS

Lower Shore Active Listings Worcester New & existing Single Family homes, Condos, Town homes Active listing data is as of December 31 st of each year 40 Source: Flex MLS

Sussex County Active Listings New & existing Single Family homes, Condos, Townhomes Note: 3,945; as of 12/5/2012 3,389; as of 12/31/2012 3,329; as of 4/24/2013 4,111; as of 8/12/2013 3,520; 12/30/2013 3,343; 08/07/2014 3,877; 12/22/2014 3,436; as of 3/2/15: 3,481 41 Source: Sussex County MLS

Kent County Active Listings New & existing Single Family homes, Condos, Townhomes 42 Source: Trend MLS

Wicomico County Housing Unit Permits: Single Family Structures 43 Source: SOCDS

3,600 Delaware Housing Unit Permits: Single Family Structures 3,100 Sussex 2,600 Kent 2,100 1,600 1,100 600 100-400 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 44 Source: SOCDS

Single Family Structures Building Permits Year Wicomico Worcester Somerset 2004 653 649 102 2005 705 600 139 2006 596 465 78 2007 207 292 81 2008 160 134 23 2009 100 98 27 2010 98 89 20 2011 81 72 14 2012 65 90 15 2013 75 119 26 2014 83 127 39 Source: SOCDS & Somerset Planning & Zoning Office 45

Single Family Structures Building Permits Year Sussex Kent 2004 3477 2028 2005 3200 1946 2006 2121 1485 2007 1903 1319 2008 1215 824 2009 1318 722 2010 1334 675 2011 1311 585 2012 1481 705 2013 1942 827 2014 1943 912 Source: SOCDS 46

Property Foreclosure Events in Maryland Jurisdictions 2014 Q2 Jurisdiction Notices of default Lender Purchases (REO) Total Number %Change from 2014 Q1 % Change from 2013 Q2 Caroline 56 51 119 42.6% 39.7% Dorchester 38 36 85-10.8% 28.1% Kent 16 13 41 55.0% -0.6% Queen Anne s 52 35 122-0.4% 11.6% Somerset 33 28 78 15.8% 23.6% Talbot 43 27 91 22.6% 16.4% Wicomico 104 63 236-2.3% 41.6% Worcester 91 52 191 26.2% 32.7% Maryland 5,101 2,859 11,344-9.9% 3.2% 47 Source: MD DHCD and RealtyTrac

Property Foreclosure Events in Maryland Jurisdictions 2014 Q4 Jurisdiction Notices of default Lender Purchases (REO) Total Number %Change from 2014 Q3 Caroline 54 41 128 46.0% 6.0% % Change from 2013 Q4 Dorchester 65 33 122 32.5% 27.0% Kent 26 19 55 24.6% 27.6% Queen Anne s 75 44 138 9.7% 14.9% Somerset 25 20 58-17.2% -24.3% Talbot 38 23 76 27.3% 18.4% Wicomico 169 82 315 81.8% 61.7% Worcester 105 51 199 57.6% 15.4% Maryland 6,557 3,565 13,959 20.0% 9.6% Source: MD DHCD and RealtyTrac 48

Total Number of filings Delaware Foreclosure Filings 49 Source: The State of Delaware website, Corelogic report

Months Inventory Existing Units 30 25 20 15 10 5 2013 2014 0 50 Source: SWED: MD Association of Realtors

SO WHAT S HAPPENING TO THE LOCAL REAL ESTATE MARKET Eastern Shore of Maryland Minimal New Construction has had major Impact. Little product to attract new buyers and keep existing buyers. Septic regs. Plus loss of jobs. Delaware Significantly more new construction and projects. Offers buyers choices. More sales activity, less inventory, but no impact on value. However, macro economic principles should win. 51

Commercial Real Estate Values Moody s estimates commercial values declined between 40% - 47% from peak to trough. 52

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Lower Shore MD Commercial Improved Median Sale Price: Somerset 2014 Data is as of November 2014 Source: MD Tax Records 54

Lower Shore MD Commercial Improved Median Sale Price: Wicomico 2014 Data is as of November 2014 Source: MD Tax Records 55

Lower Shore MD Commercial Improved Median Sale Price: Worcester 2014 Data is as of November 2014 56 Source: MD Tax Records

Lower Shore DE Commercial Median Sale Price Improved & Unimproved - Sussex $600,000 $550,000 $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 2007 2008 2009 2010 2011 2012 2013 2014 2014 Data is as of December 2014 57 Source: DEL MLS

Lower Shore DE Commercial Median Sale Price Improved & Unimproved - Kent $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 2007 2008 2009 2010 2011 2012 2013 2014 2014 Data is as of December 2014 Source: DEL MLS 58

Non-Residential Units Sold Improved - Somerset 30 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 Est 2014 2014 data is annualized based off of data from January-November Source: MD Tax Records 59

Non-Residential Units Sold Improved - Wicomico 160 140 120 100 80 60 40 20 0 2007 2008 2009 2010 2011 2012 2013 Est 2014 2014 data is annualized based off of data from January-November 60 Source: MD Tax Records

Non-Residential Units Sold Improved - Worcester 80 70 60 50 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2014 data is based on data from January-November 61 Source: MD Tax Records

110 Non-Residential Units Sold Improved & Unimproved - Sussex 100 90 80 70 60 50 40 30 20 2007 2008 2009 2010 2011 2012 2013 2014 2014 data is annualized based off of data from January-December 62 Source: DE Tax Records, Innovia MLS System

Non-Residential Units Sold Improved & Unimproved - Kent 45 40 35 30 25 20 15 10 2007 2008 2009 2010 2011 2012 2013 2014 2014 data is based off of data from January-December Source: DE Tax Records 63

Lower Shore Commercial Improved Active Listings as of December 31 st Somerset 70 65 60 55 50 45 40 35 30 25 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: FLEX MLS 64

120 Lower Shore Commercial Improved Active Listings as of December 31 st Wicomico 110 100 90 80 70 60 50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: FLEX MLS 65

200 Lower Shore Commercial Improved Active Listings as of December 31 st Worcester 180 160 140 120 100 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 66 Source: FLEX MLS

Resort Areas Commercial Number of New Listings 180 160 140 Ocean City, Fenwick & Bethany Delaware Resort (Rehoboth Beach, Lewes & Dewey Beach) 120 100 80 60 40 20 2006 2007 2008 2009 2010 2011 2012 2013 Est. 2014 2014 data is as of December 2014 Ocean City data is as of November 2014 67 Source: Sussex and Flex MLS

Resort Areas Commercial Average List Price $1,400,000 $1,300,000 $1,200,000 $1,100,000 Ocean City, Fenwick & Bethany Delaware Resort (Rehoboth Beach, Lewes & Dewey Beach) $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 2006 2007 2008 2009 2010 2011 2012 2013 Est. 2014 2014 data is as of December 2014 Ocean City data is as of November 2014 68 Source: Sussex and Flex MLS

Resort Areas Commercial Units Sold 50 45 40 35 Ocean City, Fenwick, Bethany Delaware Resort (Rehoboth Beach, Lewes, Dewey Beach) 30 25 20 15 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 Est. 2014 2014 data is as of December 2014 Ocean City data is as of November 2014 69 Source: Sussex and Flex MLS

$1,000,000 $900,000 $800,000 Resort Areas Commercial Average Sale Price Ocean City, Bethany & Fenwick Delaware Resort (Rehoboth Beach, Lewes & Dewey Beach) $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 2006 2007 2008 2009 2010 2011 2012 2013 Est. 2014 2014 data is as of December 2014 Ocean City data is as of November 2014 70 Source: Sussex and Flex MLS

Resort Areas Commercial Absorption Rate 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% Ocean City, Bethany & Fenwick Delaware Resort (Rehoboth Beach, Lewes & Dewey Beach) 0% 2006 2007 2008 2009 2010 2011 2012 2013 Est. 2014 2014 data is as of December 2014 Ocean City data is as of November 2014 71 Source: Sussex and Flex MLS

Delaware Non Resort Commercial Number of New Listings 110 100 Georgetown, Gumboro, Little Creek, Broad Creek, Nanticoke, Northwest Fork and Seaford, Dagsboro Hundred 90 80 70 2010 2011 2012 2013 2014 2014 data is as of December 2014 72 Source: Sussex MLS

Delaware Non Resort Commercial Average List Price $800,000 $750,000 $700,000 $650,000 Georgetown, Gumboro, Little Creek, Broad Creek, Nanticoke, Northwest Fork and Seaford, Dagsboro Hundred $600,000 $550,000 $500,000 $450,000 $400,000 2010 2011 2012 2013 2014 2014 data is as of December 2014 73 Source: Sussex MLS

Delaware Non Resort Commercial Units Sold 40 35 30 Georgetown, Gumboro, Little Creek, Broad Creek, Nanticoke, Northwest Fork and Seaford, Dagsboro Hundred 25 20 15 10 5 0 2010 2011 2012 2013 2014 2014 data is as of December 2014 74

Delaware Non Resort Commercial Average Sale Price $550,000 $500,000 $450,000 Georgetown, Gumboro, Little Creek, Broad Creek, Nanticoke, Northwest Fork and Seaford, Dagsboro Hundred $400,000 $350,000 $300,000 $250,000 $200,000 2010 2011 2012 2013 2014 2014 data is as of December 2014 75

Delaware Non Resort Commercial Absorption Rate 40 35 Georgetown, Gumboro, Little Creek, Broad Creek, Nanticoke, Northwest Fork and Seaford, Dagsboro Hundred 30 25 20 15 10 2010 2011 2012 2013 2014 2014 data is as of December 2014 76

7000 Average $/Acre Agricultural Land Values for Wicomico County 1998-2013 6000 5000 4000 3000 Average $/Acre 2000 1000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Criteria: Minimum 35 acres or more. Excludes: data outliers, marshlands, multi-parcel commercial transactions and timber tracts 77 Source: W.R. McCain & Associates, Inc., MD State Tax Records, Flex MLS system

2015 Predictions Local real estate market is wiggling! Economy to grow at a modest 2.2 to 2.9% Unemployment to remain stable around 6.0% Real Estate market will probably mostly mirror 2014 with some improvement Baby Boomers and Come Heres continue to drive market demand to some degree for our region New housing starts remain slow due to high construction cost, septic restrictions, and large disparity compared to existing home prices but will show some signs of improvement What you see is what you get for 2015,but could get surprised Cautious optimism. Should see some improvement in values 78