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22 WELLS FARGO PINPOINTS REAL ESTATE MOVEMENT is year could be a balancing act for investors in real estate, according to a 2019 Outlook published by the Wells Fargo Investment Institute. e Outlook, which has projected a number of long-term investment trends shifting, said that investment in private real estate would be unfavorable in 2019. "A lesson of the long U.S. expansion is that real estate supply and demand conditions eventually deteriorate, often as interest rates rise and negatively affect U.S. property capitalization rates and property values," the report noted. It also indicated that real estate investment trusts (REITs) were likely to underperform compared to other real assets in 2019. e report noted that while REITs had outperformed over the past few years, they were facing two strong headwinds going into 2019. e first was an aging economic cycle and the second was rising long-term rates. Both these factors have slowed the performance of REITs. "Some REIT fundamentals are beginning to show the signs of a maturing economic cycle such as slowing net operating income growth, peaking occupancy rates, declining demand for commercial real estate loans, and increasing sensitivity of REIT prices to higher interest rates," Wells Fargo said in the report. e report also recommended ways in which investors could position their portfolios to prepare for these headwinds, calling for lower allocations for these assets. Giving the economic and market forecast for 2019, the report pegged GDP in the coming year to fall slightly to 2.7 percent, even though it expected the "U.S. consumer price inflation to support the economy." e report said that three Fed rate hikes could be expected in 2019. Factors such as rising wages that would eventually slow job growth and the tax reform and federal government spending stimulus that was likely to pass its peak in 2019, were likely to moderate household and fiscal policy contributions to the overall economic growth. FANNIE MAE ON HOUSING SENTIMENT Homebuyers were more optimistic about purchasing real estate in November, according to the data from Fannie Mae's Home Purchase Sentiment Index (HPSI). e index, which reflects consumers' current views and forward-looking expectations of housing market conditions, inched up slightly to 86.2 in November driven primarily by an increase in the net share of Americans who reported significantly higher income, Fannie Mae said in its report. e net share of Americans who said that now was a good time to buy a home rose 2 percentage points while those who said that it was a good time to sell remained unchanged. One of the big HPSI movers during the month was consumer sentiment on home prices. e net share of consumers surveyed who expected home prices to go up fell 4 percentage points during the month. "e HPSI has moved within a tight range over the past five months, as positive sentiment regarding the overall economy continued to offset cooling housing sentiment," observed Doug Duncan, SVP and Chief Economist at Fannie Mae. "Meanwhile the net share of consumers expecting home prices to increase over the next 12 months continues to moderate, dropping by 13 percentage points since this time last year." Despite the current rising rate environment, the survey found that the net share of consumers who said mortgage rates would drop over the next 12 months rose 1 percentage point to -56 percent. Looking at the larger economic indicators, the report indicated that the net share of Americans who said that their household income was significantly higher than it was 12 months ago rose 5 percentage points to 24 percent. "Consumers' perception of growth in their household income reached a survey high this month, helping to absorb some of the impacts of increasing mortgage rates on housing market activity," Duncan said. However, job optimism fell slightly, with the net share of Americans who said they were not concerned about jobs falling 1 percentage point to 77 percent. of servicers use third-party vendors as part of their CWCOT program, mostly because they provide end-to- end-services. Source: Altisource State of the Servicer Industry Report, published in January 2019 STAT INSIGHT 73%

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