Economic and Housing Outlook
Sam Khater
Chief Economist
January 2019
© Freddie MacCONFIDENTIALEconomic and Housing Research 2
Overview
▪ Economic Growth is Strong, but Growth is Decelerating
▪ Job Market is Tight, but Income Growth Remains Weak and Inequality is
Rising
▪ Home Sales are Declining, but Recently Lower Rates Firming Up Demand
▪ Entry-Level Supply Remains Very Low, Driving Up Prices
▪ Strong Migration to Affordable Markets in the ‘Open West’
© Freddie MacCONFIDENTIALEconomic and Housing Research 3
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Economic Growth is Strong, but Likely to Decelerate
Source: US Bureau of Economic Analysis, Freddie Mac January 2019 Economic and Housing Research Outlook
Trend
Growth Rate
Average growth by decade
1970-1979: 3.3%
1980-1989: 3.2%
1990-1999: 3.4%
2000-2009: 1.7%
2010-2017: 2.2%
Re
al E
co
no
mic
Gro
wth
© Freddie MacCONFIDENTIALEconomic and Housing Research 4
Lowest Unemployment Rate in Decades…
Source: US Bureau of Labor Statistics
0
2
4
6
8
10
12
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Un
em
plo
ym
en
t R
ate
(P
erc
en
t)
© Freddie MacCONFIDENTIALEconomic and Housing Research 5
…But Until Very Recently, it Has Not Led to Much
Stronger Wage Growth
Source: US Bureau of Labor Statistics
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-9
0
Fe
b-9
1
Mar-
92
Apr-
93
May-9
4
Jun-9
5
Jul-96
Aug-9
7
Sep-9
8
Oct-
99
No
v-0
0
De
c-0
1
Ja
n-0
3
Fe
b-0
4
Mar-
05
Ap
r-06
May-0
7
Jun-0
8
Jul-09
Aug-1
0
Sep-1
1
Oct-
12
No
v-1
3
De
c-1
4
Jan-1
6
Fe
b-1
7
Mar-
18
Pe
rcen
t C
ha
nge
fro
m Y
ea
r E
arlie
r
© Freddie MacCONFIDENTIALEconomic and Housing Research 6
Even Fast Growing Employment Segments Have
Struggling Wage Growth…
(60)
(40)
(20)
-
20
40
60
80
100
1990 1994 1998 2002 2006 2010 2014
Employment Growth (in Thousands)
-15%
-10%
-5%
0%
5%
10%
15%
20%
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Earnings Relative to US Average
(30)
(20)
(10)
-
10
20
30
40
50
60
1990 1994 1998 2002 2006 2010 2014
Employment Growth (in Thousands)
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Earnings Relative to US Average
Warehousing & Storage Employment
Food Manufacturing
© Freddie MacCONFIDENTIALEconomic and Housing Research 7
…Which is Why Income Growth for Lower
Middle Class is Lagging
Note: Bureau of the Census 1967 to 2017 Incomes
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
10th 20th 40th 50th 60th 80th 90th
Cumulative Percent Change in Income Last 50 Years
$14K
$25K$47K
$61K
$78K
$127K
$179K
Income Percentile
Income for Each Segment
Pe
rcen
t C
ha
nge
© Freddie MacCONFIDENTIALEconomic and Housing Research 8
Household Wealth Soaring, But Wealth Has
Declined for All But Wealthiest Americans
Source: Flow of Funds and Fed Notes “A Wealthless Recovery? Asset Ownership and the Uneven Recovery from the Great Recession
Lisa Dettling, Joanne Hsu and Elizabeth Llanes” Sept, 2018. The 2016 data in the wealth change is the latest available.
-10%
-40%
-22%
-14%
-31%
-35%
-17%
11%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
0-30 31-60 61-90 91-100
Percentile of Income
Percent Change in Real Wealth(by Income Distribution)
2007-2010 (Great Recession)
2007-2016 (Great Recession + Recovery)
0
20
40
60
80
100
120
198
0Q
3
198
2Q
3
198
4Q
3
198
6Q
3
198
8Q
3
199
0Q
3
199
2Q
3
199
4Q
3
199
6Q
3
199
8Q
3
200
0Q
3
200
2Q
3
200
4Q
3
200
6Q
3
200
8Q
3
201
0Q
3
201
2Q
3
201
4Q
3
201
6Q
3
201
8Q
3
Household Wealth ($Trillions)
© Freddie MacCONFIDENTIALEconomic and Housing Research 9
Home Sales Crested in 2017 and Declined in 2018
Source: NAR and Census
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
19
99
19
99
20
00
20
01
20
02
20
02
20
03
20
04
20
05
20
05
20
06
20
07
20
08
20
08
20
09
20
10
20
11
20
11
20
12
20
13
20
14
20
14
20
15
20
16
20
17
20
17
20
18
Mill
ion U
nits
© Freddie MacCONFIDENTIALEconomic and Housing Research 10
400
450
500
550
600
650
700
750
800
Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
New Homes(Thousands)
4,800
4,900
5,000
5,100
5,200
5,300
5,400
5,500
5,600
5,700
5,800
Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18
Existing Homes(Thousands)
Home Sales Declined in Most of 2018
Source:National Association of Realtors (NAR)-SA, U.S. Census Bureau (BOC) – SA
© Freddie MacCONFIDENTIALEconomic and Housing Research 11
Home Sales Weakened After Rates Rose This Year, But
Sales Depend More on the Economy than Rates
Source: NAR and Census
Home Sales Activity 12 Months After Large Rate Shocks
80%
85%
90%
95%
100%
105%
110%
115%
Jan 1994 May 2013 Dec 2017 Apr 1999 Feb 1996 Jun 2003
+200 bps
+80 bps
+130 bps
+110 bps
+100 bps+90 bps
© Freddie MacCONFIDENTIALEconomic and Housing Research 12
Despite the Various Headwinds, Homeownership is Rising,
Especially for Below AMI Borrowers
Source: NAR and Census
45
46
47
48
49
50
51
52
53
54
55
75
76
77
78
79
80
81
82
83
84
85
Q1 1
99
4
Q2 1
99
5
Q3 1
99
6
Q4 1
99
7
Q1 1
99
9
Q2 2
00
0
Q3 2
00
1
Q4 2
00
2
Q1 2
00
4
Q2 2
00
5
Q3 2
00
6
Q4 2
00
7
Q1 2
00
9
Q2 2
01
0
Q3 2
01
1
Q4 2
01
2
Q1 2
01
4
Q2 2
01
5
Q3 2
01
6
Q4 2
01
7
Low Income Homeownership is Rising
Above Median Income - L
Below Median Income - R
27
28
29
30
31
32
33
Q1 1
99
4
Q2 1
99
5
Q3 1
99
6
Q4 1
99
7
Q1 1
99
9
Q2 2
00
0
Q3 2
00
1
Q4 2
00
2
Q1 2
00
4
Q2 2
00
5
Q3 2
00
6
Q4 2
00
7
Q1 2
00
9
Q2 2
01
0
Q3 2
01
1
Q4 2
01
2
Q1 2
01
4
Q2 2
01
5
Q3 2
01
6
Q4 2
01
7
Income Homeownership Gap Lowest in Nearly 25 Years
© Freddie MacCONFIDENTIALEconomic and Housing Research 13
Purchase Applications ‘Soar’ in Early 2019
Source: Freddie Mac and MBA
3.8
4.0
4.2
4.4
4.6
4.8
5.0
200
210
220
230
240
250
260
270
280
290
Purchase Applications Index 30-Year FRM
© Freddie MacCONFIDENTIALEconomic and Housing Research 14
Large Wave of Entry-Level Buyers Coming…
4.0
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5.0
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Age Cohort
Population by Age Cohort, 2018
Largest Age Cohorts
Num
be
r o
f P
eo
ple
in 2
01
8 (
Mill
ion
s)
Source: U.S. Census Bureau
Median Age
of First Time
Buyer
© Freddie MacCONFIDENTIALEconomic and Housing Research 15
…But New Housing Supply Remains Low…
Source: Census
© Freddie MacCONFIDENTIALEconomic and Housing Research 16
…And Entry-Level Supply is a Fraction of Historical
Trends
0
100
200
300
400
500
600
700
800
New Supply of Traditionally Affordable Segments
Manufactured Housing 2 to 4 Single-Family 5 to 19 MultifamilySource: Census
Th
ou
sa
nd
s
© Freddie MacCONFIDENTIALEconomic and Housing Research 17
Housing is Overvalued and Affordability is
Worsening
Source: Census and NAR
0
50
100
150
200
250
300
350
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Cumulative Growth since 1980 (%)
U.S. Existing single-family
median home price
U.S. median
household income
Max gap
(2005) = 89
points
2017 gap =
53 points
© Freddie MacCONFIDENTIALEconomic and Housing Research 18
Affordability Gap is Rapidly RisingSupply Gap Between Entry Home Prices and Luxury Home Prices Rapidly Worsening
Source: CoreLogic
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
Ja
n-0
0
Se
p-0
0
Ma
y-0
1
Ja
n-0
2
Se
p-0
2
Ma
y-0
3
Ja
n-0
4
Se
p-0
4
Ma
y-0
5
Ja
n-0
6
Se
p-0
6
Ma
y-0
7
Ja
n-0
8
Se
p-0
8
Ma
y-0
9
Ja
n-1
0
Se
p-1
0
Ma
y-1
1
Ja
n-1
2
Se
p-1
2
Ma
y-1
3
Ja
n-1
4
Se
p-1
4
Ma
y-1
5
Ja
n-1
6
Se
p-1
6
Ma
y-1
7
Ja
n-1
8
Se
p-1
8
Ho
me
Price
In
de
x
Entry Home
Price Index
Luxury Home
Price Index
© Freddie MacCONFIDENTIALEconomic and Housing Research 19
High Housing Costs Largest Hurdle For The 1.6 Million
Fewer Households Formed Since 2000
Other
© Freddie MacCONFIDENTIALEconomic and Housing Research 20
-15%
-10%
-5%
0%
5%
10%
15%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
House Price Appreciation(Year over Year Change)
Home Price Growth Decelerates
Source: Freddie Mac House Price Index, NSA
Annual change
2018E 4.7%
2019F 4.1%
2020F 2.7%
© Freddie MacCONFIDENTIALEconomic and Housing Research 21
Home Price Performance by State –
December 2017 to December 20181
1 The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the value weights are based on Freddie Mac’s single-family
credit guarantee portfolio. Other indices of home prices may have different results, as they are determined using different pools of mortgage loans and calculated
under different conventions. The Freddie Mac House Price Index for the U.S. is a non-seasonally adjusted monthly series. Percent changes were rounded to nearest
whole percentage point
Source: Freddie Mac
≥ 7%
4 to 6%
˂ 0%
0 to 3%
United States: 5.6%Significant Variability by Region and State Since the Peak
7%
AL0%
AK
3%
AR7%
AZ
6%
CA
8%
CO
CT 3%
DC 12%
DE 4%
7%
FL
8%
GA
2%
HI
4%
IA
13%
ID
3%
IL
7%
IN
5%
KSKY 7%
-1%
LA
7%
ME
7%
MI
5%
MN
5%
MO
4%
MS
9%
MT
NC 7%
0%
ND
5%
NE
NJ 3%
4%
NM
12%
NV
5%
NY
7%
OH
4%
OK
4%
OR
5%
PA
RI 7%
6%
SC
6%
SD
TN 5%
5%
TX
9%
UT
4%
VA
6%
WA
7%
WI
2%
WV
5%
WY
3%
VT
MD 3%
6%
NH
MA 4%
© Freddie MacCONFIDENTIALEconomic and Housing Research 22
Older Millennials Are Migrating to Many
Southern and Western Markets
Source: Census and Freddie Mac
Note: The data tracks the percent change in the share of the 1980 to 1985 birth year cohorts in 2000 and 2016
0%
10%
20%
30%
40%
50%
60%
70%
80%
Where Are 31 to 36 Year Old Population Moving To?*
-30%
-25%
-20%
-15%
-10%
-5%
0%
Where Are 31 to 36 Year Old Population Migrating Away From?*
© Freddie MacCONFIDENTIALEconomic and Housing Research 23
Texas Still Tops Among Large Markets for
Population Growth….
Source: Moody’s
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
10-Year 1-Year
Annual Average Population Growth Rate, Top 100 Markets
© Freddie MacCONFIDENTIALEconomic and Housing Research 24
The End!
Economic & Housing Research: www.freddiemac.com/research
Follow us: @Freddiemac
@TheSamKhater