economic forecast 2010
DESCRIPTION
Housing Market Forecast for 2010TRANSCRIPT
Housing and Mortgage Market Update
CML Webinar: Economic Forecast for 2010January 26, 2010
Amy Crews Cutts, PhD Deputy Chief Economist
Office of the Chief Economist1
Signs of Recovery?
Economy Still In Recession…Real GDP fell only 0.7% in 2Q 2009, and turned positive in 3Q at 2.8%.Unemployment rate is high – at 10% currently, could go higherCurrent inflation risk is low - could be more problematic in the futureExact date of the recession end will come from the National Bureau of Economic Research – some think it ended sometime in 3Q, some in 4Q, some think it will be 1Q 2010
But Positive Signs Are AppearingFinancial market indicators show some improvement – but not yet normalHome sales are at or near bottom; about a third are foreclosure salesSingle-family construction is lowest since 1945, small positive signsRate of decline in home prices appears to be slowing (?)
Risks to the outlookAre the signs of improvement real or just a temporary thing?Commercial real estate credit market remains a concern
Office of the Chief Economist2
Mortgage Market: Refis Up, Defaults Up
Low mortgage rates promote demandMore purchase-money mortgages because of higher home sales in ’10 and stabilizing pricesRefinance volumes will fall
Expected higher mortgage interest rates in 2010 than in 2009Even if rates remain very low, most people who were in the money to refi have already done so (burn-out effect)
FHA volume up sharply and expected to avg $110 B/qtr in 2010
Housing Market to be hit by recession problems in addition to mortgage market crisis problems leading to a rise in defaults
Unemployment main trigger event for delinquency among prime conventional borrowersCumulative house price declines add to foreclosure riskSerious delinquency rates likely to rise further in 2010Prime loans are now being affected in addition to subprime and Alt-A
Office of the Chief Economist3
-8
-6
-4
-2
0
2
4
6
8
10
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Sources: Department of Commerce, Freddie Mac (January 2010 Outlook)
Real Gross Domestic Product (Annual Percentage Change)
This Is the Most Severe Recession Since Early 1980s – Look for Positive Growth in 3Q’09
Forecast
– Recession
Office of the Chief Economist4
-2400
-2000
-1600
-1200
-800
-400
0
400
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1200
1600
'79
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'10
2
3
4
5
6
7
8
9
10
11
12Change in Employment Unemployment Rate
7.2 million U.S. Non-Farm Payroll Jobs Were Lost 12/07-12/09 – Most in Post-WWII Period
Sources: U.S. Bureau of Labor Statistics, Freddie Mac– National Recession
Change in Non-Farm Payroll Employment (in thousands) Unemployment Rate (Percent)
Forecast
Office of the Chief Economist5
Mortgage Rates Are Near 50-Year Lows –Currently at 4.99% (week ended Jan. 21, 2010)
0
2
4
6
8
10
12
14
16
18
1953195519571959196119631965196719691971197319751977197919811983198519871989199119931995199719992001200320052007
0
2
4
6
8
10
12
14
16
1830-Year SF Fixed Conforming
Mortgage Rate
Annual Average Interest Rate (Percent)
10-Year Treasury
December 20082.42%April 1954
2.29%
July 19655.80%
0.5 points
Source: Freddie Mac’s Primary Mortgage Market Survey®, Federal Reserve
Record Low: December 3, 2009
4.71%0.7 points
Office of the Chief Economist6
Conforming Rates Have Risen Recently; Jumbo Rates, Less So
Source: HSH Associates (last data: week ending January 15, 2010)Note: Effective rate adds fees and points to the interest rate.
5.0
5.4
5.8
6.2
6.6
7.0
7.4
7.8
8.2
Jan-07Feb-07M
ar-07A
pr-07M
ay-07Jun-07Jul-07A
ug-07S
ep-07O
ct-07N
ov-07D
ec-07Jan-08Feb-08M
ar-08A
pr-08M
ay-08Jun-08Jul-08A
ug-08S
ep-08O
ct-08N
ov-08D
ec-08Jan-09Feb-09M
ar-09A
pr-09M
ay-09Jun-09Jul-09A
ug-09S
ep-09O
ct-09N
ov-09D
ec-09Jan-10
Jumbo Conforming Super Conforming
6.08%
5.24%
Effective Interest Rate for 30-Year Fixed-Rate Mortgages Assuming LTV of 80% & Prime Credit (Percentage Points)
5.39%
Jumbo-Conforming Spread currently = .82 ppts
Office of the Chief Economist7
0
50
100
150
200
250
300
350
400
450
500
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
3-Month LIBOR Spread to Treasuries Has Returned to Normal
Source : Bloomberg© (last data: January 15, 2010)
Basis Points
Record: 463 bps10/10/08
Current: 19 bps1/15/10
Office of the Chief Economist8
Primary and Secondary Mortgage Market Rate Spread for 30-Year Fixed-Rate Mortgages Remains Wide
0
10
20
30
40
50
60
70
80
90
100
Jan-07Feb-07M
ar-07A
pr-07M
ay-07Jun-07Jul-07A
ug-07S
ep-07O
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ec-07Jan-08Feb-08M
ar-08A
pr-08M
ay-08Jun-08Jul-08A
ug-08S
ep-08O
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ec-08Jan-09Feb-09M
ar-09A
pr-09M
ay-09Jun-09Jul-09A
ug-09S
ep-09O
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ov-09D
ec-09Jan-10
PMMS Less 30-day RNY for 30-year FRM
Source: Freddie Mac (last update: January 19, 2010). Primary Mortgage Market Survey (PMMS) effective yield is based on average contract rate and number of points; RNY is Required Net Yield averaged Monday through Wednesday for each week.
Basis Points
Office of the Chief Economist9
0%
10%
20%
30%
40%
50%
193719411945194919531957196119651969197319771981198519891993199720011Q
20051Q
20061Q
20071Q
20081Q
2009
FHA-Insured
VA-Insured
Annual Quarterly
Share of Single-Family Originations
Sources: HUD (1935-1997), Freddie Mac & Inside Mortgage Finance (1998 – Present)
1942:FHA=29% 2009Q3:
FHA=20%
FHA Lending Has Ramped Up – Dollar Volumes Are Averaging About $110 Billion Per Quarter
Office of the Chief Economist10
$0$250$500$750
$1,000$1,250$1,500$1,750$2,000$2,250$2,500$2,750$3,000$3,250$3,500$3,750$4,000
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Total FHA & VAConventional RefiCoventional Purchase
More Home Sales But Fewer Refis Result In Slight Decrease in Expected 2010 Originations
Sources: Freddie Mac (January 2010 Outlook)
Total Single-Family Mortgage Originations (Billions of Dollars)
ForecastEst.
Office of the Chief Economist11
300
500
700
900
1,100
1,300
1,500
1,700
1,900
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2005
2006
2007
2008
2009
Single-family Building Has Fallen to Lowest Level Since Before 1946; Has It Hit Bottom?
One-Family Housing Starts (thousands of units, SAAR)
Sources: Bureau of Census, Freddie Mac; Annual data 1946-2003; quarterly thereafter
– Recession
Annual Data
3rd Quarter 2005 record: 1.75 million units
1st Quarter 2009: 0.36 million units
3Q 2009: 0.50 million
units
Office of the Chief Economist12
Existing Home Sales Fell 36% From Peak in 2Q05 to 1Q09 But Have Since Risen 16%
1-Year (3Q/3Q) Percent Change in Existing Home Sales Nationally: +5.9%
Source: National Association of Realtors
37%
-14%DC: 28%
31%
Up more than 30%
Up 5-10%Up 10-15%
Up 0-5%
Down more than 10%
Down 0-5%Down 5-10%
37% -11%
Up 15-30%
Office of the Chief Economist13
Home Sales in AZ, CA and NV Are Now Rising Fast
40
60
80
100
120
140
160
180
200
220
2002
2003
2004
2005
2006
2007
2008
2009
40
60
80
100
120
140
160
180
200
220Maryland Virginia MassachusettsCalifornia Florida NevadaUnited States
Existing Home Sales Including Condos and Co-ops (100 = 2002Q1)
Source: National Association of Realtors, Moody’s Economy.com. Based on Seasonally adjusted annualized rates.
Office of the Chief Economist14
Large Inventory Surplus Remains in Market
-1000
100
200300400500600700
800900
1000
1996 2000 2004
Source: Bureau of Census (1996-2004:Annual Data, 2005Q1–2009Q3:Quarterly Data) Note: The excess unsold homes were estimated based on the average vacancy rate from 1996Q1 to 2005Q4 (1.7%).
Excess Unsold Homes for Sale (Numbers in Thousands)
Annual Data Quarterly Data
2005 2006 2007
Q1 Q4 Q1 Q4 Q1 Q4 Q1
2008
Q4 Q1
2009
Office of the Chief Economist15
Excess Homeowner Vacancy Rate by State as of 3Q 2009
<= 0.0%
0.1 to 0.75%
>2.0%
0.76 to 1.5%
1.6 to 2.0%
Estimated overhang of vacant-for-sale homes as a percent of state homeowner dwellings
Source: U.S. Census Bureau and Freddie Mac calculations (difference between 2008 homeowner vacancy rate and 1996-2005 average homeowner vacancy rate for each state).
Office of the Chief Economist16
Since the 4th Quarter of 2006, Some Metro Areas Have Seen Price Declines of Up to 61%
Source: FHFA 09Q3 HPI, Freddie Mac
Office of the Chief Economist17
Home Values Appear to Be Leveling Off, or Slowing Their Descent in Most Indices
70
80
90
100
110
120
130
140
150
160
2005
2006
2007
2008
2009
70
80
90
100
110
120
130
140
150
160US Maryland Michigan Nevada Arizona
Virginia California Florida
Conventional Mortgage Home Price Index (2005Q1=100, Classic Series)
Source: Freddie Mac
Office of the Chief Economist18
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000C
alifo
rnia
Flor
ida
Texa
s
Illin
ois
Ohi
o
New
Jer
sey
New
Yor
k
Penn
sylv
ania
Geo
rgia
Mas
sach
uset
ts
Nor
th C
arol
ina
Was
hing
ton
Mic
higa
n
Ariz
ona
Mar
ylan
d
Nev
ada
(22)
California Has the Largest Number of Properties with Negative Equity, Nevada the Largest Share
Sources: First American CoreLogic; Data as of Sept 30, 2009. Near Negative Equity properties have TLTV between 95 and 100%; Percent values above bars represent share of loans with negative equity.
Number of Mortgaged Properties
Positive EquityNear Negative EquityNegative Equity
20%
35%
45%
11%
8%37%14% 48%
18%24% 16% 9%
6%22%
65%
15%
Nationally: 10.7 million mortgaged properties with negative equity, 23%
Negative Equity Share
Office of the Chief Economist19
Prime & Alt-A Delinquencies Are Highest in Areas With Largest Negative Equity Shares
National = 6.26% Seriously Delinquent (90+ days delinquent or in foreclosure, Prime & Alt-A Conventional)
Data as of September 30, 2009
Below 3.0%
3.14-3.99%
Above 9.0%
4.02-4.95%
5.02-6.88%
Source: Mortgage Bankers Association
14.33%
14.35%
9.38%
9.55%
Office of the Chief Economist20
Relative to Serviced Loans, Subprime Accounts for a Very Large Share of Foreclosures
0
500
1000
1500
2000
2500
3000
3500
2003 2004 2005 2006 2007 2008 2009H1 2009Q3
Prime (includes Alt-A) FHA & VA Subprime
Number of Foreclosures Started (Annual Rate in Thousands)
Source: Mortgage Bankers Association National Delinquency Survey (2003 is only for second half). Numbers adjusted for 85% coverage. Shares may not sum to 100% due to rounding
33% 31%33%
45%28%39%
8%
15%21%
47%
53%46%
33%28%39%
35%
10%
55%
Subprime Share of Loans Serviced in US Peak (2007): 14%3Q2009-2009: 11%
37%
9%
54%
28%
12%
61%
Office of the Chief Economist2121
Subprime, Alt-A ARMs, and Option ARMs Drive Foreclosures in the U.S
30%
63%
24%
13%9%
12% 37%
12%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Distribution of Loans Outstanding in theU.S by Product, Year-end 2008
Distribution of Foreclosures Started inthe U.S by Product During 2009:Q1-Q3
Source: Mortgage Banker’s Association National Delinquency Survey. Numbers adjusted for 85% coverage.
Percent
53 million Loans 1.9 million Foreclosure Starts
SUBPRIME
FHA & VA
PRIME & Alt-A ARM
PRIME & Alt-A FIXED RATE
Office of the Chief Economist2222
Recent Default Experience Is Unlike Any Previous Business Cycle Since the 1930s
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
1962
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2002
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2008
Prime conventional loans 90 days or more delinquent or in foreclosure (percent)
– Recession Year
Source: National Bureau of Economic Research, Mortgage Bankers Association(Prime Conventional includes Alt-A; prior to 1998 includes all loans). Data through Sept 30, 2009.
Office of the Chief Economist2323
Subprime Loans Are Performing About 5 Times Worse Than Prime & Alt-A – Scale Matters Too
8.9
6.3
28.7
8.7
0
3
6
9
12
15
18
21
24
27
30
1998
1999
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2002
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2004
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2009
Recession All Loans Prime & Alt-ASubprime FHA
Loans 90 Days or More Delinquent or in Foreclosure (percent of number)
Source: Mortgage Bankers Association; “Prime Loans” includes Alt-A (Quarterly data not seasonally adjusted;1998Q1-2009Q3).
Office of the Chief Economist24
23.5%
30.2%
16.4%
10.8%
3.5%
5.5%6.7%
0%
5%
10%
15%
20%
25%
30%
35%Feb‐05
Apr‐05
Jun‐05
Aug‐05
Oct‐05
Dec‐05
Feb‐06
Apr‐06
Jun‐06
Aug‐06
Oct‐06
Dec‐06
Feb‐07
Apr‐07
Jun‐07
Aug‐07
Oct‐07
Dec‐07
Feb‐08
Apr‐08
Jun‐08
Aug‐08
Oct‐08
Dec‐08
Feb‐09
Apr‐09
Jun‐09
Delinqu
ency %
Option ARM SubprimeAlt‐A OtherFRE & FNM Jumbo PrimeTotal
Bad Economy Is Exacerbating Problem: Serious Delinquencies Are Rising For All Loan Types
Source: LPS Applied Analytics (Formerly McDash Analytics); Data as of June 2009
Loans 90 days or more delinquent or in foreclosure (percent of number)
Office of the Chief Economist25
Private Label
Securities12%
Banks & Thrifts
16%
Ginnie Mae and FHA
13%Fannie Mae
35%
Freddie Mac23%
Other1%
0.43
0.86
0.53
0.74
1.55
0.0 0.5 1.0 1.5 2.0
Freddie Mac
Fannie Mae
Ginnie Mae andFHA
Banks & Thrifts
Private LabelSecurities
Freddie Mac Holds or Guarantees 24% of All Loans, But Has Only 9% of Problem Loans
Sources: FDIC, Freddie Mac, Fannie Mae, Mortgage Bankers Association, First American CoreLogic (LoanPerformance). Note: data as of September 30, 2009. Seriously Delinquent loans are at least 90 days delinquent or in foreclosure. Components may not sum to 100% because of rounding. Freddie Mac and Fannie Mae figures include only whole loans held in portfolio and in outstanding guaranteed securities.
Number of First Mortgages Outstanding(in millions)
Seriously Delinquent Mortgages(in millions)
Total: 54 Million Total: 4.7 Million
Office of the Chief Economist26
Challenge: High Vacancy Rates Impact Our Ability to Reach Borrowers
Source: Freddie Mac. Vacancy Rate based on vacant/unknown properties, excludes any REO acquisitions.
Vacancy Rate for Key States (Overall Rate for 90+Foreclosure Loans for 10/31/2009 )
44Florida
36Texas
32Pennsylvania
29Ohio
29New York
41Nevada
25Michigan
30Illinois
41Georgia
30California
37Arizona
Percent VacantState
34%
Where to Get More InformationLook for regular updates to our economic forecast, commentary and data at
www.freddiemac.com/news/finance
Contact us at [email protected]
Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Office of the Chief Economist, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Office of the Chief Economist attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose.
Information from this document may be used with proper attribution. Alteration of this document is prohibited.© 2010 by Freddie Mac.