housing and credit markets outlook€¦ · © 2013 equifax $2.2 $2.3 $2.3 $2.4 $2.4 $2.5 $2.5 $2.6...

© 2012 Equifax Inc.

Housing and Credit Markets Outlook

FTA Revenue Estimating Conference Springfield, IL

Amy Crews Cutts, SVP – Chief Economist October 7, 2013

© 2013 Equifax

Government Shutdown and Debt Ceiling

! As of October 1st the government shut down for the first time since 1995 §  800K Federal Employees deemed “non-essential” furloughed §  The 1995-96 shutdown cost an estimated $2.5B §  There are other unintended consequences (home buying, hiring, economic

forecasting)

! The longer the shutdown drags on, the greater the negative impact to the economy

! The debt ceiling is the real danger §  The “extraordinary measures” will have been used up by October 17, at which

point the government will have to operate strictly on a cash flow basis §  Last time we flirted with the debt ceiling S&P downgraded the US Debt

triggering a 6.7% one-day stock sell off §  The Fed does not have the means to offset another fiscal shock

! A default would have catastrophic consequences globally

2

© 2013 Equifax

How Bad is Default?

! The US has defaulted once before – Mostly UNINTENTIONALLY ! US posted late payments on T-Bills maturing on April 26, May 3 and May

10 in 1979 §  Full payment was made after a short delay §  Originally did not pay interest on delayed payments, but eventually did due to

severe pressure in financial markets

! Delay was due to unprecedented volume of participation by small investors, a failure of Congress to act on the debt ceiling and a failure of word processing software used to prep check schedules

! What was the effect? ! On 28-34 day (aka 1-month) Treasury Bills yields jumped 60 basis

points and remained there for several months ! Effect of INTENTIONAL default is an unquantifiable risk – Russia’s

default nearly upended markets in 1997 3

© 2013 Equifax

600

800

1000

1200

1400

1600

1800

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Jun-

09

Jun-

10

Jun-

11

Jun-

12

Jun-

13 0

1

2

3

4

5

6

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Jun-

09

Jun-

10

Jun-

11

Jun-

12

Jun-

13

1-Yr 2-Yr 3-Yr 5-Yr 10-Yr

Financial Market Performance Has Been Volatile

•  Equity indexes are at all-time highs, bolstering consumer confidence •  Bond markets are wary of changes in Fed bond-purchase activity

Source: St. Louis Federal Reserve Bank, Yahoo! Finance, NBER, Equifax; through October 3, 2013

U.S. Treasury CM Bond Rates (%, weekly average, NSA)

S&P 500 Equity Index (weekly average, NSA)

4

© 2013 Equifax

$2.2 $2.3 $2.3 $2.4 $2.4 $2.5 $2.5 $2.6 $2.6 $2.7

2006

2007

2008

2009

2010

2011

2012

2013

Student Loans & Auto Dominate N-M Consumer Debt

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2006

2007

2008

2009

2010

2011

2012

2013

Other

Credit Card

Student Loans

Auto

•  Total student loan debt has grown steadily throughout Great Recession and recovery

•  Auto growing strong, now back to January 2008 level & $9B shy of peak

Vertical Axis Scales Not Aligned

Non-Mortgage Consumer Debt (in $T, NSA)

Non-Mortgage Consumer Debt (in $T, NSA)

Source: Equifax (Credit Trends 4.0; data through August 2013)

5

© 2013 Equifax

$7.5 $7.8 $8.0 $8.3 $8.5 $8.8 $9.0 $9.3 $9.5 $9.8

$10.0

2006

2007

2008

2009

2010

2011

2012

2013

U.S. Consumer Deleveraging: Diverging Trends

$2.20 $2.25 $2.30 $2.35 $2.40 $2.45 $2.50 $2.55 $2.60 $2.65

2006

2007

2008

2009

2010

2011

2012

2013

•  Home mortgage outstanding balances, including 1st liens and home equity lines and loans, have declined $1.47T, or 15%.

•  Non-mortgage consumer debt fell $230B or 12%; Hit new high in July 2013

Vertical Axis Scales Not Aligned

Non-Mortgage Consumer Debt (in $T)

Home Mortgage Debt (in $T)


6

© 2013 Equifax

1.9 1.1 1.8

7.7

4.0 3.5

2.0

0 1 2 3 4 5 6 7 8

Jul-0

5 O

ct-0

5 Ja

n-06

A

pr-0

6 Ju

l-06

Oct

-06

Jan-

07

Apr

-07

Jul-0

7 O

ct-0

7 Ja

n-08

A

pr-0

8 Ju

l-08

Oct

-08

Jan-

09

Apr

-09

Jul-0

9 O

ct-0

9 Ja

n-10

A

pr-1

0 Ju

l-10

Oct

-10

Jan-

11

Apr

-11

Jul-1

1 O

ct-1

1 Ja

n-12

A

pr-1

2 Ju

l-12

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Recession Auto Bankcard Consumer Finance 1st Mortgage Home Equity

Credit Delinquencies Are Recovering

•  Auto, bankcard delinquency rates are back to pre-recession levels •  Mortgage delinquencies remain problematic

Notes: Excludes write-offs and REO; Mortgage DLQ rates include loans in foreclosure

60 DPD+ Delinquency Rate (%, NSA)

Source: Equifax (Credit Trends 4.0), Data through August 2013

7

© 2013 Equifax

3.5% 3.8% 4.0% 4.3% 4.5% 4.8% 5.0% 5.3% 5.5%

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013

Bank Card Performance Is Improving

$1.2

$1.4

$1.6

$1.8

$2.0

$2.2

$2.4

$2.6

20%

21%

22%

23%

24%

25%

26%

27%

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013

Utilization Rate (L) Credit Available (R )

•  Payment ratios, payment amounts divided by outstanding balances, are rising – Part of consumer deleveraging

•  Utilization rates have been falling, first due to payoffs, charge-offs, etc. but now due to limit increases

Card Utilization Credit Available (%, NSA) ($T, NSA)

Payment Ratio (Monthly Payment to Outstanding Balances; NSA)

Source: Equifax (Credit Trends 4.0); data through August 2013

Card Act Passed Effective

8

© 2013 Equifax

4.3% 4.5% 4.8% 5.0% 5.3% 5.5% 5.8% 6.0% 6.3% 6.5%

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013

Retail Cards Differ from Bank Cards

$200

$250

$300

$350

$400

$450

10%

12%

14%

16%

18%

20%

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013

Utilization Rate (L) Credit Available (R )

•  Payment ratios on retail cards started rising in 2011 •  Utilization rates have remained elevated on retail cards, due in part to limited

credit availability – but recent increases in availability have been met with increased usage

Card Utilization Credit Available (%, NSA) ($B, NSA)

Payment Ratio (Monthly Payment to Outstanding Balances; NSA)



9

© 2013 Equifax

$475

$525

$575

$625

$675

$725

$775

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013

Card Deleveraging

•  Bank card balances have decreased by 21% ($150 billion) since their recession peak

•  Retail card balances are at all-time highs, up nearly 10% ($5 billion) from pre-recession levels

Retail Card Balances ($B, NSA)

Bank Card Balances ($B, NSA)



$30

$35

$40

$45

$50

$55

$60

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013

10

© 2013 Equifax

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013

Card Performance

•  Bank card serious delinquency rates are higher than retail card rates •  Retail rates saw little degradation in performance during the recession •  Both rates are at lowest levels since start of series

Retail Card Serious Delinquency Rate (NSA)

Bank Card Serious Delinquency Rate (NSA)

Source: Equifax (Credit Trends 4.0); data through August 2013; Serious Delinquency = 60+DPD or in bankruptcy

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

2013


Balances Balances

Tradelines Tradelines

11

© 2013 Equifax

350

450

550

650

750

850

950

2005

20

06

2006

20

07

2007

20

08

2008

20

09

2009

20

10

2010

20

11

2011

20

12

2012

20

13

Student Loans Credit Cards

Student Loans – the Next Big Problem

Student Loan Borrowers and Amount Owed per Borrower

(In Millions) (in $1000s)

Student Loan & Credit Card Balances ($B, NSA)

Source: Equifax (Credit Trends 4.0); data through August 2013; credit card data include bank and retail cards.

$0

$5

$10

$15

$20

$25

$30

$35

$40

0

5

10

15

20

25

30

35

40

2004

2005

2006

2007

2008

2009

2010

2011

2012

Avg Total Owed (R ) Number of Borrowers (L)

12

© 2013 Equifax

Auto Loan Originations Are Rising

30%

35%

40%

45%

50%

55%

60%

65%

70%

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

2007

2008

2009

2010

2011

2012

2013

Total Originations (left)

13

Auto Bank Originations & Share High Prime by Vintage (# millions & % NSA)

Source: Equifax (Credit Trends 4.0); data as of August 2013; ERS = Equifax Risk Score)

•  The Share of high-prime borrowers among new originations is falling across both banks and auto finance companies

Auto Finance Originations & Share High Prime by Vintage (# millions & % NSA)

30%

35%

40%

45%

50%

55%

60%

65%

70%

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

2007

2008

2009

2010

2011

2012

2013

% ERS 700+ (right)

13

© 2013 Equifax

Mortgage Rates in Context – Defining “Historically Low”

4.08

18.45

4.44

0 2 4 6 8

10 12 14 16 18 20

1949

19

52

1956

19

60

1964

19

72

1976

19

79

1983

19

87

1991

19

95

1999

20

02

2006

20

10

FHA 25Yr Rate Conv. 30-Yr Rate

Notes: Through 1961, rates are based on 25-year mortgages. FHA was created in 1934 and the original term of FHA insured fixed-rate loans was 20 years. Gradually terms extended to 30-years.

Monthly Average 30-Year Fixed Mortgage Rates (%, NSA)

3

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

4.8

Jul-1

1 Se

p-11

N

ov-1

1 Ja

n-12

M

ar-1

2 M

ay-1

2 Ju

l-12

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3 Se

p-13

30-Yr Fixed Rate Record Low

24 New Record Lows Set Since August 2011

Weekly Average 30-Year Fixed Mortgage Rates (%, NSA)

14

© 2013 Equifax

Decomposing 30-Yr Fixed Mortgage Rates

15

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

6/1/

2012

8/1/

2012

10/1

/201

2

12/1

/201

2

2/1/

2013

4/1/

2013

6/1/

2013

8/1/

2013

10/1

/201

3 10-Yr CMT FNMA RNY

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

6/1/

2012

8/1/

2012

10/1

/201

2

12/1

/201

2

2/1/

2013

4/1/

2013

6/1/

2013

8/1/

2013

10/1

/201

3

RNY to CMT Spread PMR-RNY Spread

•  The Required Net Yield is the secondary market’s (Fannie Mae’s) yield after servicing fees have been removed from the mortgage rate. The difference between the RNY and the Primary Market Rate is bank yield (originator & servicer).

Interest Rate Levels (%, NSA) Interest Rate Spreads (%, NSA)

Source: Equifax, BankRate, Fannie Mae, St. Louis Federal Reserve Bank; 10/03/2013

15

© 2013 Equifax

-30%

-20%

-10%

0%

10%

20%

30%

40%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Home Sales (L) SF Housing Starts (L) Home prices (R)

The Housing Market Appears To Have Finally Hit Bottom

12-Month Percent Change in Total Home Sales, Housing Starts and CoreLogic Home Price Index (NSA Series)

Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of September 6, 2013)

•  Home sales, starts and prices are moving in lock-step. Starts are leading prices, but prices can create a feedback effect for future demand.

16

© 2013 Equifax

0%

20%

40%

60%

80%

100%

120%

0%

20%

40%

60%

80%

100%

120%

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Home Sales SF Housing Starts Home prices

Despite Some Reports, Housing Market Is Far From Bubbly

Home Sales, Home prices and Housing Starts Levels Relative to Pre-Recession Peaks (NSA Series;100% = Pre-recession peak)

Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of September 6, 2013)

•  Even with large percentage gains in housing measures, all major indices of housing market vitality point to a long recovery yet to come

17

© 2013 Equifax

Excess Housing Inventory is Now Below Trend

Total Vacant Housing Units (in Thousands; NSA)

Source: U.S. Census Bureau, (Through 2nd Quarter 2013)

•  Excess Vacant inventory should start to mitigate pressure on home prices and rent

18

0

2,000

4,000

6,000

8,000

10,000

12,000

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

© 2013 Equifax

Housing Starts Are Rising – to Previous Low Point!

0

500

1,000

1,500

2,000

1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

19

Single Family Housing Starts (1000s, SAAR)

•  While the recovery of single family starts is in progress, the rate of growth is below expectations, particularly given the historical standard.

© 2013 Equifax

Household Size Is Still Increasing

Number of people 16 years or older per household (NSA Series)

Source: U.S. Census Bureau; Bureau of Labor Statistics; Equifax

•  There is significant pent-up demand for household formation. Based on the averages from the early 2000’s we have a deficit of nearly 3 million households.

20

1.95

2.00

2.05

2.10

2.15

2.20

2.25

2.30

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

2000-2003 Average

© 2013 Equifax

Home-Buying Is At All-time High For Affordability

Housing Affordability Index – Measures whether a typical family can afford a typical house. (NSA Series)

Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of April 3, 2013)

•  An index of 100 means a family with the median income has exactly enough income to qualify for a mortgage on a median priced home. The larger the index the more affordable housing is.

21

60

80

100

120

140

160

180

200

220

1989 1992 1995 1998 2001 2004 2007 2010 2013

Mortgage Rates:

Current 1% Higher 2% Higher

© 2013 Equifax

Lending Standards Remain Tight

110

120

130

140

150

160

170

180

-40%

-20%

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012 2013

Current Conditions for Buying a House (R) Net Percent of Banks Tightening Lending Standards (L)

22

•  Although lending standards remain tight, consumer sentiment remains positive.

% of Banks Tightening Lending Standards (NSA Series) Index of Current Conditions for Buying a House (NSA Series)

Source: Federal Reserve Board; University of Michigan; Equifax

© 2013 Equifax

$7.5 $7.8 $8.0 $8.3 $8.5 $8.8 $9.0 $9.3 $9.5 $9.8

$10.0

2006

2007

2008

2009

2010

2011

2012

2013

U.S. Consumer Deleveraging: Mortgage

0%

5%

10%

15%

20%

25%

pre-

2001

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

•  Home mortgage outstanding balances, including 1st liens and home equity lines and loans, have declined $1.47T, or 15 %.

•  27% of July 2013 Balances were originated in 2005-2008

Origination Year of Outstanding Mortgage Debt (%, NSA)

Home Mortgage Debt (in $T, NSA)


23

As of August 2013

© 2013 Equifax

Mortgage Originations Refi Boom Is Over

$0

$200

$400

$600

$800

$1,000

$1,200

$0

$200

$400

$600

$800

$1,000

$1,200

2000

20

00

2001

20

01

2002

20

02

2003

20

03

2004

20

04

2005

20

05

2006

20

06

2007

20

07

2008

20

08

2009

20

09

2010

20

10

2011

20

11

2012

20

12

2013

20

13F

2014

F 20

14F

Purchase Originations Refi Originations

Total Single Family Mortgage Originations ($Bil)

Source: Equifax, Mortgage Banker’s Association (2000-2005), Federal Financial Institutions Examinations Council; updated 10/01/2013. Forecast average from Mortgage Bankers Association, Moody’s Analytics, Freddie Mac, and Fannie Mae.

24

© 2013 Equifax

FL

CA

IL OH

GA

AZ MI

NJ MD

NV

MA

VA

TX

WA

NY

NC

PA

CO

0%

10%

20%

30%

40%

50%

60%

70%

0% 10% 20% 30% 40%

Change in Negative Equity

% Mortgages with Negative Equity 2012 vs. 2013 (NSA)

Source: CoreLogic Negative Equity Report; data through June 2013 Bubble Size = Number of

Mortgage with Negative Equity

% M

ortg

ages

with

Neg

ativ

e Eq

uity

Jun

e 20

12

% Mortgages with Negative Equity June 2013

© 2013 Equifax

Distressed Home Sales Declining

26

•  Distressed sales have fallen to 12 percent of sales, the lowest since the recession began.

Source: National Association of Realtors; Equifax

23%

77%

August 2012

12%

88%

August 2013 U.S. Distressed Home Sales (% Total Sales; NSA)

Non-Distressed Sales Distressed Sales

© 2013 Equifax

HELOC Resets Are on the Horizon

Number Outstanding (NSA, 1000s) Average Balance (NSA, $)

Outstanding HELOCs by Vintage Year

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13 0

200

400

600

800

1,000

1,200

1,400

1,600

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

Nonperforming Current

Source: Equifax; Data through August 2013

27

© 2013 Equifax

0%

2%

4%

6%

8%

10%

12%

0

10

20

30

40

50

60

70

80

90

100

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

Nonperforming Current

HELOC Resets Are on the Horizon

Outstanding Balances of HELOCs by Vintage (NSA, $billions)

Cumulative National Home Price Change by Vintage (NSA, %)

These Vintage years are at very high risk for bad performance at reset Source: Equifax; Data through August 2013; Corelogic; Data through July 2013

% < 620 at Origination (L)

% < 620 at Present (L)

28

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

Total Since Origination First 10-Yrs Post Origination

© 2013 Equifax

At the 10-Year Mark, Delinquencies on HELOCs Almost Double

2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%

Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jul-13

Share of Nonperforming Outstanding Balances of HELOCs by Vintage Year (NSA)

Source: Equifax; Data through August 2013

Origination Year 2000 2001 2002 2003

29

© 2013 Equifax

Questions?

For further information please contact:

Amy Crews Cutts SVP, Chief Economist - Equifax 703.714.6388 Email: [email protected]

The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published by Equifax’s' Economic Insights group represent the views of that group as of the date indicated and do not necessarily represent the views of Equifax or its management.

housing and credit markets outlook€¦ · © 2013 equifax $2.2 $2.3 $2.3 $2.4 $2.4 $2.5 $2.5 $2.6...

Documents