Housing & Mortgage Market Outlook

Transcription

1 Housing & Mortgage Market Outlook 2005 Economic Outlook Symposium Federal Reserve Bank of Chicago December 2005 David W. Berson Vice President & Chief Economist

2 What You Want to Know: We expect economic growth around trend for the next year, but downside risks have increased. The Fed should tighten at a measured pace in 2005 and into 2006, with long-term rates rising only modestly. Home sales will set another record this year (fifth in a row), but are poised to slip in 2006 Originations should be close to 2004 s pace, with refis down again but purchases up to new records. Both purchase and refis should drop in 2006.

3 GDP Growth At-or-Above Trend 8% 6% Trend Growth 3.5% 4% 2% 0% -2% -4% Q1:90 Q1:92 Q1:94 Q1:96 Q1:98 Q1:00 Q1:02 Q1:04 Q1:06 Source: Bureau of Economic Analysis, Fannie Mae forecast

4 Consumer Sentiment Energy Prices a Concern 120 Index 66Q1 = ' Source: University of Michigan

5 Inflation* Oil is Still a Concern, But Core Has Stabilized 7% 6% Year-Ago Percent Change History Forecast 5% 4% 3% 2% 1% CPI Core Rate CPI 0% Q1:90 Q1:92 Q1:94 Q1:96 Q1:98 Q1:00 Q1:02 Q1:04 Q1:06 *Consumer Price Index Source: Bureau of Labor Statistics

6 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Federal Funds Rate More Tightenings Ahead History Q1:90 Q1:92 Q1:94 Q1:96 Q1:98 Q1:00 Q1:02 Q1:04 Q1:06 Source: Federal Reserve Board, Fannie Mae forecast Forecast

7 11% 10% 9% 8% 7% 6% 5% 4% 3% Long-Term Interest Rates Only Modest Increases 30-Year FRM History Forecast 10-Year Treasury Q1:90 Q3:91 Q1:93 Q3:94 Q1:96 Q3:97 Q1:99 Q3:00 Q1:02 Q3:03 Q1:05 Q3:06 Source: Freddie Mac, Federal Reserve Board, Fannie Mae forecast

8 n:2004 n:2005 n:2003 Affordability Index Index=100 when median family income qualifies for an 80% mortgage on a median priced existing single-family home. Rising index indicates more buyers can afford to enter market n:1990 n:1991 n:1992 n:1993 n:1994 n:1995 n:1996 n:1997 n:1998 n:1999 n:2000 n:2001 n:2002 Source: National Association of Realtors

9 Home Price Gains Unsustainably Strong, Should Slow 14% Year-Ago Percent Change 12% 10% Home Price Index 8% Per Capita Disposable Income 6% 4% 2% 0% Q1:87 Q1:89 Q1:91 Q1:93 Q1:95 Q1:97 Q1:99 Q1:01 Q1:03 Q1:05 Source: Bureau of Economic Analysis, OFHEO

10 Q3:1991 Q2:1992 Q1:1993 Q4:1993 Q3:1994 Q2:1995 Q1:1996 Q4:1996 Q3:1997 Q2:1998 Q1:1999 Q4:1999 Q3:2000 Q2:2001 Q1:2002 Q4:2002 Q3:2003 Q2:2004 Q1:2005 Q1:1990 Q4: % 20% 15% 10% 5% 0% Investor & 2 nd Home Share of Prime Conventional Conforming Purchase Originations Investor & 2 nd Home Share Investor Share Note: Shares are based upon numbers of loans Source: LoanPerformance

11 Homeownership Rate Down Because of High Home Prices? 70% 69% 68% 67% 66% 65% 64% 63% 62% Q1:80 Q1:82Q1:84 Q1:86Q1:88Q1:90 Q1:92Q1:94Q1:96 Q1:98Q1:00 Q1:02Q1:04 Source: Bureau of the Census

12 New Home Sales A New Record in 2005, But Down in Millions of Units Source: Bureau of the Census, Fannie Mae forecast

13 n:2004 New Homes For Sale Thousands Inventory of Unsold New Homes (left axis) Months Supply of New Homes on the Market (right axis) Months n:1980 n:1982 n:1984 n:1986 n:1988 n:1990 n:1992 n:1994 n:1996 n:1998 n:2000 n:2002 Source: Census Bureau

14 Housing Starts Single-family at Record Highs in ,400 2,100 1,800 1,500 1, Thousands of Units Multifamily Single-family Source: Bureau of the Census, Fannie Mae forecast

15 Existing Home Sales A New Record in 2005, But Down in Millions of Units Source: National Association of Realtors, Fannie Mae forecast

16 Existing Homes For Sale Months Supply at Current Sales Rate (right axis) Number of Homes on Market (left axis) Months Source: National Association of Realtors

17 MBA Purchase Index Strong, But Down From Peak Levels Index, 16-Mar-90 =100, SA November Source: Mortgage Bankers Association of America Weekly Mortgage Application Survey

18 MBA Refinance Index Edging Down Index, 16-Mar-90 =100, SA 10,000 9,000 8,000 7,000 6,000 November 18 5,000 4,000 3,000 2,000 1, Source: Mortgage Bankers Association of America Weekly Mortgage Application Survey

19 Percent ARM Share of Mortgage Applications* Boosted by High Home Prices and Hybrid, I/O and Option ARMs *By number of loans Source: Mortgage Bankers Association of America Weekly Mortgage Application Survey November

20 4,000 3,500 3,000 2,500 2,000 1,500 1, Mortgage Originations Purchases at a New Record in 2005 Billions of Dollars Refis Purchase Source: HUD, Fannie Mae estimates (1998 forward), Fannie Mae forecast

21 16% 14% 12% 10% 8% 6% 4% 2% 0% Mortgage Debt Outstanding Growing at an Unsustainable Pace Year/Year Percent Change Q1:90 Q1:91 Q1:92 Q1:93 Q1:94 Q1:95 Q1:96 Q1:97 Q1:98 Q1:99 Q1:00 Q1:01 Q1:02 Q1:03 Q1:04 Q1:05 Q1:06 Q1:07 Source: Federal Reserve Board, Fannie Mae forecast

22 Things to Take Away: Continued economic growth at or near trend. The Fed will tighten monetary policy over the next year. Housing activity will climb to record levels again this year. Originations will edge down in Other sectors will accelerate as housing and consumer spending slow. Long-term rates should rise only modestly from here. Home sales and price gains will slow later this year and in And will fall further in 2006.