2007 Outlook for Southern California Housing

Transcription

1 Outlook for Southern Housing Presentation at the RERCSC Quarterly Luncheon Meeting, Cal Poly University, Pomona, March, U.S. Expansion Continues Outlook for Southern Housing Real Estate Research Council of Southern Pomona, CA March, Amy Crews Cutts, PhD Deputy Chief Economist Economic growth improves to.% in first half GDP growth picks up to.% in second half Unemployment rate remains at or below % through Tame inflation will keep interest rates low Core inflation is now above upper limit preferred by policy makers Fed funds likely to stay at.% through March Mortgage market continues to slow Loan originations: volume % lower than because of a % drop in refi volume ARM share will drop, perhaps as low as to -in- loans in Risks to the outlook Energy: high oil and natural gas prices act like a tax on the economy Real Gross Domestic Product (Annual Percentage Change) Economic Growth Expected to be Below % in First Half of ' Southern s Employment Picture Looks Like US ' ' ' ',, ' ' ' ' ' ' ' ' ',, ' ' ' Southern, CA,,, jobs lost - ' ' ' ' ' ' ' ' Greater Los Angeles Metro Area,, ' ' ' ' ' ' ' Sources: Department of Commerce, Freddie Mac ' ' The Employment Picture Like US But More Extreme Los Angeles- Long Beach- Glendale, CA D,, ' ' ' ' ' ' ' ' ' ' ' ' ' El Centro, CA, ' ' ' Bakersfield, CA, ' ' ' ' ' ' ' ' ' ' ' ' ' Oxnard-Thousand Oaks-Ventura, CA, ' ' ' The Employment Picture Like US But More Extreme Riverside-San Bernardino- Ontario, CA,, ' ' ' ' ' ' ' ' ' ' ' ' ' San Luis Obispo-Paso Robles, CA, ' ' ' Santa Ana -Anaheim -Irvine, CA D,, Santa Barbara-Santa Maria, CA, ' ' ' ' ' ' ' ' ' ' ' ' ' ' Real Estate Research Council of Southern Cal Poly University, Pomona -- fax --

2 Outlook for Southern Housing Presentation at the RERCSC Quarterly Luncheon Meeting, Cal Poly University, Pomona, March, Core Inflation Should Moderate Mortgage Rates Are Projected to Gradually Trend Up Consumer Price Index (Percent change from year earlier) Core CPI, Less Food & Energy Weekly Mortgage Interest Rate (Percent).%.%. points Refi - Refinance.%.%. points. points -Year, Fixed Rate.% Urban Consumers -Year, ARM Rate.% ' Source: U.S. Department of Commerce Source: Freddie Mac s Primary Mortgage Market Survey A Few Comments on the Mortgage Market Mortgage originations continue to decline in Still strong year, above Just like housing market, the mortgage market has switched from seller s market to buyer s market Rising interest rates should cause refisto decline ARM Resets will drive some refi volume Cashout activity will also dominate refis ARMs losing their allure with higher short-term rates Non-traditional products also seeing declining interest as risks become more widely known (e.g., regulator cautions, media interest) Fewer Refis Imply an % Drop in Mortgage Originations in Total Single-Family Mortgage Originations (Billions of Dollars) Refinance Originations Fixed-Rate Mortgage Home-Purchase Originations Adjustable-Rate Mortgage Home-Purchase Originations ' ' ' ' ' ' ' ' ' ' Source: U.S. Department of Housing and Urban Development, Federal Financial Institutions Examination Council, Federal Housing Finance Board, c CA Loan Originations Fell in But US Originations Are Up - Refis Driven by Cash-outs & ARM Adjustments Total Single-Family Mortgage Originations (Number of Loans, in thousands),,, Refinance Share of Applications (Percent) - -,,, ' ' ' ' ' ' ' ' ' ' ' ' Source: Federal Financial Institutions Examination Council Source: Freddie Mac s Primary Mortgage Market Survey Real Estate Research Council of Southern Cal Poly University, Pomona -- fax --

3 Outlook for Southern Housing Presentation at the RERCSC Quarterly Luncheon Meeting, Cal Poly University, Pomona, March, Interest-Only & Negative Amortization Share of Loan Originations in Private Label Securities (percent of loans) % I/O and Neg Am Loan Share of Originations % I/O Share Only All Nontraditional Left Scale % % Los Angeles, CA San Francisco, CA Right Scale San Diego, CA % % % % % % Non-traditional Loan Originations Are Falling Nationally, Rising in S. YTD Source: LoanPerformance-a unit of First American Corp (Securities issues through September ) YTD % % % % % % % % % Share of I/O + Negative Amortization Home Purchase Loans % % % % % % % Nontraditional Share of Purchase Loans Increases With Median Home Price AZ PA CO NY % State Median Home Sales Price in $ s DE NV CT Source: LoanPerformance -a subsidiary of First American Real Estate Solutions (Private label MBS issues through December of Home-Purchase Loans), Federal Housing Finance Board Monthly Interest Rate Survey VA MD NJ HI DC CA Correlation =. What s Going On With House Prices Q national annualized quarterly growth rate in home prices was.% Taking overall inflation into account, real home prices fell in the nd and rd quarters This is down from.% annualized growth in the st quarter of Strong growth is still occurring on the West Coast and Mid and South Atlantic coastal areas Oil towns booming again Northeast and Midwest fairing poorly Home-price growth is expected to average.% in and.% (or less) nationally in What Is A House Price? A home is not a commodity What we measure is a bundle of goods, services, land and buyer incentives by its very nature it is an ill-defined entity Add to that, what we measure is a contract price at settlement, not on the date of agreement, thus lagged Or it s an appraised value double lagged and biased And then there is the measure Mean, Median, Index And Simpson s Paradox when the composition of groups changes, the aggregate value can go in the opposite direction House Price Growth Varies Widely: States With Negative Quarterly Growth Pacific.% Mountain.%.% West North.% East North.% New England Middle.% Atlantic.% DC % % % % % Location Matters Greatly For Recent Home Price Appreciation and the Level of Housing Prices House Price Growth (percent) $k $k $k $k $k $k $k $k $k $k $k > % Quarterly Change % Quarterly Change < % Quarterly Change < % Annual Change Source: Freddie Mac Conventional Mortgage Home Price Index (Annualized Quarterly Rates for Q) West South.% East South.% South Atlantic.% % -% -year change Q-Q -year annualized change Q-Q Bakersfield CA El Centro CA Los Angeles-Long Beach-Glendale CA Oxnard-Thousand Oaks-Ventura CA Riverside-San Bernandino- Ontarion CA Source: Freddie Mac Conventional Mortgage Home Price Index, National Association of Realtors, and. Q Median home sales price is abov e each city s bars. San Diego- Carlsbad-San Marcos CA San Luis Obispo- Paso Robles CA Santa Ana- Anaheim-Irvine CA D Santa Barbara- Santa Maria- Goleta CA Real Estate Research Council of Southern Cal Poly University, Pomona -- fax --

4 Outlook for Southern Housing Presentation at the RERCSC Quarterly Luncheon Meeting, Cal Poly University, Pomona, March, Time-on-Market Up in Most Markets Outlook for Delinquencies City Chicago, IL Columbus, OH Detroit, MI Minneapolis, MN Boston, MA Washington-Baltimore Miami, FL Los Angeles, CA Denver, CO Philadelphia, PA St. Louis, MO New York, NY Las Vegas, NV Dallas, TX Raleigh, NC Charlotte, NC Source: National Association of Realtors Time-on-market (# of days) December December } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Up days } Down days } Down days Improvement in the U.S. employment numbers over the past year has brought down delinquencies They remain high in areas with high manufacturing concentration manufacturing has not shown much improvement FHA and subprime delinquency rates remain high, subprime rising sharply in recent quarters Strong house price growth and low interest rates have helped with loss mitigation rising interest rates will limit options for workouts We expect prime market delinquencies to be stable in Stronger income growth balanced with ARM resets Subprime will likely deteriorate further with ARM resets Subprime Default Rates Are Times Those on Prime, FHA Rates Are Times Prime Delinquencies Are Lowest in the Northeast and West Loans days or more delinquent or in foreclosure (percent of number) Recession FHA VA Prime Conventional Source: Mortgage Bankers Association and LoanPerformance (throug h Q ) Subprime.-.%.-.%.-.%.-.%.-.% National =.% Seriously Delinquent (+ days delinquent or in foreclosure, prime conventional) Data as of September Source: Mortgage Bankers Association of America.-.% Subprime Delinquencies Also Are Lowest in West and Northeast. to.%. to.%. to.%. to.%. to.% National =.% Seriously Delinquent (+ days delinquent or in foreclosure, subprime conventional) Data as of September Source: LoanPerformance (a unit of First American Corp). to.%.%.% Nontraditional Loans Have Higher Delinquency Rates Than Prime Conventional Loans + Day Delinquency Rate By Origination Year Book of Business as of September (percent).% Interest-only and Negative Amortization Loans.% Prime Conventional ARMs of All Types Prime Conventional FRMs of All Types.%.%.%.%.%.%.%.%.%.%.%.%.%.% YTD YTD Source: LoanPerformance. Non -traditional loan data from loans with interest-only or negative amortization features held in private-label securities, Prime data from LP Prime Servicing Database; Performance in through September Real Estate Research Council of Southern Cal Poly University, Pomona -- fax --

5 Outlook for Southern Housing Presentation at the RERCSC Quarterly Luncheon Meeting, Cal Poly University, Pomona, March, How Good Is The Information Borrowers Are Getting? U.S. Expansion Continues APRs calculated on year average month LIBOR Index, % equity, mos. payments W.A.C. Some restrictions apply, rates subject to change Source: Rocky Mountain News October, Economic growth improves to.% in first half GDP growth should accelerate to.% in second half Unemployment remains under % through first quarter Tame inflation will keep interest rates low Core inflation is above upper limit preferred by policy makers Fed funds likely to stay at.% through March Mortgage Markets will be busy Loan originations: volume % lower than because of refi drop ARMs will account for about in loans in Risks to the outlook Energy prices remain the biggest risk to outlook expect a lot of volatility Where to Get More Information Look for regular updates to our economic forecast, commentary and data at and Contact us at chief_economist@freddiemac.com 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 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. by Freddie Mac. Real Estate Research Council of Southern Cal Poly University, Pomona -- fax --