Housing Affordability Constrains as the Expansion Matures

Transcription

1 Housing Affordability Constrains as the Expansion Matures Doug Duncan Chief Economist Fannie Mae 216 Economic and Housing Market Update Conference October 19, Fannie Mae. Trademarks of Fannie Mae. 1

2 Disclaimer Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management. 216 Fannie Mae. Trademarks of Fannie Mae. 2

3 Economic Growth, Employment, and Income 216 Fannie Mae. Trademarks of Fannie Mae. 3

4 Outlook for the Next Recession 14 We Are Probably in the Late Stages of the Economic Expansion Length of Economic Expansion (Months) The median duration is 45 months since WWII Oct-1945 Oct-1949 May-1954 Apr-1958 Feb-1961 Nov-197 Mar-1975 Jul-198 Nov-1982 Mar-1991 Nov-21 Jun-29 Cycle Start Source: National Bureau of Economic Research 216 Fannie Mae. Trademarks of Fannie Mae. 4

5 Private Residential Investment Pulls Back Slightly but Residential Construction Employment Gains Pick Up 1, 1 Private Residential Investment (SAAR, Bil.Chn.29$) ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 ' Residential Construction Employment (SA, in Thous, Quarter-over-Quarter Change) Private Residential Investment (Left Axis) Quarter-over-Quarter Residential Construction Employment Change (Right Axis) Note: Residential Construction Employment combines construction of buildings and specialty trade contractors Source: Bureau of Economic Analysis, Bureau of Labor Statistics 216 Fannie Mae. Trademarks of Fannie Mae. 5

6 Car Sales Have Probably Peaked, While Light Truck Sales Continue to Rise Total Sales [Imported+Domestic] (SAAR, Mil. Units) Auto Sales Light Truck Sales '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Source: Autodata 216 Fannie Mae. Trademarks of Fannie Mae. 6

7 Have Durable Goods Shipments Peaked? 25 Shipments of Durable Goods (SA, Bil.$) '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 Source: Census Bureau 216 Fannie Mae. Trademarks of Fannie Mae. 7

8 Industrial Production Declines from Its Peak Industrial Production Index (SA, 212=1) '65 '7 '75 '8 '85 '9 '95 ' '5 '1 '15 Source: Federal Reserve Board 216 Fannie Mae. Trademarks of Fannie Mae. 8

9 Capacity Utilization Falls to Low Level 9 Capacity Utilization: Industry (SA, Percent of Capacity) '65 '7 '75 '8 '85 '9 '95 ' '5 '1 '15 Source: Federal Reserve Board 216 Fannie Mae. Trademarks of Fannie Mae. 9

10 Business Fixed Investment Share of GDP Is Well Below Prior Peaks and Falling 16% 14% 12% 1% 8% '47 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 '12 Private Nonresidential Fixed Investment as a Share of Gross Domestic Product (%) Historical Average = 12% Source: Bureau of Economic Analysis 216 Fannie Mae. Trademarks of Fannie Mae. 1

11 Annual Profits Fall for the Fifth Consecutive Quarter, A Rarity During Expansions 6% 5% Corporate Profits (SAAR, $, Ye ar-over-year % Change) 4% 3% 2% 1% % -1% -2% -3% -4% '48 '54 '6 '66 '72 '78 '84 '9 '96 '2 '8 '14 Source: Bureau of Economic Analysis 216 Fannie Mae. Trademarks of Fannie Mae. 11

12 Productivity Growth Slows 8.% Real Labor Productivity Declines for the First Time in Three Years 4.5% Wage Growth Trends Upward 6.% 4.% 2.%.% -2.% -4.% '6 '65 '7 '75 '8 '85 '9 '95 ' '5 '1 '15 Nonfarm Business Sector: Real Output Per Hour of All Persons (SA, 29=1) % Change - Year to Year Ten-Year Moving Average Avg Hourly Earnings (YoY % Change, SA) 4.% 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Total Private Employees Total Private: Production & Nonsupervisory Employees Source: Bureau of Labor Statistics 216 Fannie Mae. Trademarks of Fannie Mae. 12

13 Unemployment Rate and Labor Force Participation Rate Edge up 84% 12% 8% 1% 76% 8% 72% 6% 68% 4% 64% 2% 6% '48 '52 '56 '6 '64 '68 '72 '76 '8 '84 '88 '92 '96 ' '4 '8 '12 '16 % Labor Force Participation Rate: Yr (12-month rolling avg., %, Left Axis) Unemployment Rate: Yr (SA, %, Right Axis) Source: Bureau of Labor Statistics 216 Fannie Mae. Trademarks of Fannie Mae. 13

14 Labor Share of Income Remains Low, but Is on Upward Trend 7% Nonfarm Business: Labor Share, All Persons (SA) 65% 6% 55% 5% '47 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 '12 Note: Labor share of income is the portion of output that employers spend on labor costs (wages, salaries, and benefits) valued in each year s prices. Source: Bureau of Labor Statistics 216 Fannie Mae. Trademarks of Fannie Mae. 14

15 Income Growth Expectations Are Positive, but Not Yet Strong 4% 3% 2% 1% % '78 '79 '8 '81 '82 '83 '84 '85 '86 '87 '88 '89 '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16-1% Avg.=18.7 Avg.=9.9 Avg.=9.7 Avg.= % Difference Between % Increase and % Decrease 6 Months Hence Source: The Conference Board 216 Fannie Mae. Trademarks of Fannie Mae. 15

16 Consumer Spending Supports Growth 6% Real Personal Consumption Has Strengthened Real Personal Consumption Expenditures (SAAR, Chn.29$) Year to Year % Change 4% 2% % '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16-2% -4% Source: Bureau of Economic Analysis 216 Fannie Mae. Trademarks of Fannie Mae. 16

17 Revolving Consumer Credit Rises in Real Terms 25% Real Revolving Consumer Credit Has Trended up over the Past Two Years 2% 15% 1% 5% % -5% -1% -15% '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Revolving Consumer Credit Outstanding (Break-Adjusted, EOP, SA, $) % Change - Year to Year Nonrevolving Consumer Credit Outstanding (Break-Adjusted, EOP, SA, $) % Change - Year to Year Note: 1) Revolving Credit includes credit card credit and balances outstanding on unsecured revolving lines of credit. Nonrevolving credit includes secured and unsecured credit for automobiles, mobile homes, trailers, durable goods, v acations, and other purposes. Consumer credit excludes loans secured by real estate (such as mortgage loans, home equity loans, and home equity lines of credit). 2) Adjusted with Personal Consumer Expenditures Chain Price Index. 3) Shaded areas are recessions. Source: Federal Reserve Board 216 Fannie Mae. Trademarks of Fannie Mae. 17

18 Serious Delinquent Rates Decline for All Types of Loans Except for Student Loans 16% Balance 9+ Days Delinquent 14% 12% 1% 8% 6% 4% 2% % '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Mortgage HELOC Auto Credit Card Student Other Source: Federal Reserve Bank of New York 216 Fannie Mae. Trademarks of Fannie Mae. 18

19 The Strong Dollar Contributes to the Reduction in Trade; A Fed Rate Increase Would Add To That Headwind The Dollar Remains Elevated U.S. Trade Is Still below Peak 14 Nominal Broad Trade-Weighted Exchange Value of the US$ (Jan-97=1) 3 Nominal Trade (SA, Bil.$) '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Exports Imports Source: Federal Reserve Board, Census Bureau 216 Fannie Mae. Trademarks of Fannie Mae. 19

20 International Investment to the U.S. Is Much Larger than from the U.S. 3 International Investment Trillions of $s 1 5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 ' Net International Investment Position U.S. Assets U.S. Liabilities Source: Bureau of Economic Analysis 216 Fannie Mae. Trademarks of Fannie Mae. 2

21 European Union Membership Varieties European Union European Economic Area European Union 28-nation single market of free trade and shared regulation; includes free movement of goods, services, capital, and people Euro Zone 19 countries using the euro currency European Economic Area Provides access to single market in exchange for payments; has emergency brake on free movement of people European Free Trade Association Free-trade zone and network of agreements with other countries Romania Bulgaria United Kingdom $2.85 T Croatia Poland Sweden Spain $1.2 T Denm. Czech. Hung. Euro Zone Finl. Germany $3.36 T France $2.42 T Lux. Italy $1.82 T Latvia Malta Neth. EFTA Norway Iceland Liecht. Switz. Customs Union Customs Union Circulates goods without duties, has uniform system for handling imports Schengen Area 26-country passport-free travel zone = GDP (215) Austria Portugal Belgium Greece Estonia Lithuania Slovakia Slovenia Schengen Area Cyprus Ireland Turkey Source: Bloomberg, European Union, IMF, ETRA 216 Fannie Mae. Trademarks of Fannie Mae. 21

22 The Fed, Interest Rates, and The Outlook 216 Fannie Mae. Trademarks of Fannie Mae. 22

23 Source: Hedgeye Risk Management 216 Fannie Mae. Trademarks of Fannie Mae. 23

24 Real Interest Rates Have Trended Lower for Over Three Decades 1% Inflation Adjusted 1-Year U.S. Treasury Yield 8% 6% 4% 4.13% 2% 2.13%.83% % -2% -4% '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16-1.9% Source: Federal Reserve Bank of Cleveland 216 Fannie Mae. Trademarks of Fannie Mae. 24

25 Long-Term Inflation Expectation Has Trended Down 3.% 1-Year Breakeven Inflation Rate 2.5% 2.% 1.5% 1.%.5%.% '3 '5 '7 '9 '11 '13 '15 Note: The 1-year breakeven rate measures the difference in the yields between 1-year Treasury Note and Treasury Inflation Protected Securities. Source: Federal Reserve Board 216 Fannie Mae. Trademarks of Fannie Mae. 25

26 Intermediate Rates Trend up Since July Year Treasury Note Yield at Constant Maturity (%, Daily Close Rate) /16 Fed announced interest rake hike /27/15 11/24/15 12/22/15 1/19/16 2/16/16 3/15/16 4/12/16 5/1/16 6/7/16 7/5/16 8/2/16 8/3/16 9/27/16 Source: U.S. Treasury 216 Fannie Mae. Trademarks of Fannie Mae. 26

27 Short-Term Interest Rates Are Expected to Rise Very Slowly 6% 1-Month Treasury Bill Market Bid Yield 6% Overnight Bank Funding Rate 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% % '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 % '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Source: U.S. Treasury, Federal Reserve Bank of New York 216 Fannie Mae. Trademarks of Fannie Mae. 27

28 Core Inflation Has Trended Higher, Reflecting Rising Shelter and Rocketing Medical Care Prices 6% Year-over-Year Inflation 5% 4% 3% 2% 1% % -1% '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Core CPI Core PCE CPI: Shelter CPI: Medical Care Services Source: Bureau of Labor Statistics, Bureau of Economic Analysis 216 Fannie Mae. Trademarks of Fannie Mae. 28

29 216 Economic Outlook Moderate Economic Growth Continues Real GDP Annual Growth (Q4-over-Q4) 1.8% Unemployment Rate (Year-end) 4.9% Core CPI (Year-end, % Year-over-Year) 2.3% 1-Year Treasury Bond Yield (Year-end) 1.7% October 216 Forecast Source: Fannie Mae Economic & Strategic Research October 216 Forecast 216 Fannie Mae. Trademarks of Fannie Mae. 29

30 Demographics 216 Fannie Mae. Trademarks of Fannie Mae. 3

31 U.S. Demographics Are Favorable For Growth and Housing Millennials Are a Large Wave of Potential Home Owners Age 1 years and over 95 years 9 years 85 years 8 years 75 years 7 years 65 years 6 years 55 years 5 years 45 years 4 years 35 years 3 years 25 years 2 years 15 years 1 years 5 years Under 1 year Population By Age and Sex, 21 Census Males Females Millions Baby Boomers Millennials Source: Census Bureau, Decennial Census 216 Fannie Mae. Trademarks of Fannie Mae. 31

32 Household Growth Is Projected to Pick Up with Minorities Driving Growth 1,8 Household Growth Is Starting to Rebound in the Second Half of the Decade 1,4 Racial and Ethnic Minorities Should Continue to Account for the Bulk of Household Growth Average Annual Household Growth (s) 1,6 1,4 1,2 1, ,694 1,156 1,353 1, Average 67 1,18 Average Annual Household Growth (s) 1,2 1, Non-Hispanic Whites Minorities s 198s 199s 2s (projected) Note:Historical data (blue) end in 214 because that is the last year for which American Community Survey data are available (projected) Source: Census Bureau, Fannie Mae Economic & Strategic Research Projections, Decennial Census 216 Fannie Mae. Trademarks of Fannie Mae. 32

33 The Declines in the Homeownership Rates Are More Pronounced for Younger Households 14 Homeownership Rate* Percentage Decline from Peak Source: Census Bureau Under 35 Years 35 to 44 Years 45 to 54 Years 55 to 64 Years 65 Years and Over * As of Q Fannie Mae. Trademarks of Fannie Mae. 33

34 The Vast Majority of Younger Renters Do Plan to Buy at Some Point in the Future Lifetime Intentions to Own a Home Among Renters Q2 215 to Q1 216 Likely to Always Rent Likely to Buy at Some Point 81% 93%* 19% All Renters (N=491) 7%* Renters (N=1182) * Den ot es a statistically significant difference between all r enters and renters in Q2 215 to Q1 216 at the 95% confidence level Source: Fannie Mae National Housing Survey 216 Fannie Mae. Trademarks of Fannie Mae. 34

35 Housing Market 216 Fannie Mae. Trademarks of Fannie Mae. 35

36 Home Purchase Sentiment Index (HPSI) Suggests Slower Growth in HHHHHHHH = QQ12 + QQ13 + QQ15 + QQ2BB + QQ112BB + QQ '11 '12 '13 '14 '15 '16 Fannie Mae Home Purchase Sentiment Index (NSA, Mar-11=6) Conference Board: Consumer Confidence (SA, 1985=1) University of Michigan: Consumer Sentiment (NSA, Q1-66=1) Question Topic Q.12 Is this a good time to buy a house? Q.13 Is this a good time to sell a house? Q.15 Will home prices go up, down, or stay the same over the next 12 months? Q.2B Will mortgage rates go up, down, or stay the same over the next 12 months? Q.112B How concerned are you about losing your job over the next 12 months? (This question was first asked in March 211.) Q.116 How does your monthly income compare with 12 months ago? Source: The Conference Board, University of Michigan, Fannie Mae Home Purchase Sentiment Index 216 Fannie Mae. Trademarks of Fannie Mae. 36

37 Single-Family Housing Supply is Still Behind the Curve Tight Supply of Single-Family Construction Compared to Population Peak 2/ Peak 9/ Peak 1/ Peak 1/ Multifamily Construction Has Recovered Its Pre- Recession Peak Peak 2/ Peak 2/ Trough 1/ % Trough 1/ % Trough 2 3/ % '8 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Number of Single-Family (1-Unit, SAAR) Housing Starts Per 1 Household Trough 2 9/1981 Trough Trough 3.4 1/1993 1/29 45% % 89% '8 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Number of Multifamily Housing Starts (2+ units, SAAR) Per 1 Households Source: Census Bureau 216 Fannie Mae. Trademarks of Fannie Mae. 37

38 Home Sales Have Weakened 8, 7, Existing Home Sales Continue to Decline; New Home Sales Drop Sharply 1,6 1, Ratio of Existing Home Sales to New Home Sales Shows Current Market Supply Imbalance Peak 5/ , 1,2 5, 1, 4, 8 3, 6 2, 4 1, 2 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 NAR Total Existing Home Sales, United States (SAAR, Thous, Left Axis) New 1-Family Houses Sold: United States (SAAR, Thous, Right Axis) Postrecession low 7/ % '8 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 Existing Single-Family Home Sales to New Single-Family Home Sales (SAAR) Source: Census Bureau, National Association of REALTORS 216 Fannie Mae. Trademarks of Fannie Mae. 38

39 Recovery in New Home Construction Is Slower than What We ve Seen in the Past and Skewed Toward Less Affordable Homes 1,8 Single-Family Housing Completions by Square Feet of Floor Area (Thous.) 1,6 1,4 1,2 1, '73 '76 '79 '82 '85 '88 '91 '94 '97 ' '3 '6 '9 '12 '15 Under 1,6 ft. 1,6-1,999 ft. 2,-2,399 ft. 2,4-2,999 ft. 3, ft. or More Source: Census Bureau 216 Fannie Mae. Trademarks of Fannie Mae. 39

40 Change in Occupied Single-Family Detached Units, (s) Lean Supply of Starter Homes Challenges First-Time Homebuyers 2,5 2, 1,5 1, , -1,5 Many Single-Family Starter Homes Have Shifted to the Rental Market "Starter Homes" Owned, <2, Rented, <2, Owned, 2,- 3, Rented, 2,- 3, Owned, 3,+ Tenure and Square Footage of Single-Family Detached Homes Rented, 3, Fewer New Starter Homes Are Being Built First-Time Homebuyer Tax Credit Number of New Single-Family Detached and Attached Starter Homes (<2, sq ft) Completed (s, left axis) Starter Home Share of All Single-Family Detached and Attached Completions (percent, right axis) Source: Census Bureau, ESR calculations 216 Fannie Mae. Trademarks of Fannie Mae. 4

41 Real Home Price Appreciation Is Still Well Above Its Long-Term Average Solid Real Home Price Appreciation Continues Real Home Prices Have Not Fully Recovered 15% 1% 5% % -5% -1% -15% -2% -25% '9 '95 ' '5 '1 '15 Real CoreLogic National House Price Index YoY Change (Deflated using CPI Less Shelter Index, NSA) Real CoreLogic National Home Price Index YoY Change Average ( ) = 1.2% '9 '95 ' '5 '1 '15 FHFA House Price Index: Purchase Only, United States (SA, Jan-91=1) Real FHFA House Price Index (Deflating using CPI Less Shlelter Index, SA, Jan- 9=1) Source: CoreLogic, Federal Housing Finance Agency, Bureau of Labor Statistics 216 Fannie Mae. Trademarks of Fannie Mae. 41

42 High Rental Demand Boosts Multifamily Sector Rents Remain Elevated Multifamily Starts Bounce Back from Low amid Declining Vacancy Rate 12% 5% 12% 6 11% 4% 11% 5 1% 9% 8% 7% 3% 2% 1% % 1% 9% 8% 7% SAAR, Thousands of Units 6% '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16-1% 6% '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Rental Vacancy Rate (Left Axis) CPI-U: Rent of Primary Residence (YoY Chg, Right Axis) Rental Vacancy Rate (Left Axis) Multifamily Housing Starts (Right Axis) Source: Census Bureau Housing Vacancy Survey, Bureau of Labor Statistics 216 Fannie Mae. Trademarks of Fannie Mae. 42

43 Mortgage Market and Outlook 216 Fannie Mae. Trademarks of Fannie Mae. 43

44 Mortgage Rates Remain Low 8% 7% QE1 Announced QE2 Announced QE3 Announced Taper Hinted At Fed Fund Rate Hike 6% 5% 4% 3% 2% 1% % '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 1yr Treasury Yield FRM 3 Rate Fannie Mae CCY 3 Source: Freddie Mac, Bloomberg 216 Fannie Mae. Trademarks of Fannie Mae. 44

45 Over Half of Outstanding MBS Is with Coupon Rate 3.% or 3.5% Total Outstanding MBS by Coupon (3 -Year Fixed Rate, Trillion $s) Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Below 3.% 3.% 3.5% 4.% 4.5% 5.% - 6.5% Above 6.5% Source: embs 216 Fannie Mae. Trademarks of Fannie Mae. 45

46 Movements in LIBOR Rates Raise Some Concerns for ARM Loans 1.8% 1.6% LIBOR Rates Have Risen Since the Brexit Vote Fed Rate Hike Brexit Vote The Majority of ARM Loans Use The 1-Year LIBOR as Index 1.4% 1.2% 1.%.8%.6%.4%.2%.% 1/1/215 2/1/215 3/1/215 4/1/215 5/1/215 6/1/215 7/1/215 8/1/215 9/1/215 1/1/215 11/1/215 12/1/215 1/1/216 2/1/216 3/1/216 4/1/216 5/1/216 6/1/216 7/1/216 1-Year US Treasury 1-Month LIBOR 3-Month LIBOR 8/1/216 9/1/216 1/1/216 6-Month LIBOR 1-Year LIBOR Source: U.S. Treasury, Fannie Mae 216 Fannie Mae. Trademarks of Fannie Mae. 46

47 Mortgage Market Opportunity Among Existing Renters Smaller Than Many Suggest Renter Households that are currently in a financial position to own Caucasian Minority TOTAL Total Renter Households 2,287,648 18,285,74 38,573,352 Head of Household is ,78,14 43% 9,855,158 54% 18,635,262 48% Can Afford 7% of Median- Priced Home 5,277,56 6% 3,965,48 4% 9,243,4 5% Have $1K in Liquid Assets 978,46 19% 379,893 1% 1,358,353 15% Credit score above 68* 352,245 36% 136,761 36% 489,7 36% Renter Households Who Currently Could Own** 352,245 4% 136,761 1% 489,7 3% Additional renter households who could prepare for ownership by improving their credit profile Raise credit score to 68*** 14,65 1.6% 54,591.6% 195,195 1.% Three percent of current renter households aged 25 to 45 are in a financial position to own. Some of these renters are renting for lifestyle or other reasons unrelated to qualifying for a mortgage. Over three years, an additional one percent of renter households could improve their credit profile sufficiently to become homeowners with a Fannie Mae mortgage. *Estimate of Renter credit score is based on research from the Comparing Credit Profiles of American Renters and Owners report from the Urban Institute. **Percent based on renter population. ***Using the Urban Institute research we estimate 14% of renters credit score falls between 62 and 68. Based on rate of improvement demonstrated by boomerang buyers, over three years this segment of renters could raise their credit score to over 68. Source: American Community Survey, Survey of Consumer Finances, ESR Tabulations, Urban Institute 216 Fannie Mae. Trademarks of Fannie Mae. 47

48 Mortgage Production Expected to Shift Further Toward Purchase Market Mortgage Originations (1-4 Unit, Trillions of $) $4. $3.5 Purchase Refinance $3. $2.5 $2. $1.5 $1. $.5 $. '9 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Source: Fannie Mae Economic & Strategic Research October 216 Forecast 216 Fannie Mae. Trademarks of Fannie Mae. 48

49 216 Housing and Mortgage Market Outlook Up from 215, but Slower Growth October 216 forecast Housing Starts (% Change Year-over-Year) New Single-Family Home Sales (% Change Year-over-Year) Total Existing Home Sales (% Change Year-over-Year) Up 5% to million Up 19% to 595 thousand Up 2.1% to 5.36 million FHFA Purchase-Only Index (Annual Percent Change Q4/Q4) Up 5.2% Purchase Mortgage Originations Refinance Mortgage Originations $1,12 billion $82 billion 3-Year Fixed Rate Mortgage (Year-end) 3.6% Source: Fannie Mae Economic & Strategic Research October 216 Forecast 216 Fannie Mae. Trademarks of Fannie Mae. 49

50 Economic and Credit Outlook for New England 216 Fannie Mae. Trademarks of Fannie Mae. 5

51 Employment Growth Is Uneven Among MSAs 4% Employment YoY Growth Rate 3% 2% 1% % -1% MSA 21 Population (in Thousands) Bangor, ME 154 Barnstable Town, MA 216 Boston, MA 4,552 Burlington, VT 211 Lewiston, ME 18 Manchester, NH 41 Pittsfield, MA 131 Portland, ME 514 Springfield, MA 622 Worcester, MA 917-2% Aug-15 Aug-16 Source: Bureau of Labor Statistics 216 Fannie Mae. Trademarks of Fannie Mae. 51

52 Housing Markets Are Tight in Most MSAs as Indicated by Inventory-to- Sales in Mid-216 Months' Supply 14 Inventory-to-Sales (in Months of Supply) In-Balance Excess Supply Aug-215 Aug-216 Excess Demand 4 2 Source: Redbell 216 Fannie Mae. Trademarks of Fannie Mae. 52

53 The New England States Generally Have Some Of The Lowest Automobile Delinquency Rates Note: Subprime is FICO score < 62. Source: Equifax 216 Fannie Mae. Trademarks of Fannie Mae. 53

54 But, Subprime Automobile Delinquencies Are Rising In States With Weak Economies (1 Of 2) 1.2 Automobile 9 Day Delinquency Rate (SA) For All And Subprime Borrowers, 1 Of 2 Slides Evidence suggests subprime auto is an issue in states with weak economies like CT..25 Ninety day delinquency rate (percent) MA_sub NH_sub CT_sub MA_all NH_all CT_all Subprime Ninety day delinquency rate (percent) Source: Equifax. Subprime is FICO score < 62. All is all borrow ers. Data is seasonally adjusted. 216 Fannie Mae. Trademarks of Fannie Mae. 54

55 14 But, Subprime Automobile Delinquencies Are Rising In States With Weak Economies (2 Of 2) Automobile 9 Day Delinquency Rate (SA) For All And Subprime Borrowers, 1 of 2 Slides.3 12 Evidence suggests subprime auto is an issue in states with weak economies like VT..25 Ninety day delinquency rate (percent) Jul-6 1-Sep-6 1-Nov-6 1-Jan-7 1-Mar-7 1-May-7 1-Jul-7 1-Sep-7 1-Nov-7 1-Jan-8 1-Mar-8 1-May-8 1-Jul-8 1-Sep-8 ME_sub RI_sub VT_sub ME_all RI_all VT_all 1-Nov-8 1-Jan-9 1-Mar-9 1-May-9 1-Jul-9 1-Sep-9 1-Nov-9 1-Jan-1 1-Mar-1 1-May-1 1-Jul-1 1-Sep-1 1-Nov-1 1-Jan-11 1-Mar-11 1-May-11 1-Jul-11 1-Sep-11 1-Nov-11 1-Jan-12 1-Mar-12 1-May-12 1-Jul-12 1-Sep-12 1-Nov-12 1-Jan-13 1-Mar-13 1-May-13 1-Jul-13 1-Sep-13 1-Nov-13 1-Jan-14 1-Mar-14 1-May-14 1-Jul-14 1-Sep-14 1-Nov-14 1-Jan-15 1-Mar-15 1-May-15 1-Jul-15 1-Sep-15 1-Nov-15 1-Jan-16 1-Mar-16 1-May Subprime Ninety day delinquency rate (percent) Source: Equifax. Subprime is FICO score < 62. All is all borrow ers. Data is seasonally adjusted. 216 Fannie Mae. Trademarks of Fannie Mae. 55

56 Bank Cards Also Show That Consumers Are Managing Credit Well (1 of 2) 7 Bank Card 9 Day Delinquency Rate (SA) For All And Subprime Borrowers, 1 Of 2 Slides Subprime Ninety day delinquency rate (percent) MA_all CT_all NH_sub NH_all MA_sub CT_sub Card delinquencies have bottomed out, but are not an issue Ninety day delinquency rate (percent) Source: Equifax. Subprime is FICO score < 62. All is all borrow ers. Data is seasonally adjusted. 216 Fannie Mae. Trademarks of Fannie Mae. 56

57 Bank Cards Also Show That Consumers Are Managing Credit Well (2 of 2) 7 Bank Card 9 Day Delinquency Rate (SA) For All And Subprime Borrowers, 2 Of 2 Slides Subprime Ninety day delinquency rate (percent) ME_all VT_all RI_sub RI_all ME_sub VT_sub Card delinquencies have bottomed out, but are not an issue Ninety day delinquency rate (percent) Source: Equifax. Subprime is FICO score < 62. All is all borrow ers. Data is seasonally adjusted. 216 Fannie Mae. Trademarks of Fannie Mae. 57

58 However, Millennials Are Having A Problem With Student Debt (1 Of 2) 4 Student Loan 9 Day Delinquency Rates For All And Just Subprime Borrowers, 1 of 2 Slides Subprime 9 Day Delinquency Rates (%) CT_Sub MA_Sub NH_All NH_Sub CT_All MA_All 1. The Great Recession has created a class of millennials with poor credit and an inability to pay back their student loans. 2. Economic weakness in CT has made it difficult for millennials even with good credit to pay back their student loans, and/or have pushed more borrowers in the subprime category Day Delinquency Rates (%) Source: Equifax. Subprime is FICO score < 62. All is all borrow ers. Data is seasonally adjusted. 216 Fannie Mae. Trademarks of Fannie Mae. 58

59 Millennials Are Having A Problem With Student Debt (2 of 2) Student Loan 9 Day Delinquency Rates For All And Just Subprime Borrowers, 2 of 2 Slides Subprime 9 Day Delinquency Rates (%) ME_Sub VT_Sub RI_All RI_Sub ME_All VT_All 1. The Great Recession has created a class of millennials with poor credit and an inability to pay back their student loans Day Delinquency Rates (%) Source: Equifax. Subprime is FICO score < 62. All is all borrow ers. Data is seasonally adjusted. 216 Fannie Mae. Trademarks of Fannie Mae. 59

60 The New England States Are Worse Than Other Parts Of The Country The Northeast states have weaker economies. Note: Subprime is FICO score < 62. Source: Equifax 216 Fannie Mae. Trademarks of Fannie Mae. 6

61 Speaker Biography Douglas G. Duncan is Fannie Mae's senior vice president and chief economist. He is responsible for providing all forecasts and analyses on the economy, housing, and mortgage markets for Fannie Mae. Duncan also oversees corporate strategy and is responsible for strategic research regarding external factors and their potential impact on the company and the housing industry. He serves as a voting member of the Fannie Mae Finance Committee. Under his leadership, Fannie Mae s Economic and Strategic Research Group won the NABE Outlook Award, presented annually for the most accurate GDP and Treasury note yield forecasts, in both 215 and 216 the first recipient in the award's history to capture the honor two years in a row. In addition, the Group was awarded Pulsenomics best home price forecast. Named one of Bloomberg / BusinessWeek's 5 Most Powerful People in Real Estate, Duncan is Fannie Mae's source for information and analyses on the external business and economic environment, the implications of changes in economic environment to the company's strategy and execution, and forecasting for housing activity, demographics, overall economic activity, and mortgage market activity. Prior to joining Fannie Mae, Duncan was Senior Vice President and Chief Economist at the Mortgage Bankers Association. His experience also includes service as a LEGIS Fellow and staff member with the Committee on Banking, Finance, and Urban Affairs for Congressman Bill McCollum in the U.S. House of Representatives, and work on the Financial Institutions Project at the U.S. Department of Agriculture. Duncan received his Ph. D. in Agricultural Economics from Texas A&M University and his B.S. and M.S. in Agricultural Economics from North Dakota State University. 216 Fannie Mae. Trademarks of Fannie Mae. 61

62 Contact Information Doug Duncan Senior Vice President & Chief Economist Fannie Mae 39 Wisconsin Avenue, NW Mail Stop 1H-2N/1 Washington, DC 216 (o) (c) (fax) Doug Duncan on Economic & Strategic Research Fannie Mae. Trademarks of Fannie Mae. 62