Comments on Forecasts Kenneth T. Rosen The Sky s The Limit Conference and Expo November 3, 2017
Risks to Economic Outlook Tax cuts in a full employment economy and a global synchronized expansion leads to higher inflation and faster normalization of monetary policy. Asset prices adjust sharply. De-globalization; restrictive immigration, trade, tariffs, travel, and visa policies might negatively impact the economy in the medium term NAFTA negotiations collapse and restrictive trade policies proliferate. Geopolitical accident in North Korea or Middle East disrupts financial markets. 2018 election produces surprise democratic victories. Impeachment proceedings begin. 2
10-Year T-Bond Forecast 5% Forward Curve 10/20/2017 Implied Rate (given Fed dots) Global Recession 4% 3% 2% 1% 0% 2015 2016 2017f 2018f 2019f 2015 2016 2017f 2018f 2019f Forward Curve 10/20/2017 2.27% 2.45% 2.44% 2.59% 2.70% Implied Rate (Fed dots) 2.27% 2.45% 2.80% 3.60% 4.00% Global Recession 2.27% 2.45% 2.80% 1.50% 1.00% Sources: Federal Reserve, RCG 3
Economic Outlook for 2017-2019 Economic Growth GDP Growth: Employment Unemployment Rate: Employment Growth: Jobs Created: Interest Rates and Inflation T-Bill: 10-Year T-Bond: CPI: Single Family Sales: Housing Starts: Price Appreciation: 2016 2017f 2018f 2019f 1.5% 2.1% 2.0% 1.7% 4.7% 4.3% 4.2% 4.6% 1.6% 1.3% 1.1% 0.9% 2.3 mil. 1.8 mil. 1.6 mil. 1.3 mil. 0.5% 1.4% 2.4% 3.0% 2.5% 2.8% 3.6% 4.0% 1.8% 2.5% 3.1% 3.3% 5.4 mil. 5.6 mil. 5.4 mil. 5.4 mil. 782,000 820,000 865,000 850,000 5.9% 5.5% 4.8% 2.9% 4
Rebuilding the American Dream: Strategies to Sustainably Increase Homeownership Kenneth T. Rosen The Sky s The Limit Conference and Expo November 3, 2017
Homeownership in Crisis: Where are We Now? Understanding the Barriers Strategies to Sustainably Increase Homeownership
U.S. Homeownership Rate 70% 69% 68% 67% 66% 65% 64% 63% 62% 61% 60% 59% Peak Historical Average Current 69.2% 65.2% 63.9% 1965 1968 1971 1974 1978 1981 1984 1987 1991 1994 1997 2000 2004 2007 2010 2013 2017 Note: Data not seasonally adjusted, latest data as of 3Q17 Source: Census 7
Homeownership Rates by Household Age Household Age Peak Current Percentage Point Change Under 25 Years Old 25.7% 22.4% -3.3% 25 to 29 Years Old 41.8% 32.7% -9.1% 30 to 34 Years Old 57.4% 45.9% -11.5% 35 to 44 Years Old 69.2% 59.3% -9.9% 45 to 54 Years Old 77.2% 69.1% -8.1% 55 to 64 Years Old 81.7% 75.0% -6.7% 65 Years and Over 81.0% 78.9% -2.1% Note: Peak from 2004 to 2007; latest data as of 3Q17 Source: Census 8
Homeownership Rates by Household Type Household Type Peak Current Percentage Point Change White 76.0% 72.5% -3.5% African American 49.1% 42.0% -7.1% Hispanic 49.7% 46.1% -3.6% Note: Peak from 2004 to 2007; latest data as of 3Q17 Source: Census 9
Homeownership Rates in Major Markets Ranked by Lowest Current Rate Percent Change Prior Peak Current Los Angeles 55.0% 46.6% -8.4% Honolulu 61.1% 49.9% -11.2% Silicon Valley 59.4% 49.9% -9.5% New York 54.7% 50.3% -4.4% Austin 66.7% 51.9% -14.8% Las Vegas 63.4% 52.4% -11.0% San Diego 65.7% 54.1% -11.6% San Francisco 59.4% 55.5% -3.9% Seattle 65.4% 59.5% -5.9% Denver 70.7% 61.0% -9.7% Orlando 71.8% 61.1% -10.7% Sacramento 64.2% 61.7% -2.5% Note: Peak from 2004 to 2007; latest data as of 3Q17; survey margin of error may account for MSA data fluctuations Source: Census 10
U.S. Single Family Housing Starts Units (Millions) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 77 1.4 1.4 79 1.2 81 0.9 0.7 0.7 83 1.4 1.3 1.3 1.2 1.2 1.3 1.21.1 1.1 1.11.2 1.1 1.2 1.1 1.1 1.1 1.0 1.00.90.8 85 87 89 91 93 95 97 99 01 03 1.5 05 1.6 1.7 07 1.5 1.0 09 0.6 0.4 0.5 0.4 11 13 0.6 0.60.7 0.5 15 0.8 0.9 0.9 0.8 17f 19f Sources: Census, RCG 11
Residential Fixed Invest Share of Real GDP 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1960 1964 1969 1974 1979 1983 1988 1993 1998 2002 2007 2012 2017 RFI/GDP Historical Average (1959-2017) Note: Data seasonally adjusted, latest data as of 3Q17 Source: Census 12
Hurdles to Homeownership Tight Mortgage Credit Conditions Post-Foreclosure Lending Aversion Student Debt Burden Post-Foreclosure Stress Disorder Affordability Supply Barriers 13
Change in Private Debt Balances since Q4 2007 Billions +796 bil. +375 bil. -55 bil. -410 bil. 2008 2009 2010 2011 2012 2013 2014 Note: Latest data as of 2Q17 Sources: FRBNY Consumer Credit Panel/Equifax, RCG 2015 2016 2017 14
Fannie Mae GSE FICO Scores Average FICO 770 760 750 740 730 720 710 700 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 Note: Latest data as of 2Q17 Sources: Inside Mortgage Finance, FNMA 15
Share of Total Mortgage Origination by Credit Score 100% 80% 60% 40% 20% 0% 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 >760 720-759 660-719 <660 Note: Latest data as of 2Q17 Sources: Federal Reserve Board of New York, RCG 16
FHA Share of Purchase Mortgage Origination Volume 30% 28% 27% 25% 25% 20% 20% 21% 15% 16% 14% 17% 17% 15% 12% 10% 10% 11% 10% 10% 9% 6% 5% 4% 3% 3% 4% 0% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Note: Latest data YTD as of 3Q17 Sources: HUD, Mortgage Bankers Association, RCG 17
Impact of Regulation on Banks 22% 18% Moderate Negative Impact Extreme Negative Impact 5% Small Negative Impact No Negative Impact 55% Note: Data is from a 2017 survey of 159 banks Source: American Banker s Association 18
Primary Drivers of Increased Compliance Costs Time Allocation Personnel Costs Technology Costs Costs for Third-Party Vendors Loss of Efficiency Customer Loss - Lengthy Approval Customer Loss - Complex Approval Loss of Profitable Business Lines Other 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Note: 2017 survey of 159 banks Source: American Banker s Association 19
Share of Borrowers with $50,000+ in Student Debt Loan 16% 14% 12% 10% 8% 6% 4% 2% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Federal Reserve Board of New York Consumer Credit Panel 20
Share of Renters Who Would Like to Own a Home at Some Point 95% 89% 90% 80% 80% 68% 65% 50% All Ages Millennials (Ages 18-34) Generation X (Ages 35-49) Baby Boomers (Ages 50-68) Note: Latest data as of March 2017 Source: Freddie Mac 21
Share of Renters Who Can Afford to Own, Yet Continue to Rent 18% 16% 17% 16% 14% 14% 12% 10% 10% 8% All Ages Millennials (Ages 18-34) Generation X (Ages 35-49) Baby Boomers (Ages 50-68) Note: Latest data as of March 2017 Source: Freddie Mac 22
Housing Affordability United States and California 70% % Able to Afford Median-Priced Home 60% 50% United States 40% 30% California 20% 10% 90 9192 93 9495 96 9798 99 0001 02 0304 05 0607 08 0910 11 1213 14 1516 17 Note: RCG Universe of MSAs; latest data as of 2Q17 Sources: RCG, CAR, NAR, FAR, Census 23
Why Homeownership? Accumulate wealth Reducing inequality Investments in Community Civic Engagement Economic Growth 24
Policy Ideas for Sustainably Increasing Homeownership Mortgage Availability Improving Access to Credit for Consumers Raising Debt-to-Income Ratio Alternative Measures of Credit Scores Reducing Post-Foreclosure Lending Aversion Establish Clear Rules and Guidelines for Lenders Iron-clad Safe Harbor Provisions for Lenders Limit Compliance Costs Safe and Sustainable Future for GSEs 25
Policy Ideas for Sustainably Increasing Homeownership Affordability Down Payment Savings Program Graduated Payment Mortgages Shared Equity Products Lease Purchase Agreements Student Debt Standardized Mortgage Underwriting Student Loan Interest Deductions Student Debt Mortgages Post-Foreclosure Stress Disorder Public Relations Campaign Promoting Sustainable Homeownership Counseling Programs for Potential Homeowners Post-Foreclosure Targeted Assistance 26
Policy Ideas for Sustainably Increasing Homeownership Supply Constraints Reducing Regulatory Hurdles to Development Reduce Fees and Streamline Approvals Minimum Lot Sizes Expedite and Simplify Environmental Review Override Local Regulatory Hurdles with Statewide Reforms Localized Reforms Increasing New Home Construction Pre-Fabrication and Modular Housing Accessory Dwelling Units Tax Credits for New Construction Homebuyers 27
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