Transcript The Economy Drags Housing Upward

Housing Affordability Constrains as the
Expansion Matures
Doug Duncan
Chief Economist, Fannie Mae
February 21, 2016
© 2015 Fannie Mae. Trademarks of Fannie Mae.
1
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.
2
Housing Contribution to Growth Increases, a Bit
Contribution to Percent Change in Real GDP (Q4/Q4)
4.00%
3.50%
3.00%
2.50%
0.07%
0.72%
0.23%
0.21%
0.30%
0.17%
2.00%
1.50%
1.00%
2.27%
0.24%
0.18%
0.27%
GDP=2.5%
1.86%
GDP=1.8%
1.80%
GDP=2%
0.50%
0.00%
-0.50%
-0.57%
-0.65%
-0.21%
2014
2015
2016*
-1.00%
Personal Consumption Expenditures
Change in Private Inventories
Residential Fixed Investment
Nonresidential Fixed Investment
Net Exports of Goods and Services
Government Consumption and Investment
Source: Bureau of Economic Analysis, *Fannie Mae Economic & Strategic Research February 2016 Forecast
3
Labor Conditions Are Improving
Low Unemployment Rate Overstates the Health of
the Job Market
84%%
Wage Growth Subdued, but Builds Momentum
4.5%
12%%
80%
10%
76%
8%
72%
6%
68%
4%
64%
2%
60%
0%
'48 '52 '56 '60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16
Labor Force Participation Rate: 25-64 Yr (12-month rolling ave, %, Left
Axis)
Unemployment Rate: 25-64 Yr (SA, %, Right Axis)
Source: Bureau of Labor Statistics
Avg Hourly Earnings (YoY % Change, SA)
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
'01
'02
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Total Private Employees
Total Private: Production & Nonsupervisory Employees
'14
'15
'16
4
The Fed Expects to Start Talking About Its Balance Sheet Later This Year
$5.0
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
'08
'09
'10
Treasury securities
Source: Federal Reserve Board
'11
'12
Agency MBS
'13
'14
'15
'16
Other assets
5
Fed’s MBS Holdings Constant for Now
September FOMC Minutes
• “A staff briefing provided background on the macroeconomic effects of alternative approaches to
ceasing reinvestments of principal on securities held in the SOMA after the Committee begins to
normalize the stance of policy by increasing the target range for the federal funds rate.”
• “…The Committee made no decisions regarding its strategy for ceasing or phasing out
reinvestments at this meeting.”
“The Committee will continue its policy of reinvesting proceeds from maturing Treasury securities and
principal payments from agency debt and mortgage-backed securities. As highlighted in our policy statement,
we anticipate continuing this policy “until normalization of the level of the federal funds rate is well under way.”
– Janet Yellen, December 16, 2015
Source: September 2015 FOMC Meeting Minutes
6
Intermediate Rates Have Fallen Since the Announcement of a Rate Hike
10-Year Treasury Note Yield at Constant Maturity (%, Daily Close Rate)
2.4
2.3
2.2
2.1
2.0
1.9
12/16 Fed announces interest rake hike
1.8
1.7
1.6
1.5
Source: U.S. Treasury
7
Home Purchase Sentiment IndexTM (HPSI) Suggests Growth, but Slower in 2016
120
100
𝐻𝑃𝑆𝐼 =
𝑄12 + 𝑄13 + 𝑄15 + 𝑄20𝐵 + 𝑄112𝐵 + 𝑄116
+ 63.5
6
80
Question Topic
60
Q.12 Is this a good time to buy a house?
Q.13 Is this a good time to sell a house?
40
Q.15 Will home prices go up, down, or stay the same over the next 12
months?
20
Q.20B 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?
0
(This question was first asked in March 2011.)
Home Purchase Sentiment Index (HPSI)
Q.116 How does your monthly income compare with 12 months ago?
Conference Board: Consumer Confidence (SA, 1985=100)
University of Michigan: Consumer Sentiment (NSA, Q1-66=100)
Source: Fannie Mae National Housing Survey™, The Conference Board, University of Michigan, Fannie Mae Home Purchase Sentiment IndexTM
8
Single-Family Housing Supply is Still Behind the Curve
Tight Supply of Single-Family Construction Compared to
Population
Peak
Peak
18 9/1980
12.7
2/1984
16.4
Multifamily Construction Picks Up the Pace
9
Peak
1/2006
16.5
16
8
14
7
12
6
10
5
8
4
6
3
4
Trough
10/1981
6.4
↓49%
Trough
1/1991
6.4
↓61%
Trough
3/2009
3.2
↓81%
0
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
2
Number of Single-Family (1-Unit, SAAR) Housing Starts Per 1000 Household
Source: Census Bureau
2
1
0
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Number of Multifamily Housing Starts (5+ units, SAAR) Per 1000 Households
9
The Increase in Housing Starts in the Current Recovery is Behind
What We’ve Seen in the Past
Housing Starts (1-4 Units) Year-over-Year Change in Thous. (SAAR)
500
400
300
200
100
0
-100
-200
-300
-400
-500
'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Source: Census Bureau
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Housing Affordability Moves to the Forefront
Real Home Price Rising Faster Than Real Rents, but Real Rents
Rising as Well
Affordability Still Above Normal, but Declining
NAR Affordability Index: Composite (Fixed + Arm)
250
Peak
1/2013
214.5
↑112%
Peak
3/2006
1.8
↑ 64%
Height of
Housing
Market
Price-to-Rent Ratio
1.8
1.6
200
1.4
1.2
150
1
Postrecession low
7/2015
154.5
↓28%
100
50
9/1981
63.9
↓20%
Low
7/2006
101.1
(High Home
Prices)
0
Trough
5/2012
1.2
↓ 33%
Historical Low
1/1995
1.1
0.8
0.6
0.4
0.2
0
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
'83
'85
'87
'89
'91
'93
'95
'97
'99
'01
'03
'05
'07
'09
'11
'13
'15
Price-to-rent ratio, (Ratio of FHFA/BLS) for United States
Note: Price-to-Rent: The ratio is calculated by dividing the FHFA repeat-purchase home price index
by the U.S. Bureau of Labor Statistics (BLS) consumer price sub-index on Owner's Equivalent Rent
Source: National Association of REALTORS®, U.S. Bureau of Labor Statistics (BLS): CPI; FHFA
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A Lack of More Affordable Properties May Impact Potential First-Time Homebuyers
CoreLogic National Home Price Index
(Jan ’00=100, Year-over-Year Change)
Existing Home Inventory by Price Tier
(Year-over-Year Change)
20%
50%
15%
40%
10%
30%
5%
20%
0%
10%
-5%
0%
-10%
-10%
-15%
-20%
-20%
-25%
-30%
'06
'07
Tier 1
'08
'09
Tier 2
'10
'11
Tier 3
'12
Tier 4
'13
'14
'15
National HPI
Note: Tier 1: 0-75% of median, Tier 2: 75%-100% of median,
Tier 3: 100%-125% of median, Tier 4: 125%+ of median
Source: CoreLogic
Source: Fannie Mae Economic & Strategic Research Forecast
'06
'07
'08
'09
Tier 1
'10
Tier 2
'11
'12
Tier 3
'13
'14
'15
Tier 4
12
Continuing to See Faster Home Price Appreciation Among Moderately Priced Homes
MSA Name
Atlanta
Boston
Chicago
Denver
Las Vegas
Los Angeles
Miami
Minneapolis
New York
Portland
Phoenix
San Diego
San Francisco
Seattle
Tampa
Washington DC
Low Tier
Year-over-Year
% Change
7.95%
8.09%
7.13%
16.30%
7.95%
8.82%
11.79%
8.17%
4.47%
13.77%
11.53%
9.88%
10.93%
8.95%
16.11%
3.61%
Mid Tier
Year-over-Year
% Change
7.55%
5.66%
2.99%
11.24%
7.81%
6.79%
9.17%
5.72%
3.83%
10.58%
7.24%
6.16%
10.42%
8.52%
8.53%
2.10%
High Tier
Year-over-Year
% Change
4.93%
3.80%
0.01%
8.15%
4.20%
4.72%
6.44%
1.73%
2.40%
9.43%
3.70%
5.22%
10.97%
9.28%
4.92%
1.22%
Low - Mid Tier
Change
▲ 0.40%
▲ 2.43%
▲ 4.14%
▲ 5.06%
▲ 0.14%
▲ 2.03%
▲ 2.62%
▲ 2.45%
▲ 0.64%
▲ 3.19%
▲ 4.29%
▲ 3.72%
▲ 0.51%
▲ 0.43%
▲ 7.58%
▲ 1.51%
Low - High Tier
Change
▲ 3.02%
▲ 4.29%
▲ 7.12%
▲ 8.15%
▲ 3.75%
▲ 4.10%
▲ 5.35%
▲ 6.44%
▲ 2.07%
▲ 4.34%
▲ 7.83%
▲ 4.66%
▼ -0.04%
▼ -0.33%
▲11.19%
▲ 2.39%
Note: Percentage change in S&P/Case-Shiller Home Price Index (SA) from October 2014 to October 2015.
Source: S&P/Case-Shiller
13
Rental Market Should Be Strong for Another 3 Years
Multifamily Starts Are on a V-Shape Recovery As Rental
Vacancy Rate Trends Down Sharply
High Rental Demand Driving Appreciation
480
11%
400
10%
320
9%
240
8%
160
7%
80
6%
SAAR, Thousands of Units
12%
0
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
Rental Vacancy Rate (Left Axis)
Multifamily Housing Starts (Right Axis)
Source: Census Bureau, Bureau of Labor Statistics
14
Purchase and Refi Activity Remains Subdued
10,000
600
9,000
500
8,000
7,000
400
6,000
5,000
300
4,000
200
3,000
2,000
100
1,000
0
0
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
MBA: Volume Index: Mortgage Loan Applications for Refinancing(SA, Mar-16-90=100)
MBA: Volume Index: Mortgage Loan Applications for Purchase (SA, Mar-16-90=100)
Source: Mortgage Bankers Association
15
Single-Family Primary Market Trends
Mortgage Originations (1-4 Unit,
Trillions of $)
Market Share - Top Industry Lenders
Fannie Mae Whole Loan Conduit Share of Issuance
5.0
100%
4.0
80%
3.0
60%
2.0
40%
1.0
20%
0.0
0%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
39%
34%
25%
Share Top 10
14%
2008
2009
2010
2011
2012
2013
2014
2015
Share Top 30
Government Originations - Institution Type Share
Total Originations - Institution Type Share
100%
5%
5%
5%
5%
5%
5%
3%
5%
80%
25%
26%
28%
32%
4%
6%
34%
4%
6%
100%
39%
60%
40%
14%
7%
5%
2007
Volume Total
15%
28%
7%
1%
6%
1%
7%
2%
4%
2%
4%
2%
4%
2%
42%
44%
46%
51%
53%
59%
50%
48%
46%
43%
40%
34%
2009
2010
2011
2012
2013
2014
80%
60%
40%
66%
64%
62%
59%
56%
20%
51%
20%
0%
0%
2009
2010
Traditional Banks
2011
Mortgage Banks
2012
2013
Credit Union
2014
Traditional Banks
Mortgage Banks
Credit Union
Other
Other
Note: 2015 Mortgage Originations from IMF December forecast. Share values calculated based on shares in the first three quarters of 2015
Source: Inside Mortgage Finance, Fannie Mae, Freddie Mac, Ginnie Mae, HMDA, Marketrac, SNL Financial
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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, in 2015 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 addition,
the Group was awarded Pulsenomics best home price forecast.
Named one of Bloomberg / BusinessWeek's 50 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.
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Contact Information
fanniemae.com/portal/research-and-analysis/
Doug Duncan, Senior Vice President & Chief Economist
Fannie Mae
3900 Wisconsin Avenue, NW
Mail Stop 1H-2N/01
Washington, DC 20016
(o) 202-752-0160
(c) 202-409-5913
(fax) 202-752-4441
[email protected]
Doug Duncan on Twitter @D2_Duncan
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