U.S. Economic and Housing Market Outlook Housing Pivots Towards Normalcy
Freddie Mac Office of the Chief Economist June 2015
Overview
The Housing Market Pivots Not only are more Americans taking out a mortgage to purchase a home, but after seven years of decline, debt outstanding on single-family properties is increasing on a year-over-year basis. This is yet another sign the economy and housing markets are pivoting toward normalcy. We’re likely to see many millions more households and millions more homeowners over the next five years, driving mortgage debt outstanding higher. That fact will challenge capital markets: who will hold the new debt, at what price and in what form?
Forecast Summary
2015
2016
Real GDP Growth (%)
2.0
2.7
30-Year Fixed Mtg. Rate (%)
4.0
4.9
FMHPI House Price Appreciation (%)
4.5
3.5
$1,350
$1,275
1-4 Family Mortgage Originations ($ Billions)
Forecasts from: Freddie Mac June 2015 Economic Outlook: http://www.freddiemac.com/finance/ehforecast.html Office of the Chief Economist
© Freddie Mac
2
The Housing Market Pivots Annual Growth in Single-Family Mortgage Debt Outstanding 4-quarter percent change Source: Federal Reserve
Single-Family Mortgage Debt Outstanding Grows
20% 15%
More Americans are taking out mortgages to purchase a home. After seven years of decline, debt outstanding on single-family properties is increasing. This is yet another sign the economy and housing markets are pivoting toward normalcy.
10% 5% 0.3%
0% -5% -10% 80
83
86
89
92
95
98
01
04
07
10
13
Debt Service Ratio for Mortgages
Debt Servicing Costs Low
Percent of Disposable Income; SA Source: Federal Reserve, Moody's Analytics
8
Declining Mortgage Debt Outstanding (MDO) and low mortgage interest rates have helped to reduce debt service ratios for mortgages to the lowest levels since the early 1980s. According to data from the Federal Reserve, the ratio of mortgage debt servicing costs to disposable income was just 4.6 percent in the fourth quarter of 2014, down from a high of 7.2 percent in early 2007.
7.2 7
6
5 4.6 4 80
Office of the Chief Economist
83
86
89
92
95
98
01
04
07
10
13
© Freddie Mac
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Debt growth at resale back close to historical norms After a Home Resale, How Much Does Debt Increase? Based on our analysis of loans funded by Freddie Mac, in normal times the resale of an existing home results in an increase in aggregate mortgage debt of about 30 percent with each home purchase loan. For the past several years the rate of increase in mortgage debt per purchase loan has been much lower as a result of weak to negative house price appreciation. But recently, for each existing home sale financed with a conventional mortgage, overall mortgage debt (on first liens) has increased to about 30 percent. For example, in the first quarter of 2015, the average payoff amount of a closed loan was about $170,000, while the average Unpaid Principal Balance (UPB) of a new purchase loan was about $225,000, or a net increase of $55,000.
Office of the Chief Economist
Conventional Purchase Loans Median Percent Change in UPB at resale (1st Liens Only): UPB on new loan / UPB on Old Loan - 1 Source: Freddie Mac
50%
40%
30%
29%
20% 10%
0% 95
97
99
01
03
05
07
09
11
13
15
At a resale of an existing home, due to house price appreciation and amortization the new homeowner adds more debt than that which is retired by the current homeowner. These statistics are based on matched pairs of loans for the same property where Freddie Mac owns both the extinguished and new mortgage.
© Freddie Mac
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The State of Housing and Mortgage Markets Today
Office of the Chief Economist
© Freddie Mac
5
The Multi-Indicator Market Index (MiMi) tracks the stability of housing markets April 2015 MiMi We saw a significant improvement in housing markets nationwide, with ten more metro areas and nine more states moving within range of their benchmark, stable level of housing activity. The West and Southwest areas of the country continue to lead the way, especially Colorado, Oregon and Utah, and California is right there as well.
Visit MiMI: http://www.freddiemac.com/mimi/ Office of the Chief Economist
© Freddie Mac
6
Purchase applications remain weak, but are trending up Total Market Purchase Applications Index (SA) Source: MBA Dotted Line Weekly Index, Solid Line 4-week Moving Average
Purchase Applications Index (16mar1990=100; SA)
550
500
450
400
350
300
250
200
150 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Purchase Apps are trending up over the first 4 months of 2015 Office of the Chief Economist
© Freddie Mac
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U.S. house prices up 25% from bottom U.S. Property Value Index 170
(Dec 2000 = 100)
170 -8% from peak
160
160
150
150 +25% from bottom
140
140
130
130
120
120
110
110
100
100
90
90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Freddie Mac House Price Index (Seasonally-Adjusted), get the data and view interactive graphs of the FMHPI at: http://www.freddiemac.com/finance/house_price_index.html
Home values are generally back at 2005 levels (not inflation-adjusted) Office of the Chief Economist
© Freddie Mac
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House prices rose in most states between March 2014 – March 2015 United States 5%
The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the value weights are based on Freddie Mac’s single-family credit guaranteed portfolio. Percent changes were rounded to nearest one tenth of a percentage point. 1
Source: Freddie Mac, get the data and view interactive graphs of the FMHPI at: http://www.freddiemac.com/finance/house_price_index.html
Office of the Chief Economist
© Freddie Mac
9
House prices rose in most metros between March 2014 – March 2015 United States 5%
The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the value weights are based on Freddie Mac’s single-family credit guaranteed portfolio. 1
Source: Freddie Mac, get the data and view interactive graphs of the FMHPI at: http://www.freddiemac.com/finance/house_price_index.html
Office of the Chief Economist
© Freddie Mac
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Mortgage rates rose to 4 percent in recent weeks… Freddie Mac Primary Mortgage Market Survey® 30-year FRM (Percentage Points), U.S. Weekly Average through 6/18/2015 4.10 6/11/2015, 4.04
4.05 4.00
6/18/2015, 4.00
3.95 3.90
3/12/2015, 3.86
12/31/2014, 3.87
5/14/2015, 3.85
3.85 3.80 3.75 1/8/2015, 3.73
3.70 3.65 3.60 3.55
3.50 12-31-14
01-21-15
02-11-15
03-04-15
03-25-15
04-15-15
05-06-15
05-27-15
06-17-15
Rates heading higher in May & June 2015, surpassing 4 percent in mid-June Office of the Chief Economist
© Freddie Mac
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...but remain near historic lows Freddie Mac Primary Mortgage Market Survey® 30-year FRM (Percentage Points), U.S. Weekly Average through 6/18/2015 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0
Historic High 10/8/1981, 18.63
4.00 Historic Low 11/22/2012, 3.31
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Rates are rising recently, but down from 2013Q4 levels and near historic lows Office of the Chief Economist
© Freddie Mac
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Seriously delinquent rates declining Single-Family Seriously Delinquent Rate
Percentage Points
32 28
24 20 16
16.16%
12 8 4.24% 2.46% 1.78% 1.73%
4 0 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 All Loans
Freddie Mac
Subprime
Fannie Mae
Prime
Sources: Mortgage Bankers Association, Freddie Mac, Fannie Mae
Though delinquency rates are down, they are still well above historical averages Office of the Chief Economist
© Freddie Mac
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The jobs picture is improving: Unemployment rate is falling U.S. Unemployment Rate Percent ,SA 12 Source: Bureau of Labor Statistics, NBER
Indicates Recession
10
8
6 5.5 4
2
0 1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
From 1948 through 2014 U.S. Unemployment Rate averaged 5.8 percent Office of the Chief Economist
© Freddie Mac
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Deep structural problems? Long-term unemployment still elevated Unemployed: Of total unemployed – Unemployed 27 Weeks & over; Percent; SA Source: Bureau of Labor Statistics, NBER
Indicates Recession
50 45 40 35 30
29
25 20 15 10 5 0 1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Though falling, long-term unemployment share higher than any prior peak Office of the Chief Economist
© Freddie Mac
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Deep structural problems? Labor force participation has declined Labor Force Participation Percent SA Source: Bureau of Labor Statistics 68
67.2
67 66 65 64 63
62.9
62 61 60 59 58 1950 1954 1958 1963 1967 1971 1976 1980 1984 1989 1993 1997 2002 2006 2010 2015
Labor force participation has been declining for over a decade Office of the Chief Economist
© Freddie Mac
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Housing has gone from oversupply to undersupply, especially in rental
2.0
Surplus/Shortage of Vacant Homes (Numbers in Millions)
For-Rent Inventory (Milllions)
1.6
For-Sale Inventory (Millions)
1.2
0.8
0.4
0.0 -0.3
-0.4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Freddie Mac calculations using U.S. Census Bureau data. Negative values reflect shortage or undersupply relative to the historical benchmark. The over/undersupply of vacant housing was estimated based on the average vacancy rate from 1994Q1 to 2003Q4. Office of the Chief Economist
© Freddie Mac
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Single-family housing construction dips NAHB/Wells Fargo Housing Market Index and 1-unit Housing Starts Source: NAHB, Census/HUD 2000
90
1800
80
1600
70
1400
60
1200
50
1000
40
800
30
600
20
400
10
200
NAHB/Wells Fargo Housing Market Index (>50 indicates good conditions)
The latest NAHB/Wells Fargo Housing Market Index (HMI) for June 2015 is 59, which is above 50, indicating that more builders perceive conditions as good rather than bad. The HMI has been above 50 since July of 2014. One-unit housing construction were at a rate of 680,000 units in May 2015, down 5.4% from revised April figure of 719,000 but up 6.8% from last year.
100
0 1985
0
1990
1995
2000
2005
2010
2015
Conditions Good: Housing Market Index>50 Conditions Bad: Housing Market Index
