Transcript Multifamily Marketing - Massachusetts Mortgage Bankers

An Economic Prognostication
for 2008
Massachusetts Mortgage Bankers Association
West Newton, MA
May 16, 2008
Frank E. Nothaft
Chief Economist
Recession Risk, Housing Contraction
Worsen
 1-in-2 chance of recession in 2008
 Maybe in recession already; fiscal stimulus propels growth in second
half: Economic growth 1.5% in 2008
 Job gain falls short of labor force growth; Unemployment rate up,
averages 5.2% in 2008
 Core inflation at upper end of range preferred by policy makers
 Less housing starts, sales in 2008; house values down
 Credit quality has deteriorated
 2006 and 2007 subprime vintages have high early-payment defaults
 More than half of foreclosure starts since 2006 were subprime loans
 Banks have tightened underwriting on both prime and subprime
 Risks to the outlook
 How much will liquidity constraints affect broader economy?
 Current liquidity problems affecting jumbo, Alt-A markets as well as subprime
 Energy: high oil and natural gas prices act like a tax on the economy
Office of the Chief Economist
1
Prime Conforming Mortgage Rates
Remain Low By Historical Standards
9
Weekly Mortgage Interest Rate (Percent)
9
8
Forecast
30-Year,
Fixed Rate
8
7
7
6
6
5
5
1-Year,
ARM Rate
4
3
1997
4
3
1998
1999
2000
2001
Source: Freddie Mac’s Primary Mortgage Market Survey®
2002
2003
2004
2005
2006
2007
2008
Office of the Chief Economist
2
Private-Label Mortgage-Backed Security
Issuance Has Fallen Sharply
Dollar Amount of Issuance (Billions)
$200
$52
$30
Subprime
& Other
$150
$37
Alt-A
$34
$100
$50
$19
$20
Subprime & Other
Alt-A
Prime Jumbo
Freddie Mac & Fannie Mae
Prime Jumbo
$16
$8
$14
$1
$6
$1
$0
$1
$4
$99
$99
$92
June-2007
September-2007
December-2007
March-2008
$181 Billion
$137 Billion
$109 Billion
$85
$94
March-2007
Freddie Mac &
Fannie Mae
$0
$191 Billion
Source: Inside MBS & ABS
$95 Billion
Office of the Chief Economist
3
Highest Percentage of Banks Tightening
Home Mortgage Standards Since 1990
Net Percentage of Banks Tightening Mortgage Standards During Three Previous Months
80
Subprime
80
Prime
60
60
40
40
20
20
0
0
-20
1991
-20
1994
1997
Source: Federal Reserve Board's Senior Loan Officer Survey
(Last update: May 5, 2008)
2000
2003
2006
Office of the Chief Economist
4
Single-family Building Hit a Record in
2005, but Fell About 60% Since Then
1,900
1- to 4-Family Housing Starts (thousands of units, SAAR)
Forecast
Third Quarter 2005
record: 1.8 million units
– Recession
1,600
1,300
1,000
700
First Quarter 2008:
0.7 million units
Sources: Bureau of Census, Freddie Mac
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
400
Office of the Chief Economist
5
Existing Home Sales Are Down 35% in
Massachusetts from Their 2005 Peak
Massachusetts Existing Home Sales
(Right Scale, 000s)
U.S. Existing Home Sales (Left Scale, 000s)
7,500
Home Sales Change
(2005:Q3 – 2008:Q1)
7,000
6,500
United States
Massachusetts
160
Peak
-31%
-35%
140
6,000
120
5,500
5,000
100
Lowest MA Sales
in 12 Years
4,500
4,000
3,500
80
60
3,000
2,500
1990
40
1992
1994
1996
1998
2000
Source: National Association of Realtors
(Existing Single-Family Houses, Apartment Condos & Co-ops); New England
composite is the sum of their six states’ existing home sales: CT, MA, ME, NH, RI, VT
2002
2004
2006
2008
Office of the Chief Economist
6
Existing Home Sales Are Down
Everywhere (except Alaska)
-47%
-48%
-65%
Up
3%
-45%
-42%
-57%
-52%
Percent change in existing home sales
Fourth quarter 2005 through Fourth quarter 2007
Down less than 20%
Down 20-40%
Down more than 40%
Source: National Association of Realtors
Existing Home Sales
Nationwide Down 31%
(2005Q3 to 2008Q1)
Office of the Chief Economist
7
Time-On-Market Up in Most Markets
State
Massachusetts
California
Up 32
days
2
Up 23
days
1
0
30
60
90
120
150
180
Metropolitan Statistical Areas
Miami, FL6
Up 71 days
Dec-07
Dec-06
Dec-05
Up 68 days
Tampa, FL5
Down 5 days
Detroit, MI 4
Up 40 days
Chicago, IL 3
Up 57 days
Pheonix,AZ 2
Washington
/Baltimore 1
Up 47
days
0
30
60
90
120
150
180
Days
Source: National Association of Realtors
Office of the Chief Economist
8
Home Sales Prices Fell in Eighteen States
Over 2007
United States –1.1%
Pacific
-4.6%
Mountain
-0.9%
West North
Central
0.2%
East North
Central
-2.9%
Middle
Atlantic
1.7%
New England
-1.5%
DC
> 5% Annual Change
0 – 5% Annual Change
< 0% Annual Change
West South Central
3.2%
Source: Freddie Mac’s Purchase-Only Conventional Mortgage Home Price Index
(Annual Growth Rates for 4Q2007)
East South
Central
2.1%
South Atlantic -0.9%
Office of the Chief Economist
9
Forty-eight States Had Falling Prices in the
Fourth Quarter 2007
United States: -10.0%
Pacific
–18.8%
(4th Quarter Annualized Growth)
Mountain
-13.5%
West North
Central
-7.5%
East North
Central
-12.4%
Middle
Atlantic
-2.5%
New England
-8.2%
DC
0 – 5% Quarterly Change
< 0% Quarterly Change
East South
Central
West South Central
-4.0%
-3.7%
Source: Freddie Mac’s Purchase-Only Conventional Mortgage Home Price Index
(Annualized Quarterly Rates for 4Q2007)
South Atlantic -7.7%
Office of the Chief Economist
10
Job Loss Is the Main Hardship Reason
Among Delinquent Prime Borrowers
Hardship Reason
2007
Unemployment or curtailment of income
43.0%
Illness or Death in the Family
25.5%
Excessive obligation
16.2%
Marital difficulties
6.6%
Property problem or casualty loss
2.0%
Extreme hardship
0.4%
Inability to sell or rent property
1.7%
Employment transfer or military service
All other reasons
0.9%
3.7%
Source: Freddie Mac; data exclude delinquent loans in Louisiana and Mississippi due to
hurricane effects. Data cover only prime conventional conforming loans.
Office of the Chief Economist
11
U.S. Unemployment Rate Averages 5.2%
in 2008
Unemployment Rate (Percent)
10
– National Recession
9
Forecast
8
7
6
United States
March
US 5.1%
MA 4.4%
5
4
Massachusetts
3
Sources: U.S. Department of Labor, Freddie Mac
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
2
Office of the Chief Economist
12
Employment Growth Weakest In Markets
With Flat or Falling House Values
Percent change in the non-farm payroll employment
March 2006 through March 2007
Above 2.0%
1.1% to 1.9%
0.6% to 1.0%
0.0% to 0.5%
Below 0.0%
U.S. employment up 0.4%
Massachusetts: up 0.7%
Office of the Chief Economist
Source: U.S. Bureau of Labor Statistics
13
Default and Home Value Growth Are
Inversely Related
Percent of Massachusetts prime conventional loans
delinquent 90+ days or in foreclosure (Right Scale)
3.5
Annual Massachusetts House
Price Growth (Left Scale)
30
25
House Price Growth
3
Delinquency Percent
20
2.5
15
2
10
1.5
5
1
0
0.5
-5
-10
1976
0
1979
1982
1985
1988
Source: Mortgage Bankers Association, Freddie Mac
1991
1994
1997
2000
2003
2006
Office of the Chief Economist
14
Prime Delinquencies Are Lowest in the
Northwest
0.59-1.00%
1.01-1.40%
1.41-1.60%
1.61-2.00%
2.01-2.71%
Massachusetts = 1.35%
U.S. = 1.67% Seriously Delinquent
(90+ days delinquent or in foreclosure, prime conventional)
Data as of December 2007
Source: Mortgage Bankers Association
Office of the Chief Economist
15
Delinquency Rates Have Jumped In
Markets With Flat or Falling House Values
Percentage Point
Difference
 0.30%
0.31 to 0.40%
0.41 to 0.60%
0.61 to 0.80%
0.81 to 1.21%
1.45 to 2.05%
4Q ’06 to 4Q ’07 Change in Level of Serious Delinquency Rate
(90+ days or in foreclosure, Prime Conventional Loans)
U.S. Change = 0.81%
Massachusetts Change = 0.66%
Source: Mortgage Bankers Association
Office of the Chief Economist
16
Subprime Credit Performance
 Weak underwriting characterized subprime originations in
recent years
 Early payment defaults and serious delinquencies are
worse for recent vintages of subprime loans
 Subprime loans accounted for over half of foreclosures in
2006 and 2007
 About 1.5 million loans began foreclosure in 2007
 Credit problems are concentrated in economically
depressed regions
Office of the Chief Economist
17
Subprime and Alt-A Volume Quintupled
Between 2001 and 2006, then Fell in 2007
5.2%
14.4%
2.7%
7.9%
2.5%
13.3%
33.2%
7.2%
57.1%
6.9%
6.0%
13.4%
3.0%
20.1%
20.1%
2001
$2.2 trillion
61.0%
9.8%
16.1%
2007 Q4
$1.8 trillion
2006
$3.0 trillion
(annualized)
Conventional,
Conforming Prime
Jumbo Prime
Source: Inside Mortgage Finance (by dollar amount)
Subprime
Alt-A
FHA
& VA
Home Equity
Loans
Office of the Chief Economist
18
In Massachusetts, ARMs Dominate
Subprime Home-Purchase Loans in 2006
Other
3-year ARM
Hybrid 4.0%
6.2%
Fixed
5.6%
30-Yr
ARM
Balloon
w/ 40-50
Yr Amtz
28.1%
Other
ARM
6.5%
ARM
Hybrids
19.7%
Fixed
73.8%
2-year
Hybrid
56.2%
Subprime
Prime Conventional
Source: LoanPerformance, a subsidiary of First American Real Estate Solutions, FHFB MIRS
First liens only; by dollar amount
Office of the Chief Economist
19
Subprime ARM Defaults Are 12 Times
Those on Prime
22
Loans 90 days or more delinquent or in foreclosure (percent of number)
20
Subprime
20.43%
ARM
– Recession
18
16
14
12
Subprime
FRM
8.18%
10
8
6
FHA & VA
5.18%
4
2
Prime Conventional (includes Alt-A)
1.67%
Source: Mortgage Bankers Association
(Quarterly data not seasonally adjusted;1998Q1-2007Q4)
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
Office of the Chief Economist
20
About 1.4 Million Subprime Loans Will
Have First Reset in 2008
Amount of ARMs Scheduled to Have a Reset (Number of Loans in Thousands as of December 2007)
3,000
616
Regular Adjustment in 2008, in
Default as of December 2007
691
Regular Adjustment in 2008,
Current as of December 2007
553
First Adjustment in 2008, in
Default as of December 2007
2,000
1,000
843
First Adjustment in 2008,
Current as of December 2007
0
Subprime
Source: LoanPerformance ABS Securities, Freddie Mac. “Default” includes
loans delinquent 30 or more days or that are in foreclosure.
Office of the Chief Economist
21
In Massachusetts, Subprime Accounted
for About 60% of Foreclosures Since 2005
Number of Foreclosures Started in Massachusetts
(Annualized Rate in Thousands)
32
Subprime: 11% of Loans
Serviced (December 2007)
24
59%
16
61%
63%
3.6K
0
4%
63%
8
2.5K
18.8K
60%
50%
43%
4%
5%
7%
7%
14%
17%
40%
36%
33%
35%
32%
2004H1
2004H2
2005H1
2005H2
2006H1
Prime
4%
58%
FHA&VA
Source: Mortgage Bankers Association’s National Delinquency Survey
(Data as of December 2007; number expanded to reflect 85% coverage)
33%
2006H2
12.8K
37%
35%
2007H1
2007H2
Subprime
Office of the Chief Economist
22
Where to Get More Information
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commentary and data at
www.freddiemac.com/news/finance and
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© 2008 by Freddie Mac.