Private Forces Move to the Fore

Doug Duncan Chief Economist, Fannie Mae October 7, 2014

© 2011 Fannie Mae. Trademarks of Fannie Mae.

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.

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Real GDP Rebounds in Q2 After Decline in Q1

6% 4% 2% 0% -2% -4% -6% -8% -10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2007 2008 2009 2010 2011 2012 2013 2014 Real Gross Domestic Product (SAAR, %Chg)

Source: Bureau of Economic Analysis

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300 0 -300 -600 900 600

Payroll Grew Over 200K Per Month for 6 of the Past 7 Months

12% Total Nonfarm Employment (SA, Thousands, Left Axis) Civilian Unemployment Rate (SA, Right Axis) 10% 8% 6% 4% 2% -900 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 0%

Source: Bureau of Labor Statistics

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The Recovery* of the Full-Time Employment to Working Age Population Ratio is Expected To Be Slow…

Seasonally Adjusted, December 2007 = 100 110 105 100 95 90 85 80 Total Nonfarm Employment Full-Time Employed Persons Ratio of Total Nonfarm Employment to Working Age Population Ratio of Full-Time Employment to Working Age Population *Data starting in September 2014 are forecasted using the BLS labor force projections and assuming the prior year of employment growth remains constant.

Source: Bureau of Labor Statistics

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Civilian Labor Force Participation Rate, 16 yr + (SA, %) 70 United States 68 66

…But Participation Has Fallen Considerably, for Reasons Both Structural and Cyclical

Labor Force Participation Rate (Indexed, Recession Trough=100) 106 104 1975 1982 1991 2001 2009 102 64 100 62 98 60 96 58 56 94 -12 12 36 Months after Trough 60

Source: Bureau of Labor Statistics

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120 118 116 114 112

Though Most Jobs Created In the Past Few Years Have Been Full Time, the Total is Still Short of the Peak and Part-Time Jobs Remain Elevated

(SA, Millions) 124 Full-Time (Left Axis) Part-Time (Right Axis) 122 (SA, Millions) 29 28 110 '04 '05 '06 '07 '08

Source: Bureau of Labor Statistics

Confidential - Internal Distribution '09 '10 '11 '12 '13 '14 27 26 25 24 23 22

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Wage Growth Remains Slow

4,5% 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% Total Private Employees Production & Nonsupervisory Employees 0,0% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: Bureau of Labor Statistics

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1,2 1,1 1 0,9

Household Income Peaked In 2007 – Much of Decline Driven By Fewer Employed Workers

1990=1 1,6 Change in Real Median Household Income by Quintile 1990=1 Change in Real Median Household Income by Number of Earners 1,4 1,5 1,4 1,3 1,3 1,2 1,1 1 0,9 0,8 0,8 Lowest fifth Fourth fifth

Source: Census Bureau

Second fifth Highest fifth Third fifth Top 5 percent All Three Two One None

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Concerns About the Direction of the Economy May be Weighing on the Housing Recovery

90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Right Track Wrong Track

Source: Fannie Mae National Housing Survey

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Inventories of Homes Available for Sale Pick Up…

4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 '85 '90 '95 Existing Homes Available for Sale (Left Axis) 600 500 400 300 200 100 0 '00 '05 '10 New Single Family Homes Available for Sale (Right Axis)

Sources: Census Bureau, National Association of REALTORS®

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…Suggesting Moderating Home Price Growth

25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 CoreLogic House Price Index (Year-over-Year % Change, Left Axis) Months' Supply of Single-Family Existing Homes (Advanced 4 Months, Inverted, Right Axis)

Sources: CoreLogic , National Association of REALTORS®

5 6 2 3 4 7 8 9 10 11 12

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Single Family Building Activity Moves Sideways…

2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 '04 '05 '06 '07 '08 '09 '10 '11 Housing Starts: 1 Unit (SAAR, Thous.Units) '12

Sources: Census Bureau

'13 '14

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50 45 40 35 30 25 20 15 10 '60

…As Multifamily Building Gains Market Share

Multifamily Housing Starts as a Share of Total Housing Starts(%, 3-Month Moving Average) '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

Sources: Census Bureau

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The Vast Majority of Younger* Renters Still Plan to Buy a Home at Some Point in the Future

Lifetime intentions to own a home among younger renters Younger Renters - % Likely To Buy At Some Point Younger Renters - % Likely To Always Rent

94% 90% 90% 91% 92% 90% 86% 92% 89% 91% 91% 89% 89% 92% 85% 90% 4% 8% 8% 7% 5% 8% 9% 6% 8% 7% 6% 7% 8% 4% 12% 7% Jan-10 Jun-10 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

Q31. If you were going to move, would you be more likely to:

Rent / Buy

Q50. [IF Q31=RENT] In the future, are you more likely to:

Always rent / Buy at some point in the future

Q2 2013 Q3 2013 Q4 2013

Younger renters likely to buy at some point: Q31= Buy or Q50 = Buy at some point in the future Younger renters likely to always rent: Q50 = Always Rent * Aged 18-39

Source: Fannie Mae National Housing Survey

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Younger* Renters With Student Loans Are More Likely Than Those Without Them To Cite Down Payment And Existing Debt As Their Biggest Obstacles To Getting A Mortgage

What would be your biggest obstacle to getting a mortgage to purchase or refinance a home today? SELECT UP TO 3 +10 +6 * Denotes a statistically significant difference between younger renters with and without student loans at the 95% confidence level * Aged 18-39

Source: Fannie Mae National Housing Survey

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Homeownership is Primarily a Function of Graduation Rather than Presence of Student Debt

Have student loan debt Last education level completed

Source: Fannie Mae National Housing Survey

Ages 25-39

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16% 15% 14% 13% 12% 11% 10%

The Share of Young Adults Living at Home Continues to Edge Higher

25-34 Year Olds Living at Home with Parents (%) 19% 18% 17% CPS Annual Social and Economic Supplement American Community Survey 2006 2007 2008 2009 2010 2011 2012

Source: Census Bureau

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Parents are Generally Supportive of Their Adult Children Living at Home, Though Reasons May Differ

Employment situation for households with… Adult Children Living at Home Ages 18-22 Adult Children Living at Home Ages 23-34 Parent* full time employed 54% 38% Adult child full time employed 20% 48% Please tell me whether you would prefer that [he/she] continues to live in your home or finds alternate living arrangements not in your home.

I prefer that they continue to live in my home 72% 63% I prefer that they find alternate living arrangements not in my home 20% 30% *Employment status for the parent who indicates that they are the “primary financial decision maker” of the household.  

Source: Fannie Mae National Housing Survey

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Number of Married Households Declining in Younger Age Cohorts

Millions of HH Common First-Time Home Buying Age

Source: Census Bureau

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Homeownership Has Fallen Even Among Young Adults Who Are “Prime”* Home Buying Candidates

100 2000 2006 2009 2012 90 30 20 10 0 80 70 60 50 40 All 30-32 Year Olds 30-32 Year-Old "Prime" Home Buying Candidates 30-32 Year-Old "Prime" Home Buying Candidates, Non-Hispanic White Alone All 30-32 Year Olds 30-32 Year-Old "Prime" Home Buying Candidates 30-32 Year-Old "Prime" Home Buying Candidates, Non-Hispanic White Alone RECENT MOVERS ONLY ALL HOUSEHOLDERS *Prime homebuyers are defined as upper income households with householders in their early 30s who have college educations and are married with children.

Source: Census Bureau

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Home Prices (Q1 2007= 1)

1,05 1,00 0,95 0,90 0,85 0,80 0,75 0,70 0,65 0,60 '04 '05

House Price Recovery Has Lagged in Delaware Relative to U.S. as a Whole

'06 '13 '07 '08 '09 '10 '11 FHFA House Price Index, Purchase Only: United States FHFA House Price Index, Purchase Only: Delaware FHFA House Price Index, Purchase Only: New Jersey FHFA House Price Index, Purchase Only: Philadelphia MSA '12

Source: FHFA

'14

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Delaware Employment Slower to Recover Than U.S. as a Whole, Though Accelerating Recently and Outperforming New Jersey and Philly MSA Non-Farm Payrolls (Dec 2008 = 1)

1,02 1 0,98 0,96 0,94 0,92 0,9 0,88 '05 '06

Source: Bureau of Labor Statistics

'07 '08 Total Nonfarm Payrolls: DE Total Nonfarm Payrolls: NJ '09 '10 '11 '12 '13 Total Nonfarm Payrolls: Philadelphia MSA Total Nonfarm Payrolls: US '14

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Delaware Employment and Income Growth Expected to Out Pace U.S. as a Whole

Average Annual Percentage Growth (2013-2015) 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% Employment Population DE US Real Income Real Ave. Wage

Source: IHS Forecast

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Speaker Biography

Douglas G. Duncan is Fannie Mae’s Senior Vice President and Chief Economist. He  is responsible for managing Fannie Mae’s Economic & Strategic Research Group and  oversees corporate strategy. In this leadership role, Duncan provides all economic, housing, and mortgage market forecasts and analyses, and serves as the company’s  thought leader and spokesperson on economic and mortgage market issues. 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. He has been elected to the Board of Directors for the National Association of Business Economists, is a member of the American Economics Association and the American Real Estate and Urban Economics Association, and is past president of the Housing Statistics Users Group.

Named one of Bloomberg / BusinessWeek’s 50 Most Powerful People in Real Estate  and one of Inman News’ 100 Most Influential Real Estate Leaders for 2013, Duncan is a frequent speaker on national and state economic, housing, and mortgage market conditions.

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]

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