Transcript Slide 1

Economic Update
by
Doug Duncan
Chief Economist
Fannie Mae
American Land Title Association
October 17, 2008
Kaua’i, Hawaii
The Macroeconomy
Real GDP Annualized Growth Rate
8%
6%
History in blue, forecast in red
4%
2%
0%
-2%
Source: Bureau of Economic Analysis
Q4:10
Q1:10
Q2:09
Q3:08
Q4:07
Q1:07
Q2:06
Q3:05
Q4:04
Q1:04
Q2:03
Q3:02
Q4:01
Q1:01
Q2:00
Q3:99
Q4:98
Q1:98
-4%
Real GDP Annualized Growth Rate Forecast
3.0%
2.5%
1.5%
1.0%
0.5%
October
forecast
September
forecast
2.0%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
Source: Bureau of Economic Analysis
Q4:09
Q3:09
Q2:09
Q1:09
Q4:08
Q3:08
-2.5%
Change in Components of Real GDP Q1:08 to Q2:08
$Bil Chained 2000
$100
$80
$60
$40
$20
$0
-$20
-$40
-$60
PCE
Gross Private
Investment
Net Exports
Government
Source: Bureau of Labor Statistics
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
Private Nonfarm Payroll Employment
Year/Year Percent Change
4%
3%
2%
1%
0%
-1%
-2%
-3%
Change in Payroll Employment from
November 2007
Thousands of Jobs – Seasonally Adjusted
0
-50
-100
-150
-200
-250
-300
-350
-400
-450
Construction
Source: Bureau of Labor Statistics
Manufacturing
Financial Activities
Leisure & Hospitality
Source: Wall Street Journal
10/3/2008
9/5/2008
8/8/2008
7/11/2008
6/13/2008
5/16/2008
4/18/2008
3/21/2008
2/22/2008
1/25/2008
12/28/2007
11/30/2007
11/2/2007
10/5/2007
Wilshire 5000 Stock Price Index
Dec-31-70=830.27
17,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
Dow Jones Industrial Average
11,500
11,000
10,500
10,000
Annual high:
May 2 – 13,058.2
House
rejects
first
bailout
plan
9,500
9,000
At 4:30 p.m.
8,500
8,000
7,500
Source: Bloomberg
10/10/08
10/9/08
10/8/08
10/7/08
10/6/08
10/3/08
10/2/08
10/1/08
9/30/08
9/29/08
9/26/09
9/25/08
9/24/08
9/23/08
9/22/08
7,000
Owners’ Equity in Real Estate
$Bil
$11,000
$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
Source: Federal Reserve Board
Q1:08
Q3:07
Q1:07
Q3:06
Q1:06
Q3:05
Q1:05
Q3:04
Q1:04
Q3:03
Q1:03
Q3:02
Q1:02
Q3:01
Q1:01
Q3:00
Q1:00
Q3:99
Q1:99
Q3:98
Q1:98
$4,000
Source: Federal Reserve Board
Q1:08
Q3:07
Q1:07
Q3:06
Q1:06
Q3:05
Q1:05
Q3:04
Q1:04
Q3:03
Q1:03
Q3:02
Q1:02
Q3:01
Q1:01
Q3:00
Q1:00
Q3:99
Q1:99
Q3:98
Q1:98
Net Home Equity Extraction
$Bil SAAR
$1,000
$800
$600
$400
$200
$0
-$200
Consumer Credit Loan Delinquency Rate
Percent – Seasonally Adjusted
5.5
5.0
Credit Cards
4.5
4.0
3.5
Other Consumer Debt
3.0
2.5
Source: Federal Reserve Board
Q1:08
Q3:07
Q1:07
Q3:06
Q1:06
Q3:05
Q1:05
Q3:04
Q1:04
Q3:03
Q1:03
Q3:02
Q1:02
Q3:01
Q1:01
Q3:00
Q1:00
Q3:99
Q1:99
Q3:98
Q1:98
2.0
Source: Bureau of Economic Analysis
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
Personal Consumption Expenditures
Year/Year Percent Change
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Nominal Broad Trade-Weighted Exchange Value of
the US Dollar vs. Euro/Dollar Exchange Rate
Euros
1.40
140
Index: Jan. 1997 = 100
130
Trade-Weighted Exchange Value
(left axis)
120
1.20
1.00
110
100
Euro/$ Exchange Rate
(right axis)
0.80
0.60
90
80
0.40
0.20
60
0.00
Ja
n:
1
Ju 99
l:1 8
Ja 99
n: 8
1
Ju 99
l: 9
Ja 199
n: 9
2
Ju 00
l:2 0
Ja 00
n: 0
2
Ju 00
l: 1
Ja 200
n: 1
2
Ju 00
l:2 2
Ja 00
n: 2
2
Ju 00
l: 3
Ja 200
n: 3
2
Ju 00
l:2 4
Ja 00
n: 4
2
Ju 00
l: 5
Ja 200
n: 5
2
Ju 00
l: 6
Ja 200
n: 6
2
Ju 00
l:2 7
Ja 00
n: 7
2
Ju 00
l:2 8
00
8
70
Source: Federal Reserve Board
*Consumer Price Index
Source: Bureau of Labor Statistics
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
Inflation*
Year/Year Percent Change
6%
5%
CPI
4%
3%
2%
Core CPI
1%
0%
Credit Markets and Interest
Rates
Source: Federal Reserve Board
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
Federal Funds Target Rate
Percent
7
6
5
4
3
2
1
0
1/6/2006
2/6/2006
3/6/2006
4/6/2006
5/6/2006
6/6/2006
7/6/2006
8/6/2006
9/6/2006
10/6/2006
11/6/2006
12/6/2006
1/6/2007
2/6/2007
3/6/2007
4/6/2007
5/6/2007
6/6/2007
7/6/2007
8/6/2007
9/6/2007
10/6/2007
11/6/2007
12/6/2007
1/6/2008
2/6/2008
3/6/2008
4/6/2008
5/6/2008
6/6/2008
7/6/2008
8/6/2008
9/6/2008
3-Month LIBOR-3-Month Overnight Index
Swap Rate Spread
Basis Points
300
250
200
150
100
50
0
Source: Financial Times, Bloomberg
Source: Financial Times, Federal Reserve Board
10/3/2008
9/5/2008
8/8/2008
7/11/2008
6/13/2008
5/16/2008
4/18/2008
3/21/2008
2/22/2008
1/25/2008
12/28/2007
11/30/2007
11/2/2007
10/5/2007
One Year LIBOR-One Year Treasury Spread
Basis Points
300
250
200
150
100
50
0
1/6/2006
2/3/2006
3/3/2006
3/31/2006
4/28/2006
5/26/2006
6/23/2006
7/21/2006
8/18/2006
9/15/2006
10/13/2006
11/10/2006
12/8/2006
1/5/2007
2/2/2007
3/2/2007
3/30/2007
4/27/2007
5/25/2007
6/22/2007
7/20/2007
8/17/2007
9/14/2007
10/12/2007
11/9/2007
12/7/2007
1/4/2008
2/1/2008
2/29/2008
3/28/2008
4/25/2008
5/23/2008
6/20/2008
7/18/2008
8/15/2008
9/12/2008
Seasoned Baa Corporate Bond Yields –
10-Year Treasury Spread
Basis Points
450
400
350
300
250
200
150
100
50
0
Source: Federal Reserve Board, Moody’s
Source: Federal Reserve Board
Aug:2008
Jul:2008
Jun:2008
May:2008
Apr:2008
Mar:2008
0.8%
Feb:2008
1.0%
Jan:2008
Dec:2007
Nov:2007
Oct:2007
Sep:2007
Aug:2007
Jul:2007
Jun:2007
May:2007
Apr:2007
Mar:2007
Feb:2007
Jan:2007
Month/Month Percent Change in
Consumer Credit
1.2%
Revolving
Non-revolving
0.6%
0.4%
0.2%
0.0%
-0.2%
-0.4%
-0.6%
Source: Federal Reserve Board
10/1/2008
9/3/2008
8/6/2008
7/9/2008
6/11/2008
5/14/2008
4/16/2008
3/19/2008
2/20/2008
1/23/2008
12/26/2007
11/28/2007
10/31/2007
10/3/2007
Commercial Paper Outstanding
$Bil – Seasonally Adjusted
$2,000
$1,900
$1,800
$1,700
$1,600
$1,500
$1,400
Jan:1978
Jan:1979
Jan:1980
Jan:1981
Jan:1982
Jan:1983
Jan:1984
Jan:1985
Jan:1986
Jan:1987
Jan:1988
Jan:1989
Jan:1990
Jan:1991
Jan:1992
Jan:1993
Jan:1994
Jan:1995
Jan:1996
Jan:1997
Jan:1998
Jan:1999
Jan:2000
Jan:2001
Jan:2002
Jan:2003
Jan:2004
Jan:2005
Jan:2006
Jan:2007
Jan:2008
30-Year FRM-10-Year Treasury Spread
Basis Points
600
500
400
300
200
100
0
Source: Federal Reserve Board
1/6/06
2/6/06
3/6/06
4/6/06
5/6/06
6/6/06
7/6/06
8/6/06
9/6/06
10/6/06
11/6/06
12/6/06
1/6/07
2/6/07
3/6/07
4/6/07
5/6/07
6/6/07
7/6/07
8/6/07
9/6/07
10/6/07
11/6/07
12/6/07
1/6/08
2/6/08
3/6/08
4/6/08
5/6/08
6/6/08
7/6/08
8/6/08
9/6/08
Current Coupon Fannie Mae MBS – 10Year Treasury Spread
Basis Points
250
200
150
100
50
0
Source: Federal Reserve Board, Merrill Lynch
Senior Loan Officer Opinion Survey, July 2008
90%
Net Percentage of Responding Banks Tightening Credit
Standards for Residential Mortgage Loans
Subprime
75%
Non-Traditional
60%
Prime
45%
30%
15%
Source: Federal Reserve Board
Q
1:
2
Q 007
2:
2
Q 007
3:
20
Q 07
4:
20
Q 08
1:
2
Q 007
2:
20
08
Q
1:
2
Q 007
2:
2
Q 007
3:
20
Q 07
4:
2
Q 007
1:
2
Q 008
2:
20
08
Q
1:
2
Q 007
2:
20
Q 07
3:
20
Q 07
4:
2
Q 007
1:
2
Q 008
2:
20
08
0%
The Housing Market
The water in the swimming pool is
currently dangerously high
Foreclosures
New housing completions
No Lifeguard on Duty!
Swim at Your Own
Risk!
Existing homes
Condo conversions
Months’ Supply
10
Normal Fill Level
6
Destruction
0
New home sales
Existing home sales
Existing home withdrawals
Apartment
conversions
Source: Census Bureau
Jan:2007
Jan:2005
Jan:2003
Jan:2001
Jan:1999
Jan:1997
Jan:1995
Jan:1993
Jan:1991
Jan:1989
Jan:1987
Jan:1985
1,000
Jan:1983
Jan:1981
Jan:1979
Jan:1977
Jan:1975
Jan:1973
Jan:1971
Jan:1969
Jan:1967
Jan:1965
Jan:1963
Jan:1961
Jan:1959
Thousands of Units
Housing Starts
Seasonally Adjusted Annual Rate
2,500
2,000
1,500
Single-family
500
Multifamily
0
Source: Census Bureau
Jul:2008
Jan:2008
Jul:2007
1,800
Jan:2007
Jul:2006
Jan:2006
1,200
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
Single-Family Housing Starts and Permits
Seasonally Adjusted Annual Rate
Thousands of units
2,000
starts
1,600
1,400
permits
1,000
800
600
400
200
0
Source: Census Bureau
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
Jan-05
Jul-04
Jan-04
Jul-03
Jan-03
Jul-02
Jan-02
Jul-01
Jan-01
Jul-00
Jan-00
Jul-99
Jan-99
Jul-98
Jan-98
Year/Year Percent Change in Number of Households
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Source: Census Bureau
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
New Single-family Home Sales
Seasonally Adjusted Annual Rate
Thousands of Units
1600
1400
1200
1000
800
600
400
200
0
Source: National Association of REALTORS®
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
Existing Single-family Home Sales
Seasonally Adjusted Annual Rate
Thousands of Units
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Supply of New Single-family Homes on
the Market
Thousands of Units, SA
Months
12
700
Inventory on the Market
End-of-Month
(right axis)
10
600
500
8
400
6
300
4
200
Months’ Supply
(left axis)
2
100
Source: Census Bureau
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
0
Jan:1998
0
Supply of Existing Single-family Homes
on the Market
Thousands of Units, SA
Months
12
4,500
4,000
10
3,500
Inventory on the Market
End-of-Month
(right axis)
8
6
3,000
2,500
2,000
4
1,500
Months’ Supply
(left axis)
1,000
2
500
Source: National Association of REALTORS®
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
0
Jan:1998
0
Case-Shiller National Home Price Index vs.
OFHEO House Price Index
Year/Year Percent Change
20%
Case-Shiller
15%
10%
OFHEO
5%
0%
-5%
-10%
-15%
Source: Standard & Poors, OFHEO
Q1:08
Q3:07
Q1:07
Q3:06
Q1:06
Q3:05
Q1:05
Q3:04
Q1:04
Q3:03
Q1:03
Q3:02
Q1:02
Q3:01
Q1:01
Q3:00
Q1:00
Q3:99
Q1:99
Q3:98
Q1:98
-20%
NAHB Housing Market Index
Index
100
90
80
70
60
50
40
When all respondents answer "good", the index is 100. If
all respondents answer "poor", the index is 0. If equal
numbers of respondents answers "good" and "poor", the
index is 50.
30
20
10
Source: National Association of Home Builders
Jul:2008
Jan:2008
Jul:2007
Jan:2007
Jul:2006
Jan:2006
Jul:2005
Jan:2005
Jul:2004
Jan:2004
Jul:2003
Jan:2003
Jul:2002
Jan:2002
Jul:2001
Jan:2001
Jul:2000
Jan:2000
Jul:1999
Jan:1999
Jul:1998
Jan:1998
0
Real Estate Finance
Percent of All Mortgages Past Due But Not in
Foreclosure
Seasonally Adjusted
7
6
5
4
3
2
1
Source: Mortgage Bankers Association
Q1:08
Q3:07
Q1:07
Q3:06
Q1:06
Q3:05
Q1:05
Q3:04
Q1:04
Q3:03
Q1:03
Q3:02
Q1:02
Q3:01
Q1:01
Q3:00
Q1:00
Q3:99
Q1:99
Q3:98
Q1:98
0
Percent of All Mortgages Foreclosure Started
Seasonally Adjusted
1.4
1.2
1.0
0.8
0.6
0.4
0.2
Source: Mortgage Bankers Association
Q1:08
Q3:07
Q1:07
Q3:06
Q1:06
Q3:05
Q1:05
Q3:04
Q1:04
Q3:03
Q1:03
Q3:02
Q1:02
Q3:01
Q1:01
Q3:00
Q1:00
Q3:99
Q1:99
Q3:98
Q1:98
0.0
Foreclosures Started as
Percent of All Mortgages: 2008:Q2
Confidential - Internal Distribution
Source: Mortgage Bankers Association Serious Delinquency Survey
Nonfarm Payroll Employment vs.
Mortgage Delinquencies
10%
0%
8%
1%
6%
Year/Year Percent Change
Nonfarm Payroll Employment
(left axis)
4%
2%
2%
0%
3%
-2%
4%
-4%
Percent of Mortgages That Are Delinquent
Excluding Foreclosure Inventory
(right axis)
-6%
-8%
5%
Sources: Bureau of Labor Statistics and Mortgage Bankers Association
Q4:03
Q1:03
Q2:02
Q3:01
Q4:00
Q1:00
Q2:99
Q3:98
Q4:97
Q1:97
Q2:96
Q3:95
Q4:94
Q1:94
Q2:93
Q3:92
Q4:91
Q1:91
Q2:90
Q3:89
Q4:88
6%
Q1:88
-10%
Distribution of Dollar Volume of Securitized Loans Outstanding (as of the end of May 2008)
by Month of First Scheduled Payment Reset
$35
Loans Backing Agency MBS
Loans Backing Non-Agency Jumbo MBS
$30
Loans Backing Non-Agency Alt-A MBS
Billions of Dollars of Outstanding Loans
Loans Backing Non-Agency Subprime ABS
$25
$20
$15
$10
$5
$0
9
0
1
2
9
0
1
2
9
0
1
2
9
0
1
2
8 08
9 09
0 10
1 11
2 12
00 -20 200 -200 200 200 200 -20 201 -201 201 201 201 -20 201 -201 201 201 201 -20 201 -201 201 201 201 -20
2
p- ov an- ar ay- Jul- ep- ov an- ar ay- Jul- ep- ov an- ar ay- Jul- ep- ov an- ar ay- Jul- ep- ov
J
J
J
J
M M
N
M M
N
M M
N
M M
N
Se N
S
S
S
S
Month of 1st Scheduled Payment Reset
Source: LoanPerformance; Agency MBS
Disclosures
Ratio of Foreclosures Started to All Mortgages Past Due
Seasonally Adjusted – Four-quarter rolling average
Percent
16
14
12
10
8
6
4
2
Source: Mortgage Bankers Association, Fannie Mae calculations
Q4:07
Q3:06
Q2:05
Q1:04
Q4:02
Q3:01
Q2:00
Q1:99
Q4:97
Q3:96
Q2:95
Q1:94
Q4:92
Q3:91
Q2:90
Q1:89
Q4:87
Q3:86
Q2:85
Q1:84
Q4:82
Q3:81
Q2:80
Q1:79
0
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economics &
Mortgage Market Analysis (EMMA) group included in these materials should not be
construed as indicating Fannie Mae's business prospects or expected results, and are
subject to change without notice. Although the EMMA 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. The analyses, opinions, estimates, forecasts and other views
published by the EMMA 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.