(2014 04 16) gic duncan

Housing, H i Fannie F i and d Freddie F ddi and the Policy Shift Doug Duncan, Chief Economist Fannie Mae April 16 16, 2014 Š 2012 Fannie Mae. Trademarks of Fannie Mae.

1

Di l i Disclaimer Opinions, p , analyses, y , 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 f t factors.

Alth Although h the th ESR group b bases itits opinions, i i analyses, l estimates, ti t fforecasts, t 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 g Demand New Home Sales Have Leveled Off Too But Have An Upside Potential

The Resale Market Has Deteriorated Sharply Amid Higher Mortgage Rates 7,500

130

7,000

1,600

120

6,500 6,000

1 400 1,400 1,200

110

1,000

5,500

100

5,000 4,500

800 600

90

4,000

400

80

3,500

200

3,000

70 '01

'02

0

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Existing Home Sales (SAAR, Thousands, Left Axis) Pending Home Sales Index (2-Month Lead, SA, Right Axis)

'00

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

New Single-Family Home Sales (SAAR, Units)

Weather May Have Affected Existing Home Sales in the Midwest, But What Explains The Sharp Drop In The West?

5%

'01

Poor Weather Has Reduced Buyer Traffic 60 50

0% 40 30

-5%

20 -10%

10 0

-15% Aug-13

Sep-13

Northeast Region

Oct-13

Nov-13

Midwest Region

Dec-13

South Region

Jan-14 West Region

00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

HMI: Traffic of Prospective Buyers of New Homes Index (SA, All Good = 100)

Sources: National Association of REALTORS速, Census Bureau, National Association of Home Builders

3

Housing g Supply y Actual Listings Have Picked Up But Are Still At Low Levels

Rate Rise And Weather Caused A Pause In Construction 2,000

4,000

1,800 1,600

3 500 3,500

1,400

3,000

1,200

2,500

1,000

2,000

800

600 500 400 300

1,500

600

200

1 000 1,000

400

100

500

200 0

0 '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Housing Starts: 1 Unit (SAAR, Thous.Units) Housing Units Authorized: 1-Unit Structures (SAAR, Thous.Units)

Months Supply of Inventory Is Back Near Historical Norm

Owner-Occupant Vacancy Rate Is Above Its Long-Term Average

42%

0 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 NAR Single Fam Homes Avail for Sale at End of Period, United States (NSA, Thous.) (Left Axis) New 1-Family Houses For Sale: United States (NSA, Thous) (Right Axis)

18 16

40%

14 12

38%

10 36%

8 6

34%

4 32%

2 0

30% '85

'87

'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

Year-Round Held Off Market as a Share of Total Vacant Housing…

'00

'01

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Months' Supply of Existing Single Family Houses (Months) Months' Supply of Existing Condos and Co-ops (Months)

Sources: National Association of REALTORS®, Census Bureau, National Association of Home Builders

'14

4

Housing g Starts and Permits Housing Starts Have Been Gradually Increasing In Thousands

Rental Share Of Construction Has Been Growing More Quickly

2,500

35%

3-Month Moving Average (SAAR)

4-Quarter Moving Average

30%

2 000 2,000

25% 1,500

20% 1,000

15% 10%

500

5% 0 91

93

95

97

99

01

03

Single Family

05

07

09

11

Multi-Family

South Region Dominates The Increase In Starts

In Thousands 1,200

13

0% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Multi-Family Share (condos and apartments) Built-to-Rent Share (multi-family and single-family)

Permits Also Have Been Increasing In Thousands 2,500

3-Month Moving Average (SAAR)

1,000

2,000

800 1,500 600 1,000

400

500

200 0

0 91

93

95 97 Northeast

99

01 03 Midwest

05

07 09 South

11

13 West

91

93

95

97

99

01

Single Family

Source: Census Bureau

03

05

07

09

11

13

Multi Family

5

Home Prices Home Price Growth Estimates Vary Depending On The Source

One-Year Home Price Growth, as of 2013 Q4

14%

United States 8.8%

WA 1 0. 9%

Year-Over-Year Growth As of Dec 2013-Indices Based on a Variety of Methods and Input Data

MT 7 .3 %

OR 11 .9 %

12%

NH 7. 1 %

ND 7.7% MN 7 .3 % WI 2. 7 %

SD 4. 3%

ID 8. 9% WY 2. 6 %

10%

NE 5. 3 %

8% CA 25 .4 %

NV 2 7. 2%

UT 9. 4%

6%

CO 9. 3%

MI 12 .0 0%

OH 4 .3 %

MO 4 .1 % KY 2. 7 %

4%

AZ 18. 9 %

2%

OK 3. 2 %

NM 3 .0 %

TX 6 .8 %

0% to 5%

PA 3 .1 %

WV 1.1 %

TN 3 .3 %

AL 2. 5%

RI 4. 0% CT 2. 7 % NJ 4. 7 % DE 2. 7 %

VA 4 .6 %

MD 7. 0 %

DC 9 .3 %

NC 3 .9 %

AR 1 .7 % MS 2 .4 %

0%

MA 7 .7 %

NY 4 .8 %

IA 2. 9% IN IL 7 .8 % 3. 4 %

KS 3 .2 %

ME 4. 1 %

VT 1. 9%

SC 4 .6 6% GA 1 4. 6 %

LA 2 .8 % FL 17 . 0%

5% to 10% 10% and above

Home Price Growth, Peak*-to-Current to 2013 Q4 WA - 1 8. 0%

900 MT -1 .3 %

OR - 1 6. 9 %

ND 0 .0 %

WY -1 .5 % NE 0. 0 %

NV - 4 3. 7 %

UT - 11. 8%

CO 0. 0%

NH - 1 7 .5 %

MN -1 3 . 9 % WI -9 .9 %

SD - 0. 5 %

ID - 18 . 5 %

CA - 28 . 5%

R t Have Rents H C Continued ti d To T Grow G But B t the th Pace P Appears to Have Slowed

KS -0.6 %

VT - 7. 6 % MI - 21 . 8%

OK 0. 0 %

NM - 1 3. 3%

State Growth Rate Below -30% -30% to -15% -15% to -5% -5% to 0% 0%

OH -9 .9 % IL IN - 2 0. 6% - 2 . 0 %

PA -4 .2 %

WV 0. 0%

TN - 5 . 8% AR - 3 .2 %

LA 0 .0 %

RI - 2 9. 8 % CT - 19 . 6 % NJ - 23 . 5 % DE - 18 . 3%

MO -8.3 %

AL MS - 8 . 8 % - 8. 8 % TX 0 .0 %

MA - 1 2. 8%

NY - 8.

8 2%

IA - 0. 6%

KY -1 .0 % AZ - 33 . 4 %

ME -9 .5 %

VA - 15 . 5%

MD - 2 3. 4 %

800 700 600 500

DC -1.5 %

400

NC - 8 .1 % SC -9 .9 % GA - 18 . 6%

FL - 3 9. 3%

United States -13.5%

Note: Date of peak is determined for each state individually. States currently at peak prices show 0.0% change.

300 200

Nominal Asking Rents

Sources: CoreLogic, Zillow, Census Bureau, National Association of REALTORS速, FHFA, Fannie Mae

Real Asking Rents

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Rentals Price-to-Rent Ratio Is At Its Long-Term Average

Rental Vacancy Rate Has Continued To Decline Percent

30.0

14.0 13.0

25.0

12.0

20 0 20.0

11.0

15.0

10.0 9.0 8.0

10.0

7.0

5.0

6.0 5.0

0.0

4.0

Price to Rent Ratio, National, NSA Average (1988-now)

Rent Growth Varies By Region

Single-Family Rental Vacancy Rate

Multi-Family Rental Vacancy Rate

C Composition iti off R Rental t l St Stock kB

By T Type off St Structure t

8.0% 7.0%

4.6%

6.0% 11.6%

5.0%

28 5% 28.5%

4 0% 4.0% 3.0%

8.4%

2.0% 1.0% 0.0% 22.3%

-1.0%

6.3% 18.3%

As of end of 2012 Annual growth at end of year 2013

Sources: Census Bureau, CBRE Econometric Advisors

1, Detached

1, Attached

2-4

5-19

20-49

50+

Other 7

Demographics

Demographics g p Household Formation Remains Below Long-term Average

The Share of Young Adults Living at Home Has Continued To Edge Higher 25-34 Year Olds Living at Home with Parents* (%)

Household Growth (Thousands of Households, Year-over-Year)

15%

2,500

12%

2,000

9%

1,500

6%

1,000

3%

500

0%

0 '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

US Homeownership p Rate Has Declined Toward “Normal�

'13

'60 '65 '70 '75 '80 '85 '90 '95 '00 *Values from 1960, 1970, and 1980 are from the Decennial Census.

'05

'10

Immigration g Reform Implications p Are Greater For Border States

Homeownership Rate (%) 70 69 68 67 66 65 64 63 62 '65

'70

'75

'80 HVS

Source: Census Bureau

'85

'90

'95

'00

'05

'10

Decennial census

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Mortgage g g Credit Declining Housing Affordability Hurts Potential Homebuyers 250 200

Mortgage Purchase Applications Have Trended Down 600

12%

500

10%

400 8%

150

300 6%

100

200 4%

100

50

0

0 '81

'86

2% '90

'91 '96 '01 '06 '11 Housing Affordability Index - Composite (Fixed + ARM) First-time Homebuyer Affordability Index

'95

'00

'05

'10

MBA Purchase Applications Index (SA, Mar-16-90=100, Left Axis)

MBA 30-Year FRM Contract Interest Rate (%, Right Axis)

Loan Officers Report Tighter Lending Standards And Significantly Reduced Demand 100% 80% 60%

ARM Share of Mortgage Production Unlikely to Reach Levels Witnessed In Prior Cycles Of Rate Increases 12% 60% 10%

50%

20%

8%

40%

0%

6%

30%

4%

20%

2%

10%

40%

-20% -40% -60% -80% '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Banks Tightening Standards Residential Mortgages to Individuals (Net, %) Banks Reporting Stronger Demand for Residential Mortgages to Individuals (Net, %)

*Note: Includes all types of residential mortgages

0%

0% '90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

30-Year FRM Rate (%, LEFT AXIS) ARM Share of Dollar Volume of Loan Applications (%, RIGHT AXIS)

Sources: National Association of REALTORS速, Mortgage Bankers Association, Federal Reserve Board

9

Loan Quality y and Portfolios Conventional And Non-Conventional SDQ Loans Have Declined At A Similar Pace But From Different Levels 6.0% As of Q4 2013 5.0%

Share Of Non-Conventional Loans That Are 3059 Days Delinquent Have Declined 8.0%

As of Q4 2013

7.0% 6.0%

4.0%

5.0%

3.0%

4.0% 3.0%

2.0%

2.0% 1.0%

1 0% 1.0% 0.0%

0.0% '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'00

'13

'01

'02

Conventional Share of Loans that are 90+ Days Past Due Non-Conventional Share of Loans that are 90+ Days Past Due

Holders of Single-Family Mortgages (As A Percent Of Single-Family Mortgage Debt Outstanding, $ Volume)

'03

'04

'06

'07

'08

'09

'10

'11

'12

'13

Conventional Share of Loans that are 30-59 Days Past Due Non-Conventional Share of Loans that are 30-59 Days Past Due

D ll Volume Dollar V l Of VA Loans L Are A An A Increasing I i Share Of Ginnie Mae’s Portfolio

90%

40% 3-Month Moving Average

80%

35%

70%

'05

30%

60% 25%

50% 40%

20%

30%

15%

20%

10%

10%

5%

0% 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Commercial Banks

Thrifts

0% '01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

GSEs VA Share of Ginnie Mae

Sources: Mortgage Bankers Association, Fed Flow of Funds, FDIC, S&L Fact

10

GSEs Fed Is Slowing Its Purchases

Fed Is The Second Largest Holder Of MBS

Mill US$ 130,000

Other, 4.2%

110,000

Nonbanks , 1.5%

State & Local Govts, 6.1%

Foreign Sector 11 4% Sector, 11.4%

Mutual Funds, 10 7% 10.7%

90 000 90,000 70,000

GSEs, 3.8% 50,000 30,000

Pension Funds, 5.6%

10 000 10,000

Insurers 6 1% Insurers, 6.1%

Federal Federal Reserve, 19.9%

Fannie Mae

Freddie Mac

Jan-14

Jul-13

Oct-13

Apr-13

Jan-13

Jul-12

Oct-12

Apr-12

Oct-11

Jan-12

Jul-11

Apr-11

Oct-10

Jan-11

Jul-10

Apr-10

Jan-10

Jul-09

Oct-09

Apr-09

Jan-09

-10,000

Ginnie Mae

Note: As of March 2014

Single-Family MRS Issuance Has Declined

2 0% 2.0% 1.5% 1.0%

($BN) QE3

QE1

2.5%

QE2 - Treassuries only

Fed Policy Moves Mortgage Rates & Spreads 3.0%

Depository Institutions, 22.1%

140 120 100 80 60 40 20

0.5%

0

0.0% '95

'97 '99 '01 '03 Primary Spread Primary-Secondary Spread

'05

'07 '09 Secondary Spread

'11

'13

Fannie Mae

Sources: Mortgage Bankers Association, Freddie Mac, Fannie Mae, Federal Reserve Board

Freddie Mac

Ginnie Mae

Private Label 11

S Speaker k Bi Biography h 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 t strategy. t t In I this thi leadership l d hi role, l D Duncan provides id allll economic, i 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 economic, housing 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.

Confidential - Internal Distribution

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C t t IInformation Contact f ti 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 (f ) 202 (fax) 202-752-4441 2 4441 douglas g duncan@fanniemae.com douglas_g_duncan@fanniemae.com

Confidential - Internal Distribution

13