Chief Economist Chief Economist MBA CoreLogic 1 MBA Economic - - PowerPoint PPT Presentation

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Economic Report and Market Outlook March 3, 2016 Mike Fratantoni Frank Nothaft Chief Economist Chief Economist MBA CoreLogic

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MBA Economic Outlook

Source: MBA Forecast – Feb 2016

2014 2015 2016 2017 2018 GDP Growth 2.5% 1.8% 2.2% 2.2% 1.9% Inflation 1.6% 0.1% 1.4% 2.0% 2.2% Unemployment 6.2% 5.3% 4.8% 4.7% 4.7% Fed Funds 0.125% 0.375% 0.875% 1.875% 3.375% 10-year Treasury 2.5% 2.1% 2.2% 2.8% 3.3% 30-year Mortgage 4.2% 3.9% 4.1% 4.7% 5.2% New home sales (thousand) 440 502 583 669 696 Existing home sales (thousand) 4,920 5,232 5,477 5,765 5,901 Refi originations ($ B) 502 749 520 372 301 Purchase originations ($B) 759 881 963 1,011 1,046 Total originations ($B) 1,261 1,630 1,483 1,383 1,347

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Markets Drop to Start the Year

2.24 1.76 17,149 16,640

14,500 15,000 15,500 16,000 16,500 17,000 17,500 18,000 18,500

0.00 0.50 1.00 1.50 2.00 2.50

US 10 Year Treasury Yield and Dow Jones Industrials Index

DJ Index (right axis) 10 Yr Yield (left axis) Source: Federal Reserve, NYSE

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Sharp Drop in Oil Prices Source of Market Volatility

Source: EIA, OPIS

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Global Yields Pulling US Rates Down

Source: OECD, CNBC

• 1.0

2.0 3.0 4.0 5.0 6.0 7.0

Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15

10-year Treasury Rate Comparison

10-year - Germany 10-year - US 10-year - Japan

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Job Growth Increased in Q4 2015

Source: BLS

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Tight Labor Markets

Source: BLS

6.8 1.4 1 2 3 4 5 6 7 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15

Chart of the Week - February 12, 2016

Ratio of Unemployed Workers Per Job Opening

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Job Growth in Most Sectors

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Employment in the Oil States

96 97 98 99 100 101 102 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 Aug 2015 Sep 2015 Oct 2015 Nov 2015

Chart of the Week - January 22, 2016 Indexed Growth of Nonfarm Payroll Employment For "Oil" States

(January 2015 = 100) CO LA ND OK TX US

Source: BLS

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Wage Growth Modest So Far

Source: BLS

0.5 1 1.5 2 2.5 3 3.5 4

Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

Wage Growth

(year over year percent change)

Average Hourly Earnings: Total Private Industries (SA, $/Hour) ECI: Wages & Salaries: Civilian Workers (SA, Dec-05=100)

%

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Deficit Projected to Increase

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Spreads Widening: Recession Risk?

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Trend of Foreign Capital Flows Into US

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Dollar Has Appreciated on a Trade-Weighted Basis

Source: Federal Reserve

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Inflation Slowly Increasing

(3.0) (2.0) (1.0)

• 1.0

2.0 3.0 4.0 5.0 6.0 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16

Headline and Core Inflation Trends

Year over year percent change

All Items All Items exc Food & Energy

1.4

Source: BLS

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Rates Expected to Increase

Source: Federal Reserve, Freddie Mac, MBA Jan 2016 Forecast

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Yield Curve Flattening

Source: MBA, Thomson Reuters

0.0 0.5 1.0 1.5 2.0 2.5 3.0

1 2 3 4 5 6 7 8 9 10 Treasury Maturity (Yrs)

A Flattening US Yield Curve

1/10/2014 9/4/2015 1/8/2016 2/12/2016

Yield (%)

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Jumbo-Conforming Spread

Source: MBA Weekly Applications Survey

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Refinance Activity Picking Back Up

Source: MBA Weekly Applications Survey

0.00 1.00 2.00 3.00 4.00 5.00 6.00

• 1,000

2,000 3,000 4,000 5,000 6,000 Rate Index

Refinance Index and 30 Yr Fixed Mortgage Rate

Refi Index (left axis) 30 Yr Fixed rate (right axis)

30 yr Fixed Rate Refinance Index

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Purchase Slowly Trending Up

Source: MBA Weekly Applications Survey

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 100 150 200 250 300 350 400 450 500

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16

Rate Index Value

Purchase Applications Index

Seasonally adjusted, March 1990 = 100

Purchase Index, SA 30 Yr Fixed rate (right axis) Survey average = 256

30-Yr Fixed Rate Purchase Index

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CoreLogic Market Forecast for 2016

• 1. Purchase-money originations up 10%
• Macroeconomy, demographics support sales up 4%
• Home prices up 5%, faster for lower-priced tiers
• Cash-sales share down 1%
• Credit availability remains relatively ‘tight’
• 2. Refi down 20%, least since 2000
• 3. Home equity builds, HELOC originations to grow

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1 2 3 4 5 6 7 8 9 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Home Sales: Up 4% in 2016, Best since 2007

Non-Distressed Resale up every year since 2011

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Home Sales (millions) Forecast

Source: CoreLogic REAS MarketTrends through 2015, Forecast averages projections

• f Fannie Mae, Freddie Mac, MBA, NAR and NAHB.

Resale REO New Short

23 11.8 9.4 8.5 8.4 6.8 5.5 4.4 3.8 3.3 3.1 2.9 2.2

2 4 6 8 10 12 14 Miami Philadelphia Cleveland Chicago Riverside Las Vegas Los Angeles Anaheim Seattle Dallas San Jose Denver

Months’ Supply, Days on Market, Home-Price Growth

Metro Area

Days On Market Home Price Gain 18 11.4% 15 12.8% 32 9.1% 60 9.9% 40 4.8% 32 6.3% 40 4.4% 46 5.8% 59 1.9% 97 0.1% 93 6% 104 6.8%

U.S. 6.6 months

Number of Months

Source: CoreLogic Home Price Index (percent change, November 2014 to November 2015, February 2, 2016 release), CoreLogic Listing data for November 2015 (median Days on Market for sold properties).

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Projected to reach prior peak by mid-2017 (but still 18% below 2006 peak in real $)

U.S. Home Prices Projected to Rise 5% in 2016

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80 100 120 140 160 180 200 220 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

7% 36%

Source: CoreLogic Home Price IndexTM (March 1, 2016 Release)

Forecast

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Price Growth Strongest For Lowest-Priced Houses

Cumulative Price Growth Through December 2015 (percent)

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Source: CoreLogic HPI, Single-family Detached (March 1, 2016 release); “Post-Recession” is period after June 2009.

0% 10% 20% 30% 40% 50% 0% 2% 4% 6% 8% 10% More Than 25% Below Median 25% or Less Below Median Up to 25% Above Median More Than 25% Above Median One Year Ago Price Trough Price Growth Since:

Since Post-Recession Trough Since December 2014

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Source: CoreLogic HPI (March 1, 2016 Release)

House Price Performance By State

December 2014 to December 2015

2% AL 1% AK

≥ 6% 4 to 5%

• 2 to 0%

1 to 3%

United States 5.6%

3% AR 6% AZ 8% CA 10% CO CT 1% DC 4%

DE 2%

8% FL 6% GA 6% HI 4% IA 8% ID 1% IL 3% IN 2% KS KY 2%

• 2%

LA 2% ME 4% MI 4% MN 4% MO

• 2%

MS 5% MT NC 5% 6% ND 5% NE

NJ 1%

0% NM 7% NV 4% NY 2% OH 2% OK 9% OR 1% PA RI 4% 7% SC 6% SD TN 5% 6% TX 7% UT 1% VA 10% WA 5% WI 4% WV 3% WY

3%

1% VT

4%

MD -1% MA NH

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Source: CoreLogic HPI (March 1, 2016 Release)

House Price Performance By State

December 2006 to December 2015

• 9%

AL 8% AK

≥ 10% 0 to 9% ≤-10%

• 1 to -9%

United States -7.3%

1% AR

• 23%

AZ

• 6%

CA 23% CO CT -21% DC 22%

DE -17%

• 27%

FL

• 4%

GA 10% HI 9% IA

• 11%

ID

• 21%

IL

• 2%

IN

• 1%

KS KY 1% 7% LA

0% ME

• 7%

MI

• 7%

MN

• 7%

MO

• 9%

MS 5% MT NC 3% 48% ND 10% NE

NJ -20%

• 15%

NM

• 29%

NV 1% NY

• 6%

OH 10% OK 2% OR

• 6%

PA RI -21%

• 2%

SC 19% SD TN 7% 21% TX 0% UT

• 10%

VA 2% WA

• 7%

WI 0% WV 18% WY

• 9%
• 4%

VT

3%

MD -23% MA NH

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Good Balance Under- Valued Over- Valued

Energy-Producing Markets At Risk of Price Dip

Source: CoreLogic HPI and HPI Long-term Fundamental Value (through December 2015).

Deviation of Prices from Fundamental Value (percent)

• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50% 60% 1980 1985 1990 1995 2000 2005 2010 2015

Houston-The Woodlands-Sugar Land TX MSA Midland TX MSA New Orleans-Metairie LA MSA Oklahoma City OK MSA

Early&Mid-1980s: New Orleans, Oklahoma City, Houston Overvalued Today: Midland and Houston Overvalued

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Big Drop in Owners with Negative Equity

11.4 11.6 11.6 10.6 6.5 5.2 4.1 0.0 2.0 4.0 6.0 8.0 10.0 12.0 2009 2010 2011 2012 2013 2014 2015

Source: CoreLogic Equity Report, data as of September of each year.

Homeowners with Negative Equity (Millions)

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Source: U.S. Census Bureau, 2014 American Community Survey, Owner-occupied homes, Table S2507; CoreLogic Equity Report for third quarter of 2015

61 Million Owners Have at Least 25% Home Equity

100% Equity (No Debt) 27 million 0% to 24% Equity 12 million 50% to 99% Equity 16 million 25% to 49% Equity 18 million Negative Equity 4 million

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New HELOC Volume in 2015 Was Most Since 2008

$0 $50 $100 $150 $200 $250 $300 $350 $400 2000 2005 2010 2015

Approved HELOCs (Billions)

First 9 Months Annualized

Source: CoreLogic public records, second-lien HELOCs placed more than 60 days after first lien.

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Credit Availability Today is Less Than in Early 2000s

20 40 60 80 100 120 2001 2003 2005 2007 2009 2011 2013 2015

Housing Credit Index (2001Q1=100)

2015Q3 33

HCI Factors

Credit Score Loan-to-Value Debt-to-Income Broker Share Documentation (Full/Low/No) Non-Owner Occupancy Share

Source: CoreLogic TrueStandings, 2001Q1 = 100. Bars represent 2001 and 2008-2009 recessions.

Lower HCI values imply credit is less available

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How Has Availability Today Changed Since 2000-2002?

LTV Share 95 And Above DTI Share 43 And Above Low & No Doc Share Broker Share

20 40 60 80 100 120 140

Credit Score Less Than 640 Non-Owner Occupancy Share

Source: CoreLogic TrueStandings, 2015 purchase-money originations compared with 2000 - 2002

Purchase Orig. 2000-2002 (Blue) 2015 (Red)

34 Source: MBA’s Quarterly Mortgage Bankers Performance Report, www.mba.org/performancereport

IMB Net Production Income (bps) and Average $ Volume

17 15 55 71 50 49 32 49 71 54 20 33 66 58 82 107 120 107 86 75 38 9 (8) 46 42 32 60 67 55 20

$0 $100 $200 $300 $400 $500 $600 $700 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 (Prel)

Net Production Income (bps) Production Volume ($Ms)

35 Source: MBA’s Quarterly Mortgage Bankers Performance Report, www.mba.org/performancereport

IMB Fully-Loaded Production Expenses ($ per loan):

4,8844,810 3,7383,581 4,3764,402 5,147 4,6774,8024,930 5,8375,644 5,3155,1185,2925,1285,163 5,6035,7795,818 6,368 6,959 8,025 6,9326,769 7,0007,1956,9847,080 7,658

$0 $100 $200 $300 $400 $500 $600 $700

Total Production Expense ($ per loan) Production Volume ($Ms)

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Source: MBA’s Quarterly Mortgage Bankers Performance Report, MBA’s Cost Study, and JP Morgan

Increases in Production Expenses Leading to Wider Spreads

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0.00 2.00 4.00 6.00 8.00 10.00 12.00

Q1-1979 Q1-1980 Q1-1981 Q1-1982 Q1-1983 Q1-1984 Q1-1985 Q1-1986 Q1-1987 Q1-1988 Q1-1989 Q1-1990 Q1-1991 Q1-1992 Q1-1993 Q1-1994 Q1-1995 Q1-1996 Q1-1997 Q1-1998 Q1-1999 Q1-2000 Q1-2001 Q1-2002 Q1-2003 Q1-2004 Q1-2005 Q1-2006 Q1-2007 Q1-2008 Q1-2009 Q1-2010 Q1-2011 Q1-2012 Q1-2013 Q1-2014 Q1-2015

Mortgage Delinquency Rate and Unemployment Rate

Seasonally adjusted, percent

Total Delinquency Rate, exc Loans in Fcl Unemployment Rate

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0.18 0.16 0.43 0.51 0.32 0.36 0.00 0.10 0.20 0.30 0.40 0.50 0.60 CO ND LA OK TX US

Foreclosure Starts Rate - States with Oil Dependent Local Economies

Q1.2015 Q2.2015 Q3.2015 Q4.2015 Source: NDS: National Delinquency Survey, www.mba.org/nds

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Estimated Originations 2000 to 2018

Source: MBA Forecast – Feb 2016

1,139 2,243 2,854 3,812 2,773 3,027 2,726 2,306 1,509 1,995 1,698 1,436 2,044 1,845 1,261 1,630 1,483 1,383 1,347

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Mortgage Originations History and Forecast

Total Refi Purchase

$Billions

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Originations: Impact of Rate Changes and Broader Adverse Shock

Source: MBA Forecast Feb 2016

1,261 1,630 1,483 1,383 1,347 1,375 1,315 1,307 1,622 1,469 1,399 1,097 1,272 1,380 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 2014 2015 2016 2017 2018

Total Originations Scenarios ($ billions)

Base Rate Increase Rate Decrease Adverse

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Contact Information & Resources

Mike Fratantoni, Ph.D. Chief Economist & Senior Vice President | Research and Industry Technology 202-557-2935 mfratantoni@mba.org

MBA Research: www.mba.org/research RIHA: www.housingamerica.org

Frank E. Nothaft, Ph.D., CBE Chief Economist & Senior Vice President | CoreLogic 703-610-5036 fnothaft@corelogic.com http://www.corelogic.com/about-us/research.aspx Twitter: @CoreLogicEcon @DrFrankNothaft

The views, opinions, forecasts and estimates herein are those of the CoreLogic Office of the Chief Economist, are subject to change without notice and do not necessarily reflect the position of CoreLogic or its management. The Office of the Chief Economist makes every effort to provide accurate and reliable information, however, it does not guarantee accuracy, completeness, timeliness or suitability for any particular purpose. CORELOGIC and the CoreLogic logo are trademarks of CoreLogic, Inc. and/or its subsidiaries.

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Single-family Starts Still Low, Multifamily Starts Strong

Source: Census

Single family starts Multifamily starts

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Housing Demand Forecast

Source: Census and MBA

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Deterioration Driven By Entitlements and Net Interest

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Monetary Policy Transmission: Theory

Fed Funds Target Change/ Communication Change short-term rates today Change expected path of future short- term rates/impact longer-term rates today Impact household and business spending/ investment decisions Impact bank lending through credit channel Exchange rate changes with changes in relative yields Impact exports, imports, and global capital flows

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Fewer Borrowers With Refi Incentive

0.5% 21.0% 30.6% 22.2% 11.9% 6.4% 3.7% 2.4% 0.9% 0.3% 0.1% 0.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 2.5% (3.19) 3.0% (3.62) 3.5% (4.07) 4.0% (4.54) 4.5% (4.96) 5.0% (5.48) 5.5% (6.00) 6.0% (6.54) 6.5% (7.02) 7.0% (7.59) 7.5% (8.08) 8.0%+ (8.58+)

Distribution of Rates on Agency 30 Yr Fixed

Source: MBA calculations based on data from JP Morgan and Deutsche Bank

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Originations: Impact of Rate Changes and Broader Adverse Shock

Source: MBA Forecast Feb 2016

(1.5) (1.0) (0.5)

• 0.5

1.0 1.5 2.0 2.5 3.0 2014 2015 2016 2017 2018

Real GDP

GDP GDP Adverse

• 1.0

2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2014 2015 2016 2017 2018

Unemployment Rate

Unemp Unemp Adverse

• 1.0

2.0 3.0 4.0 5.0 6.0 2014 2015 2016 2017 2018

Mortgage Rate

Mortgage Rate Mortgage Rate Adverse

• 200

400 600 800 1,000 1,200 1,400 1,600 2014 2015 2016 2017 2018

Housing Starts

Housing Starts Housing Starts Adverse

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Originations: Impact of Rate Changes and Broader Adverse Shock

Source: MBA Forecast Feb 2016

759 881 963 1,011 1,046 1,040 1,098 1,141 885 924 951 830 996 1,072 600 700 800 900 1,000 1,100 1,200 2014 2015 2016 2017 2018

Purchase Originations Scenarios ($ billions)

Base Rate Increase Rate Decrease Adverse

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Originations: Impact of Rate Changes and Broader Adverse Shock

Source: MBA Forecast Feb 2016

502 749 520 372 301 335 218 167 737 545 449 267 277 308

• 100

200 300 400 500 600 700 800 2014 2015 2016 2017 2018

Refinance Originations Scenarios ($ billions)

Base Rate Increase Rate Decrease Adverse

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Renewed Growth in Mortgage Debt Outstanding

Source: Federal Reserve, MBA

9.31 10.21

2 4 6 8 10 12 1991Q1 1991Q4 1992Q3 1993Q2 1994Q1 1994Q4 1995Q3 1996Q2 1997Q1 1997Q4 1998Q3 1999Q2 2000Q1 2000Q4 2001Q3 2002Q2 2003Q1 2003Q4 2004Q3 2005Q2 2006Q1 2006Q4 2007Q3 2008Q2 2009Q1 2009Q4 2010Q3 2011Q2 2012Q1 2012Q4 2013Q3 2014Q2 2015q1 2015q4 2016q3 2017q2 2018q1 2018q4

$Trillions

Mortgage Debt Outstanding, By Type

(1-4 family, first liens) Govt GSEs Private Total/Forecast

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$59 $151 $482 $2,260

$0 $500 $1,000 $1,500 $2,000 $2,500 2008 2009 2010 2011 2012 2013 2014 1H2015

Performing Loans Non-Performing Loans

Fully-Loaded Servicing Operating Costs

• f Performing and Non-Performing Loans*

* Includes direct cost to service, unreimbursed servicer-related foreclosure and REO costs (less lookbacks), compensatory fees, corporate allocation

Source: MBA’s Servicing Operations Study and Forum, Prime Servicers. www.mba.org/sosf, PGR (1H2015)