MBA Economic and Mortgage Finance Outlook

Prepared for NCSHA Annual ConferenceSeptember 29, 2015

Mike FratantoniChief Economist

MBA

MBA Economic Outlook

Source: MBA Forecast – September 2015

2014 2015 2016

GDP Growth 2.5% 2.4% 2.4%

Inflation 1.6% 0.2% 2.1%

Unemployment 6.2% 5.3% 4.8%

Fed Funds 0.125% 0.375% 1.375%

10-year Treasury 2.5% 2.2% 2.9%

30-year Mortgage 4.2% 3.9% 4.8%

Refi originations ($ B) 484 590 379

Purchase originations ($B) 638 801 885

New home sales (thousand) 440 520 569

Existing home sales (thousand) 4,920 5,265 5,464

Job Growth Showing Sustained Strength

Source: BLS

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2015

- Fe

b

2015

- Apr

2015

- Ju

ne

2015

- Aug

(500)

(400)

(300)

(200)

(100)

-

100

200

300

400 321

180 235

284 254 265

162

(145)

(42)

9

169 209

174

95

(298)

(424)

89

173 188 199

260

201

266

119

187

260 245 245

173

Average Monthly Payroll GrowthSeasonally adjusted, 000s of jobs

2015 YTD Avg = 212,000 jobs/mth

More Wage Growth in the Works?

Source: BLS

But Compensation Growth Not Picking Up Yet

Source: BLS

Source: BLS

Difference in Headline vs Core Inflation

(3.0)

(2.0)

(1.0)

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1.8

0.2

Inflation TrendsYear over year percent change

All Items exc Food & Energy All Items

Rates Expected to Increase

Source: BEA, MBA Forecast

Refinance Activity Slowing Down

Source: MBA Weekly Applications Survey

Home Sales and Interest Rates

Source: Census, Federal Reserve, MBA, NAR

Jan.2000 Apr.2001 Jul.2002 Oct.2003 Jan.2005 Apr.2006 Jul.2007 Oct.2008 Jan.2010 Apr.2011 Jul.2012 Oct.2013 Jan.20150.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Chart of the Week - September 18, 2015Rates and Home Sales

10-Year Treasury Yield (%) Fed Funds Target Rate (EOP, %) Total Home Sales

Percent SAAR # of units

Three Tectonic Trends Affecting U.S. Housing Markets

- Demographics

- Long-term Societal Trends

- Hang-over from the Great Recession

Source: Census

Household Growth Predominantly Renters

More Young and Old, Fewer Middle-Aged

Source: Census

18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-70 70-75 75-80 80+-4000000

-3000000

-2000000

-1000000

0

1000000

2000000

3000000

4000000

5000000

6000000 Projected Changes in Population, by Age 2014 - 2024

Non-Hisp. White Black Asian Other Hispanic

Growing Older

Sources: Census and MBA

18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-70 70-75 75-80 80+0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

0%

10%

20%

30%

40%

50%

60%

70%

80%Projected Changes in Hispanic Population, by Age 2014 - 2024

Change in Hispanic Population (left axis) 2014 Homeownership Rate (right axis)

HOUSEHOLD DEMAND:Changing Demographics and Economy Plus Trends

Source: Census and MBA

18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-70 70-75 75-80 80+-3000000

-2000000

-1000000

0

1000000

2000000

3000000

4000000

Projected Changes in Households, by Age 2014-2024

Non-Hisp. White Black Asian Other Hispanic

Using ForecastedHeadship Rates

HOMEOWNERSHIP DEMAND I: The Status Quo

Source: Census and MBA

18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-70 70-75 75-80 80+-2000000

-1500000

-1000000

-500000

0

500000

1000000

1500000

2000000

2500000

3000000

Projected Changes in Owner-Occupier Housholds, by Age 2014-2024

Non-Hisp. White Black Asian Other Hispanic

Using 2014 Homeownership Rates and Forecasted Headship Rates

HOMEOWNERSHIP DEMAND II: Reversion to Long Run Average Homeownership Rates

Source: Census and MBA

18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-70 70-75 75-80 80+-2000000

-1500000

-1000000

-500000

0

500000

1000000

1500000

2000000

2500000

3000000

Projected Changes in Owner-Occupier Households by Age, 2014-2024

Non-Hisp. White Black Asian Other Hispanic

Forecasted HS Rate and Avg Homeownership Rates

Large but Falling Multifamily Shares

Source: Census and MBA

1994 2004 2014 1994 2004 2014 1994 2004 2014 1994 2004 2014Age 25-34 Age 35-44 Age 45-54 Age 55+

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.246702343225479

0.421342551708221 0.4680825471878050.527878224849701

0.185947626829147

0.1461902856826780.126362711191177

0.101124435663223

0.0301283393055201

0.04466680437326430.0535693131387234

0.0606332644820213

0.537221729755402

0.387800306081772 0.351985454559326 0.310364127159119

30%

45%53%

59%

19%

13%

11%8%

4%

5%

6%7%

47%37%

29% 25%

0.2624579966068270.384799718856812

0.502175331115723 0.540792584419251

0.249651536345482

0.227524474263191

0.152707517147064 0.1110865250229840.0357583910226822

0.05242579430341720.0613838881254196 0.0816139355301857

0.4521320760250090.335250020027161 0.283733308315277 0.266506999731064

Hispanic Structure/Tenure Share

SF Own SF Rent MF Own MF Rent

Home Prices Within Two Percent of 2007 Peak

Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014160

170

180

190

200

210

220

230

240

April 2006May 2015May 2007

FHFA US Purchase-Only House Price Index (SA)

-1.8%

Index

Source: FHFA

Turnover Returning to Early 2000 Rates

Source: NAR, Census, MBA

Jan.2000 Apr.2001 Jul.2002 Oct.2003 Jan.2005 Apr.2006 Jul.2007 Oct.2008 Jan.2010 Apr.2011 Jul.2012 Oct.2013 Jan.20153000

4000

5000

6000

7000

8000

9000

Total Home Sales

Modest Moves in Credit Availability

Source: Mortgage Bankers Association; Powered by AllRegs Market Clarity

Jun-

04

Jan-

05

Aug-

05

Mar

-06

Oct-0

6

May

-07

Dec-0

7

Jul-0

8

Feb-

09

Sep-

09

Apr-1

0

Nov-1

0

Jun-

11

Jan-

12

Aug-

12

Mar

-13

Oct-1

3

May

-14

Dec-1

40

100

200

300

400

500

600

700

800

900

1000

Credit Availability In Historical Context

Source: ALLREGS, MBA

3/2011 through present (rescaled)

95

100

105

110

115

120

125

Differentiated Purchase Application Market

Source: MBA Monthly Profile of Mortgage Activity

Differentiated Growth in Purchase Market

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

May

-14

Jun-

14

Jul-1

4

Aug-1

4

Sep-

14

Oct-1

4

Nov-1

4

Dec-1

4

Jan-

15

Feb-

15

Mar

-15

Apr-1

5

May

-15

Jun-

15

Jul-1

5-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Purchase Application Trends, by Loan SizeYear year percent change in number of loans

<=$150K >$150K and <=$300K>$300K and <=$417k >$417K and <= $625k

Estimated Originations 1990 to 2016

Source: MBA Forecast – September 2015

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1,139

2,243

2,854

3,812

2,773

3,027

2,726

2,306

1,509

1,995

1,572 1,436

2,044 1,845

1,122

1,391 1,264

Mortgage Originations History and Forecast

Total Refi Purchase

$Billions

Performance Continues To Improve in Q2 2015

Source: MBA National Delinquency Survey

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Perc

ent

Mortgage Delinquency RatesSeasonally adjusted, excludes loans in foreclosure

30 Days Delq 60 Days Delq 90+ Days Delq

10.06

4.465.30

Loans in Foreclosure Declining

Source: MBA National Delinquency Survey

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

2001

- Q

1

2001

- Q

3

2002

- Q

1

2002

- Q

3

2003

- Q

1

2003

- Q

3

2004

- Q

1

2004

- Q

3

2005

- Q

1

2005

- Q

3

2006

- Q

1

2006

- Q

3

2007

- Q

1

2007

- Q

3

2008

- Q

1

2008

- Q

3

2009

- Q

1

2009

- Q

3

2010

- Q

1

2010

- Q

3

2011

- Q

1

2011

- Q

3

2012

- Q

1

2012

- Q

3

2013

- Q

1

2013

- Q

3

2014

- Q

1

2014

- Q

3

2015

- Q

1

Per

cen

t

Percent of Loans in Foreclosure Non-seasonally adjusted

Foreclosure Inventory (NSA)

Foreclosure Starts Back to Pre-Recession Level

Source: MBA National Delinquency Survey

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2001

- Q

1

2001

- Q

3

2002

- Q

1

2002

- Q

3

2003

- Q

1

2003

- Q

3

2004

- Q

1

2004

- Q

3

2005

- Q

1

2005

- Q

3

2006

- Q

1

2006

- Q

3

2007

- Q

1

2007

- Q

3

2008

- Q

1

2008

- Q

3

2009

- Q

1

2009

- Q

3

2010

- Q

1

2010

- Q

3

2011

- Q

1

2011

- Q

3

2012

- Q

1

2012

- Q

3

2013

- Q

1

2013

- Q

3

2014

- Q

1

2014

- Q

3

2015

- Q

1

Per

cen

t

Foreclosure Starts Rate Non-seasonally adjusted

Foreclosure Starts (NSA)

Commercial/Multifamily Markets

Multifamily Mortgage Debt Outstanding ($ millions)

Source: MBA Commercial and Multifamily Mortgage Debt Outstanding

Contact Information & MBA Resources

Mortgage Bankers Association1919 M Street NW, 5th Floor

Washington, DC 20036

MBA Research page: www.mba.org/research

Research Institute for Housing America: http://www.housingamerica.org

MBA Newslink: http://www.mortgagebankers.org/NewsandMedia/MBANewsLink

Mike FratantoniChief Economist & Senior Vice President

Research & Industry Technologymfratantoni@mba.org

202-557-2935