economic update by doug duncan chief economist fannie mae american land title association october...

Economic Updateby

Doug DuncanChief Economist

Fannie Mae

American Land Title Association

October 17, 2008

Kaua’i, Hawaii

The Macroeconomy

Real GDP Annualized Growth Rate

-4%

-2%

0%

2%

4%

6%

8%

Q1:98Q4:98Q3:99Q2:00Q1:01Q4:01Q3:02Q2:03Q1:04Q4:04Q3:05Q2:06Q1:07Q4:07Q3:08Q2:09Q1:10Q4:10

Source: Bureau of Economic Analysis

History in blue, forecast in red

Real GDP Annualized Growth Rate Forecast

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09

Source: Bureau of Economic AnalysisS

ep

tem

be

r fo

rec

as

t

Oc

tob

er

fore

ca

st

Change in Components of Real GDP Q1:08 to Q2:08

-$60

-$40

-$20

$0

$20

$40

$60

$80

$100

PCE Gross PrivateInvestment

Net Exports Government

$Bil Chained 2000

Private Nonfarm Payroll EmploymentYear/Year Percent Change

-3%

-2%

-1%

0%

1%

2%

3%

4%

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

Source: Bureau of Labor Statistics

Change in Payroll Employment from November 2007

-450

-400

-350

-300

-250

-200

-150

-100

-50

0

Construction Manufacturing Financial Activities Leisure & Hospitality

Thousands of Jobs – Seasonally Adjusted

Source: Bureau of Labor Statistics

Wilshire 5000 Stock Price Index

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

10/5/200711/2/200711/30/200712/28/20071/25/20082/22/20083/21/20084/18/20085/16/20086/13/20087/11/20088/8/20089/5/2008

10/3/2008

Dec-31-70=830.27

Source: Wall Street Journal

Dow Jones Industrial Average

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

9/22/089/23/089/24/089/25/089/26/099/29/089/30/0810/1/0810/2/0810/3/0810/6/0810/7/0810/8/0810/9/0810/10/08

Source: Bloomberg

House rejectsfirstbailoutplan

Annual high:May 2 – 13,058.2

At 4:30 p.m.

Owners’ Equity in Real Estate

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08

$Bil

Source: Federal Reserve Board

Net Home Equity Extraction

-$200

$0

$200

$400

$600

$800

$1,000

Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08

$Bil SAAR

Source: Federal Reserve Board

Consumer Credit Loan Delinquency Rate

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08

Credit Cards

Other Consumer Debt

Percent – Seasonally Adjusted

Source: Federal Reserve Board

Personal Consumption ExpendituresYear/Year Percent Change

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

Source: Bureau of Economic Analysis

Nominal Broad Trade-Weighted Exchange Value of the US Dollar vs. Euro/Dollar Exchange Rate

60

70

80

90

100

110

120

130

140

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Source: Federal Reserve Board

Inde

x:

Jan.

199

7 =

100

Euro/$ Exchange Rate(right axis)

Trade-Weighted Exchange Value(left axis)

Euros

Inflation*Year/Year Percent Change

0%

1%

2%

3%

4%

5%

6%

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

*Consumer Price IndexSource: Bureau of Labor Statistics

CPI

Core CPI

Credit Markets and Interest Rates

Federal Funds Target Rate

0

1

2

3

4

5

6

7

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

Source: Federal Reserve Board

Percent

3-Month LIBOR-3-Month Overnight Index Swap Rate Spread

0

50

100

150

200

250

300

1/6/20062/6/20063/6/20064/6/20065/6/20066/6/20067/6/20068/6/20069/6/200610/6/200611/6/200612/6/2006

1/6/20072/6/20073/6/20074/6/20075/6/20076/6/20077/6/20078/6/20079/6/200710/6/200711/6/200712/6/2007

1/6/20082/6/20083/6/20084/6/20085/6/20086/6/20087/6/20088/6/20089/6/2008

Source: Financial Times, Bloomberg

Basis Points

One Year LIBOR-One Year Treasury Spread

0

50

100

150

200

250

300

10/5/200711/2/200711/30/200712/28/20071/25/20082/22/20083/21/20084/18/20085/16/20086/13/20087/11/20088/8/20089/5/2008

10/3/2008

Source: Financial Times, Federal Reserve Board

Basis Points

Seasoned Baa Corporate Bond Yields – 10-Year Treasury Spread

0

50

100

150

200

250

300

350

400

450

1/6/20062/3/20063/3/20063/31/20064/28/20065/26/20066/23/20067/21/20068/18/20069/15/200610/13/200611/10/200612/8/2006

1/5/20072/2/20073/2/20073/30/20074/27/20075/25/20076/22/20077/20/20078/17/20079/14/200710/12/200711/9/200712/7/2007

1/4/20082/1/20082/29/20083/28/20084/25/20085/23/20086/20/20087/18/20088/15/20089/12/2008

Source: Federal Reserve Board, Moody’s

Basis Points

Month/Month Percent Change in Consumer Credit

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

Jan:2007Feb:2007Mar:2007Apr:2007May:2007Jun:2007Jul:2007Aug:2007Sep:2007Oct:2007Nov:2007Dec:2007Jan:2008Feb:2008Mar:2008Apr:2008May:2008Jun:2008Jul:2008Aug:2008

Revolving

Non-revolving

Source: Federal Reserve Board

Commercial Paper Outstanding

$1,400

$1,500

$1,600

$1,700

$1,800

$1,900

$2,000

10/3/200710/31/200711/28/200712/26/20071/23/20082/20/20083/19/20084/16/20085/14/20086/11/20087/9/20088/6/20089/3/2008

10/1/2008

$Bil – Seasonally Adjusted

Source: Federal Reserve Board

30-Year FRM-10-Year Treasury Spread

0

100

200

300

400

500

600

Jan:1978Jan:1979Jan:1980Jan:1981Jan:1982Jan:1983Jan:1984Jan:1985Jan:1986Jan:1987Jan:1988Jan:1989Jan:1990Jan:1991Jan:1992Jan:1993Jan:1994Jan:1995Jan:1996Jan:1997Jan:1998Jan:1999Jan:2000Jan:2001Jan:2002Jan:2003Jan:2004Jan:2005Jan:2006Jan:2007Jan:2008

Source: Federal Reserve Board

Basis Points

Current Coupon Fannie Mae MBS – 10-Year Treasury Spread

0

50

100

150

200

250

1/6/062/6/063/6/064/6/065/6/066/6/067/6/068/6/069/6/0610/6/0611/6/0612/6/06

1/6/072/6/073/6/074/6/075/6/076/6/077/6/078/6/079/6/0710/6/0711/6/0712/6/07

1/6/082/6/083/6/084/6/085/6/086/6/087/6/088/6/089/6/08

Source: Federal Reserve Board, Merrill Lynch

Basis Points

Senior Loan Officer Opinion Survey, July 2008Net Percentage of Responding Banks Tightening Credit

Standards for Residential Mortgage Loans

Source: Federal Reserve Board

The Housing Market

Normal Fill Level

No Lifeguard on Duty!Swim at Your Own

Risk!

The water in the swimming pool is currently dangerously high

Months’ Supply

10

0

6

Foreclosures New housing completions Existing homes Condo conversions

DestructionNew home sales

Existing home salesExisting home withdrawals

Apartment conversions

Housing StartsSeasonally Adjusted Annual Rate

0

500

1,000

1,500

2,000

2,500

Jan:1959Jan:1961Jan:1963Jan:1965Jan:1967Jan:1969Jan:1971Jan:1973Jan:1975Jan:1977Jan:1979Jan:1981Jan:1983Jan:1985Jan:1987Jan:1989Jan:1991Jan:1993Jan:1995Jan:1997Jan:1999Jan:2001Jan:2003Jan:2005Jan:2007

Th

ou

san

ds

of

Un

its

Source: Census Bureau

Single-family

Multifamily

Single-Family Housing Starts and PermitsSeasonally Adjusted Annual Rate

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

starts

permits

Thousands of units

Source: Census Bureau

Year/Year Percent Change in Number of Households

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Jan-98Jul-98Jan-99Jul-99Jan-00Jul-00Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08

Source: Census Bureau

New Single-family Home SalesSeasonally Adjusted Annual Rate

0

200

400

600

800

1000

1200

1400

1600

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

Source: Census Bureau

Thousands of Units

Existing Single-family Home SalesSeasonally Adjusted Annual Rate

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

Source: National Association of REALTORS®

Thousands of Units

Supply of New Single-family Homes on the Market

0

2

4

6

8

10

12

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

0

100

200

300

400

500

600

700

Source: Census Bureau

Months Thousands of Units, SA

Inventory on the MarketEnd-of-Month(right axis)

Months’ Supply(left axis)

Supply of Existing Single-family Homes on the Market

0

2

4

6

8

10

12

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Source: National Association of REALTORS®

Months

Inventory on the MarketEnd-of-Month(right axis)

Months’ Supply(left axis)

Thousands of Units, SA

Case-Shiller National Home Price Index vs.OFHEO House Price Index

Year/Year Percent Change

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08

Source: Standard & Poors, OFHEO

Case-Shiller

OFHEO

NAHB Housing Market Index

0

10

20

30

40

50

60

70

80

90

100

Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008

Source: National Association of Home Builders

Index

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.

Real Estate Finance

Percent of All Mortgages Past Due But Not in ForeclosureSeasonally Adjusted

0

1

2

3

4

5

6

7

Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08

Source: Mortgage Bankers Association

Percent of All Mortgages Foreclosure StartedSeasonally Adjusted

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08

Source: Mortgage Bankers Association

Confidential - Internal Distribution

Foreclosures Started asPercent of All Mortgages: 2008:Q2

Source: Mortgage Bankers Association Serious Delinquency Survey

Nonfarm Payroll Employment vs. Mortgage Delinquencies

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Q1:88Q4:88Q3:89Q2:90Q1:91Q4:91Q3:92Q2:93Q1:94Q4:94Q3:95Q2:96Q1:97Q4:97Q3:98Q2:99Q1:00Q4:00Q3:01Q2:02Q1:03Q4:03

0%

1%

2%

3%

4%

5%

6%

Year/Year Percent ChangeNonfarm Payroll Employment(left axis)

Percent of Mortgages That Are DelinquentExcluding Foreclosure Inventory(right axis)

Sources: Bureau of Labor Statistics and Mortgage Bankers Association

Distribution of Dollar Volume of Securitized Loans Outstanding (as of the end of May 2008)by Month of First Scheduled Payment Reset

$0

$5

$10

$15

$20

$25

$30

$35

Sep-2008Nov-2008Jan-2009Mar-2009May-2009Jul-2009Sep-2009Nov-2009Jan-2010Mar-2010May-2010Jul-2010Sep-2010Nov-2010Jan-2011Mar-2011May-2011Jul-2011Sep-2011Nov-2011Jan-2012Mar-2012May-2012Jul-2012Sep-2012Nov-2012

Month of 1st Scheduled Payment Reset

Billions of Dollars of Outstanding Loans

Loans Backing Agency MBS

Loans Backing Non-Agency Jumbo MBS

Loans Backing Non-Agency Alt-A MBS

Loans Backing Non-Agency Subprime ABS

Source: LoanPerformance; Agency MBS

Disclosures

Ratio of Foreclosures Started to All Mortgages Past DueSeasonally Adjusted – Four-quarter rolling average

0

2

4

6

8

10

12

14

16

Q1:79Q2:80Q3:81Q4:82Q1:84Q2:85Q3:86Q4:87Q1:89Q2:90Q3:91Q4:92Q1:94Q2:95Q3:96Q4:97Q1:99Q2:00Q3:01Q4:02Q1:04Q2:05Q3:06Q4:07

Source: Mortgage Bankers Association, Fannie Mae calculations

Percent

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.