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  • Mortgage Meltdown:Mortgage Meltdown: The Saga Continues

    Jason Henderson Vice President and Branch Executive Federal Reserve Bank of Kansas City

    O h B hOmaha Branch www.kansascityfed.org

    December 4, 2008

    The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

  • The U.S. economy is in recession.

    Real GDP Growth

    4 0

    5.0

    4 0

    5.0 Annualized percent change from previous quarter

    Blue Chip Forecast August 2008

    2.0

    3.0

    4.0

    2.0

    3.0

    4.0August 2008 November 2008

    -1 0

    0.0

    1.0

    -1 0

    0.0

    1.0

    -3.0

    -2.0

    -1.0

    -3.0

    -2.0

    -1.0

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    2007 2008 2009 Source: Bureau of Economic Analysis and Blue Chip Economic Indicators

  • Aggregate demand will need to rebound.

    Personal Consumption Expenditures

    4.0 5.0

    4.0 5.0

    Annualized percent change from previous quarter

    Blue Chip Forecast August 2008

    1 0 2.0 3.0 4.0

    1 0 2.0 3.0 4.0August 2008

    November 2008

    2 0 -1.0 0.0 1.0

    2 0 -1.0 0.0 1.0

    -4.0 -3.0 -2.0

    -4.0 -3.0 -2.0

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    2007 2008 2009 Source: Bureau of Economic Analysis and Blue Chip Economic Indicators

  • Will World Growth Rebound as Expected?

    World GDP Growth

    8

    9

    8

    9 Annual Percent Change

    Emerging and Developing Countries

    5

    6

    7

    5

    6

    7

    World

    3

    4

    5

    3

    4

    5World

    0

    1

    2

    0

    1

    2

    Advanced Countries

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

    Source: International Monetary Fund, October 2008

  • Total Employment Growth (October 2007 to October 2008)(October 2007 to October 2008)

    1 0% to 3 0% 0 4 to 0% 1 1% to 3 3%

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    -1.0% to -3.0% -0.5% to -0.9%

    -0.4 to 0% 0.1% to 1.0%

    Source: BLS

    1.1% to 3.3%

  • U.S. Single-Family Home Price Appreciation (Percent change 2007:Q1 to 2008:Q3)(Percent change 2007:Q1 to 2008:Q3)

    5 1% or more 0 to 2 4% 5 1% or more

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    -5.1% or more -5.0% to 0

    0 to 2.4% 2.5% to 5%

    Source: OFHEO

    5.1% or more

  • Rural areas are fairing better than their metro peerstheir metro peers.

    Metro and Non-Metro Employment Growth

    2.5

    3.0

    2.5

    3.0 Annual Percent Change (three month moving average)

    1.5

    2.0

    2.5

    1.5

    2.0

    2.5

    Metro

    0.5

    1.0

    0.5

    1.0 Non-Metro

    -0.5

    0.0

    -0.5

    0.0

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    -1.0 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

    -1.0

    Source: BLS

  • Rural Home Price Appreciation since Q1:2007 (Existing Single-Family Homes)(Existing Single Family Homes)

    5 1% or more 0 to 2 4% 5 1% or more

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    -5.1% or more -5.0% to 0

    0 to 2.4% 2.5% to 5%

    Source: OFHEO

    5.1% or more

  • Rural areas have fewer foreclosures and are further along in resetsare further along in resets.

    Subprime ARM Loans (as of April 2008)Percent

    Total Subprime Loans (as of April 2008) Percent

    8

    9

    10

    50

    60 Percent Percent

    Non- Metro

    5

    6

    7

    30

    40 Metro

    Non- Metro

    Metro

    3

    4

    5

    20

    30

    0

    1

    2

    C tl i 90 D 0

    10

    Al d 0 11 12 23 24

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    Currently in Foreclosure

    90+ Days Delinquent

    Already Reset

    0-11 months

    12-23 months

    24+ months

    Source: Federal Reserve Board of Governors

  • Falling Asset Prices and High Debt Levels are a Recipe for Bankruptcyare a Recipe for Bankruptcy.

    Domestic Business Debt Outstanding

    120 120 Percent of GDP

    Financial Business

    80

    100

    80

    100 Households

    40

    60

    40

    60

    Nonfinancial

    20 20

    Nonfinancial Business

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    0 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006

    0

    Source: Federal Reserve Board of Governors

  • Financial market stress remains elevated.

    LIBOR-OIS Spread

    300

    350

    300

    350

    1 month 3 month

    Basis Points

    200

    250

    200

    250

    3 month

    100

    150

    100

    150

    0

    50

    0

    50

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

    Feb-07 Jun-07 Sep-07 Jan-08 Apr-08 Aug-08 Oct-08 Nov-08 Dec-08

    Source: Federal Reserve Board of Governors

  • Federal Reserve Bank of Kansas City O h B hOmaha Branch

    Presentation available at www.kansascityfed.org/omaha

    FEDERAL RESERVE BANK OF KANSAS CITY Regional, Public, and Community AffairsPhotos courtesy of USDA

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