Economic Report and Market Outlook March 3, 2016 Mike Fratantoni Frank Nothaft Chief Economist Chief Economist MBA CoreLogic 1
MBA Economic Outlook 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 Source: MBA Forecast – Feb 2016 2
Markets Drop to Start the Year US 10 Year Treasury Yield and Dow Jones Industrials Index 2.50 18,500 2.24 10 Yr Yield (left axis) 18,000 2.00 1.76 17,500 17,000 1.50 16,640 17,149 16,500 1.00 16,000 15,500 0.50 DJ Index (right axis) 15,000 0.00 14,500 Source: Federal Reserve, NYSE 3
Sharp Drop in Oil Prices Source of Market Volatility 4 Source: EIA, OPIS
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 10-year Treasury Rate Comparison 10-year - Germany Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 10-year - US Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 10-year - Japan Jun-10 Nov-10 Apr-11 5 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15
Job Growth Increased in Q4 2015 Source: BLS 6 6
0 1 2 3 4 5 6 7 Tight Labor Markets Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Ratio of Unemployed Workers Per Job Opening Jun-04 Chart of the Week - February 12, 2016 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 6.8 Source: BLS Jun-10 Dec-10 Jun-11 7 Dec-11 Jun-12 Dec-12 Jun-13 7 Dec-13 Jun-14 Dec-14 Jun-15 1.4 Dec-15
Job Growth in Most Sectors 8
Employment in the Oil States Chart of the Week - January 22, 2016 Indexed Growth of Nonfarm Payroll Employment For "Oil" Sta tes (January 2015 = 100) 102 101 100 99 98 97 CO LA ND OK TX US 96 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 Aug 2015 Sep 2015 Oct 2015 Nov 2015 Source: BLS 9
Wage Growth Modest So Far Wage Growth % (year over year percent change) 4 3.5 3 2.5 2 1.5 1 0.5 Average Hourly Earnings: Total Private Industries (SA, $/Hour) ECI: Wages & Salaries: Civilian Workers (SA, Dec-05=100) 0 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 Source: BLS 10 10
Deficit Projected to Increase 11
Spreads Widening: Recession Risk? 12
Trend of Foreign Capital Flows Into US 13
Dollar Has Appreciated on a Trade-Weighted Basis Source: Federal Reserve 14
Inflation Slowly Increasing (3.0) (2.0) (1.0) 1.0 2.0 3.0 4.0 5.0 6.0 - Source: BLS Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Headline and Core Inflation Trends Apr-10 Jul-10 Year over year percent change All Items Oct-10 Jan-11 Apr-11 Jul-11 All Items exc Food & Energy Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 15 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 1.4 Jan-16
Rates Expected to Increase Source: Federal Reserve, Freddie Mac, MBA Jan 2016 Forecast 16 16
Yield Curve Flattening A Flattening US Yield Curve Yield (%) 3.0 2.5 2.0 1/10/2014 1.5 9/4/2015 1/8/2016 1.0 2/12/2016 0.5 0.0 1 2 3 4 5 6 7 8 9 10 Treasury Maturity (Yrs) Source: MBA, Thomson Reuters 17
Jumbo-Conforming Spread Source: MBA Weekly Applications Survey 18
Refinance Activity Picking Back Up Refinance Index and 30 Yr Fixed Mortgage Rate 6,000 6.00 5,000 5.00 30 yr Fixed Rate 4,000 4.00 Index Rate 3,000 3.00 2,000 2.00 1,000 1.00 Refinance Index - 0.00 Refi Index (left axis) 30 Yr Fixed rate (right axis) Source: MBA Weekly Applications Survey 19
Purchase Slowly Trending Up Purchase Applications Index Seasonally adjusted, March 1990 = 100 500 7.00 450 6.00 400 30-Yr Fixed Rate 5.00 350 Index Value 4.00 Rate 300 3.00 Survey average = 256 250 2.00 200 1.00 150 Purchase Index 100 0.00 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 Purchase Index, SA 30 Yr Fixed rate (right axis) Source: MBA Weekly Applications Survey 20 20
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 21
Home Sales: Up 4 % in 2016, Best since 2007 Non-Distressed Resale up every year since 2011 Home Sales (millions) 10 9 8 Forecast 7 New 6 Short REO 5 4 3 Resale 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 22 Source: CoreLogic REAS MarketTrends through 2015, Forecast averages projections 22 of Fannie Mae, Freddie Mac, MBA, NAR and NAHB.
Months’ Supply, Days on Market, Home -Price Growth Days Home On Price Metro Area U.S. 6.6 months Market Gain Denver 2.2 18 11.4% San Jose 15 12.8% 2.9 Dallas 32 9.1% 3.1 Seattle 3.3 60 9.9% Anaheim 40 4.8% 3.8 Los Angeles 32 6.3% 4.4 Las Vegas 40 4.4% 5.5 Riverside 46 5.8% 6.8 Chicago 59 1.9% 8.4 Cleveland 97 0.1% 8.5 Philadelphia 93 6% 9.4 Miami 104 6.8% 11.8 0 2 4 6 8 10 12 14 Number of Months Source: CoreLogic Home Price Index (percent change, November 23 2014 to November 2015, February 2, 2016 release), CoreLogic Listing 23 data for November 2015 (median Days on Market for sold properties).
U.S. Home Prices Projected to Rise 5% in 2016 Projected to reach prior peak by mid-2017 (but still 18% below 2006 peak in real $) 220 Forecast 200 7% 180 36% 160 140 120 100 80 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 24 Source: CoreLogic Home Price Index TM (March 1, 2016 Release) 24
Price Growth Strongest For Lowest-Priced Houses Cumulative Price Growth Through December 2015 (percent) Since Post-Recession Trough Since December 2014 10% 50% 8% 40% 6% 30% 4% 20% 2% 10% 0% 0% More Than 25% 25% or Less Below Up to 25% Above More Than 25% Below Median Median Median Above Median One Year Ago Price Trough Price Growth Since: Source: CoreLogic HPI, Single-family Detached (March 1, 2016 release); 25 “Post - Recession” is period after June 2009. 25
House Price Performance By State December 2014 to December 2015 United States 5.6% NH 10% 2% 6% WA 1% ME 5% ND 4% VT MT 3% 9% 4% MA 6% 5% MN 4% 8% OR NY 4% SD RI 4% WI ID 3% 1% 4% MI CT 1% 5% WY NJ 1% PA IA 2% 1% 3% 7% DE 2% NE 4% OH 7% IL IN 1% 10% NV MD -1% 4% 2% WV 8% UT VA KY 2% CO DC 4% MO CA KS NC 5% TN 5% 2% 7% 3% 6% 0% ≥ 6% OK SC -2% 6% AR 2% AZ 4 to 5% NM MS GA AL 1 to 3% -2% 6% -2 to 0% LA 1% TX 8% AK FL 6% HI 26 26 Source: CoreLogic HPI (March 1, 2016 Release)
House Price Performance By State December 2006 to December 2015 United States -7.3% NH 2% 0% 48% WA ME 5% -4% ND -7% -9% MT VT 2% 1% MA 19% -7% MN 3% -11% OR NY -7% SD RI -21% WI ID 18% -6% MI CT -21% 9% 10% WY NJ -20% PA -6% IA -21% -2% -29% DE -17% NE OH 0% 0% IL IN -10% 23% NV MD -23% -7% -1% -6% WV UT VA KY 1% CO DC 22% MO CA KS NC 3% TN 7% 10% -2% 1% -23% -15% ≥ 10% OK SC -4% AR -9% AZ -9% 0 to 9% NM GA AL MS -1 to -9% 7% 21% ≤ -10% LA 8% TX -27% AK 10% FL HI 27 27 Source: CoreLogic HPI (March 1, 2016 Release)
Energy-Producing Markets At Risk of Price Dip Deviation of Prices from Fundamental Value (percent) 60% Early&Mid-1980s: Today: Midland 50% New Orleans, and Houston Oklahoma City, Overvalued 40% Houston Overvalued 30% Over- 20% Valued 10% Good 0% Balance -10% Under- -20% Valued -30% 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 28 Source: CoreLogic HPI and HPI Long-term Fundamental Value (through December 2015). 28
Big Drop in Owners with Negative Equity Homeowners with Negative Equity (Millions) 11.6 11.6 12.0 11.4 10.6 10.0 8.0 6.5 6.0 5.2 4.1 4.0 2.0 0.0 2009 2010 2011 2012 2013 2014 2015 29 Source: CoreLogic Equity Report, data as of September of each year.
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