Doug Duncan shares his outlook on the economy with SJREI.

1. Private Forces Move to the Fore
Doug Duncan, Chief Economist
Fannie Mae
October 2, 2014
© 2012 Fannie Mae. Trademarks of Fannie Mae. Confidential - Internal Distribution
1

2. 2
Disclaimer
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's
Economic & Strategic Research (ESR) group included in these materials should not
be construed as indicating Fannie Mae's business prospects or expected results,
are based on a number of assumptions, and are subject to change without notice.
How this information affects Fannie Mae will depend on many factors. Although the
ESR 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.
Changes in the assumptions or the information underlying these views could
produce materially different results. The analyses, opinions, estimates, forecasts,
and other views published by the ESR 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.

3. Rosy Expectations for 2014 Have Come Down After a Bumpy First Half
Blue Chip Consensus Forecast for 2014 Real GDP Year-over-Year Growth, by date
3.0%
2.7%
2.4%
2.1%
1.8%
1.5%
Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14
Source: Blue Chip Economic Indicators Confidential - Internal Distribution 3

4. 4
The Second Quarter Rebound is Broad-Based
Contribution to Real GDP Annualized % Change
0.8%
0.7%
0.3%
-1.2%
-0.6%
1.7%
0.2%
1.7%
4.0%
-0.2%
-1.7%
-0.2%
0.2%
-2.1%
GDP
Personal Consumption Expenditures
Nonresidential Fixed Investment
Residential Fixed Investment
Change in Private Inventories
Net Exports of Goods and Services
Government Consumption and Investment
2014 Q1
2014 Q2
-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Source: Bureau of Economic Analysis Confidential - Internal Distribution

5. Concerns About the Direction of the Economy May be Weighing
on the Housing Recovery
Source: Fannie Mae National Housing Survey Confidential - Internal Distribution 5

6. Consumer Spending on Goods Surges
Real Personal Consumption Expenditures (SAAR, % Change Annual Rate)
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
Services
Goods
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2011 2012 2013 2014
Source: Bureau of Economic Analysis Confidential - Internal Distribution 6

7. Consumer Spending on Healthcare Services Remains a Question Mark
Estimate of Real Healthcare Spending Growth in Q1 2014 (SAAR, Quarterly Annualized % Change)
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
First estimate Second estimate Third estimate
Source: Bureau of Economic Analysis Confidential - Internal Distribution 7

8. Economic Activity Picks Up in Early Q3
65
60
55
50
45
40
35
30
ISM Nonmanufacturing Composite Index (SA)
ISM Manufacturing Composite Index (SA)
9-Year High
3-Year High
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Index (50+ Indicates Expansion)
Source: Institute for Supply Management Confidential - Internal Distribution 8

9. After Six Consecutive Months of Payrolls Growing Over 200K,
Job Growth Slows in August
12%
10%
8%
6%
4%
2%
0%
900
600
300
0
-300
-600
-900
Total Nonfarm Employment (SA, Thousands, Left Axis)
Civilian Unemployment Rate (SA, Right Axis)
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: Bureau of Labor Statistics Confidential - Internal Distribution 9

10. The Recovery* of the Full-Time Employment to Working Age
Population Ratio Will Be Slow…
Seasonally Adjusted, December 2007 = 100
110
105
100
95
90
85
80
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
Total Nonfarm Employment
Full-Time Employed Persons
Ratio of Total Nonfarm Employment to Working Age Population
Ratio of Full-Time Employment to Working Age Population
*Data starting in August 2014 are forecasted using the BLS labor force projections and assuming the prior year of employment
growth remains constant.
Source: Bureau of Labor Statistics Confidential - Internal Distribution 10

11. 11
…But Participation Has Fallen Considerably, for Reasons Both
Structural and Cyclical
Confidential - Internal Distribution
Civilian Labor Force Participation Rate, 16 yr +
(SA, %)
Labor Force Participation Rate (Indexed,
Recession Trough=100)
106
104
102
100
98
96
94
1975
1982
1991
2001
2009
-12 12 36 60
Months after Trough
70
68
66
64
62
60
58
56
'76
'78
'80
'82
'84
'86
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
Source: Bureau of Labor Statistics
United States
California

12. Labor Force Participation Has Declined for Both
Men and Women in the Current Cycle
Labor Force Participation Rate (SA, %)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Male
Female
'48 '51 '54 '57 '60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14
Source: Bureau of Labor Statistics Confidential - Internal Distribution 12

13. Though Most Jobs Created In the Past Few Years Have Been Full Time,
the Total is Still Short of the Peak and Part Time Jobs Remain Elevated
13
(SA, Millions) (SA, Millions)
29
28
27
26
25
24
23
22
Confidential - Internal Distribution
124
122
120
118
116
114
112
110
Full-Time (Left Axis)
Part-Time (Right Axis)
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: Bureau of Labor Statistics

14. 14
State Level Payroll Growth is More Geographically Concentrated than
In Most Prior Recoveries
Confidential - Internal Distribution
100
90
80
70
60
50
40
30
20
10
0
1960Q2
1963Q2
1966Q2
1969Q2
1972Q2
1975Q2
1978Q2
1981Q2
1984Q2
1987Q2
1990Q2
1993Q2
1996Q2
1999Q2
2002Q2
2005Q2
2008Q2
2011Q2
2014Q2
2017Q2
State Nonfarm Payroll Growth Diffusion (Index, 0-100)
Recession History Average, Economic Expansions Forecast
Source: Bureau of Labor Statistics, Fannie Mae Economic & Strategic Research Group

15. 15
House Price and Payroll Growth are Associated and Vary By State
*North Dakota is an outlier that is outside the range of the graph margins. Both cumulative payrolls and house price growth
over the period were 25 percent.
Confidential - Internal Distribution
Source: U.S. Bureau of Labor Statistics, FHFA HPI Purchase-Only Index
Correlation Coefficient: 0.64

16. Household Debt-to-Income Ratio Normalizes to Trend
140%
120%
100%
80%
60%
40%
20%
'52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02 '07 '12
Household Debt as a Share of Disposable Personal Income Trendline: 1952-2000
Source: Federal Reserve Board, Bureau of Economic Analysis Confidential - Internal Distribution 16

17. 17
Leading Indicators Point to Coming Wage Inflation Pressure
as Job Gains Continue…
Net (SA, %) Net (SA, %)
38%
30%
23%
15%
8%
0%
Confidential - Internal Distribution
24%
20%
16%
12%
8%
4%
Source: National Federation of Independent Business
-8%
0%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Percent Planning to Raise Worker Compensation (Left Axis)
Percent Raising Worker Compensation Over Past 3-6 Months (Right Axis)

18. 18
…Is the Fed Behind the Curve?
12%
10%
8%
6%
4%
2%
Confidential - Internal Distribution
(SA, $/Hour Year-Over-Year % Change)
0%
5%
4%
3%
2%
1%
0%
'85 '90 '95 '00 '05 '10
Average Hourly Earnings: Prod & Nonsupervisory: Total Private (Left Axis)
Federal Funds Target Rate (Right Axis)
Source: Federal Reserve Board, Bureau of Labor Statistics

19. The Fed Plans to Wind Down Asset Purchases This Year
Confidential - Internal Distribution 19
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
U.S. Treasuries MBS
Source: Federal Reserve Board – Fannie Mae ESR Projection based on prior Fed announcements

20. 20
Market-Wide Credit Scores For Purchase And Refinance Loans
Confidential - Internal Distribution
Average Credit Score
780
760
740
720
700
680
660
640
Credit Score of Purchase Money Mortgages* Credit Score of Refi Loans*
* Credit scores are calculated as a weighted average of the entire mortgage market based on loan balance at origination for the segment
indicated; Investor weights applied to adjust for CoreLogic’s uneven coverage by investor.
Sources: CoreLogic, Fannie Mae Economic & Strategic Research Group

21. Confidential - Internal Distribution 21
Household Formation Disappoints
Household Formation (Thousands of Households)
2,500
2,000
1,500
1,000
500
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: Census Bureau Housing Vacancy Survey

22. The Share of Young Adults Living at Home Continues to Edge Higher
25-34 Year Olds Living at Home with Parents (%)
19%
18%
17%
16%
15%
14%
13%
12%
11%
10%
CPS Annual Social and Economic Supplement
American Community Survey
2006 2007 2008 2009 2010 2011 2012
Source: Census Bureau Confidential - Internal Distribution 22

23. 23
Parents are Generally Supportive of Their Adult Children Living at
Home, Though Reasons May Differ
*Employment status for the parent who indicates that they are the “primary financial decision maker” of the household.
Confidential - Internal Distribution
Employment situation for
households with…
Adult Children
Living at Home
Ages 18-22
Adult Children
Living at Home
Ages 23-34
Parent* full time employed 54% 38%
Adult child full time employed 20% 48%
Please tell me whether you would prefer that [he/she] continues to live in your home or finds
alternate living arrangements not in your home.
I prefer that they continue to live in my home 72% 63%
I prefer that they find alternate living
arrangements not in my home
20% 30%
Source: Fannie Mae National Housing Survey

24. 24
Number of Married Households Declining in Younger Age Cohorts
Confidential - Internal Distribution
Common First-Time Home Buying
Age
Millions of HH
Source: Census Bureau

25. Homeownership Has Fallen Even Among Young Adults Who Are
“Prime”* Home Buying Candidates
100
90
80
70
60
50
40
30
20
10
0
All 30-32 Year-
Olds
30-32 Year-Old
"Prime" Home
Buying
Candidates
30-32 Year-Old
"Prime" Home
Buying
Candidates,
Non-Hispanic
White Alone
2000 2006 2009 2012
All 30-32 Year-
Olds
30-32 Year-Old
"Prime" Home
Buying
Candidates
30-32 Year-Old
"Prime" Home
Buying
Candidates,
Non-Hispanic
White Alone
Homeownership Rate (percent)
ALL HOUSEHOLDERS RECENT MOVERS ONLY
*Prime homebuyers are defined as upper income households with householders in their early 30s who have college educations and
are married with children.
Source: Census Bureau Confidential - Internal Distribution 25

26. In Fact, All of the Net Household Formation Since
the Recession Ended Has Been in Rentals
Net Change in Households since Q2 2009 (Millions)
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
Owner Occupied Renter Occupied
Source: Census Bureau Housing Vacancy Survey Confidential - Internal Distribution 26

27. Both Single-Family and Multifamily Building Recently Disappoint
SA, Thousands of Units SA, Thousands of Units
600
500
400
300
200
100
0
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Single-Family (Left Axis) Multifamily (Right Axis)
Source: Census Bureau Confidential - Internal Distribution 27

28. Homebuilder Confidence Has Diverged from Permit Issuance as
Builders are More Profitable with Fewer Units
100
80
60
40
20
0
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Single-Family Residential Building Permits (SAAR, Millions of Units, Left Axis)
Home Builder Expectations For Sales of New Single-Family Homes: Next 6 Mo (SA, Index, All Good=100, Right Axis)
Source: Census Bureau, National Association of Home Builders/Wells Fargo Confidential - Internal Distribution 28

29. Existing Home Sales and Pending Home Sales Retreat in August
130
120
110
100
90
80
70
7,500
7,000
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Existing Home Sales (SAAR, Thousands, Left Axis)
Pending Home Sales Index (SA, Right Axis)
Source: National Association of REALTORS® Confidential - Internal Distribution 29

30. 30
Year-over-Year % Change
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
Major Measures of Home Prices Show Moderating Growth
FHFA House Price Index: Purchase Only, United
States Change)
CoreLogic National House Price Index
S&P/Case-Shiller Home Price Index: Composite
20
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Source: S&P/Case-Shiller, CoreLogic, Federal Housing Finance Agency Confidential - Internal Distribution

31. Consumers See Home Price Growth Slowing as Well, but the Shrinking
Gap Between Buyer and Seller Confidence Could Bring More Inventory
Share of Respondents Indicating it is a…
Confidential - Internal Distribution 31
Average 12-Month Home Price Expectation (%)
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Source: Fannie Mae National Housing Survey
80%
70%
60%
50%
40%
30%
20%
10%
0%
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Good Time to Buy Good Time to Sell

32. Mortgage Market Is Switching to a Purchase Market,
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014*
2015*
Confidential - Internal Distribution 32
Which Means Less Production
Mortgage Originations (NSA, 1-4 Unit, Billions of $)
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
*Fannie Mae Forecast
Source: Fannie Mae Economic & Strategic Research Group
Purchase Refinance

33. 33
Conditions in California

34. California Unemployment Lags the Nation’s,
0.0 2.0 4.0 6.0 8.0
but San Jose’s Job Market is Healthy
United States (SA, %)
California (SA, %)
San Jose-Sunnyvale-Santa
Clara, CA (SA, %)
San Francisco-Oakland-
Fremont, CA (SA, %)
San Diego-Carlsbad-San
Marcos CA (SA, %)
Riverside-San Bernardino-
Ontario CA (SA, %)
Los Angeles-Long Beach-
Santa Ana, CA (SA, %)
1000
950
900
850
800
750
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Jan-00
Dec-00
Nov-01
Oct-02
Sep-03
Aug-04
Jul-05
Jun-06
May-07
Apr-08
Mar-09
Feb-10
Jan-11
Dec-11
Nov-12
Oct-13
Labor Force, San Jose-Sunnyvale-Santa Clara, CA (SA, Thous)
Unemployment Rate, San Jose-Sunnyvale-Santa Clara, CA (SA, %)
Unemployment Rate, United States (SA, %)
Unemployment Rate, California (SA, %)
Source: Bureau of Labor Statistics 34

35. 35
California Median Household Income Remains Above The Nation’s
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: Census Bureau
Median Household Income: United States
Median Household Income: California

36. 36
In Florida, Texas, and California, People are More Likely to Think Their
Personal Financial Situation Will Get Better Over the Next Year Than the
General Population
Looking ahead one year, do you expect your personal financial situation to get much
better, somewhat better, stay about the same, get somewhat worse, or get much worse?
Better
Stay About
The Same
Worse
* Denotes state results are significantly different than the general population at the 95% confidence level
Source: Fannie Mae National Housing Survey

37. 37
People in California, Florida, and Texas Expect Home Prices to Rise
More Over the Next Year Than the General Population
• Home prices in California are expected to rise the more than in Florida and Texas and nationwide
During the next 12 months, do you think home prices in general
will go up, go down, or stay the same as where they are now? Go Up Go Down
Stay The
Same
GP Florida Texas California
Average 12 Month Home
Price Change Expectation:
2.58%
Average 12 Month Home
Price Change Expectation:
3.55%
Average 12 Month Home
Price Change Expectation:
3.11%
* Denotes state results are significantly different than the general population at the 95% confidence level
Average 12 Month Home
Price Change Expectation:
4.08%*
Source: Fannie Mae National Housing Survey

38. 38
More People In California and Florida Expect Mortgage Interest Rates
to Go Up During the Next 12 Months Than in Texas
During the next 12 months, do you think home mortgage interest rates will go up, go down, or
stay the same as where they are now?
Go Up Stay the same Go Down
* Denotes state results are significantly different than the general population at the 95% confidence level
Source: Fannie Mae National Housing Survey

39. 39
People in Florida, Texas, and California are More Likely to Think it
Would be Difficult to Get a Mortgage Today Than the General
Population
Do you think it would be very difficult, somewhat difficult, somewhat easy, or very easy
for you to get a home mortgage today?
Easy Difficult
* Denotes state results are significantly different than the general population at the 95% confidence level
Source: Fannie Mae National Housing Survey

40. California Prices Have Seen Healthy Appreciation…
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
IHS Global Insight, Economics and Country Risk 40
600,000
500,000
400,000
300,000
200,000
100,000
0
Q1'00
Q1'01
Q1'02
Q1'03
Q1'04
Q1'05
Q1'06
Q1'07
Q1'08
Q1'09
Q1'10
Q1'11
Q1'12
Q1'13
Q1'14
CA Existing Median SF Home Price ($)
CA New Median SF Home Price ($)
NAR Median Sales Price: Total Existing Homes, United States ($)
0
Q1'00
Q1'01
Q1'02
Q1'03
Q1'04
Q1'05
Q1'06
Q1'07
Q1'08
Q1'09
Q1'10
Q1'11
Q1'12
Q1'13
Q1'14
CA Existing Home Mortgage Originations
CA New Home Mortgage Originations
Source:

41. 41
…Which Has Helped Reduce the Share of
California Underwater Borrowers
United States, 12.6%
*Data as of June 30, 2014
Source: CoreLogic

42. Homebuilders Are Still Timid But the Improving Home Prices and the
2,500
2,000
1,500
1,000
500
0
250
200
150
100
50
0
Potential for Profit Should Push Them to Build
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Housing Starts: California (SAAR, Thous.Units, LEFT AXIS) US Housing Starts (SAAR, Thous.Units, RIGHT AXIS)
Source: Census Bureau, Bank of Tokyo-Mitsubishi 42

43. 43
California SDQ Rate Is Better Than U.S.’s
(NSA, %)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
Source: Mortgage Bankers Association
(NSA, %)
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Mar-00
Jan-01
Nov-01
Sep-02
Jul-03
May-04
Mar-05
Jan-06
Nov-06
Sep-07
Jul-08
May-09
Mar-10
Jan-11
Nov-11
Sep-12
Jul-13
May-14
Mortgage Payments Past Due 90+ Days: U.S. (NSA, %)
Mortgage Payments Past Due 90+ Days: California (NSA,
%)
0.0
Mar-00
Jan-01
Nov-01
Sep-02
Jul-03
May-04
Mar-05
Jan-06
Nov-06
Sep-07
Jul-08
May-09
Mar-10
Jan-11
Nov-11
Sep-12
Jul-13
May-14
Mortgage Payments Past Due 30-59 Days: U.S. (NSA,
%)
Mortgage Payments Past Due 30-59 Days: California
(NSA, %)

44. Confidential - Internal Distribution 44
Speaker Biography
Douglas G. Duncan is Fannie Mae’s Senior Vice President and Chief Economist.
He is responsible for managing Fannie Mae’s Economic & Strategic Research
Group and oversees corporate strategy. In this leadership role, Duncan provides
all economic, housing, and mortgage market forecasts and analyses, and serves
as the company’s thought leader and spokesperson on economic and mortgage
market issues.
Prior to joining Fannie Mae, Duncan was Senior Vice President and Chief
Economist at the Mortgage Bankers Association. His experience also includes
service as a LEGIS Fellow and staff member with the Committee on Banking,
Finance, and Urban Affairs for Congressman Bill McCollum in the U.S. House of
Representatives, and work on the Financial Institutions Project at the U.S. Department of Agriculture.
He has been elected to the Board of Directors for the National Association of Business Economists, is
a member of the American Economics Association and the American Real Estate and Urban
Economics Association, and is past president of the Housing Statistics Users Group.
Named one of Bloomberg / BusinessWeek’s 50 Most Powerful People in Real Estate and one of
Inman News’ 100 Most Influential Real Estate Leaders for 2013, Duncan is a frequent speaker on
national and state economic, housing, and mortgage market conditions.
Duncan received his Ph. D. in Agricultural Economics from Texas A&M University and his B.S. and
M.S. in Agricultural Economics from North Dakota State University.

45. 45
Contact Information
fanniemae.com/portal/research-and-analysis/
Doug Duncan, Senior Vice President & Chief Economist
Fannie Mae
3900 Wisconsin Avenue, NW
Mail Stop 1H-2N/01
Washington, DC 20016
(o) 202-752-0160
(c) 202-409-5913
(fax) 202-752-4441
douglas_g_duncan@fanniemae.com
Confidential - Internal Distribution