Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

NAHREP - Secondary Marketing Conference


Published on

Presentation to the National Association of Hispanic Realtors Secondary Mortgage Marketing Conference

  • Be the first to comment

  • Be the first to like this

NAHREP - Secondary Marketing Conference

  1. 1. Specially Prepared for: NAHREP’s 2008 Hispanic Marketing Convention The Current Status and Outlook for the U.S. Economy, Housing and Mortgage Markets LaVaughn M. Henry, Ph.D. Director, U.S. Economic Analysis The PMI Group, Inc. Eugenio J. Alemán, Ph.D. Senior Economist & VP Wells Fargo Economics Jointly Presented by: September 28, 2008
  2. 2. Presentation Outline <ul><li>The National Economy </li></ul><ul><li>U.S. GDP Trends </li></ul><ul><li>Consumer Spending and Inflation </li></ul><ul><li>The Labor Markets </li></ul><ul><li>The Credit Markets </li></ul><ul><li>The Housing and Mortgage Markets </li></ul><ul><ul><li>Trends in Home Sales </li></ul></ul><ul><ul><li>Housing Supply </li></ul></ul><ul><ul><li>Regional Outlook for House Price Appreciation </li></ul></ul><ul><ul><li>The Mortgage Markets </li></ul></ul><ul><li>The Outlook: Where Do We Go From Here? </li></ul><ul><ul><li>Potential Impact of the Financial Restructuring </li></ul></ul><ul><ul><li>Reinvigorating Growth While Reducing Market Risk </li></ul></ul><ul><ul><li>Effect on Latino Homeownership </li></ul></ul>
  3. 3. The National Economy
  4. 4. GDP Growth is Positive, but Weak… Source: Bureau of Economic Analysis
  5. 5. … but Growth in Demand has Fallen to Near Zero.
  6. 6. Consumer Confidence has Fallen, but Consumer Spending has not fallen dramatically… Source: Bureau of Economic Analysis / Conference Board
  7. 7. … but Consumer Inflation is Rising and the Outlook Remains Uncertain …
  8. 8. … Especially as Core Inflation Continues to Increase.
  9. 9. … and Producer Prices Are Not Showing any Signs of Relief.
  10. 10. Unemployment is currently at 6.1%; already at the lower end of a recessionary environment
  11. 11. The Federal Reserve has a very tough job going forward, with both inflation and unemployment increasing
  12. 12. In the 1970s and 1980s we called this combination of events “stagflation”
  13. 13. Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall. All the king's horses, And all the king's men, Couldn't put Humpty together again.
  14. 14. The U.S. Economy sat on a wall, The U.S. Economy had a great fall. All the king's Treasury-men, And all the king's Federal Reserve-men, Couldn't put The U.S. Economy together again. On this side of the wall: Inflation & stagnation: stagflation On this side of the wall: Japan-like & 1930’s depression The Humpty- Dumpty Economy
  15. 15. The Housing and Mortgage Markets
  16. 16. Existing Home Sales are Flattening Out, but at Significantly Lower Levels… Source: National Association of Realtors / Moody’s
  17. 17. … while New Home Sales Continue to Decline. Source: National Association of Realtors / Moody’s
  18. 18. But Inventories of Unsold Properties Remain at Near Record Levels… Source: National Association of Realtors / U.S. Census Bureau
  19. 19. Source: U.S. Census Bureau … despite the fact that Homebuilders have Dramatically Slowed New Construction.
  20. 20. In General, House Prices are Still Declining, but the Rate of Decline is Slowing in Many Areas Source: Loan Performance Corporation
  21. 21. The PMI U.S. Market Risk Index <ul><li>Proprietary econometric model developed by The PMI Group, Inc. that estimates the probability that prices will fall in each of the nation’s 381 MSAs by the end of the next two years. </li></ul><ul><li>Based on OFHEO’s quarterly house price index for conventional, conforming loans. </li></ul><ul><li>Considers factors including price movement, housing affordability, local employment conditions, housing supply and foreclosures. </li></ul><ul><li>Utilizes more than 25,000+ observations of MSAs and quarterly combinations </li></ul><ul><li>All of the Model’s Primary Econometric Determinants are Statistically Significant at the 99% level or greater </li></ul>
  22. 22. Geographic Distribution of House Price Risk 2nd Quarter 2008 – 2 nd Qtr 2010
  23. 23. * <ul><li>MBA: Volume Index: Mortgage Loan Applications for Refinancing </li></ul><ul><ul><li>SA, Mar-16-90=100 </li></ul></ul><ul><li>MBA: Volume Index: Mortgage Loan Applications for Purchase </li></ul><ul><ul><li>SA, Mar-16-90=100 </li></ul></ul><ul><li>Mortgage Applications (US).EMF (SURVEYW) MBAMR / MBAMP 1030606-1080530 </li></ul>Demand for Mortgages has Risen Recently…
  24. 24. … but Lenders Continue to Tighten Lending Standards… Source: Federal Reserve Board
  25. 25. … as Foreclosures Continue to Increase… Source: Mortgage Bankers Association
  26. 26. ..thus Driving the Growth in Bank Credit to Zero.
  27. 27. The Outlook: Where Do We Go From Here?
  28. 28. <ul><li>Financial Solvency </li></ul><ul><ul><li>Will improve as confidence re-enters markets. This will take time. </li></ul></ul><ul><ul><li>Consolidation of institutions likely to continue over the long-term as push toward market efficiency, financial solvency, and regulatory oversight increases. </li></ul></ul><ul><li>Lending Volumes </li></ul><ul><ul><li>Near Term - Lending volumes will remain weak in response to low capital levels </li></ul></ul><ul><ul><li>Long Term – Lending volumes will expand as market confidence expands and financial solvency improves </li></ul></ul><ul><li>Interest Rates </li></ul><ul><ul><li>Higher interest rates if inflation continues to rise </li></ul></ul><ul><ul><li>Higher interest rates because of shrinkage of the financial sector </li></ul></ul>Possible Implications of the Federal Bailout of the Financial Sector on the Mortgage Market
  29. 29. Reinvigorating Growth While Reducing Market Risk <ul><li>Increased Capitalization of Institutions will Remain the Focus </li></ul><ul><ul><li>Increased market oversight will become standard </li></ul></ul><ul><ul><li>Role of the GSEs will become the focus of debate in 2009 </li></ul></ul><ul><li>Lending Standards Will Evolve to Meet Market Needs </li></ul><ul><ul><li>Equity requirements are unlikely to be reduced dramatically in the near-term </li></ul></ul><ul><ul><li>Loan modifications are likely to increase in the near term </li></ul></ul><ul><li>Foundation of Market Growth will Increase as 2009 Unfolds </li></ul><ul><ul><li>Pent-up demand continues to increase </li></ul></ul><ul><ul><li>Improved housing affordability is the “insurance policy” for renewed future growth </li></ul></ul>
  30. 30. Effect on the Latino Homeownership <ul><li>Market Reality #1: </li></ul><ul><ul><li>Minorities are normally more vulnerable to a credit market downturn, and this is not going to be the exception </li></ul></ul><ul><li>Market Reality #2: </li></ul><ul><ul><li>Minorities are normally more affected by an economic recession </li></ul></ul><ul><li>Market Reality #3: </li></ul><ul><ul><li>Opportunities for future lending and homeownership growth remain greatest in the historically underserved minority market, of which Latinos represent one of the largest populations </li></ul></ul><ul><li>Market Reality #4: </li></ul><ul><ul><li>Affordable lending programs will not totally exit the market, but are likely to be adjusted to reflect new market realities that require higher equity participation </li></ul></ul><ul><li>Market Reality #5: </li></ul><ul><ul><li>Sustainable homeownership is the key to wealth accumulation in the Latino community and the financial crisis does not change this fact. </li></ul></ul>