Freddie Mac · OTC:FMCC
Freddie Mac — Investor Day (April 2023)
36 slides from Freddie Mac's investor day presentation, Apr 20, 2023
Slide 1: Economic and Housing Research: Financial Stress, Affordability, Migration
Economic and Housing Research: Financial Stress, Affordability, Migration New research leveraging unique data that increases our understanding of housing market risk and opportunities Public Prepared by Freddie Mac © Freddie Mac
Slide 2: Today's Speaker
Today’s Speaker Leonard Kiefer Deputy Chief Economist, Economic and Housing Research Leonard (Len) Kiefer is an economist who helps people understand what’s going on in the economy, housing, mortgage markets. Len joined Freddie Mac in 2009 and has served as Deputy Chief Economist since December 2012
Slide 3: Our Agenda
Our 1. The U.S. Economy Under Stress Stress is building in the economy, inflation remains high, Agenda the growth outlook darkens, will resilient consumers power through? 2. Affordability Challenged by Higher Rates Even though higher rates price out millions, millions more potential first-time buyer
Slide 4: The U.S. Economy Under Stress
The U.S. Economy Under Stress Stress is building in the economy, inflation remains high, the growth outlook darkens, will resilient consumers power through? Public Prepared by Freddie Mac © Freddie Mac
Slide 5: The Probability of a Recession in the Next 12 Months is Ramping Up
The Probability of a Recession in the Next 12 months is Ramping Up Moody's Analytics New York Fed 100 100 86.5 75 75 57.8 50 50 25 25 0 0 Bloomberg Cleveland Fed 100 100 65 63.9 75 75 50 50 25 25 0 0 Source: Moody’s Analytics, NY Fed, Bloomberg, Cleveland Fed Public Investor Day – April 20, 2023 Pre
Slide 6: Measuring Mortgage Market Credit Conditions with Daily Conditional Mortgage Rate Spreads
Measuring Mortgage Market Credit Conditions with Daily Conditional Mortgage Rate Spreads Daily conditional mortgage rate spreads are a modified version of conditional mortgage rate spreads as originally defined in: Justiniano, A., Primiceri, G. E., & Tambalotti, A. (2022). The mortgage rate conundru
Slide 7: Financial Conditions Tightened Following SVB Failure, but Spreads have Normalized
Financial Conditions Tightened Following SVB Failure, but Spreads have Normalized in the Past Few Weeks Timeline of Recent Events (A) Pre-COVID in early 2020, financial market conditions were relatively loose (B) When COVID hit conditions rapidly tightened (C) But as the market stabilized conditions
Slide 8: Inflation has Started to Moderate…But A Long Way from Fed Target
Inflation has Started to Moderate…But A Long Way from Fed Target CPI by Frequency of Purchase (YoY%) Frequent Infrequent Contractual 16% 14% Frequent includes eggs: 12% up 36% YoY in March 2023 10% 8% 6% Infrequent includes airline fares: 4% up 18% YoY in March 2023 2% 0% -2% -4% Contractual include
Slide 9: Consumers have Significant Buffers to Deal with a Negative Hit to Incomes
Consumers have Significant Buffers to Deal with a Negative Hit to Incomes Personal Savings 600 Personal Savings 500 Excess Savings: $2.6 trillion Excess Savings 400 Excess Savings Spent 300 Billion 200 100 0 Excess Savings Spent: $0.7 trillion -100 Source: BEA, NY Fed Public Investor Day – April 20,
Slide 10: Economic Growth for 2022 Drops Back to Trend and Expected to Remain Flat in 2023
Economic Growth for 2022 Drops Back to Trend and Economic Growth Expected to Remain Flat in 2023 U.S. Real Gross Domestic Product (GDP) Annualized Growth 5.9% 4.5% 3.2% 3.1% 3.2% 2.3% 2.1% 1.9% 1.9% 1.9% -2.8% Average by Decade 1960's 1970's 1980's 1990's 2000's 2010's 2020 2021 2022 2023F 2024F Not
Slide 11: Affordability Challenged by Higher Rates
Affordability Challenged by Higher Rates Even though higher rates price out millions, millions more potential first-time buyers compete with investors over what little inventory is available Public Prepared by Freddie Mac © Freddie Mac
Slide 12: Mortgage Rates in 2022 had the Largest Ever Annual Increase
Mortgage Rates in 2022 had the Largest Ever Annual Increase 30-Year Fixed Rate Mortgage Rate U.S. weekly average rate 1971-2023 (%) 20% 18% 16% 14% 12% 10% 8% 6.27 as of 4/13/2023 6% 4% 2% 0% Source: Freddie Mac Primary Mortgage Market Survey Public Investor Day – April 20, 2023 Prepared by Freddie
Slide 13: Historically Low Rates in Previous Years Means There is No Refi Incentive Given Today's Rates
Historically Low Rates in Previous Years Means There is No Refi Incentive Given Today’s Rates Outstanding 30-year Conforming Balance by Coupon ($T's) 1.94 Most homeowners with a mortgage have an outstanding rate well below market averages 1.65 (6.27% April 13, 2023). Mortgage rate lock in will freez
Slide 14: Home Sales Cooled Due to Rapidly Rising Rates
Home Sales Cooled Due to Rapidly Rising Rates Total Home Sales (Ths. #, SAAR) 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Sources : National Association of Realtors (NAR); U.S. Census Bur
Slide 15: Softer Demand Has Led to a Rise in Inventory and a Decrease in Velocity of Transactions
Softer Demand Has Led to a Rise in Inventory and a Decrease in the Velocity of Transactions, but Supply Remains Near Record Lows Active Listings Inventory Total Homes For Sale Pct Under Contract Within 3 Days Pct Change from Year Ago Ths. #, SA 80% 20% 5,000 60% 40% 15% 4,000 20% 0% 3,000 10% -20% -
Slide 16: New Housing Completions Improved in 2022, but Still Below Pre-GFC Levels
New Housing Completions Improved in 2022, but Still Below Pre-GFC Levels… U.S. annual housing completions and manufactured home shipments (1000s) 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 9
Slide 17: Entry-Level Supply Had Been Declining for Decades
….and Entry-Level Supply Had Been Declining for Decades… Share of SF Construction that is 1,400 Square Feet or Less 80% 70% 60% 50% Public Records 40% Census 30% 20% 10% 0% Source: Census and CoreLogic Public Investor Day – April 20, 2023 Prepared by Freddie Mac © Freddie Mac
Slide 18: Modest Increase in Investor and Cash Share Since the Pandemic Began
There Has Been a Modest Increase in Investor and Cash Share Since the Pandemic Began and it Has Only Slightly Declined Overall Investor Share Total All-Cash Share 38% 38% 35% 35% 33% 32% 32% 31% 31% 31% 31% 29% 29% 30% 28% 28% 26% 27% 26% 27% 25% 24% 25% 25% 25% 25% 25% 22% Source: Corelogic Public
Slide 19: Individual Investors Are Largest Category of Real Estate Investors
They Receive Little Attention, but Individual Investors Are Largest Category of Real Estate Investors Investor Share of Total Home Sales By Type 25% 20% 15% Individual Investors: 1 property Small Investors: 2-9 properties Mid-Sized: 10-99 properties 10% Institutional Investors: 100 or more propertie
Slide 20: The Market's Mechanism for Providing Affordable Housing is 'Filtering'
The Market’s Mechanism for Providing Affordable Housing is ‘Filtering’ But Not Working in High Priced Markets Due to Demand/Supply Imbalance Older More Affordable Homes Are Filtering Up Due to Older Homes in High-Cost Markets Are Not Filtering Being Raided By Higher Income Households Down at All Due
Slide 21: Higher Mortgage Rates and House Prices Reduced the Number of Potential Homebuyers
Higher Mortgage Rates and House Prices have Dramatically Reduced the Number of Potential Homebuyers Number of "Mortgage Ready" Consumers Who Can Potentially Qualify for a Mortgage 45 Millions 40 $200K 35 mortgage 30 Interest rates going from 3% to 6% reduced the number of mortgage ready consumers 25
Slide 22: Chronic Supply Shortage and High Entry-Level Demand Caused Entry-Level Prices to Soar
Chronic Supply Shortage and High Entry-Level Demand Caused Entry- Level Prices to Soar Entry-Level Home Prices Skyrocket Renters Scramble For Shrinking Inventory Affordability Gap Rapidly Rising Number of Renter Household Per Homes For Sale Cumulative Gap Between Entry Level and High End 40 Home Pri
Slide 23: House Prices Driven by Migration
House Prices Driven by Migration House prices may have turned the corner, buyers are moving for affordability but may be exposing themselves to other risks. Public Prepared by Freddie Mac © Freddie Mac
Slide 24: Home Price Growth Declines have Stabilized
Home Price Growth Declines have Stabilized and Preliminary February/March Data Suggests Modest Increases Freddie Mac House Price Index - January 2023 Freddie Mac House Price Index - January 2023 Percent Change from Year Ago, SA Percent Change from Month Ago, SA 20% 2.5% 15% 2.0% 10% 1.5% 5% 1.0% 2.4
Slide 25: Despite Still Low Supply, Very Large Drop in Demand Has Led to a Decline in Home Prices
Despite Still Low Supply, Very Large Drop in Demand Has Led to a Decline in Home Prices Months' Supply vs House Price Appreciation 30% 25% 2021 Home Price Changes 3 Month Annualized % 20% 1999 to 2009 15% 2020 10% 5% 0% 2010 to 2019 -5% 2022 -10% Jan 2023 -15% -20% 0 2 4 6 8 10 12 Months' Supply of
Slide 26: Prices in Western Markets are Rapidly Declining
Prices in Western Markets are Rapidly Declining, and the Slowdown is Spreading to Majority of Markets, but Some Markets Remain Resilient United States: 1.1% Year-Over-Year Growth February 2023 1 The Freddie Mac House Price Index for the U.S. is a value-weighted average of the state indexes where the
Slide 27: Prices in Western Markets are Rapidly Declining
Prices in Western Markets are Rapidly Declining, and the Slowdown is Spreading to Majority of Markets, but Some Markets Remain Resilient Public Investor Day – April 20, 2023 Prepared by Freddie Mac © Freddie Mac
Slide 28: Increasing Share of Homebuyers Moving Out of Metro and State
Increasing Share of Homebuyers Moving Out of Metro and State Share of Homebuyers by Type of Move Share of Homebuyers by Type of Move Same county Same metro Same state Interstate 75% 20% 70% 15% 65% 10% 60% 5% 55% 0% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Slide 29: Migration to More Affordable Markets is a Large Countervailing Force
Migration to More Affordable Markets is a Large Countervailing Force to Housing Affordability Pressures in Expensive Markets Monthly Net Migration by Metro Size 6,000 Midsize Metro Midsize Metro Pop 500K- 1M 4,000 Pop 250K-500K Small Metro 2,000 Pop Under 250k Micro Area - Monthly Net Migration Larg
Slide 30: Homebuyers are Flocking to Many Small and Medium Markets
Homebuyers are Flocking to Many Small and Medium Markets, Especially in Southeast and Interior Markets Public Investor Day – April 20, 2023 Prepared by Freddie Mac © Freddie Mac
Slide 31: Average Savings by Migrating to a More Affordable Location is $600
Average Savings by Migrating to a More Affordable Location is $600 Monthly Savings By Moving to the Top Affordable Metro Compared to Staying in the Same Metro San Francisco, CA Sacramento, CA, $1,300 New York, NY-NJ-PA Philadelphia, PA-NJ-DE-MD, $1,100 Austin, TX San Antonio, TX, $1,000 San Diego, C
Slide 32: Buyers Seeking Affordability are Moving to Areas with High Exposure to Wildfire, Drought and Hurricanes
Buyers Seeking Affordability are Moving to Areas that have High Exposure to Wildfire, Drought and Hurricanes Average Net Migration* 140,000 (October 2021 through October 2022) 120,000 100,000 80,000 60,000 Net Migration 40,000 20,000 0 -20,000 -40,000 -60,000 Wildfire Drought Hurricane Coastal Flood
Slide 33: Summary
1. The U.S. Economy Under Stress Summary Stress is building in the economy, inflation remains high, the growth outlook darkens, will resilient consumers power through? 2. Affordability Challenged by Higher Rates Even though higher rates price out millions, millions more potential first-time buyers c
Slide 34: is therefore provided on an “as is” basis, with no warranties of any kind
Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Economic & Housing Research group, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results,
Slide 35: Questions?
Questions? Public Prepared by Freddie Mac © Freddie Mac
Slide 36: Thank You
Thank You Public Prepared by Freddie Mac © Freddie Mac