Moody's Corporation · NYSE:MCO
Moody's — Housing Bubble Webinar (June 2021)
25 slides from Moody's's conference presentation, Jun 22, 2021
Slide 1: Are We in A Housing Bubble?
Are We in A Housing Bubble? Mark Zandi, Chief Economist Cris DeRitis, Deputy Chief Economist June 2021 Todd Metcalfe, Senior Economist
Slide 2: Housing Is Hot
1 Housing Is Hot
Slide 3: House Prices Sizzle…
House Prices Sizzle… Single family house prices by price tier, index: 2000 = 100 400 Less than 75% of Median 350 75%-99.9% of Median 100% - 124.9% of Median 300 125% of Median and Greater 250 200 150 100 00 05 10 15 20 Sources: CoreLogic, Moody’s Analytics June 2021 3
Slide 4: …Across the Country
…Across the Country Single family house prices, % yr ago, April 2021 Fastest US growth: Growth: Idaho 13.2% Slowest Growth: Sources: CoreLogic, Moody’s Analytics Louisiana June 2021 4
Slide 5: Housing Will Cool Off
2 Housing Will Cool Off
Slide 6: Interest Rates Are Set To Normalize…
Interest Rates Are Set To Normalize… 10-year Treasury yield decomposed, % 2.75 Inflation Expectations 2.25 Real Rates 1.75 1.25 10-yr T-yield has risen 100 bp since low in August 2020, 0.75 of which 80 bps is due to higher inflation expectations 0.25 and 20 bps to higher real rate. -0.25 -0.75 -1.25
Slide 7: …Pushing Mortgage Rates Higher
…Pushing Mortgage Rates Higher % 18 16 14 Nominal potential GDP growth 10-yr yield, 4-qrt MA 12 Fixed mortgage rate, 4-qrt MA 10 8 6 4 Nominal GDP growth and 10-yr Treasury 2 yields have averaged 6.2% since 1970 0 70 75 80 85 90 95 00 05 10 15 20 Sources: BLS, Moody’s Analytics June 2021 7
Slide 8: Forbearance Cliff Comes Into View
Forbearance Cliff Comes Into View First mortgage loan accommodations, % of loan balances, May 2021 Less than 3% 3.1 – 4.0% 4.1 – 5.0% More than 5% Sources: Equifax, Moody’s Analytics June 2021 8
Slide 9: House Price Valuations Are Stretched
House Price Valuations Are Stretched House price valuation based on ratio of prices to rents Undervalued Overvalued Seriously overvalued Sources: CoreLogic, REIS, Moody’s Analytics June 2021 9
Slide 10: Not a Bubble
3 Not a Bubble
Slide 11: Housing Is in Short Supply…
Housing Is in Short Supply… Vacancy rate, homes for sale and rent, 4 qtr MA, % 5.0 4.5 4.0 3.5 3.0 2.5 2.0 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16 19 Sources: Census Bureau, Moody’s Analytics June 2021 11
Slide 12: …Across Much Of the Country
…Across Much Of the Country Based on 2019 vacancy rate vs historical average, % Adequately Supplied Undersupplied Severely Undersupplied Sources: Census Bureau, Moody’s Analytics June 2021 12
Slide 13: Pent-up Demand As Millennials Enter Their 30s
Pent-up Demand As Millennials Enter Their 30s Population estimate by single age cohort for 2019, mil 5 4 3 2 1 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Sources: Census Bureau, Moody’s Analytics June 2021 13
Slide 14: Homeowners Have A Lot of Equity
Homeowners Have A Lot of Equity Owners’ equity, % of household real estate 90 85 80 75 70 65 60 55 50 45 40 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18 21 Sources: Federal Reserve, Moody’s Analytics June 2021 14
Slide 15: Home Flips Remain Low…
Home Flips Remain Low… Total number of home flips (L), % of total sales (R) 100,000 90,000 Total Flips (L) 19 80,000 Flips as Percent of Repeat Sales (R) 17 70,000 15 60,000 50,000 13 40,000 11 30,000 9 20,000 10,000 7 0 5 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: Moody’s Anal
Slide 16: …In Most Markets
…In Most Markets Flips as a % of sales compared to long-run average Low flip rate Typical flip rate High flip rate Source: Moody’s Analytics Calculated June 2021 16
Slide 17: Sanguine (But Risky) Outlook
4 Sanguine (But Risky) Outlook
Slide 18: Modest HPI Growth, But No Price Declines…
Modest HPI Growth, But No Price Declines… FHFA Purchase-only House Price Index and Trend, 100=1991Q1 600 500 FHFA House Price Index 400 FHFA HPI Trend 300 200 100 0 91 94 97 00 03 06 09 12 15 18 21 24 27 30 33 Sources: FHFA, Moody’s Analytics June 2021 18
Slide 19: …But There Are Alternative Scenarios
…But There Are Alternative Scenarios Case-Shiller home price index, % year ago 20 Baseline (50%ile) Alt. Scenario 0 (4%ile) 15 Alt. Scenario 1 (10%ile) Alt. Scenario 2 (75%ile) Alt. Scenario 3 (90%ile) Alt. Scenario 4 (96%ile) 10 5 0 -5 -10 -15 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21F22F2
Slide 20: Contact Us:
Contact Us: Mark Zandi Chief Economist Moody’s Analytics help@economy.com Cris deRitis Deputy Chief Economist Moody’s Analytics help@moodys.com Todd Metcalfe Senior Economist Moody’s Analytics help@economy.com
Slide 21: Contact Us: Economics & Business Analytics Offices
Contact Us: Economics & Business Analytics Offices West Chester, EBA-HQ London Prague Singapore +1.610.235.5299 +44.20.7772.5454 +420.22.422.2929 +65.6511.4400 121 North Walnut Street, Suite 500 One Canada Square Washingtonova 17 6 Shenton Way West Chester PA 19380 Canary Wharf 110 00 Prague 1 #14-0
Slide 22: June 2021
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liabilit
Slide 23: V-Shaped Recovery
V-Shaped Recovery Prime age employment-population ratio, % 83 81 Full employment 79 77 75 Key forecast assumptions: - Herd immunity by July 73 - $3 trillion Build Back Better plan 71 - Fed raises rates beginning in early 2023 - Normalization of immigration (1m per annum) 69 85 90 95 00 05 10 15 20 S
Slide 24: Robust Housing Demand
Robust Housing Demand Existing and new single-family home sales, mil, SAAR 7.0 6.0 5.0 4.0 Existing homes 3.0 New homes 2.0 1.0 0.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Sources: NAR, Moody’s Analytics June 2021 24
Slide 25: Homebuilding Picks-Up
Homebuilding Picks-Up Single-family and multi-family residential housing permits, mil 2,000 1,800 Single-family 1,600 Multi-family 1,400 1,200 1,000 800 600 400 200 0 00 03 06 09 12 15 18 21 Sources: NAR, Moody’s Analytics June 2021 25