Freddie Mac · OTC:FMCC
Freddie Mac — Q1 2023 Earnings Presentation
29 slides from Freddie Mac's earnings presentation, May 2023
Slide 1: Economic & Housing Market Outlook
Economic & Housing Market Outlook Q1 2023 Research & Insights © Freddie Mac 1
Slide 2: Overview
Overview Economy: The U.S. Economy Under Stress • Economic growth picked up in the second half of 2022; expected to slow down this year. o Prospect of a recession in 2023 rising. • Labor market remains strong with unemployment rate equaling 50-year lows. • Inflation still above the Fed target. Housi
Slide 3: Economy: The U.S. Economy Under Stress
Economy: The U.S. Economy Under Stress © Freddie Mac
Slide 4: Probability of a Recession in Next 12 Months is Increasing
Probability of a Recession in Next 12 Months is Increasing Model Based Measures Moody's Analytics (%) New York Fed (%) 100 100 87 75 75 58 50 50 25 25 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Survey Based Me
Slide 5: GDP Increased at Annual Rate of 1.1% in Q1 2023; Growth Expected to Slow
GDP Increased at Annual Rate of 1.1% in Q1 2023; Economic Growth Expected to Slow in 2023 & 2024 However, not everyone has a recession baked into their forecast… Real Gross Domestic Product GDP Forecast Annual Rate of Change, SA, Quarterly SAAR % 40% Moody's Mar Baseline MBA Mar Forecast Fannie Mae
Slide 6: Labor Market Remains Tight; Unemployment Rate at 3.4%
Labor Market Remains Tight; Unemployment Rate at 3.4% U.S. unemployment rate equals the lowest rate since 1969; black unemployment rate at all-time low All Employees, Total Nonfarm, Monthly Change Unemployment Rate (%) (Thousands of Persons, SA) 20 1,500 April 23’ UR 18 All – 3.4% 1,300 Black – 4.7%
Slide 7: Job Openings Plentiful, but Some Signs of Cooldown are Emerging
Job Openings Plentiful, but Some Signs of Cooldown are Emerging Although there are still more than one job available per unemployed person, talk of job cuts on the rise Job Openings per Unemployed Person 'Labor Shortage' vs. 'Job Cuts' Related Mentions on S&P 2.5 500 Company Earnings Calls 3-Month R
Slide 8: Inflation Remains Above Fed's Target; 'Sticky' Consumer Price Segments
Inflation Remains Above Fed’s Target; ‘Sticky’ Consumer Price Segments Continue Increasing Inflation Measures (YoY %) CPI by Frequency of Purchase (YoY %) CPI Core CPI Frequent Infrequent Contractual 16 8 14 12 6 10 8 4 6 2 4 2 0 0 -2 -2 -4 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2012
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 Cumulative Excess Savings Since March 2020 $ Trillions $3.0T Dec 2021 $2.6T $2.5T Mar 2023 $2.0T 1.9T $1.5T $1.0T $0.5T $0.0T Source: BEA, NY Fed 9 Note: Data as of Mar 2023 © Freddie Mac
Slide 10: Housing Market: Affordability Challenged by Higher Rates; House Prices Resilient
Market: Affordability Challenged by Higher Rates; House Prices Resilient © Freddie Mac
Slide 11: Mortgage Rates Very Volatile Over Last Year; Dispersion Rose Dramatically
Mortgage Rates Very Volatile Over Last Year; Dispersion in Mortgage Rates Rose Dramatically 30-Year Fixed Rate Mortgage Rate 30-Year Fixed Rate Mortgage Dispersion PMMS Weekly Average 0.7% Weekly Standard Deviation 8% 6.39% as of 5/4/2023 0.6% 7% 0.5% 6% 0.4% 5% 0.3% 4% 0.2% 3% 0.1% 2% 0.0% 2005 200
Slide 12: Housing Affordability Plunged on Rising Rates
Housing Affordability Plunged on Rising Rates NAR Fixed Rate Housing Affordability Index Monthly P&I Payment Needed for a Median Priced Home (inflation adjusted, assuming 30-year fixed rate and 20% down) 210 $2,500 190 $2,300 $2,100 170 $1,900 150 $1,700 130 $1,500 110 $1,300 Feb 2023, when $1,100 9
Slide 13: Higher Rates & Prices Reduced Number of Potential Homebuyers
Higher Mortgage Rates & House Prices have Dramatically Reduced Number of Potential Homebuyers Number of "Mortgage Ready" Consumers Who Can Potentially Qualify for a Mortgage $200K mortgage $400K mortgage $600K mortgage 45 40 35 30 Millions Interest rates going from 3% to 6% 25 reduced the number of
Slide 14: New Listings Fall as Rate-Lock Effect Dampens Repeat Buyer Activity
New Listings Fall as Rate-Lock Effect Dampens Repeat Buyer Activity Change in New Listings in 2022/2023 vs. Avg of Share of New Inventory in Total Inventory 2016-2019 30% 2022 2023 10% 25% 5% 0% 20% -5% -10% 15% -15% 10% -20% When rates dipped over summer, listings blipped -25% up, but as rates resu
Slide 15: Rapid Decline in Affordability led to a Contraction in Purchase Market
Rapid Decline in Affordability led to a Contraction in Purchase Market Pending Home Sales Index (SA) MBA Applications Survey: Purchase Activity Index 16mar1990=100, SA 140 400 130 350 120 110 300 100 250 90 200 80 -21% YOY 150 70 +0.8%MOM -35% YOY 60 100 2001 2004 2007 2010 2013 2016 2019 2022 2015
Slide 16: Home Sales Cooled Due to Rapidly Rising Rates & Deteriorating Affordability
Home Sales Cooled Due to Rapidly Rising Rates & Deteriorating Affordability Total Home Sales (Thousands, SAAR) Home Sales – Region (Thousands, SAAR) 9,000 Midwest Northeast South West Total sales for 4,000 2020 and 2021 8,000 were about 1.2 3,500 million above trend 3,000 7,000 2,500 6,000 2,000 1,5
Slide 17: 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. New Housing Supply Low Relative to History 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 70 72 74 76 78 80 82 84 86 88 9
Slide 18: Entry-Level Supply Declining for Decades
….& Entry-Level Supply Declining for Decades… Share of SF Construction that is 1,400 Square Feet or Less 80% 70% Public Records Census 60% 50% 40% 30% 20% 10% 0% 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 202
Slide 19: Entry Level Home Prices 60% Higher Than High End Prices
Chronic Supply Shortage & High Entry-Level Demand Caused Soaring Entry-Level Prices 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 Home Prices –
Slide 20: Home Price Growth Stabilized
Home Price Growth Stabilized Freddie Mac House Price Index - March 2023 (YoY %, Freddie Mac House Price Index - March 2023 SA) 20% 2.5% 15% 2.0% 10% 1.5% 5% 1.0% 1.0% 0% 0.5% 0.3% 0.0% -5% -0.5% -10% -1.0% -15% 2017 2018 2019 2020 2021 2022 2023 2000 2005 2011 2017 2023 Source: Freddie Mac 20 © Fred
Slide 21: Very Large Drop in Demand led to Declining Home Prices
Despite Low Supply, Very Large Drop in Demand led to Declining 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% Mar 2023 2010 to 2019 0% -5% 2022 -10% -15% -20% 0 2 4 6 8 10 12 Months' Supply of Existing Home
Slide 22: House Prices Forecast to Decline 2.9% Over Next 12 Months
Western Markets Prices Declining, while Rest of Country Still Showing Positive Growth; House Prices Forecast to Decline 2.9% Over Next 12 Months United States: 1.0% Forecasted House Price Growth Year-Over-Year Growth March 2023 31-Mar-23 31-Dec-22 -1.3% -1.8% -2.9% -3.0% 12-Month Forward 13-24 Month
Slide 23: Home Price Boom Going into Slow Reverse
Home Price Boom Going into Slow Reverse Freddie Mac House Price Index U.S. Index Dec 2000 = 100; Seasonally Adjusted 290 270 250 230 210 190 House prices are slowing rapidly, but are still up 39% from Dec 2019 170 150 2017 2018 2019 2020 2021 2022 2023 Source: Freddie Mac 23 © Freddie Mac
Slide 24: Increasing Share of Homebuyers Moving Out of Metro & State
Increasing Share of Homebuyers Moving Out of Metro & State Share of Homebuyers by Type of Move Share of Homebuyers by Type of Move 75% Same county Different county - Same metro 20% Different metro - Same state 18% Different state 70% 16% 14% 65% 12% 10% 60% 8% 6% 55% 4% 2% 0% 50% 2000 2001 2003 2005
Slide 25: Low-Income Homebuyers Less Likely to Migrate from Cities
Low-Income Homebuyers Less Likely to Migrate from Cities, More Likely to Miss Potential Cost Savings Net Migration: Top 25 Largest Metros Distance Moved By Income Group Low Income Applicants 600 563 Moderate and High Income Applicants 527 0 489 500 480 439 421 -1000 400 -2000 300 -3000 200 -4000 100
Slide 26: Rising Home Prices Help Build Equity for Existing Homeowners
Rising Home Prices Help Build Equity for Existing Homeowners ($ Trillions) 45 $43.5 Trillion 40 Value of Housing Stock 35 +19.4T 30 $24.1T (4/06) $31.0 Trillion 25 20 Home Equity 15 10 $12.5 Trillion 5 Single-family Mortgage Debt Outstanding 0 Note: Value of U.S. housing stock includes homes with an
Slide 27: Delinquency Rates Still Low, but Increased in Q4 2022
Delinquency Rates Still Low, but Increased in Q4 2022 Across All Loan Types & All Stages of Delinquency 90+ DLQ (% of Loans Serviced) All Conventional FHA VA Compared to Q32022 12% All : +11bps Conventional: +4bps 10% FHA: +49bps VA : +9bps 8% Compared to Q42021 All : -106bps 6% Conventional: -80bps
Slide 28: Conclusion
Conclusion • Our baseline outlook doesn’t include a recession. Instead, our view is based on an economy that slows and sees a modest uptick in unemployment, while inflation continues to moderate. • Higher mortgage interest rates have substantially dampened affordability and will continue to weigh on
Slide 29: Disclaimer
Disclaimer Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s economists and other researchers, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or ex