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Economic Updateby
Doug DuncanChief Economist
Fannie Mae
American Land Title Association
October 17, 2008
Kaua’i, Hawaii
The Macroeconomy
Real GDP Annualized Growth Rate
-4%
-2%
0%
2%
4%
6%
8%
Q1:98Q4:98Q3:99Q2:00Q1:01Q4:01Q3:02Q2:03Q1:04Q4:04Q3:05Q2:06Q1:07Q4:07Q3:08Q2:09Q1:10Q4:10
Source: Bureau of Economic Analysis
History in blue, forecast in red
Real GDP Annualized Growth Rate Forecast
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Q3:08 Q4:08 Q1:09 Q2:09 Q3:09 Q4:09
Source: Bureau of Economic AnalysisS
ep
tem
be
r fo
rec
as
t
Oc
tob
er
fore
ca
st
Change in Components of Real GDP Q1:08 to Q2:08
-$60
-$40
-$20
$0
$20
$40
$60
$80
$100
PCE Gross PrivateInvestment
Net Exports Government
$Bil Chained 2000
Private Nonfarm Payroll EmploymentYear/Year Percent Change
-3%
-2%
-1%
0%
1%
2%
3%
4%
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
Source: Bureau of Labor Statistics
Change in Payroll Employment from November 2007
-450
-400
-350
-300
-250
-200
-150
-100
-50
0
Construction Manufacturing Financial Activities Leisure & Hospitality
Thousands of Jobs – Seasonally Adjusted
Source: Bureau of Labor Statistics
Wilshire 5000 Stock Price Index
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
10/5/200711/2/200711/30/200712/28/20071/25/20082/22/20083/21/20084/18/20085/16/20086/13/20087/11/20088/8/20089/5/2008
10/3/2008
Dec-31-70=830.27
Source: Wall Street Journal
Dow Jones Industrial Average
7,000
7,500
8,000
8,500
9,000
9,500
10,000
10,500
11,000
11,500
9/22/089/23/089/24/089/25/089/26/099/29/089/30/0810/1/0810/2/0810/3/0810/6/0810/7/0810/8/0810/9/0810/10/08
Source: Bloomberg
House rejectsfirstbailoutplan
Annual high:May 2 – 13,058.2
At 4:30 p.m.
Owners’ Equity in Real Estate
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
$11,000
Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08
$Bil
Source: Federal Reserve Board
Net Home Equity Extraction
-$200
$0
$200
$400
$600
$800
$1,000
Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08
$Bil SAAR
Source: Federal Reserve Board
Consumer Credit Loan Delinquency Rate
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08
Credit Cards
Other Consumer Debt
Percent – Seasonally Adjusted
Source: Federal Reserve Board
Personal Consumption ExpendituresYear/Year Percent Change
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
Source: Bureau of Economic Analysis
Nominal Broad Trade-Weighted Exchange Value of the US Dollar vs. Euro/Dollar Exchange Rate
60
70
80
90
100
110
120
130
140
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Source: Federal Reserve Board
Inde
x:
Jan.
199
7 =
100
Euro/$ Exchange Rate(right axis)
Trade-Weighted Exchange Value(left axis)
Euros
Inflation*Year/Year Percent Change
0%
1%
2%
3%
4%
5%
6%
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
*Consumer Price IndexSource: Bureau of Labor Statistics
CPI
Core CPI
Credit Markets and Interest Rates
Federal Funds Target Rate
0
1
2
3
4
5
6
7
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
Source: Federal Reserve Board
Percent
3-Month LIBOR-3-Month Overnight Index Swap Rate Spread
0
50
100
150
200
250
300
1/6/20062/6/20063/6/20064/6/20065/6/20066/6/20067/6/20068/6/20069/6/200610/6/200611/6/200612/6/2006
1/6/20072/6/20073/6/20074/6/20075/6/20076/6/20077/6/20078/6/20079/6/200710/6/200711/6/200712/6/2007
1/6/20082/6/20083/6/20084/6/20085/6/20086/6/20087/6/20088/6/20089/6/2008
Source: Financial Times, Bloomberg
Basis Points
One Year LIBOR-One Year Treasury Spread
0
50
100
150
200
250
300
10/5/200711/2/200711/30/200712/28/20071/25/20082/22/20083/21/20084/18/20085/16/20086/13/20087/11/20088/8/20089/5/2008
10/3/2008
Source: Financial Times, Federal Reserve Board
Basis Points
Seasoned Baa Corporate Bond Yields – 10-Year Treasury Spread
0
50
100
150
200
250
300
350
400
450
1/6/20062/3/20063/3/20063/31/20064/28/20065/26/20066/23/20067/21/20068/18/20069/15/200610/13/200611/10/200612/8/2006
1/5/20072/2/20073/2/20073/30/20074/27/20075/25/20076/22/20077/20/20078/17/20079/14/200710/12/200711/9/200712/7/2007
1/4/20082/1/20082/29/20083/28/20084/25/20085/23/20086/20/20087/18/20088/15/20089/12/2008
Source: Federal Reserve Board, Moody’s
Basis Points
Month/Month Percent Change in Consumer Credit
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
Jan:2007Feb:2007Mar:2007Apr:2007May:2007Jun:2007Jul:2007Aug:2007Sep:2007Oct:2007Nov:2007Dec:2007Jan:2008Feb:2008Mar:2008Apr:2008May:2008Jun:2008Jul:2008Aug:2008
Revolving
Non-revolving
Source: Federal Reserve Board
Commercial Paper Outstanding
$1,400
$1,500
$1,600
$1,700
$1,800
$1,900
$2,000
10/3/200710/31/200711/28/200712/26/20071/23/20082/20/20083/19/20084/16/20085/14/20086/11/20087/9/20088/6/20089/3/2008
10/1/2008
$Bil – Seasonally Adjusted
Source: Federal Reserve Board
30-Year FRM-10-Year Treasury Spread
0
100
200
300
400
500
600
Jan:1978Jan:1979Jan:1980Jan:1981Jan:1982Jan:1983Jan:1984Jan:1985Jan:1986Jan:1987Jan:1988Jan:1989Jan:1990Jan:1991Jan:1992Jan:1993Jan:1994Jan:1995Jan:1996Jan:1997Jan:1998Jan:1999Jan:2000Jan:2001Jan:2002Jan:2003Jan:2004Jan:2005Jan:2006Jan:2007Jan:2008
Source: Federal Reserve Board
Basis Points
Current Coupon Fannie Mae MBS – 10-Year Treasury Spread
0
50
100
150
200
250
1/6/062/6/063/6/064/6/065/6/066/6/067/6/068/6/069/6/0610/6/0611/6/0612/6/06
1/6/072/6/073/6/074/6/075/6/076/6/077/6/078/6/079/6/0710/6/0711/6/0712/6/07
1/6/082/6/083/6/084/6/085/6/086/6/087/6/088/6/089/6/08
Source: Federal Reserve Board, Merrill Lynch
Basis Points
Senior Loan Officer Opinion Survey, July 2008Net Percentage of Responding Banks Tightening Credit
Standards for Residential Mortgage Loans
Source: Federal Reserve Board
The Housing Market
Normal Fill Level
No Lifeguard on Duty!Swim at Your Own
Risk!
The water in the swimming pool is currently dangerously high
Months’ Supply
10
0
6
Foreclosures New housing completions Existing homes Condo conversions
DestructionNew home sales
Existing home salesExisting home withdrawals
Apartment conversions
Housing StartsSeasonally Adjusted Annual Rate
0
500
1,000
1,500
2,000
2,500
Jan:1959Jan:1961Jan:1963Jan:1965Jan:1967Jan:1969Jan:1971Jan:1973Jan:1975Jan:1977Jan:1979Jan:1981Jan:1983Jan:1985Jan:1987Jan:1989Jan:1991Jan:1993Jan:1995Jan:1997Jan:1999Jan:2001Jan:2003Jan:2005Jan:2007
Th
ou
san
ds
of
Un
its
Source: Census Bureau
Single-family
Multifamily
Single-Family Housing Starts and PermitsSeasonally Adjusted Annual Rate
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
starts
permits
Thousands of units
Source: Census Bureau
Year/Year Percent Change in Number of Households
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Jan-98Jul-98Jan-99Jul-99Jan-00Jul-00Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08
Source: Census Bureau
New Single-family Home SalesSeasonally Adjusted Annual Rate
0
200
400
600
800
1000
1200
1400
1600
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
Source: Census Bureau
Thousands of Units
Existing Single-family Home SalesSeasonally Adjusted Annual Rate
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
Source: National Association of REALTORS®
Thousands of Units
Supply of New Single-family Homes on the Market
0
2
4
6
8
10
12
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
0
100
200
300
400
500
600
700
Source: Census Bureau
Months Thousands of Units, SA
Inventory on the MarketEnd-of-Month(right axis)
Months’ Supply(left axis)
Supply of Existing Single-family Homes on the Market
0
2
4
6
8
10
12
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Source: National Association of REALTORS®
Months
Inventory on the MarketEnd-of-Month(right axis)
Months’ Supply(left axis)
Thousands of Units, SA
Case-Shiller National Home Price Index vs.OFHEO House Price Index
Year/Year Percent Change
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08
Source: Standard & Poors, OFHEO
Case-Shiller
OFHEO
NAHB Housing Market Index
0
10
20
30
40
50
60
70
80
90
100
Jan:1998Jul:1998Jan:1999Jul:1999Jan:2000Jul:2000Jan:2001Jul:2001Jan:2002Jul:2002Jan:2003Jul:2003Jan:2004Jul:2004Jan:2005Jul:2005Jan:2006Jul:2006Jan:2007Jul:2007Jan:2008Jul:2008
Source: National Association of Home Builders
Index
When all respondents answer "good", the index is 100. If all respondents answer "poor", the index is 0. If equal numbers of respondents answers "good" and "poor", the index is 50.
Real Estate Finance
Percent of All Mortgages Past Due But Not in ForeclosureSeasonally Adjusted
0
1
2
3
4
5
6
7
Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08
Source: Mortgage Bankers Association
Percent of All Mortgages Foreclosure StartedSeasonally Adjusted
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Q1:98Q3:98Q1:99Q3:99Q1:00Q3:00Q1:01Q3:01Q1:02Q3:02Q1:03Q3:03Q1:04Q3:04Q1:05Q3:05Q1:06Q3:06Q1:07Q3:07Q1:08
Source: Mortgage Bankers Association
Confidential - Internal Distribution
Foreclosures Started asPercent of All Mortgages: 2008:Q2
Source: Mortgage Bankers Association Serious Delinquency Survey
Nonfarm Payroll Employment vs. Mortgage Delinquencies
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Q1:88Q4:88Q3:89Q2:90Q1:91Q4:91Q3:92Q2:93Q1:94Q4:94Q3:95Q2:96Q1:97Q4:97Q3:98Q2:99Q1:00Q4:00Q3:01Q2:02Q1:03Q4:03
0%
1%
2%
3%
4%
5%
6%
Year/Year Percent ChangeNonfarm Payroll Employment(left axis)
Percent of Mortgages That Are DelinquentExcluding Foreclosure Inventory(right axis)
Sources: Bureau of Labor Statistics and Mortgage Bankers Association
Distribution of Dollar Volume of Securitized Loans Outstanding (as of the end of May 2008)by Month of First Scheduled Payment Reset
$0
$5
$10
$15
$20
$25
$30
$35
Sep-2008Nov-2008Jan-2009Mar-2009May-2009Jul-2009Sep-2009Nov-2009Jan-2010Mar-2010May-2010Jul-2010Sep-2010Nov-2010Jan-2011Mar-2011May-2011Jul-2011Sep-2011Nov-2011Jan-2012Mar-2012May-2012Jul-2012Sep-2012Nov-2012
Month of 1st Scheduled Payment Reset
Billions of Dollars of Outstanding Loans
Loans Backing Agency MBS
Loans Backing Non-Agency Jumbo MBS
Loans Backing Non-Agency Alt-A MBS
Loans Backing Non-Agency Subprime ABS
Source: LoanPerformance; Agency MBS
Disclosures
Ratio of Foreclosures Started to All Mortgages Past DueSeasonally Adjusted – Four-quarter rolling average
0
2
4
6
8
10
12
14
16
Q1:79Q2:80Q3:81Q4:82Q1:84Q2:85Q3:86Q4:87Q1:89Q2:90Q3:91Q4:92Q1:94Q2:95Q3:96Q4:97Q1:99Q2:00Q3:01Q4:02Q1:04Q2:05Q3:06Q4:07
Source: Mortgage Bankers Association, Fannie Mae calculations
Percent
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economics & Mortgage Market Analysis (EMMA) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, and are subject to change without notice. Although the EMMA 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. The analyses, opinions, estimates, forecasts and other views published by the EMMA 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.