11© 2011 Fannie Mae. Trademarks of Fannie Mae.

Mark PalimVice President, Applied Economic and Housing ResearchFannie MaeJune 4, 2015

Millennials and the Future of U.S. Housing Demand

© 2015 Fannie Mae

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DisclaimerOpinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR 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. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR 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.

Confidential - Internal Distribution

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$6.3 Trillion 34 Million

The Millennial Generation in Context

Source: U.S. Census Bureau: 2013 Population Estimates, 2013 American Community Survey; Federal Reserve Board: 2013 Survey of Consumer Finances

80 Million

45 Million

89 Million

18.3 Million

$0.4 Trillion

5.2 Million

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Millennial Household Formation Has Been Suppressed Following the Great Recession

Note: The headship rate, a commonly used metric of household formation, is the proportion of the population in a given age group that is a householder, i.e., the person, or one of the persons, in whose name a housing unit is owned, being bought, or rented.

Source: U.S. Census Bureau

5Source: U.S. Census Bureau, Decennial Census and American Community Survey

When They Do Form Households, Millennials Are More Likely to Rent, Particularly Single-Family Homes

Note: “Single-family” is 1 to 4 units in structure, “multifamily” is 5+ units in structure, and “Other” is predominantly manufactured/mobile homes.

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10

10

20

30

40

50

60

70

80

90 Homeownership Rate by Age Group (NSA, %)

Under 35 Years35 to 44 Years45 to 54 Years55 to 64 Years65 Years and Over

The Age Group Ahead of Millennials Experienced the Largest Decline in Homeownership

Source: Census Bureau

-8%

-10%

-7%

-6%-2%

Percentage Point Change from Q1 2004

Peak National Homeownership Rate of 69.0 in 2004 (annual)

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The Shift Away from Homeownership May Be Coming to and End

All 30-32 Year-Olds

30-32 Year-Old "Prime" Home Buying Candi-

dates

30-32 Year-Old "Prime" Home Buying Candi-dates, Non-

Hispanic White Alone

ALL All 30-32 Year-Olds

30-32 Year-Old "Prime" Home Buying Candi-

dates

30-32 Year-Old "Prime" Home Buying Candi-dates, Non-

Hispanic White Alone

0

10

20

30

40

50

60

70

80

90

100

2000 2006 2009 2013

Hom

eow

ners

hip

Rat

e (p

erce

nt)

RECENT MOVERS ONLYALL HOUSEHOLDS

Source: U.S. Census Bureau, 2000 Census and American Community Survey Public Use Microdata Samples

Note: Prime homebuyers are defined as upper income households with householders in their early 30s who are married with children.Data for recent movers are not available for 2000 because the 2000 Census did not ask about residence one year ago.

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Labor Force Participation for Both Male and Female Millennials Remains Below Pre-Recession Levels

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140

10

20

30

40

50

60

70

80

90

100

Labor Force Participation Rate: 25-34 Years (NSA, %)

Male Linear (Male) Female Linear (Female)

-3.2% from 2007

-0.7% from 2007

Source: U.S. Bureau of Labor Statistics

Note: Dotted lines represent linear trend from 1980 to 2015.

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Lingering Impacts of the Recession on Employment and Income

Source: U.S. Bureau of Labor Statistics, Current Population Survey; U.S. Census Bureau, Current Population Survey (CPS-ASEC)

Despite Substantial Improvement, Young Adult Unemployment Rate Remains Above Pre-Recession Lows

Real Household Incomes of Today’s Young AdultsAre Well Below Those of Predecessors

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Millennials Without a College Degree are Much More Likely to be Unemployed

Source: U.S. Census Bureau, Current Population Survey

Unemployment Rate by Age and Education (%)

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Strained Household Balance Sheets

Source: Brookings Institution; Fannie Mae Economic & Strategic Research

*Up-front costs based on a 3 percent down payment and 3 percent in closing costs for the median-priced home purchased by first-time buyers in 2012-2013.**Financial assets include transaction accounts, certificates of deposit, savings bonds, other bonds, stocks, pooled investment funds, retirement accounts, cash value life insurance, and other managed assets.

Data are for households for which the average age of adults is 20-40 years old.

Even With Low Down Payment Loans, Modest Assets Make Up-Front Costs a Significant Hurdle

Student Loan Debt Mounts, But Payments Remain Modest Relative to Incomes

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Net Worth and Income are Substantially Different for Millennial Renters vs. Homeowners

Source: U.S. Federal Reserve Board, Survey of Consumer Finances 2013

Median Before-Tax Household Income

Median Household Net Worth$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Renter Households (25-35 Years Old in 2013)

Non-Hispanic White Households Minority Households

Median Before-Tax Household Income

Median Household Net Worth$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Homeowner Households (25-35 Years Old in 2013)

Non-Hispanic White Households Minority Households

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The Gap Between the Monthly Income of Young Homeowners and Young Renters Has Held Constant, But Liquid Assets Have Grown

at a Faster Pace for Young Homeowners

'92 '95 '98 '01 '04 '07 '10 '13$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Median Monthly Income (25-35 Year Olds)

SCF Households (Renters Only)SCF Household (Owners only)

Note: Real 2013 Dollars adjusted with CPI. Pretax Income. Liquid Assets include checking accounts, savings accounts, money market accounts, and call accounts at brokerages.

Source: U.S. Federal Reserve Board, Survey of Consumer Finances 2013

'92 '95 '98 '01 '04 '07 '10 '13$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Median Liquid Assets (25-35 Year Olds)

SCF Households (Renters Only)SCF Household (Owners only)

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Credit Profile and Up-Front Costs of Buying Are Perceived as Big Obstacles to Qualifying

Source: Fannie Mae National Housing Survey™

“What would be your biggest obstacle to getting a mortgage to purchase or refinance a home today?” Sum of responses exceeds 100 percent because respondents were allowed to select up to three obstacles.Data from November 2013 to October 2014 Fannie Mae National Housing Surveys.

Insuff

icien

t cred

it sco

re or

credit

histo

ry

Affordi

ng th

e dow

n pay

ment o

r clos

ing co

sts

Insuff

icien

t inco

me for

monthl

y pay

ments

Too m

uch e

xistin

g deb

t

Lack

of jo

b sec

urity

or sta

bility

The pr

oces

s is t

oo co

mplica

ted

Others

None/n

o obs

tacles

Don’t k

now/N

o res

pons

e0%

10%

20%

30%

40%

50%

60%

Percent Reporting Item as Biggest Obstacle to Getting a Mortgage

Millennial Renters (18-34) All Other Renters (35+)

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Summary of Millennial Demographic TrendsThe return of household growth After being depressed for years, household growth is projected to approach the historical average

over the next five years. Minorities are expected to account for the bulk of household growth.

Millennials have immense demographic potential as they are the largest generation in history But Millennial housing demand has been suppressed compared with previous generations. Elevated joblessness, stagnant incomes, strained household balance sheets, and perceived and

real barriers to mortgage credit are obstacles to unlocking Millennial’s housing demand potential.Implications for the housing market The Millennials, who are early in their housing careers, have high propensities to rent, and

therefore a need for affordable rentals. Increasing affordable rentals could also help to boost lagging rates of household formation among Millennials.

Because of Millennials’ affinity for both multifamily and single-family rentals, apartment and single-family rental markets should remain strong during the second half of the decade, although growing at a somewhat moderated pace.

Millennials’ suppressed incomes, strained balance sheets, and perceived and real challenges in accessing mortgage credit suggest the need for expanding first-time home buying opportunities through renewed mortgage product innovation and ongoing availability of low down payment loans

Much of Millennial household growth is expected to be driven by racial/ethnic minorities, increasing the need for efforts to expand access to first-time homeownership through trusted channels that are adept at reaching them.

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Mark Palim – Vice President of Applied Economic & Housing Research Speaker Biography

Dr. Mark Palim is Vice President of Applied Economic and Housing Research at Fannie Mae. He is responsible for overseeing the Economic and Strategic Research Group’s forecasting functions and manages multi-disciplinary partnerships across the company to address specific business issues facing Fannie Mae. Dr. Palim is a key spokesperson on economic trends and a frequent speaker at national mortgage finance and housing industry events.

Prior to working at Fannie Mae, Dr. Palim was an economic consultant at PricewaterhouseCoopers and LECG. His practice focused on applying economic and financial theory to a variety of business disputes and policy questions. He worked as a consulting and testifying expert in antitrust cases and disputes in the financial services industry. In addition, Dr. Palim led a team of 75 adjudicators charged with valuing claims for the Department of Justice and the Special Master administering the Federal September 11th Victim Compensation Fund.

Dr. Palim was first involved with economic forecasting and mortgage securities in 1988 when he was a portfolio manager and reported to the Chief Economist at Mercantile Safe Deposit and Trust Company. Subsequently, he continued his work on macroeconomic and policy issues as a staff economist for the National Association of Federal Credit Unions (NAFCU).

Dr. Palim has a Ph.D. in economics from George Mason University and a B.A. in international studies from the Johns Hopkins University. In addition to his academic training, Dr. Palim is a Chartered Financial Analyst charter holder (CFA).

Dr. Palim is married to an attorney and has four children. He lives in Bethesda, Maryland and grew up in Brussels, Belgium. Dr. Palim is fluent in French.

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Contact Informationfanniemae.com/media/economics/

Mark Palim, Vice President Fannie Mae3900 Wisconsin Ave., NWMail Stop 1H-2N/01Washington, DC  20016 (o) 202-752-7987

 mark_palim@fanniemae.com