Comments on Forecasts

Kenneth T. Rosen

The Skys The Limit Conference and Expo

November 3, 2017
Risks to Economic Outlook
Tax cuts in a full employment economy and a global synchronized expansion leads to
higher inflation and faster normalization of monetary policy. Asset prices adjust sharply.

De-globalization; restrictive immigration, trade, tariffs, travel, and visa policies might
negatively impact the economy in the medium term

NAFTA negotiations collapse and restrictive trade policies proliferate.

Geopolitical accident in North Korea or Middle East disrupts financial markets.

2018 election produces surprise democratic victories. Impeachment proceedings begin.

2
10-Year T-Bond Forecast
Forward Curve 10/20/2017
5% Implied Rate (given Fed dots)
Global Recession

4%

3%

2%

1%

0%
2015 2016 2017f 2018f 2019f

2015 2016 2017f 2018f 2019f

Forward Curve 10/20/2017 2.27% 2.45% 2.44% 2.59% 2.70%
Implied Rate (Fed dots) 2.27% 2.45% 2.80% 3.60% 4.00%
Global Recession 2.27% 2.45% 2.80% 1.50% 1.00%

Sources: Federal Reserve, RCG 3

Economic Outlook for 2017-2019

Economic Growth 2016 2017f 2018f 2019f

GDP Growth: 1.5% 2.1% 2.0% 1.7%
Employment
Unemployment Rate: 4.7% 4.3% 4.2% 4.6%
Employment Growth: 1.6% 1.3% 1.1% 0.9%
Jobs Created: 2.3 mil. 1.8 mil. 1.6 mil. 1.3 mil.
Interest Rates and Inflation
T-Bill: 0.5% 1.4% 2.4% 3.0%
10-Year T-Bond: 2.5% 2.8% 3.6% 4.0%
CPI: 1.8% 2.5% 3.1% 3.3%
Single Family
Sales: 5.4 mil. 5.6 mil. 5.4 mil. 5.4 mil.
Housing Starts: 782,000 820,000 865,000 850,000
Price Appreciation: 5.9% 5.5% 4.8% 2.9%
4
Rebuilding the American Dream: Strategies to
Sustainably Increase Homeownership

Kenneth T. Rosen

The Skys The Limit Conference and Expo

November 3, 2017
Homeownership in Crisis:
Where are We Now?
Understanding the Barriers
Strategies to Sustainably Increase
Homeownership
 U.S. Homeownership Rate
Peak Historical Average Current
70% 69.2% 65.2% 63.9%

69%
68%
67%
66%
65%
64%
63%
62%
61%
60%
59%
1965 1968 1971 1974 1978 1981 1984 1987 1991 1994 1997 2000 2004 2007 2010 2013 2017

Note: Data not seasonally adjusted, latest data as of 3Q17

Source: Census 7
Homeownership Rates by Household Age

Percentage
Household Age Peak Current Point Change
Under 25 Years Old 25.7% 22.4% -3.3%
25 to 29 Years Old 41.8% 32.7% -9.1%
30 to 34 Years Old 57.4% 45.9% -11.5%
35 to 44 Years Old 69.2% 59.3% -9.9%
45 to 54 Years Old 77.2% 69.1% -8.1%
55 to 64 Years Old 81.7% 75.0% -6.7%
65 Years and Over 81.0% 78.9% -2.1%

Note: Peak from 2004 to 2007; latest data as of 3Q17

Source: Census 8
Homeownership Rates by Household Type

Percentage
Household Type Peak Current Point Change
White 76.0% 72.5% -3.5%
African American 49.1% 42.0% -7.1%
Hispanic 49.7% 46.1% -3.6%

Note: Peak from 2004 to 2007; latest data as of 3Q17

Source: Census 9
Homeownership Rates in Major Markets
Ranked by Lowest Current Rate
Percent
Prior Peak Current Change
Los Angeles 55.0% 46.6% -8.4%
Honolulu 61.1% 49.9% -11.2%
Silicon Valley 59.4% 49.9% -9.5%
New York 54.7% 50.3% -4.4%
Austin 66.7% 51.9% -14.8%
Las Vegas 63.4% 52.4% -11.0%
San Diego 65.7% 54.1% -11.6%
San Francisco 59.4% 55.5% -3.9%
Seattle 65.4% 59.5% -5.9%
Denver 70.7% 61.0% -9.7%
Orlando 71.8% 61.1% -10.7%
Sacramento 64.2% 61.7% -2.5%
Note: Peak from 2004 to 2007; latest data as of 3Q17; survey margin of error may account for MSA data fluctuations
Source: Census 10
 U.S. Single Family Housing Starts
Units (Millions)
2.0
1.8 1.7
1.6
1.6 1.5
1.41.4 1.5
1.4
1.4 1.31.3 1.3
1.2 1.2
1.2 1.21.2 1.21.1
1.2 1.11.11.1 1.1
1.1
1.1
1.0 1.0 1.0
1.0 0.9 0.90.9
0.9 0.8 0.8
0.8
0.8 0.7 0.7
0.7
0.6 0.60.6
0.6 0.5
0.40.50.4
0.4
0.2
0.0
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
11
13
15

f
f
17
19
Sources: Census, RCG 11
 Residential Fixed Invest Share of Real GDP
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
1960 1964 1969 1974 1979 1983 1988 1993 1998 2002 2007 2012 2017
RFI/GDP Historical Average (1959-2017)

Note: Data seasonally adjusted, latest data as of 3Q17

Source: Census 12
Hurdles to Homeownership

Tight Mortgage Credit Conditions

Post-Foreclosure Lending Aversion

Student Debt Burden

Post-Foreclosure Stress Disorder

Affordability

Supply Barriers

13
Change in Private Debt Balances
since Q4 2007
Billions
+796 bil.

+375 bil.

-55 bil.

-410 bil.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Note: Latest data as of 2Q17
Sources: FRBNY Consumer Credit Panel/Equifax, RCG 14
 Fannie Mae GSE FICO Scores
Average FICO

770

760

750

740

730

720

710

700
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Note: Latest data as of 2Q17
Sources: Inside Mortgage Finance, FNMA 15
Share of Total Mortgage Origination by Credit Score
100%

80%

60%

40%

20%

0%
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
>760 720-759 660-719 <660
Note: Latest data as of 2Q17
Sources: Federal Reserve Board of New York, RCG 16
FHA Share of Purchase Mortgage Origination Volume
30%
28%
27%
25%
25%

21%
20%
20%
17% 17%
16% 15%
15% 14%
12%
11%
10% 10% 10%
10% 9%
6%

5% 4% 4%
3% 3%

0%
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Note: Latest data YTD as of 3Q17
Sources: HUD, Mortgage Bankers Association, RCG 17
Impact of Regulation on Banks

22%
18%

Moderate Negative Impact

Extreme Negative Impact 5%

Small Negative Impact

No Negative Impact

55%
Note: Data is from a 2017 survey of 159 banks
Source: American Bankers Association 18
Primary Drivers of Increased
Compliance Costs
Time Allocation

Pe rsonne l Costs

Te chnology Costs

Costs for Third-Party Ve ndors

Loss of Efficie ncy

Custome r Loss - Le ngthy Approv al

Custome r Loss - Comple x Approv al

Loss of Profitable Busine ss Line s

Othe r

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Note: 2017 survey of 159 banks
Source: American Bankers Association 19
Share of Borrowers with $50,000+ in
Student Debt Loan
16%

14%

12%

10%

8%

6%

4%

2%

0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Federal Reserve Board of New York Consumer Credit Panel 20
Share of Renters Who Would Like to
Own a Home at Some Point
95%
89% 90%

80%
80%

68%
65%

50%
All Ages Millennials Generation X Baby Boomers
(Ages 18-34) (Ages 35-49) (Ages 50-68)
Note: Latest data as of March 2017
Source: Freddie Mac 21
Share of Renters Who Can Afford
to Own, Yet Continue to Rent
18%
17%
16%
16%

14%
14%

12%

10%
10%

8%
All Ages Millennials Generation X Baby Boomers
(Ages 18-34) (Ages 35-49) (Ages 50-68)
Note: Latest data as of March 2017
Source: Freddie Mac 22
 Housing Affordability
United States and California
% Able to Afford Median-Priced Home
70%

60%
United States
50%

40%
California
30%

20%

10%
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
Note: RCG Universe of MSAs; latest data as of 2Q17
Sources: RCG, CAR, NAR, FAR, Census 23
Why Homeownership?

Accumulate wealth

Reducing inequality

Investments in Community

Civic Engagement

Economic Growth

24
Policy Ideas for Sustainably Increasing Homeownership

Mortgage Availability

Improving Access to Credit for Consumers

Raising Debt-to-Income Ratio
Alternative Measures of Credit Scores
Reducing Post-Foreclosure Lending Aversion
Establish Clear Rules and Guidelines for Lenders
Iron-clad Safe Harbor Provisions for Lenders
Limit Compliance Costs
Safe and Sustainable Future for GSEs

25
Policy Ideas for Sustainably Increasing Homeownership

Affordability
Down Payment Savings Program
Graduated Payment Mortgages
Shared Equity Products
Lease Purchase Agreements
Student Debt
Standardized Mortgage Underwriting
Student Loan Interest Deductions
Student Debt Mortgages

Post-Foreclosure Stress Disorder

Public Relations Campaign Promoting Sustainable Homeownership
Counseling Programs for Potential Homeowners
Post-Foreclosure Targeted Assistance

26
Policy Ideas for Sustainably Increasing Homeownership

Supply Constraints

Reducing Regulatory Hurdles to Development

Reduce Fees and Streamline Approvals
Minimum Lot Sizes
Expedite and Simplify Environmental Review
Override Local Regulatory Hurdles with Statewide Reforms
Localized Reforms

Increasing New Home Construction

Pre-Fabrication and Modular Housing
Accessory Dwelling Units
Tax Credits for New Construction Homebuyers

27
Rosen Consulting Group

www.rosenconsulting.com