1. The Outlook for the U.S. Housing Market:
Policy Options in Troubled Times
Specially Prepared for:
The
National Association for Business Economics
25th Annual Washington Economic Policy
Conference
Presented by:
LaVaughn M. Henry, Ph.D.
Director, U.S. Economic Analysis
The PMI Group, Inc.
March 2, 2009
2. Stabilizing House Prices
Encouraging Sustainable
Homeownership
Re-engaging the Private Sector in the
Long-term Solution
2
3.
4. National housing prices fell
11.1% from a year ago.
Since US home prices peaked
in July 2006, they have
declined 19.3% on a
cumulative basis and are
currently back to the lowest
price level since May 2004.
California continued to lead
the way, declining 26.9% from
a year ago, but Nevada (-
26.5%) is closing the gap,
followed by Arizona (-21.1%),
Florida (-19.5%), and Rhode
Island (-19.0%).
The largest acceleration in
home price declines during the
fourth quarter of 2008
occurred in Maine,
Pennsylvania, Arkansas,
Source: First American CoreLogic, LoanPerformance
Oregon and Rhode Island.
5. Less than -25.0%
-25.0% to -10.0%
-10.0% to -5.0%
-5.0% to 0.0%
Greater than 0.0%
Source: First American CoreLogic, LoanPerformance
6. Using quarterly economic data on house prices, interest rates,
affordability, local employment conditions, housing supply and
foreclosures, The PMI Group has developed a proprietary econometric
model that estimates the probability that prices will fall in each of the
nation’s 381 MSAs by the end of the next two years.
Based on First American/Loan Performance quarterly house price
index for all loans.
Utilizes more than 30,000+ observations of MSAs and quarterly
•
combinations
All of the Model’s Primary Econometric Determinants are Statistically
•
Significant at the 99% level or greater
13. Reduce Growth in the Supply of Unsold Homes
◦ Continue matching of new supply growth to current market demand
◦ Slow the rate of involuntary supply added to market through the
foreclosure process
◦ The Homeowner Affordability and Stability Plan will achieve positive results
in both the short and long term
Stimulate Growth in Demand through Responsible Purchase and
Refinance Policies
◦ The shift has begun, and must continue, to emphasize making purchases
and financing arrangements based on true long term affordability, not just
meeting qualifying ratios at the closing table
◦ Support consumer demand to minimize and eventually reverse the growth
in the unemployment rate (e.g., the American Recovery and Reinvestment
Act.)
14.
15. Senior Loan Officer Survey on Bank Lending Practices
Same Tightened Same Tightened Same Tightened
80 100 120
90
70
100
80
60
70
80
50
60
40 50 60
40
30
40
30
20
20
20
10
10
0 0 0
2008-Q3 2008-Q4 2008-Q3 2008-Q4 2008-Q3 2008-Q4
Nontraditional Subprime
Prime Loans
Loans Loans
15
Source: Federal Reserve Board
16. Prime Subprime
8
7
Serious Delinquency Rate
6
5
4
3
2
1
0
Source: Mortgage Bankers Association
16
17. Administration’s proposal to require families with
high total debt levels to enter HUD-certified
consumer debt counseling as a prerequisite to
modification is a responsible requirement
Encouraging the lending industry to continue its
shift in focus to long-term affordability of a
financing arrangements
Supporting low mortgage rates, coupled with
effective down payment requirements, that help to
improve long term affordability and sustainability
21. Encourage the diversification of risk between the private
and public sector by addressing capacity issues in the
private sector
Continue the requirement for credit enhancement on
high LTV mortgages. This will help to minimize the risk
of loss for lending institutions, and their need for
further support by the Treasury
Work towards responsible expansion of GSE lending
Encourage private sector lenders to engage in the
responsible modification of loans
22. Stabilizing the decline in house prices is a key
first element of any successful housing policy
Encouraging sustainable homeownership
through responsible lending practices is
required for renewal of long-term growth in
the housing market
Re-engaging the private sector in the
solution process is critical for diversifying risk
in the short and long-term
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