# Presentation: 421480

## America’s Mortgage Credit Needs: Ten-Year Projection

**House Prices in the U.S. Economy**
**Washington, D.C.**
**March 10, 2003**

**Frank E. Nothaft, Chief Economist ****Freddie Mac **

## Summary

- Over the next decade, we expect approximately $16 trillion in mortgage originations, financing about 100 million homes.
- Among these loans, there will be about 15 million first-time homebuyers.
- Residential mortgage debt outstanding (MDO) expected to grow 8.0% per year
- Likely range is 7-9% over next decade
- Faster home appreciation will increase MDO growth
- Residential MDO will double to $14 trillion by 2011

## Drivers of Residential Mortgage Debt Growth

- Net household growth forecast to grow 1.3% per year
- Homeownership rate forecast to grow 0.6% per year
- Home appreciation forecast to grow 4.5% per year
- Leverage of housing forecast to grow 1.6% per year
- Residential mortgage debt (MDO) expected to grow 8.0% per year

## Household Growth Similar to Last Decade

- Net household growth forecast to grow 1.3% per year
- Immigration likely to remain strong
- Supports demand for rental housing
- “Echo boomers” will form households

## Household Formations Will Remain Strong

- Source: Bureau of the Census

- * 2012 estimate based on annualized projected growth rate from Census (2000-2010), based on 2000 actual number of households

**Number of Households (Millions)**

**Change in Households (Millions)**

- Number of Households (Right)

- Change in Households (Left)

## Immigration Supports Rental Housing Market

- Source: Bureau of Census

**Millions of U.S. Legal Immigrants**

## Homeownership Will Approach 70% by 2010

- Homeownership rate forecast to grow 0.6% per year
- Baby Boomers enter peak-ownership ages
- Technology expands borrower pool, benefiting minority first-time buyers
- Minority  homeownership grew 11% over 1994-2000, compared with 5% for White households
- Historically low mortgage rates support affordability

## Homeownership Rates Rise with Age

- Source: U.S. Census Bureau

**Percent**

## Minority Gains Could Drive Overall Owner Rate

- Source: Bureau of Census

**Homeownership Rate (Percent)**

## Homeownership Expected to Approach 70%

- Source: Bureau of the Census

**Homeownership Rate (Percent)**

## Home Appreciation Will Continue Brisk

- Home appreciation forecast to grow 4.5% per year
- MSA markets well-balanced; for-sale inventories are lean
- Early 1990s had overbuilt housing markets, especially for multifamily, which caused slower MDO growth
- Home values will continue to outpace CPI inflation
- Appreciation has slowed since 2001
- Low mortgage rates stimulate housing demand longer-term
- Land-use controls contribute to faster real house price growth

## House Prices Will Outpace Inflation

- Source: Freddie Mac, Bureau of Labor Statistics

## Leveraging of Housing Stock Will Grow

- Leverage of housing forecast to grow 1.6% per year
- First-time buyers use more debt to finance home purchase
- Liquefying home equity has become easier and cheaper
- Mortgage interest is only debt payment that is readily deductible by homeowners
- Aggregate debt-to-value forecast to reach 50% by 2010
- Residential MDO has grown faster than nominal GDP
- MDO grew 2 percentage points faster over 1970-1990
- 2003-2012 forecast expects same pattern to emerge

## Debt-To-Value Grows with Ownership Gains

- Source: Federal Reserve Board

**1952-2002 Annual Growth = 1.6%**

**Forecast:**
**Growth = 1.6%**
**Per Year**

**Mortgage Debt Relative to House Values (Percent)**

## Mortgage Debt Has Grown Faster than GDP

- Source: Bureau of Economic Activity, Federal Reserve Board

**Annual Growth (Percent)**

## MDO Growth Forecast at 8% Per Year

- Residential mortgage debt outstanding (MDO) expected to grow 8.0% per year
- Likely range is 7-9% over next decade
- Faster house price growth will lead to a higher rate of growth
- Residential MDO will double to $14 trillion by 2011

## Residential Mortgage Debt Doubles by 2011

- Source: Federal Reserve Board, Freddie Mac

**Residential Mortgage Debt (Trillions of Dollars)**

## Market Forecast

|  | 
1993-2002 | 
2003-2012 |
| --- | --- | --- |
| Single-Family Originations | $12.8 trillion | $15.6 trillion |
| Home Sales | 54.4 million | 63.8 million |
|    Existing Homes | 46.4 million | 54.2 million |
|    New Homes | 8.1 million | 9.6 million |

## Deposit Growth Has Been Insufficient to Finance the Mortgage Needs of Americans

- Funding Gap

***Deposit Growth Has Been Insufficient to Finance the Mortgage Needs of Americans***

**Trillions of Dollars**

## Summary

- Over the next decade, we expect approximately $16 trillion in mortgage originations, financing about 100 million homes.
- Among these loans, there will be about 15 million first-time homebuyers.
- Residential mortgage debt outstanding (MDO) expected to grow 8.0% per year
- Likely range is 7-9% over next decade
- Faster home appreciation will increase MDO growth
- Residential MDO will double to $14 trillion by 2011