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transcript
© 2012 Equifax Inc.
Housing and Credit Markets Outlook
FTA Revenue Estimating Conference Springfield, IL
Amy Crews Cutts, SVP – Chief Economist October 7, 2013
© 2013 Equifax
Government Shutdown and Debt Ceiling
! As of October 1st the government shut down for the first time since 1995 § 800K Federal Employees deemed “non-essential” furloughed § The 1995-96 shutdown cost an estimated $2.5B § There are other unintended consequences (home buying, hiring, economic
forecasting)
! The longer the shutdown drags on, the greater the negative impact to the economy
! The debt ceiling is the real danger § The “extraordinary measures” will have been used up by October 17, at which
point the government will have to operate strictly on a cash flow basis § Last time we flirted with the debt ceiling S&P downgraded the US Debt
triggering a 6.7% one-day stock sell off § The Fed does not have the means to offset another fiscal shock
! A default would have catastrophic consequences globally
2
© 2013 Equifax
How Bad is Default?
! The US has defaulted once before – Mostly UNINTENTIONALLY ! US posted late payments on T-Bills maturing on April 26, May 3 and May
10 in 1979 § Full payment was made after a short delay § Originally did not pay interest on delayed payments, but eventually did due to
severe pressure in financial markets
! Delay was due to unprecedented volume of participation by small investors, a failure of Congress to act on the debt ceiling and a failure of word processing software used to prep check schedules
! What was the effect? ! On 28-34 day (aka 1-month) Treasury Bills yields jumped 60 basis
points and remained there for several months ! Effect of INTENTIONAL default is an unquantifiable risk – Russia’s
default nearly upended markets in 1997 3
© 2013 Equifax
600
800
1000
1200
1400
1600
1800
Jun-
04
Jun-
05
Jun-
06
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13 0
1
2
3
4
5
6
Jun-
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Jun-
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Jun-
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1-Yr 2-Yr 3-Yr 5-Yr 10-Yr
Financial Market Performance Has Been Volatile
• Equity indexes are at all-time highs, bolstering consumer confidence • Bond markets are wary of changes in Fed bond-purchase activity
Source: St. Louis Federal Reserve Bank, Yahoo! Finance, NBER, Equifax; through October 3, 2013
U.S. Treasury CM Bond Rates (%, weekly average, NSA)
S&P 500 Equity Index (weekly average, NSA)
4
© 2013 Equifax
$2.2 $2.3 $2.3 $2.4 $2.4 $2.5 $2.5 $2.6 $2.6 $2.7
2006
2007
2008
2009
2010
2011
2012
2013
Student Loans & Auto Dominate N-M Consumer Debt
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
2006
2007
2008
2009
2010
2011
2012
2013
Other
Credit Card
Student Loans
Auto
• Total student loan debt has grown steadily throughout Great Recession and recovery
• Auto growing strong, now back to January 2008 level & $9B shy of peak
Vertical Axis Scales Not Aligned
Non-Mortgage Consumer Debt (in $T, NSA)
Non-Mortgage Consumer Debt (in $T, NSA)
Source: Equifax (Credit Trends 4.0; data through August 2013)
5
© 2013 Equifax
$7.5 $7.8 $8.0 $8.3 $8.5 $8.8 $9.0 $9.3 $9.5 $9.8
$10.0
2006
2007
2008
2009
2010
2011
2012
2013
U.S. Consumer Deleveraging: Diverging Trends
$2.20 $2.25 $2.30 $2.35 $2.40 $2.45 $2.50 $2.55 $2.60 $2.65
2006
2007
2008
2009
2010
2011
2012
2013
• Home mortgage outstanding balances, including 1st liens and home equity lines and loans, have declined $1.47T, or 15%.
• Non-mortgage consumer debt fell $230B or 12%; Hit new high in July 2013
Vertical Axis Scales Not Aligned
Non-Mortgage Consumer Debt (in $T)
Home Mortgage Debt (in $T)
Source: Equifax (Credit Trends 4.0; data through August 2013)
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© 2013 Equifax
1.9 1.1 1.8
7.7
4.0 3.5
2.0
0 1 2 3 4 5 6 7 8
Jul-0
5 O
ct-0
5 Ja
n-06
A
pr-0
6 Ju
l-06
Oct
-06
Jan-
07
Apr
-07
Jul-0
7 O
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7 Ja
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8 Ju
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Oct
-08
Jan-
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Apr
-09
Jul-0
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9 Ja
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A
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0 Ju
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-10
Jan-
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Apr
-11
Jul-1
1 O
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1 Ja
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A
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2 Ju
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Oct
-12
Jan-
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Apr
-13
Jul-1
3
Recession Auto Bankcard Consumer Finance 1st Mortgage Home Equity
Credit Delinquencies Are Recovering
• Auto, bankcard delinquency rates are back to pre-recession levels • Mortgage delinquencies remain problematic
Notes: Excludes write-offs and REO; Mortgage DLQ rates include loans in foreclosure
60 DPD+ Delinquency Rate (%, NSA)
Source: Equifax (Credit Trends 4.0), Data through August 2013
7
© 2013 Equifax
3.5% 3.8% 4.0% 4.3% 4.5% 4.8% 5.0% 5.3% 5.5%
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
Bank Card Performance Is Improving
$1.2
$1.4
$1.6
$1.8
$2.0
$2.2
$2.4
$2.6
20%
21%
22%
23%
24%
25%
26%
27%
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
Utilization Rate (L) Credit Available (R )
• Payment ratios, payment amounts divided by outstanding balances, are rising – Part of consumer deleveraging
• Utilization rates have been falling, first due to payoffs, charge-offs, etc. but now due to limit increases
Card Utilization Credit Available (%, NSA) ($T, NSA)
Payment Ratio (Monthly Payment to Outstanding Balances; NSA)
Source: Equifax (Credit Trends 4.0); data through August 2013
Card Act Passed Effective
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© 2013 Equifax
4.3% 4.5% 4.8% 5.0% 5.3% 5.5% 5.8% 6.0% 6.3% 6.5%
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
Retail Cards Differ from Bank Cards
$200
$250
$300
$350
$400
$450
10%
12%
14%
16%
18%
20%
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
Utilization Rate (L) Credit Available (R )
• Payment ratios on retail cards started rising in 2011 • Utilization rates have remained elevated on retail cards, due in part to limited
credit availability – but recent increases in availability have been met with increased usage
Card Utilization Credit Available (%, NSA) ($B, NSA)
Payment Ratio (Monthly Payment to Outstanding Balances; NSA)
Source: Equifax (Credit Trends 4.0); data through August 2013
Card Act Passed Effective
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$475
$525
$575
$625
$675
$725
$775
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
Card Deleveraging
• Bank card balances have decreased by 21% ($150 billion) since their recession peak
• Retail card balances are at all-time highs, up nearly 10% ($5 billion) from pre-recession levels
Retail Card Balances ($B, NSA)
Bank Card Balances ($B, NSA)
Source: Equifax (Credit Trends 4.0); data through August 2013
Card Act Passed Effective
$30
$35
$40
$45
$50
$55
$60
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
10
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0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
Card Performance
• Bank card serious delinquency rates are higher than retail card rates • Retail rates saw little degradation in performance during the recession • Both rates are at lowest levels since start of series
Retail Card Serious Delinquency Rate (NSA)
Bank Card Serious Delinquency Rate (NSA)
Source: Equifax (Credit Trends 4.0); data through August 2013; Serious Delinquency = 60+DPD or in bankruptcy
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
2013
Card Act Passed Effective
Balances Balances
Tradelines Tradelines
11
© 2013 Equifax
350
450
550
650
750
850
950
2005
20
06
2006
20
07
2007
20
08
2008
20
09
2009
20
10
2010
20
11
2011
20
12
2012
20
13
Student Loans Credit Cards
Student Loans – the Next Big Problem
Student Loan Borrowers and Amount Owed per Borrower
(In Millions) (in $1000s)
Student Loan & Credit Card Balances ($B, NSA)
Source: Equifax (Credit Trends 4.0); data through August 2013; credit card data include bank and retail cards.
$0
$5
$10
$15
$20
$25
$30
$35
$40
0
5
10
15
20
25
30
35
40
2004
2005
2006
2007
2008
2009
2010
2011
2012
Avg Total Owed (R ) Number of Borrowers (L)
12
© 2013 Equifax
Auto Loan Originations Are Rising
30%
35%
40%
45%
50%
55%
60%
65%
70%
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
2007
2008
2009
2010
2011
2012
2013
Total Originations (left)
13
Auto Bank Originations & Share High Prime by Vintage (# millions & % NSA)
Source: Equifax (Credit Trends 4.0); data as of August 2013; ERS = Equifax Risk Score)
• The Share of high-prime borrowers among new originations is falling across both banks and auto finance companies
Auto Finance Originations & Share High Prime by Vintage (# millions & % NSA)
30%
35%
40%
45%
50%
55%
60%
65%
70%
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
2007
2008
2009
2010
2011
2012
2013
% ERS 700+ (right)
13
© 2013 Equifax
Mortgage Rates in Context – Defining “Historically Low”
4.08
18.45
4.44
0 2 4 6 8
10 12 14 16 18 20
1949
19
52
1956
19
60
1964
19
72
1976
19
79
1983
19
87
1991
19
95
1999
20
02
2006
20
10
FHA 25Yr Rate Conv. 30-Yr Rate
Notes: Through 1961, rates are based on 25-year mortgages. FHA was created in 1934 and the original term of FHA insured fixed-rate loans was 20 years. Gradually terms extended to 30-years.
Monthly Average 30-Year Fixed Mortgage Rates (%, NSA)
3
3.2
3.4
3.6
3.8
4
4.2
4.4
4.6
4.8
Jul-1
1 Se
p-11
N
ov-1
1 Ja
n-12
M
ar-1
2 M
ay-1
2 Ju
l-12
Sep-
12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3 Se
p-13
30-Yr Fixed Rate Record Low
24 New Record Lows Set Since August 2011
Weekly Average 30-Year Fixed Mortgage Rates (%, NSA)
14
© 2013 Equifax
Decomposing 30-Yr Fixed Mortgage Rates
15
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
6/1/
2012
8/1/
2012
10/1
/201
2
12/1
/201
2
2/1/
2013
4/1/
2013
6/1/
2013
8/1/
2013
10/1
/201
3 10-Yr CMT FNMA RNY
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
6/1/
2012
8/1/
2012
10/1
/201
2
12/1
/201
2
2/1/
2013
4/1/
2013
6/1/
2013
8/1/
2013
10/1
/201
3
RNY to CMT Spread PMR-RNY Spread
• The Required Net Yield is the secondary market’s (Fannie Mae’s) yield after servicing fees have been removed from the mortgage rate. The difference between the RNY and the Primary Market Rate is bank yield (originator & servicer).
Interest Rate Levels (%, NSA) Interest Rate Spreads (%, NSA)
Source: Equifax, BankRate, Fannie Mae, St. Louis Federal Reserve Bank; 10/03/2013
15
© 2013 Equifax
-30%
-20%
-10%
0%
10%
20%
30%
40%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Home Sales (L) SF Housing Starts (L) Home prices (R)
The Housing Market Appears To Have Finally Hit Bottom
12-Month Percent Change in Total Home Sales, Housing Starts and CoreLogic Home Price Index (NSA Series)
Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of September 6, 2013)
• Home sales, starts and prices are moving in lock-step. Starts are leading prices, but prices can create a feedback effect for future demand.
16
© 2013 Equifax
0%
20%
40%
60%
80%
100%
120%
0%
20%
40%
60%
80%
100%
120%
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Home Sales SF Housing Starts Home prices
Despite Some Reports, Housing Market Is Far From Bubbly
Home Sales, Home prices and Housing Starts Levels Relative to Pre-Recession Peaks (NSA Series;100% = Pre-recession peak)
Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of September 6, 2013)
• Even with large percentage gains in housing measures, all major indices of housing market vitality point to a long recovery yet to come
17
© 2013 Equifax
Excess Housing Inventory is Now Below Trend
Total Vacant Housing Units (in Thousands; NSA)
Source: U.S. Census Bureau, (Through 2nd Quarter 2013)
• Excess Vacant inventory should start to mitigate pressure on home prices and rent
18
0
2,000
4,000
6,000
8,000
10,000
12,000
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
© 2013 Equifax
Housing Starts Are Rising – to Previous Low Point!
0
500
1,000
1,500
2,000
1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009
19
Single Family Housing Starts (1000s, SAAR)
• While the recovery of single family starts is in progress, the rate of growth is below expectations, particularly given the historical standard.
© 2013 Equifax
Household Size Is Still Increasing
Number of people 16 years or older per household (NSA Series)
Source: U.S. Census Bureau; Bureau of Labor Statistics; Equifax
• There is significant pent-up demand for household formation. Based on the averages from the early 2000’s we have a deficit of nearly 3 million households.
20
1.95
2.00
2.05
2.10
2.15
2.20
2.25
2.30
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
2000-2003 Average
© 2013 Equifax
Home-Buying Is At All-time High For Affordability
Housing Affordability Index – Measures whether a typical family can afford a typical house. (NSA Series)
Source: Equifax, U.S. Census Bureau, National Association of Realtors, CoreLogic (data as of April 3, 2013)
• An index of 100 means a family with the median income has exactly enough income to qualify for a mortgage on a median priced home. The larger the index the more affordable housing is.
21
60
80
100
120
140
160
180
200
220
1989 1992 1995 1998 2001 2004 2007 2010 2013
Mortgage Rates:
Current 1% Higher 2% Higher
© 2013 Equifax
Lending Standards Remain Tight
110
120
130
140
150
160
170
180
-40%
-20%
0%
20%
40%
60%
80%
100%
2007 2008 2009 2010 2011 2012 2013
Current Conditions for Buying a House (R) Net Percent of Banks Tightening Lending Standards (L)
22
• Although lending standards remain tight, consumer sentiment remains positive.
% of Banks Tightening Lending Standards (NSA Series) Index of Current Conditions for Buying a House (NSA Series)
Source: Federal Reserve Board; University of Michigan; Equifax
© 2013 Equifax
$7.5 $7.8 $8.0 $8.3 $8.5 $8.8 $9.0 $9.3 $9.5 $9.8
$10.0
2006
2007
2008
2009
2010
2011
2012
2013
U.S. Consumer Deleveraging: Mortgage
0%
5%
10%
15%
20%
25%
pre-
2001
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
• Home mortgage outstanding balances, including 1st liens and home equity lines and loans, have declined $1.47T, or 15 %.
• 27% of July 2013 Balances were originated in 2005-2008
Origination Year of Outstanding Mortgage Debt (%, NSA)
Home Mortgage Debt (in $T, NSA)
Source: Equifax (Credit Trends 4.0; data through August 2013)
23
As of August 2013
© 2013 Equifax
Mortgage Originations Refi Boom Is Over
$0
$200
$400
$600
$800
$1,000
$1,200
$0
$200
$400
$600
$800
$1,000
$1,200
2000
20
00
2001
20
01
2002
20
02
2003
20
03
2004
20
04
2005
20
05
2006
20
06
2007
20
07
2008
20
08
2009
20
09
2010
20
10
2011
20
11
2012
20
12
2013
20
13F
2014
F 20
14F
Purchase Originations Refi Originations
Total Single Family Mortgage Originations ($Bil)
Source: Equifax, Mortgage Banker’s Association (2000-2005), Federal Financial Institutions Examinations Council; updated 10/01/2013. Forecast average from Mortgage Bankers Association, Moody’s Analytics, Freddie Mac, and Fannie Mae.
24
© 2013 Equifax
FL
CA
IL OH
GA
AZ MI
NJ MD
NV
MA
VA
TX
WA
NY
NC
PA
CO
0%
10%
20%
30%
40%
50%
60%
70%
0% 10% 20% 30% 40%
Change in Negative Equity
% Mortgages with Negative Equity 2012 vs. 2013 (NSA)
Source: CoreLogic Negative Equity Report; data through June 2013 Bubble Size = Number of
Mortgage with Negative Equity
% M
ortg
ages
with
Neg
ativ
e Eq
uity
Jun
e 20
12
% Mortgages with Negative Equity June 2013
© 2013 Equifax
Distressed Home Sales Declining
26
• Distressed sales have fallen to 12 percent of sales, the lowest since the recession began.
Source: National Association of Realtors; Equifax
23%
77%
August 2012
12%
88%
August 2013 U.S. Distressed Home Sales (% Total Sales; NSA)
Non-Distressed Sales Distressed Sales
© 2013 Equifax
HELOC Resets Are on the Horizon
Number Outstanding (NSA, 1000s) Average Balance (NSA, $)
Outstanding HELOCs by Vintage Year
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13 0
200
400
600
800
1,000
1,200
1,400
1,600
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
Nonperforming Current
Source: Equifax; Data through August 2013
27
© 2013 Equifax
0%
2%
4%
6%
8%
10%
12%
0
10
20
30
40
50
60
70
80
90
100
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
Nonperforming Current
HELOC Resets Are on the Horizon
Outstanding Balances of HELOCs by Vintage (NSA, $billions)
Cumulative National Home Price Change by Vintage (NSA, %)
These Vintage years are at very high risk for bad performance at reset Source: Equifax; Data through August 2013; Corelogic; Data through July 2013
% < 620 at Origination (L)
% < 620 at Present (L)
28
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
13
Total Since Origination First 10-Yrs Post Origination
© 2013 Equifax
At the 10-Year Mark, Delinquencies on HELOCs Almost Double
2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Jul-13
Share of Nonperforming Outstanding Balances of HELOCs by Vintage Year (NSA)
Source: Equifax; Data through August 2013
Origination Year 2000 2001 2002 2003
29
© 2013 Equifax
Questions?
For further information please contact:
Amy Crews Cutts SVP, Chief Economist - Equifax 703.714.6388 Email: amy.cutts@equifax.com
The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published by Equifax’s' Economic Insights group represent the views of that group as of the date indicated and do not necessarily represent the views of Equifax or its management.