1. Private Forces Move to the Fore
Doug Duncan, Chief Economist
Fannie Mae
October 2, 2014
Confidential - Internal Distribution

2. Month Year
Disclaimer
Opinions, 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.
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3. Rosy Expectations for 2014 Have Come Down After a Bumpy First Half
Blue Chip Consensus Forecast for 2014 Real GDP Year-over-Year Growth, by date
Source: Blue Chip Economic Indicators
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4. The Second Quarter Rebound is Broad-Based
Contribution to Real GDP Annualized % Change
Source: Bureau of Economic Analysis
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5. Concerns About the Direction of the Economy May be Weighing on the Housing Recovery
Source: Fannie Mae National Housing Survey
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6. Consumer Spending on Goods Surges
Real Personal Consumption Expenditures (SAAR, % Change Annual Rate)
Source: Bureau of Economic Analysis
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7. Consumer Spending on Healthcare Services Remains a Question Mark
Estimate of Real Healthcare Spending Growth in Q (SAAR, Quarterly Annualized % Change)
Source: Bureau of Economic Analysis
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8. Economic Activity Picks Up in Early Q3
9-Year High
3-Year High
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Source: Institute for Supply Management

9. After Six Consecutive Months of Payrolls Growing Over 200K,
Job Growth Slows in August
Source: Bureau of Labor Statistics
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10. The Recovery* of the Full-Time Employment to Working Age
Population Ratio Will Be Slow…
Seasonally Adjusted, December 2007 = 100
*Data starting in August 2014 are forecasted using the BLS labor force projections and assuming the prior year of employment growth remains constant.
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Source: Bureau of Labor Statistics

11. …But Participation Has Fallen Considerably, for Reasons Both Structural and Cyclical
Civilian Labor Force Participation Rate, 16 yr + (SA, %)
Labor Force Participation Rate (Indexed, Recession Trough=100)
Source: Bureau of Labor Statistics
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12. Labor Force Participation Has Declined for Both
Men and Women in the Current Cycle
Labor Force Participation Rate (SA, %)
Source: Bureau of Labor Statistics
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13. Though Most Jobs Created In the Past Few Years Have Been Full Time, the Total is Still Short of the Peak and Part Time Jobs Remain Elevated
(SA, Millions)
(SA, Millions)
Source: Bureau of Labor Statistics
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14. State Level Payroll Growth is More Geographically Concentrated than In Most Prior Recoveries
Source: Bureau of Labor Statistics, Fannie Mae Economic & Strategic Research Group
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15. House Price and Payroll Growth are Associated and Vary By State
Correlation Coefficient: 0.64
*North Dakota is an outlier that is outside the range of the graph margins. Both cumulative payrolls and house price growth over the period were 25 percent.
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Source: U.S. Bureau of Labor Statistics, FHFA HPI Purchase-Only Index

16. Household Debt-to-Income Ratio Normalizes to Trend
Source: Federal Reserve Board, Bureau of Economic Analysis
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17. Leading Indicators Point to Coming Wage Inflation Pressure as Job Gains Continue…
Net (SA, %)
Net (SA, %)
Source: National Federation of Independent Business
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18. …Is the Fed Behind the Curve?
(SA, $/Hour Year-Over-Year % Change)
Source: Federal Reserve Board, Bureau of Labor Statistics
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19. The Fed Plans to Wind Down Asset Purchases This Year
Source: Federal Reserve Board – Fannie Mae ESR Projection based on prior Fed announcements
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20. Market-Wide Credit Scores For Purchase And Refinance Loans
Average Credit Score
* Credit scores are calculated as a weighted average of the entire mortgage market based on loan balance at origination for the segment indicated; Investor weights applied to adjust for CoreLogic’s uneven coverage by investor.
Sources: CoreLogic, Fannie Mae Economic & Strategic Research Group
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21. Household Formation Disappoints
Household Formation (Thousands of Households)
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Source: Census Bureau Housing Vacancy Survey

22. The Share of Young Adults Living at Home Continues to Edge Higher
25-34 Year Olds Living at Home with Parents (%)
Source: Census Bureau
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23. Parents are Generally Supportive of Their Adult Children Living at Home, Though Reasons May Differ
Employment situation for households with…
Adult Children
Living at Home
Ages 18-22
Ages 23-34
Parent* full time employed
54%
38%
Adult child full time employed
20%
48%
Please tell me whether you would prefer that [he/she] continues to live in your home or finds alternate living arrangements not in your home.
I prefer that they continue to live in my home
72%
63%
I prefer that they find alternate living arrangements not in my home
30%
*Employment status for the parent who indicates that they are the “primary financial decision maker” of the household.
Source: Fannie Mae National Housing Survey
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24. Number of Married Households Declining in Younger Age Cohorts
Millions of HH
Common First-Time Home Buying Age
Source: Census Bureau
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25. Homeownership Has Fallen Even Among Young Adults Who Are “Prime”
Homeownership Has Fallen Even Among Young Adults Who Are “Prime”* Home Buying Candidates
*Prime homebuyers are defined as upper income households with householders in their early 30s who have college educations and are married with children.
Source: Census Bureau
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26. In Fact, All of the Net Household Formation Since
the Recession Ended Has Been in Rentals
Net Change in Households since Q (Millions)
Source: Census Bureau Housing Vacancy Survey
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27. Both Single-Family and Multifamily Building Recently Disappoint
SA, Thousands of Units
SA, Thousands of Units
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Source: Census Bureau

28. Homebuilder Confidence Has Diverged from Permit Issuance as Builders are More Profitable with Fewer Units
Source: Census Bureau, National Association of Home Builders/Wells Fargo
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29. Existing Home Sales and Pending Home Sales Retreat in August
Source: National Association of REALTORS®
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30. Major Measures of Home Prices Show Moderating Growth
Year-over-Year % Change
Source: S&P/Case-Shiller, CoreLogic, Federal Housing Finance Agency
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31. Consumers See Home Price Growth Slowing as Well, but the Shrinking Gap Between Buyer and Seller Confidence Could Bring More Inventory
Average 12-Month Home Price Expectation (%)
Share of Respondents Indicating it is a…
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Source: Fannie Mae National Housing Survey

32. Mortgage Market Is Switching to a Purchase Market, Which Means Less Production
Mortgage Originations (NSA, 1-4 Unit, Billions of $)
*Fannie Mae Forecast
Source: Fannie Mae Economic & Strategic Research Group
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33. Conditions in California

34. California Unemployment Lags the Nation’s,
but San Jose’s Job Market is Healthy
Source: Bureau of Labor Statistics

35. California Median Household Income Remains Above The Nation’s
Source: Census Bureau

36. In Florida, Texas, and California, People are More Likely to Think Their Personal Financial Situation Will Get Better Over the Next Year Than the General Population
Looking ahead one year, do you expect your personal financial situation to get much better, somewhat better, stay about the same, get somewhat worse, or get much worse?
Better
Stay About The Same
Worse
* Denotes state results are significantly different than the general population at the 95% confidence level
Source: Fannie Mae National Housing Survey 36

37. People in California, Florida, and Texas Expect Home Prices to Rise More Over the Next Year Than the General Population
Home prices in California are expected to rise the more than in Florida and Texas and nationwide
During the next 12 months, do you think home prices in general will go up, go down, or stay the same as where they are now?
Go Up
Stay The Same
Go Down GP
Florida
Texas
California
Average 12 Month Home Price Change Expectation:
2.58%
Average 12 Month Home Price Change Expectation:
3.55%
Average 12 Month Home Price Change Expectation:
3.11%
Average 12 Month Home Price Change Expectation:
4.08%*
* Denotes state results are significantly different than the general population at the 95% confidence level
Source: Fannie Mae National Housing Survey 37

38. More People In California and Florida Expect Mortgage Interest Rates to Go Up During the Next 12 Months Than in Texas
During the next 12 months, do you think home mortgage interest rates will go up, go down, or stay the same as where they are now?
Go Up
Stay the same
Go Down
* Denotes state results are significantly different than the general population at the 95% confidence level
Source: Fannie Mae National Housing Survey 38

39. People in Florida, Texas, and California are More Likely to Think it Would be Difficult to Get a Mortgage Today Than the General Population
Do you think it would be very difficult, somewhat difficult, somewhat easy, or very easy for you to get a home mortgage today?
Easy
Difficult
* Denotes state results are significantly different than the general population at the 95% confidence level
Source: Fannie Mae National Housing Survey 39

40. California Prices Have Seen Healthy Appreciation…
Source:
IHS Global Insight, Economics and Country Risk

41. …Which Has Helped Reduce the Share of California Underwater Borrowers
United States, 12.6%
*Data as of June 30, 2014
Source: CoreLogic

42. Homebuilders Are Still Timid But the Improving Home Prices and the Potential for Profit Should Push Them to Build
Source: Census Bureau, Bank of Tokyo-Mitsubishi

43. California SDQ Rate Is Better Than U.S.’s
(NSA, %)
(NSA, %)
Source: Mortgage Bankers Association

44. Speaker Biography
Douglas G. Duncan is Fannie Mae’s Senior Vice President and Chief Economist. He is responsible for managing Fannie Mae’s Economic & Strategic Research Group and oversees corporate strategy. In this leadership role, Duncan provides all economic, housing, and mortgage market forecasts and analyses, and serves as the company’s thought leader and spokesperson on economic and mortgage market issues.
Prior to joining Fannie Mae, Duncan was Senior Vice President and Chief Economist at the Mortgage Bankers Association. His experience also includes service as a LEGIS Fellow and staff member with the Committee on Banking, Finance, and Urban Affairs for Congressman Bill McCollum in the U.S. House of
Representatives, and work on the Financial Institutions Project at the U.S. Department of Agriculture. He has been elected to the Board of Directors for the National Association of Business Economists, is a member of the American Economics Association and the American Real Estate and Urban Economics Association, and is past president of the Housing Statistics Users Group.
Named one of Bloomberg / BusinessWeek’s 50 Most Powerful People in Real Estate and one of Inman News’ 100 Most Influential Real Estate Leaders for 2013, Duncan is a frequent speaker on national and state economic, housing, and mortgage market conditions.
Duncan received his Ph. D. in Agricultural Economics from Texas A&M University and his B.S. and M.S. in Agricultural Economics from North Dakota State University.
Confidential - Internal Distribution

45. Month Year
Month Year
Contact Information fanniemae.com/portal/research-and-analysis/
Doug Duncan, Senior Vice President & Chief Economist
Fannie Mae
3900 Wisconsin Avenue, NW
Mail Stop 1H-2N/01
Washington, DC  20016
(o)
(c)
(fax)
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