1. Economic and Housing Outlook Challenges and Opportunities for Supporting Homeownership
Hamilton Fout
Director, Economic & Strategic Research
Fannie Mae
March 5, 2018

2. 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.

3. Regional Variation in House Price Growth
Home Price Change From 2006 Q3 Through 2017 Q4(1)
US: 4.1%
Average Annual Change :
Hourly Wage Growth: 2.2%
House Price Appreciation: 5.7%
Source: Fannie Mae, , Bureau of Labor Statistics, Federal Housing Finance Administration

4. Tight Supply May Further Support Home Price Growth
Sellers’ Market – Inadequate Supply of Existing and New Single-Family Homes
Tight Supply May Further Support Home Price Growth
Existing Home Sales are Volatile; New Home Sales Growth Recovering Slowly
Source: Census Bureau, National Association of REALTORS®, CoreLogic

5. Prices of More Modest Homes Continue to Grow Faster Than Average
Month Year
Prices of More Modest Homes Continue to Grow Faster Than Average
Metro Level House Price Appreciation by Price Tier
MSA Name
Low Tier
Mid Tier
High Tier
Difference in Growth Between Price Tiers
Year-over-Year
% Change
Low Tier - Mid Tier
Low Tier - High Tier
Atlanta
10.3%
6.5%
3.7%
3.8%
6.6%
Boston
9.6%
7.5%
5.6%
2.0%
4.0%
Chicago
10.0%
5.8%
1.3%
4.2%
8.8%
Denver
11.5%
8.1%
5.1%
3.4%
6.4%
Las Vegas
18.1%
12.0%
6.9%
6.1%
11.2%
Los Angeles
6.2%
2.5%
Miami
10.8%
6.0%
4.8%
8.9%
Minneapolis
8.6%
4.1%
2.2%
4.4%
New York
6.3%
8.2%
-1.9%
Portland
12.1%
8.3%
7.3%
Phoenix
10.4%
7.0%
4.6%
San Diego
7.8%
0.4%
1.2%
San Francisco
11.1%
10.2%
8.5%
1.0%
2.6%
Seattle
13.7%
12.7%
13.4%
0.3%
Tampa
15.6%
8.7%
4.9%
6.8%
10.6%
Washington DC
3.9%
Source: Census Bureau, National Association of REALTORS®, CoreLogic
Note: Percentage change in S&P/Case-Shiller Home Price Index (SA) from November 2016 to November 2017.
Source: Standard & Poor’s
Presentation Title Goes Here

6. Challenges Facing Home Builders
While Labor and Land Costs Continue to Be the Main Concern, Building Material Costs Are Expected to Jump in 2017
Source: National Association of Home Builders, Census Bureau

7. More Resources Going to Home Improvement
After the Housing Bubble Burst, Home Improvement’s Share of Residential Fixed Investment Rose to Equal New Single-Family Investment
Source: Bureau of Economic Analysis

8. Housing and Mortgage Market Outlook
2016
2017
2018
2019
Housing Starts
(Percent Change Year-Over-Year)
1.174 million
5.6%
1.202 million
2.7%
1.270 million
7.8%
1.306 million
New Single-Family Home Sales (Percent Change Year-Over-Year)
561 thousand 12.0%
608 thousand 8.4%
676 thousand 11.2%
708 thousand 4.8%
Total Existing Home Sales (Percent Change Year-Over-Year)
5.450 million 3.8%
5.510 million 1.1%
5.644 million 2.4%
5.730 million 1.5%
FHFA Purchase-Only Index (Annual Percent Change Q4/Q4)
6.4%
3.5%
Purchase Mortgage Originations
$1,052 billion
15.1%
$1,133 billion
7.7%
$1,189 billion
4.9%
$1,239 billion
4.2%
Refinance Mortgage Originations
$1,000 billion
22.7%
$698 billion
-30.2%
$498 billion
-28.7%
$438 billion
-12.0%
30-Year Fixed-Rate Mortgage (Year-end)
3.6%
3.9%
4.4%
4.5%
10-Year Treasury (Year-end)
1.8%
2.4%
2.8%
2.9%
Source: Fannie Mae Economic & Strategic Research February 2018 Forecast

9. Housing Payment Ratio FRM Rate HPI Change Income Change 4.5% -2% 2%
To Keep Payment Ratio Constant at Given Mortgage Rate
FRM Rate
HPI Change
Income Change
4.5%
-2% 2%
6.0%
-12%
15%
* Housing payment includes interest and principal, as well as an estimated home insurance and property tax payment. It is calculated using the 30-year FRM interest rate and average LTV for given year, and used the median priced home at median family income levels. All calculations are pre-tax.
Source: Census Bureau, Freddie Mac, National Association of REALTORS®

10. Multiple Responses Permitted - Q4 2017
Renters Say Affording the Down Payment and Their Credit are the Biggest Obstacles to Getting a Mortgage
What would be your biggest obstacle to getting a mortgage to purchase or refinance a home today?
Multiple Responses Permitted - Q4 2017
Renters
Owners
Renters 18-34
Renters 35+
Q23ba. What would be your biggest obstacle to getting a mortgage to purchase or refinance a home today? READ CHOICES SELECT UP TO 3
Source: Fannie Mae; National Housing Survey

11. Knowledge Gap - Down Payment
Roughly 40% of respondents are uncertain what down payment are expected or require. When consumers consider a down payment, the average threshold they set for themselves is more stringent than what they believe lenders expect and require.
Minimum for Your Comfort
Expected by Lenders
Minimum Required by Lenders
Mean:
17%
Median:
15%
Mean:
16%
Median:
20%
Mean:
12%
Median:
10%
21%+
20%
11%-19%
6%-10%
1%-5% 0%
Don’t Know
Base: Total sample, N=3,868
Q31. Imagine that you are planning to purchase a new home. What is the minimum percentage of the home’s sale price or appraised value that you would feel comfortable paying as a down payment in order to proceed with applying for a mortgage loan?
Q32. Based on what you have heard, what is the percentage of a home’s sale price or appraised value that lenders expect borrowers pay as a down payment for a typical mortgage today?
Q33. Regardless of what lenders expect, what do you think is the minimum down payment that lenders actually require?
Source: Fannie Mae Mortgage Qualification Research

12. Knowledge Gap – Credit Score
Roughly half of respondents do not know what their credit score is or volunteer a number outside of the score range. The mean score consumers posit as the minimum credit score required is 652, higher than Fannie Mae’s requirement of 620. Only 13 percent pick the “ ” choice bucket.
Consumers’ Self-Reported Credit Score
Minimum Credit Score Lenders Require
Don’t Know/Outside Range
Base: Total sample, N=3,868
Q30. To the best of your knowledge, what do you think your FICO® score is?
Q29. In order for borrowers to get a mortgage today, what do you think is the minimum FICO® score lenders would require?
Source: Fannie Mae Mortgage Qualification Research
Source: Fannie Mae Mortgage Qualification Research

13. Likelihood of Homeownership
College Degree Increases Likelihood of Home Ownership, Even with Student Debt
Likelihood of Homeownership
Relative to a High School Graduate without Student Loans
Those with at least a bachelor’s degree and no loans are 43% more likely to be homeowners $
Student Loan holders with at least a bachelor’s degree are 27% more likely to be homeowners $
Student Loan holders without a bachelor’s degree are 32% less likely to be homeowners $
Overall percentage of homeownership of those aged in sample is 52%
* Indicates a statistically significant difference from High School Graduates without Student Loans at the 95% confidence level; confidence level for Student Loan holder without College Degree is 94.5%, just below the 95% cut point
Regression analysis based on 2015 Q3 sample (N = 724) and controls for age to create a fair comparison among the groups. This analysis focuses on average outcomes among the four educational attainment/student loan status groups. Individual outcomes can vary due to a range of factors like personal ability, external financial resources, type of degree, etc.
Source: Fannie Mae

14. What is your primary reason for renting now?
Renters Say They are Primarily Renting to Make Themselves Financially Ready to Own
What is your primary reason for renting now?
Q3 2017
Renters
Renters 18-34
Renters 35+
90% of renters 18 – 34 surveyed plan to buy at some point in the future.
Q31. If you were going to move, would you be more likely to: READ CHOICES
Source: Fannie Mae; National Housing Survey ®

15. Millennial Homeownership Shows Signs of Picking Up
Age
Overall
Less than 35
35 to 44
45 to 54
55 to 64
65 and older
Home Ownership Rate 2017 Q4
64.2%
36.0%
58.9%
69.5%
75.3%
79.2%
Source: Census Bureau, Fannie Mae Analysis

16. Mortgage Shopping Sources of Information – Why are they influential?
While Online Sources are Seen as Convenient and Useful, Few Consider Them as Trustworthy and Credible as Person-to-Person Sources
Borrowers communication with lender:
53% online
69% by phone
47% in-person
90% of borrowers say they want personal communication with lenders in the future
Mortgage Shopping Sources of Information – Why are they influential?
Mortgage Lenders
N=375
Real Estate Agent
N=347
Family and Friends
N=189
Online Sources*
N=148
Q: Why was/were {most influential source} the most influential source when researching and receiving advice about getting your current mortgage? Showing all tested attributes; percentages add up to 100% for each source of mortgage information
*Online Sources include Apps on a mobile device, Websites like Zillow, realtor.com, or credit management sites, and Social media
Source: Fannie Mae; National Housing Survey ®

17. FM Connect Identifies Renters Who Can Become Homeowners
ID Inventory/Sales: Overall 3.0 months, <$300K 2.1 months, $300-$500K 3.9 months, >$500K 9.2 months
Map shows a 5% incremental estimate of % of households within All Renters who have the household income to afford the principal and interest payments on a home priced at 100% of the CBSA median home price with 3% down payment using a 30- year fixed- rate mortgage with a 4.5% note rate and a maximum principal and interest payment to income ratio of 20%.
Source: Fannie Mae, Redbell

18. Speaker Biography
Hamilton Fout– Director, Economic and Strategic Research Group Hamilton Fout is responsible for providing the forecasts of loan volumes and profiles to various business units of Fannie Mae. Fout is an important source of information for regional housing risks, the transmission of macro developments through the mortgage market and issues related to mortgage risks and cash flows. Prior to joining the Economics group, Fout worked in the Underwriting and Pricing division of Fannie Mae focusing on issues related to credit risk. In this role he had primary responsibility for tracking and reporting on regional risks within Fannie Mae’s credit portfolio, developing property-level and loan-level risk models and monitoring and evaluating portfolio-level risks and opportunities for the SF book of business. Prior to joining Fannie Mae, Fout worked as an assistant professor at Kansas State University, where he taught econometrics and undergraduate and graduate-level macro courses and remains an adjunct member of the faculty. Fout’s research at Kansas State focused on research issues involving dynamic learning and the transmission of technology shocks through the macroeconomy. Fout received a Ph.D. in economics from the University of North Carolina and a B.S. in economics and business from Florida State University.

19. Contact Information
Hamilton Fout, Director of Economics Fannie Mae 3900 Wisconsin Avenue, NW Mail Stop 1H-2N/01 Washington, DC (o) Economic & Strategic Research