1. Mortgage Market Forecast - 2005
Economic Insights From
Barry Habib - Mortgage Market Guide Frank Nothaft - Freddie Mac

2. Economy Growth to remain in 4% range
Lower dollar yields greater exports
Unemployment continues to fall
Inflation held in check by productivity

3. Jobs, Jobs and More Jobs Unemployment will fall to 5.1%
New jobs will exceed MM
Unemployment below 30 year avg. of 5.95%
Great news for economy

4. Housing Housing is tied to local job markets
Manufacturing areas may decline in value
Overall values to increase at 5 - 7%
Home sales slight decrease from 2004

5. Housing Bubble? No universal housing bubble
Previous declines tied to unemployment
Appreciation levels to decelerate not decline
Possibly higher interest rates - less of factor

6. Stock Direction Double digit returns in 2005
Average return for stocks in years ending with 5 is almost 30%
Values have lagged corporate profitability
Early stimulus from 401K & IRA contributions
Low inflation + low rates = Strong stocks

7. Federal Reserve Fed is still accommodative towards growth
Rate increases at measured pace
Fed Funds to 3% mid year – 3.5% year end
Greenspan’s last year, wants neutral policy

8. The Fed (continued) Fed rate bumps drill HELOC’s
Consider PMI vs. 80/10/10 & 80/15/5
Lock today’s low rates vs. increasing lines
You have tomorrow’s newspaper – read it

9. Getting ARM’d Hybrids are HOT LIBOR heading up – tracking Fed Funds
Monthly ARM’s may be volatile
Declining dollar value won’t impact rates

10. Dollar Impact Dollar should continue lower
U.S. goods cheaper in Europe, not China
Foreigners may throw in the towel
Foreign governments may step back in

11. Wild Cards Watch Middle East, Oil Supply
Fed could be overzealous, choke growth
Forget housing problems, monthly housing expense down since 1980, 31% DTI
22% in 1990
19% today

12. Mortgage Market Originations fall – Refi’s drop from 50% to 33%
Total Originations – $2.5 Trillion
Breakdown – 61% Purchase 39% ARM
ARM Purchase Share – 33% to 40%

13. $1MM Question - Rates Rates should moderate until Spring
Fixed Rates up to 6.25% % year end
ARM Rates up 0.75% %
Fed Funds up 1.25%

14. In Conclusion Optimism abounds in all markets
Strong Economy – jobs, housing, rates
No Housing Bubble – return to moderation
Another Very Good Year!