©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE A CHALLENGING AND TURBULENT TIME NeighborWorks Homeownership Symposium Eric Belsky February 2012 1.

© 2 0 1 1 P R E S I D E N T A N D F E L L O W S O F H A R V A R D C O L L E G E

1

A CHALLENGING AND TURBULENT TIME

NeighborWorks Homeownership Symposium

Eric Belsky

February 2012


2

A CHALLENGING TIME


Enormous Amounts of Home Equity Have Been Destroyed

3

Note: Dollar values are adjusted for inflation by the CPI-U for All Items. Sources: Federal Reserve Board, Flow of Funds, Balance sheet tables.

19

70

:31

97

1:3

19

72

:31

97

3:3

19

74

:31

97

5:3

19

76

:31

97

7:3

19

78

:31

97

9:3

19

80

:31

98

1:3

19

82

:31

98

3:3

19

84

:31

98

5:3

19

86

:31

98

7:3

19

88

:31

98

9:3

19

90

:31

99

1:3

19

92

:31

99

3:3

19

94

:31

99

5:3

19

96

:31

99

7:3

19

98

:31

99

9:3

20

00

:32

00

1:3

20

02

:32

00

3:3

20

04

:32

00

5:3

20

06

:32

00

7:3

20

08

:32

00

9:3

20

10

:32

01

1:3

02468

1012141618

Home equity Mortgage debt

Trillions of 2011 dollars

Recent home equity decline takes us

back to 1984 levels


More than 11 Million Mortgaged Homeowners Are Underwater

Source: CoreLogic

Share of Mortgaged HomeownersUnderwater in 2011:3

Less than 10 Percent

10 - 25 Percent

25 - 33 Percent

Greater than 33 Percent (up to 58)

No Data


5

Unemployment Rate Remains Elevated

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

1

2

3

4

5

6

7

8

9

10

11

3.9

5.7 6.0 5.7 5.44.9

4.45.0

7.3

9.99.4

8.5

Unemployment rate (Percent)

Note: Unemployment rates are seasonally-adjusted and for the month of December. Source: Bureau of Labor Statistics.


6

Disparities in Unemployment By Age and Race Are Large

Source: Moody’s Economy.com and Bureau of Labor Statistics, Current Population Survey.

16 to 24 25 to 34 35 to 44 45 to 540

5

10

15

20

25

30

15.9

9.06.8 6.5

18.1

9.8 9.1 9.9

27.3

17.4

12.49.7

All Races Hispanic or Latino Black or African American

Age Categories

Unemployment Rate, 2011:4


Employment Has Started to RecoverBut Is Still in a Deep Hole

Note: Quarterly values are three-month averages of seasonally adjusted annual rates. Official End of Recession quarters were 1975:1, 1982:4, 1991:1, and 2009:2. Sources: NBER; BLS, Establishment Survey

7QuartersBe-fore

-6 -5 -4 -3 -2 -1 Endof

Re-cession

1 2 3 4 5 6 7 8 QuartersAf-ter

-2000

0

2000

4000

6000

8000

Change in Total Nonfarm Employment From End of Recession (000s)

Mid 1970s Late 1970s/Early 1980s Late 1980s/Early 1990s

Current Downturn


8

Low-Tier Homes Have Been Hit Hardest by Price Declines

Las Vegas

Miami

Tampa

Los Angeles

San Diego

Seattle

Portland

Boston

-70 -60 -50 -40 -30 -20 -10 0

High-tier Low-tier

Percent decline in home prices, peak to November 2011

Source: JCHS tabulations of S&P/Case-Shiller Tiered HPI data.


9

High-Cost Lending Was Highest Among Low-Income and Minority Homeowners

Minority Mixed White05

101520253035404550

Low Income Middle Income High Income

Census Tract Type

High-cost loans as a share of all loans originated in 2005 (Percent)

Notes: Includes originations of conventional 1-4 unit owner-occupied home purchase loans. Low/middle/high income neighborhoods are census tracts with median family income in 2000 that is less than 80%/80-120%/greater than 120% of the 2000 area median family income. White/mixed/minority neighborhoods are tracts with a minority population share less than 10%/10-50%/greater than 50% of population in 2000. Source: JCHS enhanced HMDA database


Minority Mixed White0123456789

Low Income Moderate Income High Income

Census Tract Type

Foreclosures Have Been Concentrated In Low-Income Markets and Communities of Color

Notes: Minority census tracts were more than 50% minority in 2000; mixed census tracts were 10–50% minority; white census tracts were less than 10% minority. Low-/moderate-/high-income census tracts had median family incomes is less than 80%/80–120%/more than 120% of the metropolitan area median. Estimates are based on a HUD model of the share of loans foreclosed from January 2007 to June 2008.Sources: JCHS tabulations of HUD 2008 Neighborhood Stabilization Program data and US Census Bureau, 2000 Decennial Census.

Median Estimated 18-Month Foreclosure Rate, 2008 (Percent)


Even With the Will, The WayTowards Homeownership is Tougher

2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80

90

100

Share of FHA-Insured Mort-gages by Dollar Volume

(Percent)

Below 640 640-679 680-850

2006 20090

10

20

30

40

50

60

70

80

90

100

Share of Freddie Mac and Fannie Mae Originations (Percent)

High Risk Moderate Risk Low Risk

Notes: High (low) risk loans are to borrowers with credits scores under 690 (above 750) and have loan-to-value ratios above 85% (below 75%). FHA data exclude records with no credit score information.Sources: Barclays Capital, GSEs: Back to the Future, US Interest Rates Strategy, 2009; US Department of Housing and Urban Development.

Credit Score


12

A TURBULENT TIME


13

Timing of Purchases Matters

2000200020002000200020002000200020002000200020002001200120012001200120012001200120012001200120012002200220022002200220022002200220022002200220022003200320032003200320032003200320032003200320032004200420042004200420042004200420042004200420042005200520052005200520052005200520052005200520052006200620062006200620062006200620062006200620062007200720072007200720072007200720072007200720072008200820082008200820082008200820082008200820082009200920092009200920092009200920092009200920092010201020102010201020102010201020102010201020102011201120112011201120112011201120112011201120110

50

100

150

200

250

$169,000

NAR Median Sales Price S&P/Case-Shiller HPIFHFA HPI

Median sales price (Thousands of dollars); Price index

Notes: All values are seasonally adjusted and in nominal dollars.

Sources: National Association of Realtors, Median Sales Price Existing Single-Family Homes; S&P/Case-Shiller Single-Family Home Price Index; and FHFA Purchase-Only Home Price Index.


14

Price-to-Income Ratios Have Fallen Dramatically in Hardest-Hit States

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

50

100

150

200

250

Arizona California Florida Nevada United States

Price-to-Income Index (1990:1 = 100)

Notes: Price-to-income ratios were calculated as the housing price index over median household income. House price values are from the fourth-quarter, except in 2011, which takes the latest-available third quarter values.Sources: FHFA Purchase-Only Home Price Index (NSA); US Census Bureau, Current Population Survey; Moody’s Analytics Income Forecast


15

Over Long-Run Prices Tend to Rise With Average Household Incomes

19751977

19791981

19831985

19871989

19911993

19951997

19992001

20032005

20072009

0

1

2

3

4

5

6

7

Median Sales Price Mean Household Income

Multiples of 1975 Value

Note: All values are in nominal dollars.

Sources: NAR Median Sales Price, Existing Single Family Homes; Moody’s Economy.com tabulations of US Census Bureau CPS data


16

Homeownership Is At Its Most Affordable Levels Since At Least 1971

1971197319751978198019821985198719891992199419961999200120032006200820100

50

100

150

200

250NAR Affordability Index

Source: NAR Composite Affordability Index.


Yet the Share of Renters Intending to Buy Has Fallen

2003 Jan 2010 Jun 2010 2010: Q3 2010: Q40

10

20

30

40

50

60 5752

3842

39

Share of Renters Likely to Buy in Next Three Years (Percent)

Source: Fannie Mae National Housing Survey.


Still Homeownership Is Still VERY Favorably Viewed

Jan

201

0

Jun

201

0

201

0:Q

3

201

0:Q

4

201

1: Q

1

201

1: Q

2

201

1: Q

30

20

40

60

80

100 89 91 92 90 92 90 92

Owners

Share Stating Owning Makes More Sense Than Renting (Percent)

Source: Fannie Mae National Housing Survey.

Jan

201

0

Jun

201

0

201

0:Q

3

201

0:Q

4

201

1: Q

1

201

1: Q

2

201

1: Q

30

20

40

60

80

100

7569 70 68

74 72 70

Renters


And People Perceive that Now IS a Good Time to Buy

2003

Jan

201

0

Jun

201

0

Sep

t 201

0

201

0:Q

4

201

1:Q

1

201

1:Q

2

201

1:Q

30

20

40

60

80

100

62 6268 67 64 64 66 67

Owners

Share Stating Now is a Good to Buy (Percent)

Source: Fannie Mae National Housing Survey, Q3 2010.

2003

Jan

201

0

Jun

201

0

Sep

t 201

0

201

0:Q

4

201

1:Q

1

201

1:Q

2

201

1:Q

30

20

40

60

80

100

56 58 59 60 55 58 59 55

Renters


20

Credit Remains Tight

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

5

10

15

20

Under 660 Under 620Year

Share of Single-Family Conventional Business Volume

Source: JCHS tabulation of data from Fannie Mae Annual 10K Reports

FICO Credit Score:


21

Financing Constraints Weigh Heavily, Especially on Potential First-Time Buyers

I May Not Qualify for a Mortgage

I Cannot Afford the Downpayment

0

10

20

30

40

50

60

70

80

1418

38

55

Owners Renters

Stated Reasons for Staying Out of The Housing Market (Per-cent of Respondents)

Source: Hanley Wood Housing 360 Survey, 2011.

Mortgage Accessability ...0

10

20

30

40

50

60

70

80

41

75

Owners Renters

Percent of Respondents

Source: Fannie Mae National Housing Survey, 2011:Q3.


22

. . . And Those with the Lowest Incomes Most Keenly Feel the Challenges in Getting Mortgages

Under $25,000 $25-50,000 $50-100,000 $100,000 and Over

0

10

20

30

40

50

60

70

8079

60

43

28

Share Stating Mortgage Accessibility Today is Difficult (Percent of Respondents)

Household Income

Source: Fannie Mae National Housing Survey, 2011:Q3.


Delinquencies Have Ebbed But Foreclosure Pipeline Near Record Levels

90+ Days In Foreclosure0.0

1.0

2.0

3.0

4.0

5.0

6.0

Average 2000:1 to 2005:1 2010:12011:3

Share of Mortgages in Service (Percent)

Year

Source: Mortgage Bankers Association of America


24

THE PATH FORWARD


NWA Had it Right

• Full-cycle lending and sustainability matters

• Carefully educating and underwriting borrowers matters

• Flexibility in underwriting low credit score and low wealth borrowers is possible when done properly and with the right products


Seven-Point Plan

• Dispel myths about what caused risks to homeowners to mount and about the role of low-income housing policy

• Reassert evidence that shows can lend prudently to lower income/wealth/credit score borrowers

• Continue to research what works and doesn’t

• Show that full-cycle lending model is worth investing in

• Continue to fight for homebuyer assistance programs and housing finance reform that preserves access

• Remain flexible and responsive to housing demand in your markets

• Explore collaborations with Housing Finance Agencies

©2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE A CHALLENGING AND TURBULENT TIME NeighborWorks Homeownership Symposium Eric Belsky February 2012 1.

Documents

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fellows of harvard collegeeven

minority census tracts

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highincome census tracts

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