The Need for Housing Stimulus

1
Fix Housing First

• The Need for Housing Stimulus

2
Housing is at the Center of Our Economic Crisis
Fannie Mae Freddie Mac
Consumer Confidence Spending
Mortgage Backed Securities
Retail, Restaurants, Entertainment, Travel, Auto,
etc.
Investment Banks, Insurance, Mutual Funds and
Commercial Banks
Construction Spending
Construction Loans
Housing Multiplier Effect
Commercial Banks
Plumbers, Electricians, Carpenters, Lumber
Distributors, Building Product Mfg., etc.
Appliances, Furnishings, Lawnmowers, Title
Companies, etc.
3
Monthly Sales Net of Cancellations Have Dropped
Off a Cliff
r NAHB Large Single Family Builder Survey (30
builders)
Down 81
Census Bureau data is down 63, but excludes
cancelations, which was 43 in October 2008 as
per the large builder survey.
Note 30 Builder Survey is compiled each month
by economists at NAHB that tracks real time data
from 30 large private and public homebuilders
that is a very good surrogate for national
activity.
Source NAHB
4
Historical Home Prices
YOY Change in the Median Price of Existing
Homes 1971 2007
First time ever, that the year-over-year change
was negative.

• Case-Shiller 10-city Index down 24 from peak.

Source National Association of Realtors (NAR)
5
As prices decline, the number of underwater
borrowers is increasing
Number of U.S. homeowners with negative equity
(millions)
9 MM
6.7 MM

• Home price declines have created approx. 6.7
  million new US households with negative equity in
  past year.
• Continued home price declines will increase
  credit losses by both inducing higher frequency
  and creating higher severity.
• Hardest hit states Nevada and Michigan, had 48
  and 39 of homes with mortgages underwater,
  respectively.

Sources FDIC, US Census Bureau, Zillow, Equifax,
Moodys Economy.com
6
Mortgage Foreclosure Jump, Likely to Depress Home
Prices Further
Recent foreclosures are adding to the supply at
levels never seen before, at the rate of 2
million homes entering foreclosure per year.
Delinquency rates at 7.0 in the third quarter
of 2008 are also at record levels, indicating
foreclosures will continue to rise.
7
Another Wave of Problems May Be Coming if We
Dont Address the Issue
Adjustable-rate Mortgage Resets
Source Moodys Economy.com Data as of year-end
2007
8
Increasing Foreclosure Activity in Stockton, CA
Stockton market activity may be a sign of how
foreclosures play out in other markets as
foreclosure activity increases.
Housing Transactions by Transaction Type
Stockton, CA
r Note Ignores foreclosure (owner-to-bank)
transactions. Source RealEstate Economics
DataQuick County Recorders Office Various
Private Entities
9
Housing Transactions Trends Stockton, CA
Note Ignores Resale (owner-to-owner) and New
(builder-to-owner) transactions. Source
Realestate Economics DataQuick County Recorders
Office Various Private Entities
10
Compared to a fairly small share of foreclosures
or short sales a year ago, distressed sales are
currently 35 to 40 percent of transactions. These
are pulling the median price down because many
are being sold at discounted prices. Lawrence
Yun, National Association of Realtors Chief
Economist, October 24, 2008
11
Need to Return to Normal Supply and Demand Market
Balance
(Units in Thousands)
Existing Inventory Versus Monthly SalesJune 1982
through October 2008
Stave off foreclosures to lower absolute supply.
Spur sales through a housing stimulus.
Source National Association of Realtors, Zelman
Associates analysis. Note Single family
monthly sales was calculated by dividing NAR
monthly inventory by NAR months supply.
Calculation differs from reported NAR monthly
sales estimates due to NAR adjustment factor.
12
Downturn is sharp, deep and maybe worst since
WWII
Total Percent Decline From Peaks to Trough or
Lowest Subsequent Level 32 Months After Starts
Peak
21 Months
24 Months
58 Months
13 Months
51 Months
26 Months
13 Months
32 Months
10 Months
59 Months
29 Months
61 Months
27 Months
60 Months
27 Months
48 Months
40 Months
42 Months
32 Months
32 Months
Sources US Census Bureau BEA NAR FHFB
Notes Three-month moving averages. Current
cycle reflects data through September 2008.
Individual Measure Peaks. Updated 11.19.08
13
Falling Home Values Is Bad for Local State
Governments
Local and State Tax Revenue


14
Home Prices Do NOT Need to Fall Further to Make
Homes More Affordable
Subsidized mortgages would temporarily,
dramatically increase affordability and could
spur transactions
Proposed 2.99 30-year fixed rate
Proposed 3.99 30-year fixed rate
Dipped at the peak of the market
Improved as prices have come down
Source NAR, Freddie Mac and US Census Bureau.
15
Demographics Support a Substantially Higher Level
of Housing Activity

• US population growth supports higher levels than
  current activity
• Intrinsic demand is there
• Potential home buyers are postponing decisions to
  buy homes today due to fear, causing a downward
  spiral
• The Joint Center for Housing Studies of Harvard
  University and other demographers estimate demand
  between 1.9 million and 1.95 million units per
  year versus current starts pace of 791,000 units

Sources US Census Bureau, Housing Vacancy
Survey revised JCHS household projections.
16
A Housing Recovery Plan to Revive the American
Economy

• The Problem Falling home values are at the core
  of the current economic crisis.
• The Solution Foreclosure Prevention coupled with
  short-term, targeted incentives will encourage
  Americans to buy homes again.
• The Effect Reviving demand positively affects
  the global economy.

17
History Proves That It Works 1975

• April 1975 2,000 tax credit for all new homes
  (12,000 adjusted for todays dollars).
• July 1975 subsidized mortgage rates 1 ½ from
  9 to 7 ½.

18
History Proves That It Works 1975
Housing Stimulus introduced but not soon enough
to remedy these metrics
But immediate impact on stock market, consumer
sentiment and home sales
Housing Stimulus had a huge impact the very next
year
19
The Solution
Housing Stimulus Bill of July 08 (not enough to
be effective)
Requested
20
The Next Shoe to Drop

• Housing Acquisition, Development and
  Construction (ADC) loans, including loans to
  private homebuilders, are likely to cause over a
  thousand FDIC insured banks to fail.

• Total ADC Loans
• 620 billion in Q3 08
• Up to 165 billion at risk of being written off

Source Zelman Associates..
21
Many Acknowledge that Housing is the Root of the
Problem
The government and taxpayers have an enormously
strong incentive to address the housing market
given that the losses to banks will not end and
the economy is unlikely to stop declining until
the housing market stabilizes." - R. Glenn
Hubbard and Christopher Mayer, Columbia Business
School, The Wall Street Journal, October 2,
2008 At the heart of this falls historic
financial crisis lies a steep, nationwide fall in
price of homes. Edward Glaeser, Harvard
Economist, The Boston Globe, November 2, 2008
But were going to need to create programs in
which new player, new buyers, new homeowners, new
families are back actively trying to buy a home
instead of renting, and it is my opinion, the
only way this will occur is through a federal
program to lower interest rates for mortgages." -
Larry Fink, Chairman and CEO, BlackRock, CNBC,
November 12, 2008 "I have always said that the
decline in the housing market is at the root of
the economic downturn and our financial market
stress. Henry Paulson, Treasury Secretary, The
New York Times, November 18, 2008 Key, going
forward, is the stabilization of housing prices.
Alan Mulally, Ford Co-CEO, Reuters, September
15, 2008 A necessary condition for this crisis
to end is a stabilization of home prices in the
U.S. Alan Greenspan, Congressional Testimony,
October 2008
22
What The World Needs Now

• To spark demand
• Lower mortgage interest rates
• Stabilizing home prices
• Job creation
• Reliable stream of mortgage credit
• Cause for optimism
• To restore balance
• Hold production below demand to work-off excess
  inventory
• Bring foreclosures back to normal levels
• Eric Belsky, Joint Center for Housing Studies of
  Harvard University

23
The Housing Market Is Not Correcting It Has
Temporarily Failed

• The markets are dysfunctional and have seized
• The free market system has temporarily failed and
  needs a kick start
• Homes are selling below pure replacement cost
  with zero cost of land
• Buyers are full of fear and the market is in a
  free fall with no bottom in sight
• If we dont stabilize house prices, Congress will
  have to execute another 700 billion rescue
• This is a stimulus and recovery plan that assists
  Main Street by helping home sellers and home
  owners
• WHILE HOUSING STIMULUS IS EXPENSIVE, IT IS
  INSIGNIFICANT COMPARED TO A COLLAPSE OF THE
  HOUSING MARKET

24
Housing Has Huge Ripple Effect and Multipliers
3.05 jobs per each new home built
Source NAHB
25
Housing Can Start to Stimulate in 30 Days!!!!!

• Bridges, roads and other infrastructure will take
  years to have an effect
• Housing is at core of problem
• We are in the midst of a housing crisis not a
  bridge problem
• The free market has temporarily failed and the
  housing market has seized
• NEED TO FIX HOUSING FIRST
• It will stimulate quickly
• Getting homebuyers back in the market will
  stabilize home prices
• This will stabilize mortgages and construction
  loans
• And thus stabilize the financial institutions

26
Home Values Are A Huge Part of 70 of Americans
Wealth
Home Values

• Americas wealth effects spending studies
  consistently show that consumer spending is tied
  in a range of 3.5 to 7.5 of wealth, which is
  largely based on home values
• If we stabilize home values, it will help
  Americas wealth will give confidence for
  consumers to resume normal spending and could
  help significantly diminish the severity/duration
  of a major recession or worse

27
Our Country needs a housing stimulus to
stabilize the housing market and the overall
economy NOW
28
Supporters

• Fix Housing First has broad support across
  industries and America
• Business Roundtable
• National Association of Manufacturers
• Reno Sparks Chamber of Commerce
• Rochester Housing Authority
• San Francisco Chamber of Commerce
• The Latino Coalition
• Department of Community Development, City of
  Shreveport
• Just to name a few

29
Housing is at the Center of Our Economic Crisis
Fannie Mae Freddie Mac
Consumer Confidence Spending
Mortgage Backed Securities
Retail, Restaurants, Entertainment, Travel, Auto,
etc.
Investment Banks, Insurance, Mutual Funds and
Commercial Banks
Construction Spending
Construction Loans
Commercial Banks
Plumbers, Electricians, Carpenters, Lumber
Distributors, Building Product Mfg., etc.
Housing Multiplier Effect
Appliances, Furnishings, Lawnmowers, Title
Companies, etc.