barclays 2010 global market outlook conferece
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8/8/2019 Barclays 2010 Global Market Outlook Conferece
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Housing risks and prospectsGlenn Boyd
January 2010
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 19
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
A nascent recovery in HPA?
___________________________Source: S&P/CS, FHFA, First American Core Logic’s LoanPerformance HPI, Radar Logic, Barclays Capital
Home price appreciation (NSA, annualized)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan-08 Jan-09FHFA CS-20 RPX LP
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Influential near-term factors
Shadow inventory
•Recent home price strength was largely possible because distressed inventories declined.
•But this decline is likely transitory. We estimate roughly 6mn homes will become distressed
sales over the next three years.
•Such a massive influx of supply should depress home prices. While the timing depends on
government and servicer programs, our models suggest 8% remaining depreciation before a
bottom.
•Changing distressed share causes abnormally strong seasonals
•Mortgage rates are historically low
•Tax incentives should boost demand in Q1
•Unemployment should gradually decline
Equilibrium and Seasonal factors
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Distressed sales are in abeyance
Shadow inventory
___________________________Source: LoanPerformance, Barclays Capital
-
500
1,000
1,500
2,000
2,500
3,000
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
H o m e s ( 0 0 0 s )
Real-estate Owned
Foreclosure
90+
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Modifications not a cure-all
Redefaults
by % payment reduction
___________________________Note: Left chart selects 90-110 CLTV loans 2005-2007 vintage subprime loans modified from delinquent state in Q3
08.
Right chart shows re-defaults for 90-110 CLTV 2005-2007 vintage subprime loans with 20% payment reduction modified in Q3 03.
Source: LoanPerformance, Barclays Capital
Redefaults
by
months delinquent at time of mod
0%
20%
40%
60%
80%
100%
1 2 3 4 5 6 7 8 9 10
Months since modification
0
1-2
3-4
5-8
Cum Delinquency
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Months since modification
Cum
Delinquency
0-10
10-20
20-30
30-40
40-50
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Distressed sales distort seasonal patterns
___________________________Note: As of December remittance. Source: LoanPerformance, Barclays Capital
0%
2%
4%
6%
8%
10%
12%
Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09
P c t o f H o u s i n g S t o c k
Distressed Voluntary TotalDistressed Share % (NSA)
0%
10%
20%
30%
40%
50%
60%
Jan-06 Jan-07 Jan-08 Jan-09
Voluntary sales exhibit seasonality… … So does the distressed share of EHS
•
The push to qualify for the tax incentive likely boosted voluntary sales in Oct and Nov, retarding theusual winter increase in distressed share.
•
A lull in voluntary demand should help restore the expected winter rise in distressed share.
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Housing model: Seasonal factors
Abnormal seasonals
across states
___________________________Source: First American Core Logic’s LoanPerformance HPI, Barclays Capital
-20
-15
-10
-5
0
5
10
15
20
25
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
ALL - DX (3m avg)Individual states Aggregate
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
The foreclosure pipeline
___________________________ As of December 1, 2009. Source: LoanPerformance, Barclays Capital
331,000
135,000
103,000
Foreclosure Bucket
118,000
REO Bucket
2.8mn loans
0.66mn
homes
Current > 30d > 60d > 90+ > Fcl
> REO > liquidated
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Distressed inventory and sales
___________________________Note: As of November remittance. Source: National Association of
Realtors, Census Bureau, LoanPerformance, Barclays Capital
0
100
200
300400
500
600
700
800
900
May
05
Feb
06
Nov
06
Aug
07
May
08
Feb
09
Nov
09
R E O S t o c k , T h o u s a n d s
0%
5%
10%
15%
20%
25%
30%
%
o f R
E O s t o c k
REO StockREO InfluxREO Outflux
Distressed inventories rose in November
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Foreclosure moratoria reduce supply…
___________________________Note: As of November remittance. Source: LoanPerformance, Barclays Capital
Foreclosure-to-REO roll rates have fallen since HAMP
0%
2%
4%
6%
8%
10%
12%
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
ALTA PRIME SUBPRIME
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
The answer is in the pipeline
Sector
No. Mtges
(000s)
Delinquent
(000s)
Foreclosure
(000s)
Alt-A 4,441 514 545 Subprime 8,087 1,654 1,237
Prime 4,404 143 142
Agency 40,274 875 865
Total 57,207 3,186 2,789
Current pipeline snapshot –
primary market
___________________________Source: LoanPerformance, Barclays Capital
Estimated new distressed homes
Year Model
12mo 2,235
24mo 2,083
36mo 1,555
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
National REO stock should peak in Q2 10
___________________________Source: Barclays Capital
We project 8% remaining depreciation, nationwide.
-
100
200
300
400
500
600
700
800
900
1,000
Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13
R E O I n v e n t o r y ( 0 0 0 s )
Optimistic
Base
Stress
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Regional model: Explanatory variables
CA REO inventory
___________________________Source: LoanPerformance, First American Core Logic’s LoanPerformance HPI, Barclays Capital
CA Change in REO
-50
-40
-30
-20
-10
0
10
20
30
Jan-06 Jan-07 Jan-08 Jan-09
HPA (nsaar)
0.0
0.4
0.8
1.2
1.6
2.0
HPA REO
REO as %stock
-50
-40
-30
-20
-10
0
10
20
30
Jan-06 Jan-07 Jan-08 Jan-09
HPA (nsaar)
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
HPA REO chg
REO change
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Regional model: Explanatory variables
Interest rate attractiveness
___________________________Source: Bureau of Labor Statistics, Bloomberg, First American Core Logic’s LoanPerformance HPI, Barclays Capital
Change in unemployment rate
-50
-40
-30
-20
-10
0
10
20
30
Jan-06 Jan-07 Jan-08 Jan-09
HPA (nsaar)
-100
-50
0
50
100
150
200
HPA RA RA no incentive
Adj Rate Attractiveness
-50
-40
-30
-20
-10
0
10
20
30
Jan-06 Jan-07 Jan-08 Jan-09
HPA (nsaar)
-1.5
-1
-0.5
0
0.5
11.5
2
2.5
3
HPA Une chg
Une ch
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Housing model: HPI projections
85
87
89
91
93
95
97
99
101
103
105
Nov-09 Nov-10 Nov-11 Nov-12
HPI
Delayed base
optimistic stress
Projected remaining depreciation
___________________________Source: Barclays Capital
US aggregate HPI
State Stress Base Optimistic
AZ 22.0 17.3 6.2
CA 22.7 15.3 7.0
FL 22.4 12.2 2.2
IL 13.8 10.8 2.7
MI 24.9 19.4 16.0
NV 34.5 30.4 27.3
NY 13.4 6.0 0.2
OH 7.2 4.9 0.5
PA 1.7 1.7 -
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
600
620
640
660680
700
720
740
760
780
Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09
FICO
5%
10%
15%
20%
25%
30%
35%
40%
%LTV>80
FICO (FHLMC) FICO (FHA) Pct with LTV>80
Mortgage credit is limited
Agency underwriting has tightened…
___________________________Source: HUD, Freddie Mac, Barclays Capital
…cutting off credit to low FICO borrowers
0%
2%
4%
6%
8%
10%
12%
14%
16%
600 640 680 720 760 >800
FICO
2007 2009
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Model Intuition: California
Components of HPI forecast
___________________________Source: Barclays Capital
Risk from shadow inventory
Variable HPA contributionLong-term norm 4.2
Une declines by 1.4% 1
tax incentive/rates 6.3
Suppressive effect from REO inventory -16.5
Effect from change in REO -6
Total -11
Seasonality -4.3
Projected remaining -15.3
100bp sell-off -6
Flat demand -10New fcl moratorium 6 to 13.8
Risks
000's of homes %stock
REO 95 1.1
FCL 335 3.9
90+ 344 4
60d 77.4 0.9
Total 851 9.9
Historical 222 2.6
Assumed 294 3.4
000's of new REO HPA effect
Hist Demand 113 -16.4
Assumed Demand 41 -6.0
Delinquency pipeline
Annual Distressed Demand
Net new REO if all Fcl hits in one year
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2010 GLOBAL MARKETS
OUTLOOK CONFERENCE
Outlook
Risks to our view
•Further government intervention is probable, and a new modification program could entail
additional delays in REO resolution.
•Unless mortgage credit begins to expand, rank-and-file home buyers will have difficulty funding
purchases. Our stress scenario projects 14% remaining depreciation.•Soaring confidence could boost demand beyond our expectations, in which case housing may
have already bottomed. But prolonged weight from distressed inventories could render such a
recovery vulnerable to future shocks or liquidity withdrawal.
•Shadow inventory has not been eliminated, only delayed.
•Our regional housing model supports 8% remaining decline in CS/S&P national HPI, corresponding
to 34% peak-to-trough.
•Timing is uncertain, but continued foreclosure paralysis may well push the bottom to Q2 11.
8% Remaining depreciation
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