Freddie Mac 2010 Annual Report Download - page 69

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read this MD&A in conjunction with “BUSINESS — Executive Summary” and our consolidated financial
statements and related notes for the year ended December 31, 2010.
MORTGAGE MARKET AND ECONOMIC CONDITIONS, AND OUTLOOK
Mortgage Market and Economic Conditions
Overview
Mortgage and credit market conditions remained weak in 2010 due primarily to a continued weak labor market. The
pace of economic recovery increased slightly in the fourth quarter of 2010, with the U.S. gross domestic product rising by
3.2% on an annualized basis during the period, compared to 2.6% during the third quarter of 2010, according to the Bureau
of Economic Analysis advance estimate. Unemployment was 9.4% in December 2010, down slightly compared to 9.9% at
December 2009, based on data from the U.S. Bureau of Labor Statistics.
Table 8 provides important indicators for the U.S. residential mortgage market.
Table 8 — Mortgage Market Indicators
2010 2009 2008
Year Ended December 31,
Home sale units (in thousands)
(1)
....................................................... 5,229 5,531 5,398
Home price depreciation
(2)
........................................................... (4.1)% (2.4)% (11.9)%
Single-family originations (in billions)
(3)
................................................. $ 1,570 $ 1,815 $ 1,500
Adjustable-rate mortgage share
(4)
..................................................... 10% 7% 13%
Refinance share
(5)
............................................................... 73% 68% 50%
U.S. single-family mortgage debt outstanding (in billions)
(6)
.................................... $10,612 $10,861 $11,072
U.S. multifamily mortgage debt outstanding (in billions)
(6)
..................................... $ 847 $ 851 $ 841
(1) Includes sales of new and existing homes in the U.S. Source: National Association of Realtors news release dated January 20, 2011 (sales of existing
homes) and U.S. Census Bureau news release dated January 26, 2011 (sales of new homes).
(2) Calculated internally using estimates of changes in single-family home prices by state, which are weighted using the property values underlying our
single-family credit guarantee portfolio to obtain a national index. The depreciation rate for each year presented incorporates property value information
on loans purchased by both Freddie Mac and Fannie Mae through December 31, 2010 and the percentage change will be subject to revision based on
more recent purchase information. Other indices of home prices may have different results, as they are determined using different pools of mortgage
loans and calculated under different conventions than our own.
(3) Source: Inside Mortgage Finance estimates of originations of single-family first-and second liens dated January 28, 2011.
(4) Adjustable-rate mortgage share of the dollar amount of total mortgage applications. Source: Mortgage Bankers Association’s Mortgage Applications
Survey. Data reflect annual average of weekly figures.
(5) Refinance share of the number of conventional mortgage applications. Source: Mortgage Bankers Association’s Mortgage Applications Survey. Data
reflect annual average of weekly figures.
(6) Source: Federal Reserve Flow of Funds Accounts of the United States dated December 9, 2010. The outstanding amounts for 2010 presented above
reflect balances as of September 30, 2010, which is the latest information available.
Single-Family Housing Market
We believe the level of home sales in the U.S. is a significant driver of the direction of home prices. Within the
industry, existing home sales are important for assessing the rate at which the mortgage market might absorb the inventory of
listed, but unsold, homes in the U.S. (including listed REO properties), while we believe new home sales can be an indicator
of other economic trends, such as the potential for growth in total U.S. mortgage debt outstanding. We believe that the end
of the federal homebuyer tax credit program in April 2010 contributed to a decline in home sales mid-year, and the market
slowly improved in the fourth quarter. New home sales fell 31.9% in May 2010 to a seasonally adjusted annual rate of
282,000, reflecting the fourth lowest level since the U.S. Census Bureau’s series began in 1963. New home sales recovered
modestly in the second half of 2010, but ended the year at an annual rate of 329,000 in December. Because existing home
sales are reported at closing, typically a month or more after the contract is signed, the full effect of the expiration of the
federal homebuyer tax credit program was not felt until July 2010, when existing home sales decreased by 27.0%, as
compared to June 2010 sales. Sales of existing homes rose 37.5% over the remainder of 2010, to an annual rate of
5.3 million in December.
We estimate that home prices decreased 4.1% nationwide during 2010, as a slight increase in home prices during the
first half of 2010 was more than offset by a decrease in home prices during the second half of 2010, including a 1.4%
decrease in the fourth quarter of 2010. These estimates are based on our own index of our single-family credit guarantee
portfolio. Other indices of home prices may have different results, as they are determined using different pools of mortgage
loans and calculated under different conventions than our own. We believe home prices in the first half of the year were
positively impacted by the availability of the federal homebuyer tax credit, as well as strong home sales in the spring and
summer months of 2010, which is consistent with historical trends.
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