Freddie Mac 2011 Annual Report Download - page 87

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, 2011.
MORTGAGE MARKET AND ECONOMIC CONDITIONS, AND OUTLOOK
Mortgage Market and Economic Conditions
Overview
Despite some improvements in the national unemployment rate, the housing market continued to experience
challenges during 2011 due primarily to continued weakness in the employment market and a significant inventory of
seriously delinquent loans and REO properties in the market. The U.S. real gross domestic product rose by 1.6% during
2011, compared to 3.1% during 2010, according to the Bureau of Economic Analysis estimates released on January 27,
2012. The national unemployment rate was 8.5% in December 2011, compared to 9.4% in December 2010, based on data
from the U.S. Bureau of Labor Statistics. In the data underlying the unemployment rate, there was employment growth
(net new jobs added to the economy) in each month during 2011, which shows evidence of a slow, but steady positive
trend for the economy and the housing market.
The table below provides important indicators for the U.S. residential mortgage market.
Table 8 — Mortgage Market Indicators
2011 2010 2009
Year Ended December 31,
Home sale units (in thousands)
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,564 4,513 4,715
Home price change
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.0)% (5.9)% (2.3)%
Single-family originations (in billions)
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,350 $ 1,630 $ 1,840
ARM share
(4)
................................................................. 12% 10% 7%
Refinance share
(5)
.............................................................. 79% 80% 73%
U.S. single-family mortgage debt outstanding (in billions)
(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,336 $10,522 $10,866
U.S. multifamily mortgage debt outstanding (in billions)
(6)
.................................... $ 841 $ 838 $ 847
(1) Includes sales of new and existing homes in the U.S. Source: National Association of Realtors news release dated February 22, 2012 (sales of
existing homes) and U.S. Census Bureau news release dated February 24, 2012 (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, 2011 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 27,2012.
(4) ARM share of the dollar amount of total mortgage applications. Source: Mortgage Bankers Association 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 Flow of Funds Accounts of the United States dated December 8, 2011. The outstanding amounts for 2011 presented above reflect
balances as of September 30, 2011.
Single-Family Housing Market
We believe the number of potential home buyers in the market, combined with the volume of homes offered for sale,
will determine 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). Additionally, we believe new home sales can be an indicator of certain economic trends, such as the potential
for growth in gross domestic product and total U.S. mortgage debt outstanding. Based on data from the National
Association of Realtors, sales of existing homes in 2011 were 4.26 million, increasing from 4.19 million during 2010. The
National Association of Realtors report states that distressed and all-cash sales comprised a historically high volume of
existing home sales in 2011. Investors typically represent the bulk of all-cash transactions. Based on data from the
U.S. Census Bureau and HUD, new home sales in 2011 were approximately 304,000 homes, decreasing approximately
6% from 323,000 homes in 2010. The relative level of mortgage interest rates is also a factor that impacts home sale
demand because lower interest rates result in more affordable housing for borrowers. During 2011, the Federal Reserve
took several actions designed to support an economic recovery and maintain historically low interest rates, which
impacted and will likely continue to impact single-family mortgage market activity, including the volume of mortgage
refinancing.
82 Freddie Mac