Freddie Mac 2015 Annual Report Download - page 61

Management's Discussion and Analysis Our Business Segments | Multifamily
Freddie Mac 2015 Form 10-K 59
Apartment Completions and Net Absorption
Source: REIS, Inc.
K Certificate Benchmark Spread as of
December 31,
Source: J.P. Morgan
Commentary
• Apartment completions are an indication of the supply of rental housing. Net absorption, which is a
measurement of the rate at which available apartments are occupied, is an indication of demand for
rental housing.
• While supply (indicated by completions) has been on the rise and has driven the increase in
vacancies, demand (indicated by net absorption) has also been strong for rental housing in recent
periods because of an improving job market and lower homeownership rates. However, in the longer
term, the increasing supply may have unfavorable impacts on rental and vacancy rates.
• The K Certificate benchmark spread represents the spread of a typical 10-year senior K Certificate
over the U.S. swap curve. In 2015, the spread widened due to broad macroeconomic market volatility
and uncertainty.
• The profitability of our K Certificate transactions (as measured by gains and losses on sales of
mortgage loans) is impacted by the change in the K Certificate benchmark spread during the period
between loan purchase and execution of the K Certificate transaction. During 2015, spread widening
had an adverse effect on K Certificate profitability.