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When Will It End?

When Will It End?. Presented by: Mark M. Zandi, Chief Economist. November 20, 2008. How Bad Is It?. The Recession Intensifies…. Change in Payroll jobs, ths., Source: BLS. …Throughout Much Of The Country…. At Risk. Expansion. In Recession. Recovery.

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When Will It End?

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  1. When Will It End? Presented by: Mark M. Zandi,Chief Economist November 20, 2008

  2. How Bad Is It?

  3. The Recession Intensifies… Change in Payroll jobs, ths., Source: BLS

  4. …Throughout Much Of The Country… At Risk Expansion In Recession Recovery

  5. …As Households Buckle Under The Stress Household debt in delinquency or default, $ bil, annualized Sources: Equifax, Moody’s Economy.com

  6. How Did We Get Into This Mess?

  7. The Bursting Housing Bubble… Fiserv Case Shiller National House Price Index, 2000Q1=100 -20.2%

  8. …Ignites a Mortgage Crisis… First mortgage loan defaults, ths, SAAR Sources: Equifax, Moody's Economy.com

  9. …Undermining the Financial System… Projected losses on assets originated 2004Q1-2007Q4, $ bil At risk mortgages 15,000,000 Foreclosure rate 40% Foreclosed mortgages 6,000,000 Loss rate 50% Mortgage loss $600 bil Corporate Commercial mortgages Consumer loans Residential mortgages

  10. …And Pushing It to the Precipice of Collapse Difference between 3 month Libor and Treasury bill yields Subprime financial shock LTCM Y2K S&L crisis Peso crisis Thai baht Tech bust Orange County

  11. What Is the Economic Fallout?

  12. The Negative Economic Fallout Is Significant Real GDP growth, annualized % change

  13. Credit Markets Are Frozen… Bond issuance, $ bil, annualized, Source: Thompson

  14. …and Banks Are In Survival Mode Net % tightening standards, Source: Federal Reserve

  15. A Body Blow to Confidence Net % of businesses responding positively Source: Moody’s Economy.com

  16. Smaller Nest Eggs, Less Spending… Sources: Census, Realtors Core retail sales growth 3 mo. MA (R) House-price growth 6 mo. lead (L)

  17. ...Particularly Among Homeowners Personal saving rate Source: Moody's Economy.com

  18. A Global Recession Is Underway Real GDP growth, 2008Q2 Argentina Europe North America Asia Indonesia Philippines South America Russia Chile China Brazil India Czech Republic U.S. Denmark Malaysia Korea Greece United Kingdom Colombia Norway Canada Australia Netherlands Poland Mexico Italy Spain Euro zone New Zealand Hong Kong Japan

  19. When Will It End?

  20. More House Price Declines Are Coming… % change from peak, Sources: Fiserv Case Shiller, Census Home sales Housing starts House price Real House price Current downturn to date Forecast Early 1990s Early 1980s

  21. ...With Big Differences Across the Country Projected peak-to-trough house price decline < -30% Sources: Fiserv Lending Solutions, Moody's Economy.com, OFHEO -20 to -30% -10 to -20% 0 to -10% No decline

  22. Housing Is Becoming More Affordable… Sources: BEA, Census, PPR, Realtors Price-rent ratio (L) Price-income ratio (R)

  23. …In An Increasing Number of Markets Based on house price to income and rent ratios Significantly over-valued Over-valued Correctly valued Under valued Source: PPR, NAR, Moody's Economy.com

  24. Inventories Are Peaking Number of vacant homes for sale, ths, Source: Census Housing supply 900,000 Single 525,000 Multi 300,000 Manufactured 75,000 Housing demand 1,400,000 Households 875,000 Obsolescence 400,000 Second homes 125,000

  25. More Credit Is On the Way FHA share of purchase mortgage loans

  26. A Ray of Economic Sunshine

  27. Policymakers Work To Quell the Panic… • Equity Investments in Financial Institutions • Global Coordinated Interest Rate Cuts • Fed Pays Interest on Reserves • Fed Buys Commercial Paper • Insurance for Money Funds, Deposits, Bank Debt • Nationalization of Fannie Mae and Freddie Mac • Mortgage Loan Modification Plans

  28. …Another Foreclosure Mitigation Plan Is Coming… Number of underwater homeowners, ths Sources: Equifax, Moody's Economy.com

  29. …And Massive Economic Stimulus Is Needed Unemployment rate, Sources; BLS, Moody’s Economy.com

  30. A Timeline to Recovery Self-Sustaining Economic Expansion Begins Financial Failures Abate Home Sales Bottom Foreclosures Peak House Prices Resume Rising Housing Starts Bottom Stock Market Bottoms ’08q1 ’08q2 ’08q3 ’08q4 ’09q1 ’09q2 ’10q1 ’10q2 ’09q3 ’09q4 ’10q3 ’10q4 Employment Bottoms Jobless Rate Peaks Oil Prices Peak Extraordinary Writedowns End Fed Tightens House Prices Bottoms $ Rises

  31. www.economy.com

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