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Mortgage Meltdown:Mortgage Meltdown:The Saga Continues
Jason HendersonVice President and Branch ExecutiveFederal Reserve Bank of Kansas City
O h B hOmaha Branchwww.kansascityfed.org
December 4, 2008
The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
The U.S. economy is in recession.
Real GDP Growth
4 0
5.0
4 0
5.0Annualized percent change from previous quarter
Blue Chip ForecastAugust 2008
2.0
3.0
4.0
2.0
3.0
4.0August 2008November 2008
-1 0
0.0
1.0
-1 0
0.0
1.0
-3.0
-2.0
-1.0
-3.0
-2.0
-1.0
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
2007 2008 2009Source: Bureau of Economic Analysis and Blue Chip Economic Indicators
Aggregate demand will need to rebound.
Personal Consumption Expenditures
4.05.0
4.05.0
Annualized percent change from previous quarter
Blue Chip ForecastAugust 2008
1 02.03.04.0
1 02.03.04.0August 2008
November 2008
2 0-1.00.01.0
2 0-1.00.01.0
-4.0-3.0-2.0
-4.0-3.0-2.0
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
2007 2008 2009Source: Bureau of Economic Analysis and Blue Chip Economic Indicators
Will World Growth Rebound as Expected?
World GDP Growth
8
9
8
9Annual Percent Change
Emerging and Developing Countries
5
6
7
5
6
7
World
3
4
5
3
4
5World
0
1
2
0
1
2
Advanced Countries
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: International Monetary Fund, October 2008
Total Employment Growth(October 2007 to October 2008)(October 2007 to October 2008)
1 0% to 3 0% 0 4 to 0% 1 1% to 3 3%
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
-1.0% to -3.0%-0.5% to -0.9%
-0.4 to 0%0.1% to 1.0%
Source: BLS
1.1% to 3.3%
U.S. Single-Family Home Price Appreciation(Percent change 2007:Q1 to 2008:Q3)(Percent change 2007:Q1 to 2008:Q3)
5 1% or more 0 to 2 4% 5 1% or more
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
-5.1% or more-5.0% to 0
0 to 2.4%2.5% to 5%
Source: OFHEO
5.1% or more
Rural areas are fairing better than their metro peerstheir metro peers.
Metro and Non-Metro Employment Growth
2.5
3.0
2.5
3.0Annual Percent Change (three month moving average)
1.5
2.0
2.5
1.5
2.0
2.5
Metro
0.5
1.0
0.5
1.0Non-Metro
-0.5
0.0
-0.5
0.0
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
-1.0Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
-1.0
Source: BLS
Rural Home Price Appreciation since Q1:2007(Existing Single-Family Homes)(Existing Single Family Homes)
5 1% or more 0 to 2 4% 5 1% or more
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
-5.1% or more-5.0% to 0
0 to 2.4%2.5% to 5%
Source: OFHEO
5.1% or more
Rural areas have fewer foreclosures and are further along in resetsare further along in resets.
Subprime ARM Loans(as of April 2008)Percent
Total Subprime Loans(as of April 2008) Percent
8
9
10
50
60Percent Percent
Non-Metro
5
6
7
30
40Metro
Non-Metro
Metro
3
4
5
20
30
0
1
2
C tl i 90 D0
10
Al d 0 11 12 23 24
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
Currently inForeclosure
90+ DaysDelinquent
AlreadyReset
0-11months
12-23months
24+months
Source: Federal Reserve Board of Governors
Falling Asset Prices and High Debt Levels are a Recipe for Bankruptcyare a Recipe for Bankruptcy.
Domestic Business Debt Outstanding
120 120Percent of GDP
Financial Business
80
100
80
100Households
40
60
40
60
Nonfinancial
20 20
Nonfinancial Business
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
01956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006
0
Source: Federal Reserve Board of Governors
Financial market stress remains elevated.
LIBOR-OIS Spread
300
350
300
350
1 month3 month
Basis Points
200
250
200
250
3 month
100
150
100
150
0
50
0
50
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA
Feb-07 Jun-07 Sep-07 Jan-08 Apr-08 Aug-08 Oct-08 Nov-08 Dec-08
Source: Federal Reserve Board of Governors
Federal Reserve Bank of Kansas CityO h B hOmaha Branch
Presentation available atwww.kansascityfed.org/omaha
FEDERAL RESERVE BANK OF KANSAS CITYRegional, Public, and Community AffairsPhotos courtesy of USDA