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Milken Institute - Mortgage Crisis Overview
1. Demystifying the Mortgage Meltdown:
What It Means for Main Street,
Wall Street and the U.S. Financial System
James R. Barth Glenn Yago
Senior Fellow Director of Capital Studies
Milken Institute
October 2, 2008
1
2. “I have great, great confidence in our capital markets and in
our financial institutions. Our financial institutions, banks
and investment banks are strong.”
Treasury Secretary Henry Paulson
March 16, 2008
CNN
2
3. … but just six months later…
“The financial security of all Americans … depends on our
ability to restore our financial institutions to a sound footing.”
Treasury Secretary Henry Paulson
September 19, 2008
Press release
3
5. “Any real estate investment is a good investment … ”
… Really?!
5
6. Subprime mortgage meltdown timeline
December 2006–September 2008
Dow Jones U.S. Financial Index
Aug. 1,
Aug. 16, 2007: Sept. 30, 2007: Oct. 24, 2007: Mar. 11, 2008: Fed Mar. 16, 2008: Mar. 18, 2008:
2008: First
Countrywide gets NetBank goes Merrill announces offers troubled JP Morgan Fed cuts
650 Priority
Feburary–March 2007: More than 25 emergency loan of bankrupt. $7.9 billion in banks as much as Chase offers to discount rate
Bank
subprime lenders declare $11 billion from a subprime write- $200 billion in buy Bear to 2.4%; Fed
closes.
bankruptcy. group of banks. downs, surpassing loans; Fed Stearns; Fed funds rate to
Citi’s $6.5 billion. introduces Term introduces 2.25%.
Sept. 14, 2008:
Securities Primary Dealer
Lehman files for
Lending Facility. Credit Facility.
550 bankruptcy.
July 30, 2008:
Sept. 16, 2008:
Dec. 2006: Apr. 2007: New
Feb. 2007:
President
Fed loans AIG
Ownit Mortgage, Century, a
HSBC sets
Bush signs a
$85 billion.
a subprime mortgage
aside $10.6 Dec. 12, 2007: housing
lender, files for broker, files
billion for Fed introduces rescue law.
450 bankruptcy. for
bad loans, Aug. 6, 2007: Sept. 23, 2008:
Term Auction
bankruptcy.
including American Home Washington
Facility.
subprime. Mortgage files Mutual is seized
Jan. 11, 2008:
for bankruptcy. by FDIC.
July 31, 2007:
Bank of
Two Bear
America agrees June 9, 2008:
Stearns Feb. 13, 2008:
350 to buy Sept. 29, 2008:
Lehman
hedge funds President Bush
Countrywide.
Aug. 17, 2007: Fed cuts Citigroup
announces a $2.8
file for introduces tax
discount rate to 5.75%; agrees to buy
billion loss.
bankruptcy. Sept. 7, 2008: U.S.
rebate stimulus
Jan. 30, 2008: Fed
Fed introduces Term Wachovia bank.
seizes Fannie Mae
program of $168
cuts discount rate
Discount Window July 11, 2008: IndyMac
and Freddie Mac.
billion.
to 3.5%.
Program. is seized by FDIC.
250
Sources: BusinessWeek, S&P, Global Insight, Milken Institute. 6
8. Home mortgages: Who borrows, how much has been
borrowed, and who funds them?
Total value of housing stock = $19.3 trillion
Subprime
Securitized
8.4%
Government-
58%
Mortgage debt controlled
$10.6 trillion 46%
Prime
91.6%
Non-securitized Private
sector-
42%
controlled
54%
Equity in housing stock
$8.7 trillion
Note: total residential and commercial mortgages = $14.7 trillion; 5 percent = $700 billion
Sources: Federal Reserve, Milken Institute. 8
9. The mortgage problem in perspective
80 million houses
27 million are paid off
53 million have mortgages
48 million are paying on time
This compares to
50% seriously
delinquent in the
1930s.
5 million are behind
(9.2% of 53 million with 2.8% in foreclosure)
Sources: U.S. Treasury, Milken Institute. 9
11. Did the Fed lower interest rates too much and for too long?
Federal funds rate vs. rates on FRMs and ARMs
Percent
8
30-year FRM rate
7
6
5
4 Target federal
funds rate
3
1-year ARM rate
2
Record low from June 25,
1
2003, to June 30, 2004: 1%
0
2001 2002 2003 2004 2005 2006 2007 2008
Sources: Federal Reserve, Mortgage Bankers Association, Moody’s Economy.com, Milken Institute. 11
12. Home price bubble
Low interest rates
and credit boom
and credit boom
Index, January 2000 = 100
US$ trillions Percent US$ trillions
4.5 6.0 4.0 250
4.0 3.5
5.5
200
3.5
3.0
3.0 5.0
2.5 150
2.5
Home
4.5 2.0
Home mortgage
2.0
mortgage 100
originations
1.5 S&P/Case-Shiller
1.5 4.0
originations (left axis)
National Home
(left axis) 1.0
1.0
Price Index
1-Year ARM rate 50
3.5
(right axis)
(right axis)
0.5 0.5
0.0 3.0 0.0 0
2001 2003 2005 2007
2001 2003 2005 2007
Sources: Inside Mortgage Finance, Mortgage Bankers Association, Moody’s Economy.com, S&P/Case-Shiller, Milken Institute. 12
14. Credit boom pushes Home price bubble California and national
homeownership rate peaks in 2006 home prices reach
to historic high record highs
Index, January 1987 = 100
Percent US$ thousands
70 380
Q2 2008: 68.1%
700
S&P/
California m e dian
Cas e -Shille r
Q2 2004: 69.2%
330
69 600 hom e price
National Hom e
Price Inde x California
500
280
68
ave rage
400 1987-2008 U.S. m e dian
230
67
hom e price
$229,748
300
180
66
200
130 OFHEO Hom e Price Inde x
65 100
Ave rage , 1965–Q2 2008: 65.2% U.S. ave rage , 1987-2008: $121,280
80
64 0
1998 2000 2002 2004 2006 2008
1998 2000 2002 2004 2006 2008 1998 2000 2002 2004 2006 2008
Sources: U.S. Census Bureau, OFHEO, Moody’s Economy.com, S&P/Case-Shiller,
California Association of Realtors, Milken Institute. 14
15. Housing starts hit Homes sales reach
Homes for sale
a record in 2005 a new high
Millions Millions Millions Millions
Housing units, millions
4 0.8 7.0 1.5
2.0 Existing homes for Exis ting hom e
January 2006: 1.8 m illion
sale (left axis) s ale s (le ft axis )
5.6 1.2
3 0.6
1.5
4.2 0.9
2 0.4
1.0
Ave rage s tarts ,
2.8 0.6
1959–July 2008: 1.1 m illion Ne w hom e s ale s
(right axis )
1 0.2
0.5 1.4 0.3
New homes for
July 2008: 641,000
sale (right axis)
0.0 0.0
0 0.0
0.0
1998 2000 2002 2004 2006 2008
1998 2000 2002 2004 2006 2008
1998 2000 2002 2004 2006 2008
Sources: U.S. Census Bureau, OFHEO, Moody’s Economy.com, Milken Institute. 15
17. Who is a subprime borrower?
National FICO scores display wide distribution What goes into a FICO score?
Percentage of population
40 Types of credit in use
Prime = 79%
10%
New credit
30 27 Payment history
10%
35%
Subprime = 21% 18
20
15 Length of
13
12
credit history
8
10
15%
5
2
0
Amounts owed
up to 500- 550- 600- 650- 700- 750- 800+
499 549 599 649 699 749 799
30%
Sources: myFICO.com, Milken Institute. 17
19. ARMs look attractive to many borrowers
Percent
8.0
7.0 30-year FRM rate
6.0
5.0
4.0
1-year ARM rate
3.0
2.0
2001 2002 2003 2004 2005 2006 2007 2008
Sources: Mortgage Bankers Association, Moody’s Economy.com, Milken Institute.
19
20. ARM share grows, following low interest rates
Percent of all outstanding home mortgages
25
20
15
10
5
0
2001 2002 2003 2004 2005 2006 2007 2008
Sources: Mortgage Bankers Association, Moody’s Economy.com, Milken Institute.
20
21. Largest share of ARMs go to subprime borrowers
Percent of mortgage type
60
FHA ARM Prime ARM Subprime ARM
50
40
30
20
10
0
2001 2002 2003 2004 2005 2006 2007 2008
Sources: Mortgage Bankers Association, Moody’s Economy.com, Milken Institute.
21
22. Subprimes take an increasing share
of all home mortgage originations
US$ trillions
8.4%
4.0
Subprime
21.3% Prime
7.4% 20.1%
18.2%
3.0 Subprime's
share: 7.9%
7.8%
2.0
1.0
0.9%
0.0
2001 2002 2003 2004 2005 2006 2007 Q2 2008
Sources: Inside Mortgage Finance, Milken Institute. 22
25. Subprime and Alt-A shares quadruple between 2001
and 2006, then fall in 2007
Q1 2008, $480 billion
2006, $3.0 trillion 2007, $2.4 trillion
2001, $2.2 trillion
9%
4%
4.9% 9.6%
2.7%
5%
2% 14%
14%
7.9% 2%
33.2%
7%
8%
11%
13%
8%
20% 47.3% 67.2%
16%
57.1% 14%
20%
p
Subprime
FHA & VA
Alt-A
Conventional, conforming prime
Home equity loans
Jumbo prime
Sources: Inside Mortgage Finance, Milken Institute. 25
26. ARM hybrids dominate subprime originations (2006)
Prime conventional Alt-A
Subprime
Other
Other
Fixed
Othe r
ARM ARM
9%
ARM
7% 4%
23%
ARM 30-year
hybrids ARM balloon
with 40- to
23% 50-year
amortization
26%
ARM hybrids 2- and 3-year
Fixed Fixe d
46% hybrids 61%
31%
70%
Sources: Freddie Mac, Milken Institute. 26
28. The mortgage model switches from
originate-to-hold to originate-to-distribute
Residential mortgage loans Residential mortgage loans
1980: Total = $958 billion Q2 2008: Total = $11.3 trillion
Securitized
15.6%
Held in
portfolio
41%
Held in Securitized
59%
portfolio
84.4%
Sources: Federal Reserve, Milken Institute. 28
30. The rise and fall of private-label securitizers
New securities issuance
4%
2% 15%
6%
13%
20%
42%
56%
21% 18%
1985 2001 2006 First half 2008
Total = $110B Total = $1.3T Total = $2.0T Total = $734B
33%
29% 22%
35%
46%
38%
Ginnie Mae Freddie Mac Fannie Mae Private-label
Sources: Inside Mortgage Finance, Milken Institute. 30
31. The rise and fall of private-label securitizers
Outstanding securities
7%
7%
6% 14% 18% 30%
35%
25%
13% 55% 26%
1985 2001 2006 First half 2008
Total = $3.3T
Total = $390B Total = $5.9T Total = $6.8T
26%
39% 29%
33% 37%
Ginnie Mae Freddie Mac Fannie Mae Private-label
Sources: Inside Mortgage Finance, Milken Institute. 31
33. Ratio of home Debt-to-income ratio Home mortgage share of
price to household of households has household debts reaches
income surges increased rapidly a new high in 2007
Home mortgage debt/disposable Percent
Median home price/ Q2 2007: 73.7%
personal income 75
median household income Q4 2007: 139.5%
150
5.0 2005: 4.69
4.5
70
125
Q2 2008: 73.4%
4.0
2007: 4.29
3.5
Average, 1957–2007: 79.7% 65
100
3.0 Average, 1952–2008: 64.2%
Average, 1967–2007: 3.38
2.5
75 60
1998 2001 2004 2007
1998 2001 2004 2007 1998 2001 2004 2007
Sources: U.S. Census Bureau, OFHEO, Federal Reserve, Moody’s Economy.com, Milken Institute. 33
35. The recent run-up of home prices was extraordinary
Index, 2000 = 100
250
Current
Annualized growth rate of nominal home index: 3.4%
boom
Great
200
Depression
World
World 1970’s 1980’s
War I
150 War II boom boom
100
50 Long-term trend line
0
1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Sources: Robert Shiller, Milken Institute. 35
36. Home prices don’t go up forever
Change in home prices in 100 plus years
Percentage change in nominal home price, year ago
30
Great World
World 1970’s 1980’s Current
Depression War II
War I Boom Boom Boom
25
20
Average, 1890–2007: 3.7%
15
10
5
0
-5
-10 +/- one standard deviation
-15
-20
1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Sources: Robert Shiller, Milken Institute. 36
37. 2005: The collapse begins
Home price indices, percent change on a year earlier
S&P/Case-Shiller
20
10 city
15 S&P/Case-Shiller
national
10
OFHEO
5
0
-5
-10
-15
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Sources: S&P/Case-Shiller, OFHEO, Moody’s Economy.com, Milken Institute. 37
38. Forty-six states had falling prices
in the fourth quarter 2007
United States: - 9.3% (fourth-quarter annualized growth)
Source: Freddie Mac. 38
39. If you bought your house…
One year ago… Five years ago…
-1.0 Charlotte 48.4 Seattle
-3.2 Dallas 48.0 Portland
-4.7 Denver 28.2 Washington
-5.2 Boston 27.9 New York
-5.8 Portland Phoenix
26.8
-7.1 Seattle Los Angeles
26.3
-7.3 New York 26.3 Tampa
-7.3 Cleveland Miami
26.0
-8.1 Atlanta Las Vegas
24.4
-9.5 Chicago Charlotte
22.9
-13.9 Minneapolis 20.5 Composite 10
-15.7 W ashington Composite 20
18.6
-15.9 Composite 20
Chicago
14.3
-16.3 Detroit
9.1 San Francisco
-17.0 Composite 10
6.6 Atlanta
-20.1 Tampa
Dallas
6.5
-23.7 San Francisco
San Diego
6.1
-24.2 San Diego
5.9 Boston
-25.3 Los Angeles
Denver
4.8
-27.9 Phoenix
Minneapolis
-0.7
-28.3 Miami
Cleveland
-3.8
-28.6 Las Vegas
-21.3 Detroit
% change in price, June 07-08 % change in price, June 03-08
Sources: S&P/Case-Shiller, Milken Institute. 39
40. Housing starts Homes sit longer … as home
sharply decline on the market … appreciation slows
Percent Months
Number of months that
Percent change, year ago
30 homes sit on the market Pe rce ntage change from
20 0
ye ar ago in m e dian
12
Existing homes
15 hom e s ale s price
2
(le ft axis )
10
10
0
4
8
-15
0 6
6
-30 8
4
-10
June 2008: -41.9% Num be r of m onths
-45 10
July 2008: -39.2% 2 hom e s s tay on
New homes
m ark e t (right axis )
-60 -20 12
0
1998 2000 2002 2004 2006 2008 1999 2001 2003 2006 2008
1998 2000 2002 2004 2006 2008
Note: Shaded area represents fluctuation within one standard deviation from mean (1.28%)
Sources: Mortgage Bankers Association, OFHEO, Moody’s Economy.com, Milken Institute. 40
44. Subprime mortgages accounted for half
or more of foreclosures since 2006
Number of home mortgage foreclosures started (annualized, in thousands)
2,000
Subprime: 12% of mortgages
Subprime
serviced (M arch 2008)
FHA and VA
1,600
50%
Prime (includes Alt-A)
54%
1,200
56%
8%
55%
800 9%
37% 37%
36% 44% 47% 52% 42%
11% 37%
400 13%
29% 29%
29% 22% 20% 17%
33%
31%
32%
34% 34%
35% 34% 33%
0
Dec. 2003 June Dec. 2004 June Dec. 2005 June Dec. 2006 June Dec. 2007 M arch
2004 2005 2006 2007 2008
Sources: Inside Mortgage Finance, Milken Institute. 44
45. Subprime ARMs have the worst default record
Home mortgages delinquent or in foreclosure (percent of number)
35
Q2 2008, Subprime ARM: 33.4%
30
Subprime FRM: 11.8%
25
FHA and VA: 5.8%
20
Prime FRM: 3.0%
15
10
5
0
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
1998 1999 1999 2000 2001 2002 2002 2003 2004 2005 2005 2006 2007 2008
Sources: Mortgage Bankers Association, Milken Institute. 45
46. Percentage of homes purchased in Q2 2008
that now have negative equity
United States = 44.8%
< 20%
>= 20% and < 35%
>= 35% and < 50%
>= 50%
Sources: Zillow.com, Milken Institute. 46
47. Percentage of homes sold for a loss (Q2 2008)
United States = 32.7%
< 15%
>= 15% and < 30%
>= 30% and < 45%
>= 45%
Sources: Zillow.com, Milken Institute. 47
48. Percentage of homes sold that were in
foreclosure (Q2 2008)
United States = 18.6%
< 1%
>= 1% and < 25%
>= 25% and < 40%
>= 40%
Sources: Zillow.com, Milken Institute. 48
50. Losses/write-downs, capital raised, and jobs cut
by financial institutions worldwide
US$ billions Number of jobs cut
200 60,000
Jobs cut (right axis)
160 48,000
Capital raised
120 36,000
(left axis)
80 24,000
Losses/write-downs
(left axis)
40 12,000
0 0
Prior quarters Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008
Note: Q3 data are through September 25, 2008.
Sources: Bloomberg, Milken Institute. 50
51. What is the cumulative damage?
Cumulative losses/write-downs, capital raised, and jobs cut by financial institutions worldwide
US$ billions Number of jobs cut
600 140,000
120,000
500
Jobs cut (right axis) 100,000
400
80,000
Capital raised (left axis)
300
60,000
Losses/write-downs (left axis)
200
40,000
100 20,000
0 0
Prior quarters Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008
Note: Q3 data are through September 25, 2008.
Sources: Bloomberg, Milken Institute. 51
52. Recent losses/write-downs and capital raised
by selected financial institutions
US$ billions, through September 25, 2008 Losses /write-downs Capital raised
Citigroup, United States 55.1 49.1
Merrill Lynch, United States 52.2 29.9
UBS, Switzerland 44.2 28.2
HSBC, United Kingdom 27.4 5.1
Wachovia, United States 22.7 11.0
Bank of America, United States 21.2 20.7
Morgan Stanley, United States 15.7 5.6
IKB Deutsche, Germany 15.0 12.3
Washington Mutual, United States 14.8 12.1
Royal Bank of Scotland, United Kingdom 14.4 23.5
World total 521.9 379.2
Sources: Bloomberg, Milken Institute. 52
53. Financial stock prices take big hits
Percentage change in stock price, December 2006–September 2008
-99.8 W ashington Mutual
-99.7 Lehman Brothers
-97.5 Freddie Mac
-97.4 Fannie Mae
-95.4 AIG
-94.3 Bear Stearns*
-93.9 W achov ia
-90.0 Countrywide**
-72.8 Merrill Lynch
-66.0 Morgan Stanley
-65.6 UBS Equity
-35.8 Goldman Sachs
-34.4 Bank of America
-3.3 JP Morgan & Chase
5.5 W ells Fargo
Note: * Bear Stearns stock price is to May 2008. ** Countrywide stock price is to June 2008.
Sources: Bloomberg, Milken Institute. 53
54. Financial market capitalization takes big hit
Total loss in market value: $728 billion, December 2006–September 2008
-142 AIG
-101 W achov ia
-80 Bank of America
-74 UBS Equity
-60 Morgan Stanley
-50 Fannie Mae
-44 Merrill Lynch
-43 W ashington Mutual
-42 Freddie Mac
-41 Lehman Brothers
-28 Goldman Sachs
-24 Countrywide**
-21 Bear Stearns*
4 W ells Fargo
17 JP Morgan & Chase
US$ billions
Note: * Bear Stearns stock price is to May 2008. ** Countrywide stock price is to June 2008.
Sources: Bloomberg, Milken Institute. 54
56. Tightened standards for real estate loans
Net percentage of domestic respondents tightening standards for commercial real estate loans
100
The end of S&L crisis
80
Dotcom Subprime
LTCM
60
40
20
0
-20
-40
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Sources: Federal Reserve, Milken Institute. 56
57. Widening spreads between
mortgage-backed and high-yield bonds
Basis points, spread over 10-year Treasury bond
1,800
Maximum spread: 08/29/2008: 955.8 bps
1,600
1,400 Merrill Lynch Mortgage-Backed Securities Index
1,200
1,000 Merrill Lynch High-Yield Bond Index
800
600
400
200
0
01/2004 07/2004 01/2005 07/2005 01/2006 07/2006 01/2007 07/2007 01/2008 07/2008
Sources: Merrill Lynch, Bloomberg, Milken Institute. 57
58. Liquidity freeze
Spread between 3-month LIBOR and
Spread between 3-month LIBOR
overnight index swap rate
and T-bill rate
Basis points Basis points
350 140
Se pte m be r 18, 2008: 313 bps
Se pte m be r 19, 2008:
300 127.5 bps
120
Augus t 20, 2007: 240 bps
250 100
Ave rage s ince
Augus t 2007: 69.8 bps
80
200
Ave rage s ince
60
150 Augus t 2007: 130 bps
40 Ave rage s ince
Ave rage s ince
100 De ce m be r 2001: 21.1 bps
1985: 76 bps
20
50
0
0
2006 2007 2008
2006 2007 2008
Sources: Bloomberg, Milken Institute. 58
59. Counterparty risk increases
Basis points spread, basis points
Average CDS
500
AIG rescued
400
Lehman Brother files for bankruptcy
and Merrill Lynch acquired
300
Government announces support for
Fannie Mae and Freddie Mac
200
Bear Stearns acquired
100
0
07/2007 09/2007 11/2007 01/2008 03/2008 05/2008 07/2008 09/2008
Note: Counterparty Risk index averages the market spreads of the credit default swaps (CDS) of fifteen major
credit derivatives dealers, including ABN Amro, Bank of America, BNP Paribas, Barclays Bank, Citigroup, Credit
Suisse, Deutsche Bank, Goldman Sachs Group, HSBC, Lehman Brothers, JPMorgan Chase, Merrill Lynch,
Morgan Stanley, UBS, and Wachovia.
Sources: Datastream, Milken Institute. 59
60. Commercial paper issuance dries up
Quarterly change in outstanding amount, US$ billions
150
100
50
0
-50
-100
Issuers of asset-backed securities
-150
Other issuers
-200
Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008
Sources: Federal Reserve, Milken Institute. 60
62. Congress and White House responses
HOPE NOW
The Economic Stimulus Act of 2008
Housing and Economic Recovery Act of 2008
Conservatorship of Fannie Mae and Freddie Mac
Temporary guaranty program for money market funds
Temporary ban on short selling in selected
companies
Bailout package?
62
64. Looking for a bottom?
Economists say the economy isn’t at its low point yet,
and house prices likely won’t get there until 2009
Does this feel like the bottom When will home prices hit bottom?
to a downturn?
1st half
Yes 6%
2010
27%
2nd half
29%
2009
1st half
38%
2009
2nd half
17%
2008
No
73% 1st half
4%
2008
Source: Wall Street Journal. 64
65. How far do home prices have to fall?
Annual rents as percent of home prices
6.5 Q2 1971: 6.08%
6.0
5.5
5.0
Q1 2008:
4.5
3.93%
Average, 1960–Q1 2008: 5.04%
4.0
Average, 2000–Q1 2008: 4.06%
3.5
Q4 2006: 3.48%
3.0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Sources: Davisa, Lehnertb, Martin (2007), Milken Institute. 65
66. Combinations of rental price growth rates and rent-to-price
ratios to get home prices back to their Q4 2006 value
Annual home price price decline
Annual home decline required
-2.0% -5.0% -10.0% -15.0% -20.0%
3.80% 2010 Q3 2008 Q4 2008 Q2 2008 Q2 2008 Q2
Rent-to-price ratio
4.00% 2013 Q1 2009 Q4 2008 Q3 2008 Q2 2008 Q2
5.00% 2024 Q1 2014 Q1 2010 Q4 2009 Q3 2009 Q1
5.04%
2024 Q3 2014 Q2 2010 Q4 2009 Q3 2009 Q1
average
6.00% 2026 Q4 2017 Q3 2012 Q3 2010 Q4 2009 Q4
Sources: Davisa, Lehnertb, Martin (2007), Milken Institute. 66
67. Alternative measures of the affordability of
mortgage debt for California
US$/month
4,000 Payment with 100% LT V
Payment with 90% LT V
3,500
Payment with 80% LT V
3,000 M ortgage payment assumptions: Every month, a home is purchased at
median price, buyer takes out a 30-year conforming, fixed-rate loan with 80%
2,500 LT V. Payment also includes 1% property tax per year, 0.1% property
insurance.
2,000
1,500
1,000
Maximum affortablility limit is
500
38% of median household
0
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Sources: Moody’s Economy.com, Milken Institute. 67