Mortgage Market Forecast - 2005 Economic Insights From Barry Habib - Mortgage Market Guide Frank Nothaft - Freddie Mac

Economy Growth to remain in 4% range Lower dollar yields greater exports Unemployment continues to fall Inflation held in check by productivity

Jobs, Jobs and More Jobs Unemployment will fall to 5.1% New jobs will exceed 2.0 - 2.25MM Unemployment below 30 year avg. of 5.95% Great news for economy

Housing Housing is tied to local job markets Manufacturing areas may decline in value Overall values to increase at 5 - 7% Home sales slight decrease from 2004

Housing Bubble? No universal housing bubble Previous declines tied to unemployment Appreciation levels to decelerate not decline Possibly higher interest rates - less of factor

Stock Direction Double digit returns in 2005 Average return for stocks in years ending with 5 is almost 30% Values have lagged corporate profitability Early stimulus from 401K & IRA contributions Low inflation + low rates = Strong stocks

Federal Reserve Fed is still accommodative towards growth Rate increases at measured pace Fed Funds to 3% mid year – 3.5% year end Greenspan’s last year, wants neutral policy

The Fed (continued) Fed rate bumps drill HELOC’s Consider PMI vs. 80/10/10 & 80/15/5 Lock today’s low rates vs. increasing lines You have tomorrow’s newspaper – read it

Getting ARM’d Hybrids are HOT LIBOR heading up – tracking Fed Funds Monthly ARM’s may be volatile Declining dollar value won’t impact rates

Dollar Impact Dollar should continue lower U.S. goods cheaper in Europe, not China Foreigners may throw in the towel Foreign governments may step back in

Wild Cards Watch Middle East, Oil Supply Fed could be overzealous, choke growth Forget housing problems, monthly housing expense down since 1980, 31% DTI 22% in 1990 19% today

Mortgage Market Originations fall – Refi’s drop from 50% to 33% Total Originations – $2.5 Trillion Breakdown – 61% Purchase 39% ARM ARM Purchase Share – 33% to 40%

$1MM Question - Rates Rates should moderate until Spring Fixed Rates up to 6.25% - 6.75% year end ARM Rates up 0.75% - 1.00% Fed Funds up 1.25%

In Conclusion Optimism abounds in all markets Strong Economy – jobs, housing, rates No Housing Bubble – return to moderation Another Very Good Year!