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Employment declined dramatically Nonfarm payroll employment (index=100 at peak of business cycle) Index 104 1981 1973 103 102 1990 101 100 99 2001 1980 98 97 96 2007 95 94 -5 0 5 10 15 20 25 Months since peak of business cycle Source: Bureau of Labor Statistics, NBER, and authors' calculations 30 35 40 1 House Prices Peaked and Fell Precipitously (Shown through the end of 2011) Index Index 200 200 190 190 180 180 170 170 160 160 150 150 140 140 130 130 120 120 110 110 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 100 2015 Source: Haver Analytics/CoreLogic (Shading represents NBER Recessions) 2 Result was a Huge Decline in Owners’ Equity in HH RE Billions $(USD) Percent 30,000 25,000 80 Market Value of HH Real Estate (LH Scale) 70 20,000 60 15,000 50 10,000 40 Owners Equity as a % of HH Real Estate (RH Scale) 5,000 Home Mortgage Liabilities (LH Scale) 30 0 20 1999−Q1 2000−Q2 2001−Q3 2002−Q4 2004−Q1 2005−Q2 2006−Q3 2007−Q4 2009−Q1 2010−Q2 2011−Q3 2012−Q4 2014−Q1 Source: Flow of Funds/Haver Analytics (Shading represents NBER Recessions) 3 Stock Market Wealth also Fell Sharply (Shown through the end of 2011) Billions $(USD) Billions $(USD) 12,000 12,000 Equity Shares at Market Value − Directly Held 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 1952−Q1 1957−Q1 1962−Q1 1967−Q1 1972−Q1 1977−Q1 1982−Q1 1987−Q1 1992−Q1 1997−Q1 2002−Q1 2007−Q1 2012−Q1 0 Source: Flow of Funds/Haver Analytics (Shading represents NBER Recessions) 4 Four-Quarter Cash Flow from Borrowing (Unrelated to Transfers of Homeownership) Billions $(USD) Billions $(USD) 600 600 500 500 400 2007: + $330 B 400 300 300 200 200 100 100 0 0 −100 −100 2010: ‐ $150 B −200 −200 2001−Q1 2002−Q1 2003−Q1 2004−Q1 2005−Q1 2006−Q1 2007−Q1 2008−Q1 2009−Q1 2010−Q1 2011−Q1 2012−Q1 2013−Q1 2014−Q1 Source: FRBNY Consumer Credit Panel/Equifax (Shading represents NBER Recessions) 5 Banks and Lenders Imposed Tighter Mortgage Lending Standards (Shown through the end of 2011) Percent Percent 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Res Mortgages: Net Share, Banks Tightening −10 −20 2007−Q1 −10 2007−Q4 2008−Q3 2009−Q2 2010−Q1 2010−Q4 2011−Q3 2012−Q2 2013−Q1 2013−Q4 −20 Source: FRS Senior Loan Officer Oppinion Survey (Shading represents NBER Recessions) 6 Origination by Risk Score - First Mortgages (Fannie Mae and Freddit Mac: US Figures) Proportion Proportion 0.7 0.7 0.6 0.6 0.5 0.4 <=640 640 − 680 680 − 720 720 − 780 780+ 0.5 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0 0 2000−Q12001−Q12002−Q12003−Q12004−Q12005−Q12006−Q12007−Q12008−Q12009−Q12010−Q12011−Q12012−Q12013−Q12014−Q1 Source: FRBNY Consumer Credit Panel (Shading represents NBER Recessions) 7 Stock Market Wealth also Fell Sharply (Shown through the present) Billions $(USD) Billions $(USD) 14,000 14,000 12,000 12,000 Equity Shares at Market Value − Directly Held 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 1952−Q1 1957−Q1 1962−Q1 1967−Q1 1972−Q1 1977−Q1 1982−Q1 1987−Q1 1992−Q1 1997−Q1 2002−Q1 2007−Q1 2012−Q1 0 Source: Flow of Funds/Haver Analytics (Shading represents NBER Recessions) 8 House Prices Peaked and Fell Precipitously (Shown through the present) Index Index 200 200 190 190 180 180 170 170 160 160 150 150 140 140 130 130 120 120 110 110 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 100 2015 Source: Haver Analytics/CoreLogic (Shading represents NBER Recessions) 9 Result was a Huge Decline in Owners’ Equity in HH RE (Shown through the present) Billions $(USD) Percent 30,000 80 Market Value of HH Real Estate (LH Scale) 25,000 70 20,000 60 15,000 50 10,000 40 Owners Equity as a % of HH Real Estate (RH Scale) 5,000 Home Mortgage Liabilities (LH Scale) 30 0 20 1999−Q1 2000−Q2 2001−Q3 2002−Q4 2004−Q1 2005−Q2 2006−Q3 2007−Q4 2009−Q1 2010−Q2 2011−Q3 2012−Q4 2014−Q1 Source: Flow of Funds/Haver Analytics (Shading represents NBER Recessions) 10 Household Net Worth (percent of disposable income) Percent Percent 700 700 680 680 660 660 640 640 620 620 600 600 580 580 560 560 540 540 520 520 500 500 1999−Q1 2000−Q2 2001−Q3 2002−Q4 2004−Q1 2005−Q2 2006−Q3 2007−Q4 2009−Q1 2010−Q2 2011−Q3 2012−Q4 2014−Q1 Source: Board of Governors of the Federal Reserve System (Shading represents NBER Recessions) Standards have Loosened since 2011 on Non-Mortgage Products Percent Percent 5 5 0 0 Other −5 −5 CC −10 −10 −15 −15 Auto −20 −25 2011−Q3 −20 2011−Q4 2012−Q1 2012−Q2 2012−Q3 2012−Q4 2013−Q1 2013−Q2 2013−Q3 2013−Q4 2014−Q1 −25 2014−Q2 Source: FRS Senior Loan Officer Opinion Survey (Shading represents NBER Recessions) 12 Banks and Lenders Imposed Tighter Mortgage Lending Standards (Shown through 2013−Q4) Percent Percent 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 −10 Res Mortgages: Net Share, Banks Tightening −10 −20 −20 2007−Q12007−Q32008−Q12008−Q32009−Q12009−Q32010−Q12010−Q32011−Q12011−Q32012−Q12012−Q32013−Q12013−Q32014−Q1 Source: FRS Senior Loan Officer Opinion Survey (Shading represents NBER Recessions) 13 Total Debt Balance and its Composition Trillions of Dollars Trillions of Dollars 15 Mortgage HE Revolving Auto Loan Credit Card Student Loan 15 Other 2013Q4 Total: $11.52 Trillion 2013Q3 Total: $11.28 Trillion 12 12 (3%) (9%) (6%) 9 6 (7%) (5%) (70%) 9 6 3 3 0 0 14 Source: FRBNY Consumer Credit Panel/Equifax Real Household Liabilities Per Capita Percentage Thousands $(USD) 70 70 60 60 50 50 40 40 30 30 Level (RH Scale) 20 20 Growth (%yr/yr) (LH Scale) 10 10 0 0 −10 1956−Q1 1961−Q3 1967−Q1 1972−Q3 1978−Q1 1983−Q3 1989−Q1 1994−Q3 2000−Q1 2005−Q3 2011−Q1 −10 2016−Q3 Source: Flow of Funds, BEA, Census Bureau (Shading represents NBER Recessions) Note: 2013Q4 value is an estimate based on FRBNY CCP 15 Proportion of Borrowers with Home-secured Debt at Age 30 Percent Percent 34 34 32 32 Student Loan Debt 30 30 No Student Loan Debt 28 28 26 26 24 24 22 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 22 2013 Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax. (Shading represents NBER Recessions) 16 REFERENCE 17 Even More Dramatic in Some Cities Las Vegas Miami 18 Result was a Huge Decline in Owners’ Equity in HH RE Billions $(USD) Percent 20,000 100 18,000 90 16,000 80 Owners Equity as % of HH RE (RH Scale) 14,000 70 12,000 60 10,000 50 8,000 40 6,000 30 4,000 20 2,000 Owners Equity in HH RE (LH Scale) 0 1952−Q1 1957−Q1 1962−Q1 1967−Q1 1972−Q1 1977−Q1 1982−Q1 1987−Q1 1992−Q1 1997−Q1 2002−Q1 2007−Q1 2012−Q1 10 0 Source: Flow of Funds/Haver Analytics (Shading represents NBER Recessions) 19 Changes in the distribution of borrowing by type of loan 20