DEUTSCHE BANK US Housing: Cooling Down

Deutsche Bank
Research
US Housing: Cooling down

Peter Hooper, Matthew Luzzetti, Brett Ryan, Justin Weidner, Torsten Slok,
Suvir Ranjan and Avik Chattopadhyay
January 2019 60 Wall Street
New York, New York 10005
Tel: 212 250 7275
Distributed on: 07/01/2019 19:18:08 GMT

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 091/04/2018
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Overview
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Torsten Slok, torsten.slok@db.com +1 212 250-2155 January 2019
2
Research
Single-family starts and permits rolling over
Thousands Single-family building permits Thousands

Single-family housing starts
2100 2100
1800 1800
1500 1500
1200 1200
900 900
600 600
300 300
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: Census, Haver Analytics, DB Global Research

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Research
Both existing single-family home sales and
new single family home sales down recently
Thousands New single-family home sales (ls) Thousands

1600 Existing single-family home sales (rs) 7000
6500
1400
6000
1200
5500
1000 5000
800 4500
4000
600
3500
400 3000
200 2500
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: NAR, Haver Analytics, Census, DB Global Research

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Research
Single-family cooling down, multi-family accelerating
Housing starts
Thous units Thous units
Total multi-family Single-family
1000 1000
900 900
800 800
700 700
600 600
500 500
400 400
300 300
200 200
100 100
0 0
08 09 10 11 12 13 14 15 16 17 18

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Consumer housing moving sideways
% respondents Consumer purchasing plan: home % respondents
8.0 Plans to Buy Within 6 Months: Yes (ls) 2.5

7.5 Plans to Buy Within 6 Months: New (rs)
7.0 2.0
6.5
1.5
6.0
5.5
1.0
5.0
4.5 0.5
4.0
3.5 0.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: The Conference Board, Haver Analytics, DB Global Research
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Research
Interest in home buying coming down
Index Traffic of prospective buyers of new homes

Index
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Source: NAHB, Haver Analytics , DB Global Research

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Research
The number of single-family
homes for sale near historic lows
Thous Single-family homes available for sale Thous
3600 3600
3200 3200
2800 2800
2400 2400
2000 2000
1600 1600
1200 1200
82 85 88 91 94 97 00 03 06 09 12 15 18
Source: NAR, Haver Analytics, DB Global Research
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Research
Mortgage credit conditions have eased a bit
recently but still much tighter than before the crisis
FICO FICO
score Average FICO Score at origination of GSE loans score
770 770
760 760
750 750
740 740
730 730
720 720
710 Pre-crisis: 715 710
700 700
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: Ying Shen, GSE, FICO, DB Global Research
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Research
Much more difficult to get a mortgage than in 2006
% Mortgage purchase applications and originations %

1.2 Applications 2006 Originations 2006 1.2
Applications 2016 Originations 2016

1.0 1.0
0.8 0.8
0.6 0.6
0.4 0.4
0.2 0.2
0.0 0.0
500 550 600 650 700 750 800 850
Purchase credit score
Source: CoreLogic, DB Global Research
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Research
Since the homeownership rate peaked in 2006 the number
of households renting has increased by roughly 10 million
Millions Total renter occupied housing units(ls) %
44 Homeownership rate(rs) 70
10mn more
renters since
69
42
2004 68
40 67
66
38
65
36
64
34 63
62
32
61
30 60
90 92 94 96 98 00 02 04 06 08 10 12 14 16
Source: US Census Bureau, Housing Vacancy Surveys, Haver Analytics, DB Global Research
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Research
The % of loans going into foreclosure
per quarter at 2005-2006 levels
% % of loans going into foreclosure per quarter %

Prime Prime: FRM Prime: ARM
8 Sub prime Sub prime: FRM Sub prime: ARM 8
7 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Note: ARM=Adjustable Rate Mortgage, FRM=Fixed Rate Mortgage *Data has discontinued since 2017
Source: MBA, Datastream, DB Global Research
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Research Torsten Slok, torsten.slok@db.com +1 212 250-2155 January 2019 12
Distressed home sales at lowest levels since October 2008
% Share in existing home sales

%
Distressed home sales Non distressed home sales
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
May-18
May-17
May-16
May-15
May-14
May-13
May-12
May-11
May-10
Sep-18
Sep-17
Jan-18
Sep-16
Jan-17
Sep-15
Jan-16
Sep-14
Jan-15
Sep-13
Jan-14
Sep-12
Jan-13
Sep-11
Jan-12
Jan-10
Sep-10
Jan-11
Source: National Association of Realtors, DB Global Research

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Research
Share of single-family homes with negative equity: 9%
% Single-family homes with mortgages in negative equity %

32 32
In 2012: 30% underwater
30 30
28 28
26 26
24 24
22 22
20 20
18 18
16 9% 16
14 underwater 14
12 12
10 10
8 8
09 10 11 12 13 14 15 16 17 18
Source: Zillow, Haver Analytics, Deutsche Bank Global Market Research

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Research
Fewer subprime borrowers today.
And more people with top credit scores
% FICO score distribution by percentage of population* %

25 Oct-07 Oct-09 Oct-13 Oct-15 Apr-17 Apr-18 25
20 Today 30% of the

20
population are
subprime. In
15 2007 it was 34% 15
10 10
5 5
0 0
300-499 500-549 550-599 600-649 650-699 700-749 750-799 800-850
* Columns may not add up to 100% due to rounding
Source: FICO, DB Global Research
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Research
Homeownership rate has bottomed
% Home ownership rate %

70 70
69 69
68 68
67 67
66 66
65 65
64 64
63 63
62 62
65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16 19

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Research
Household formations: Fewer renters and more buyers
2 yr avg Household Formations by Type 2 yr avg

change change
Total Owner occupied Renter occupied
2000 2000
1500 1500
1000 1000
500 500
0 0
-500 -500
-1000 -1000
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
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Research
Home price appreciation coming down a bit
% y/y S&P case shiller home price index:composite 20

CoreLogic national house price index
%y/y
CoreLogic national HPI distressed excluded
20 FHFA HPI purchase 20
10 10
0 0
-10 -10
-20 -20
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Source: S&P, CoreLogic, FHFA, Haver Analytics, DB Global Research

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Research
Housing’s contribution to consumer price inflation
near 2007 levels but OER has moved sideways recently
% y/y % y/y
10 Rent of primary residence Owners' equivalent rent of residence 10
9 9
8 8
7 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
-1 -1
65 70 75 80 85 90 95 00 05 10 15
Source: BLS, Haver Analytics, DB Global Research

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Research
Has housing become so unaffordable that
inflation in home prices and rents are slowing?
Jan 00=100 Case-Shiller home price index (ls) CPI: shelter (rs) % y/y
210 5
200
190 4
180
170 3
160
150
2
140
130
120 1
110
100 0
90
80 -1
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source : S&P, BLS, Haver Analytics, DB Global Research
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Research
51% of US adults are single
% Share of singles in total adult (+16 years) population %
52 52
50 50
48 48
46 46
44 44
42 42
40 40
38 38
36 36
75 78 81 84 87 90 93 96 99 02 05 08 11 14 17
Note: Single adults pertains to population above 16 years. This has been calculated by subtracting sum of married men and women population (16+) from the total
civilian non-institutional population above 16 years.
Source: BLS, Haver Analytics, DB Global Research

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Research
Leading Indicators
for Housing
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Research
Industry sentiment indicators falling sharply
Index NAHB housing market: present (ls) Index

100 NAHB housing market: next six months (ls) 360
90 PHLX index of 20 housing-related stocks (rs)
320
80
280
70
60 240
50 200
40 160
30
120
20
10 80
0 40
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: NAHB, Haver Analytics, Bloomberg Finance LP, DB Global Research
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Research
Substantial pent-up demand for housing:
Almost 1/3 of 18-34 year olds living with their parents
% % of all 18-34 years olds living with their parents %

33 33
32 32
31 31
30 30
29 29
28 28
27 27
26 26
1983 1988 1993 1998 2003 2008 2013 2018
Source: Census, DB Global Research

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Research
Substantial pent-up demand for housing:
More than 50% of 18-24 year olds living with their parents
% Young adults living in the parental home: 1960 to present %

70 Men Women 70
60 18-24 year olds 60
50 50
40 40
30 30
20 20
25-34 year olds
10 10
0 0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

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Research
Significant pent-up demand:
If the number of people per household returns to the
2000-2003 level it would add almost 3mn new households
Ratio Number of people 16 and older per household Ratio
2.325 2.325
2.275 2.275
2.225 2.225
2.175 2.175
2.125 2.125
2.075 2.075
2000-03 average
2.025 2.025
55 60 65 70 75 80 85 90 95 00 05 10 15
Source: Census, BLS, Haver Analytics, DB Global Research
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Research
It takes 5.7 months to build a home
Months Avg Length of Time from Start to Completion: Months
6.8 Built for Sale 1 Unit Bldgs 6.8

6.6 6.6
6.4 6.4
6.2 6.2
6.0 6.0
5.8 5.8
5.6 5.6
5.4 5.4
5.2 5.2
5.0 5.0
4.8 4.8
1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018
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Research
Construction more efficient: Fewer
workers per housing unit under construction
Ratio Residential construction: workers per housing units Ratio
5.0 5.0
4.5 4.5
4.0 4.0
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Source: BLS, Census, Haver Analytics, DB Global Research

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Research
New homes are smaller because of higher home prices
Avg sq ft Average square feet of floor Avg sq ft

area in new single-family houses completed*
2700 2700
2600 2600
2500 2500
2400 2400
2300 2300
2200 2200
2100 2100
2000 2000
90 92 94 96 98 00 02 04 06 08 10 12 14 16
*Includes houses built for rent (not shown separately).

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Research
Household formation trending higher recently
y/y chg Total number of households y/y chg

2500 2500
2000 2000
1500 1500
1000 1000
500 500
0 0
-500 -500
82 85 88 91 94 97 00 03 06 09 12 15 18
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Research
There are 4.6mn 28-year olds in the US,
more than any other age group
U.S population by age, Dec 2018

Millions Expect another echo Echo-boomers Millions
6 in coming years Baby-boomers 6
5 5
4 4
3 3
2 2
1 1
0 0
0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96100

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Research
The composition of the “median household” today
is different from what it was in the 1980s
Household shares by number of earners
No earner households
% of total % of total
One earner households
50 Two or more earner households 50
45 45
40 40
35 35
30 30
25 25
20 20
15 15
87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
Source: Census,DB Global Research
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Research
Housing Activity
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Research
Residential investment contribution to GDP growth
Real residential investment: contribution to real GDP

%pt %pt
0.6 0.6
0.4 0.4
0.2 0.2
0.0 0.0
-0.2 -0.2
-0.4 -0.4
11 12 13 14 15 16 17 18
Source: BEA, Haver Analytics, DB Global Research
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Research
Year-over-year growth in housing
components contributing to GDP
% y/y % y/y
Single Family Structures Multifamily Structures
Home improvements Broker Commission and others
60 60
40 40
20 20
0 0
-20 -20
-40 -40
-60 -60
06 07 08 09 10 11 12 13 14 15 16 17 18
Source: BEA, Haver Analytics, DB Global Research

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Research
Single-family homes under construction looking better
Thousands New single-family homes on the market Thousands

Completed homes
350 Houses not started 350
Houses under construction
300 300
250 250
200 200
150 150
100 100
50 50
0 0
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
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Research
Lumber prices up recently
$ Lumber composite prices : $ per thousand board feet $
600 600
500 500
400 400
300 300
200 200
100 100
0 0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: Random Lengths, DB Global Research
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2010 DB Blue template
Home ownership rates still below
pre-crisis level across age groups
% Home ownership rate by age %
90 1995 2005 2015 2016 2017 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Under 35 35–44 45–54 55–64 65 and Over
Source: Census Bureau, Haver Analytics, DB Global Research
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Many cost-burdened
households among Millennials
Housing cost-burdened households
% %
by age percentage of total households
40 40
Moderately burdened Severly burdened
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
Under 25 25-34 35-44 45-54 55-64 65 and
older
Notes: Moderately (severely) cost-burdened households pay more than 30% up to 50% (more than 50%) of household income for housing. Households with zero or negative income
are assumed to be severely burdened, while households paying no cash rent are assumed to be unburdened. Income cutoffs are in 2014 dollars adjusted for inflation using the CPI-U
for All Items. White, black, and Asian/other householders are non-Hispanic. Hispanic householders may be of any race. Children are the householder's own, adopted, or step children
under the age of 18. High school degree includes householders who completed a GED. Fully employed householders worked for at least 48 weeks during the previous 12 months,
short-term unemployed for 27–47 weeks, and long-term unemployed for 1–26 weeks. Fully unemployed householders did not work in the previous 12 months but were in the labor
force. Householders not in the labor force include those under the age of 16.
Source: JCHS tabulations of US Census Bureau, American Community Surveys, DB Global Research
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Number of cost-burdened renters has increased
Thous. Number of cost-burdened households Thous.
Moderately burdened (Owners) Severely Burdened (Owners)
12000 Moderately burdened (Renters) Severely Burdened (Renters) 12000
10000 10000
8000 8000
6000 6000
4000 4000
2000 2000
0 0
2001 2014 2015 2016
Notes: Moderate (severe) burdens are defined as housing costs of more than 30% and up to 50% (more than 50%) of household income. Households with zero or negative income are
assumed to be severely burdened, while renters paying no cash rent are assumed to be unburdened. Income cutoffs are adjusted to 2014 dollars by the CPI-U for All Items.
Source: JCHS tabulations of US Census Bureau, American Community Surveys, DB Global Research
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New home sales as a share of total sales
% New home sales as % of all single-family sales %

20.0 20.0
17.5 17.5
15.0 15.0
12.5 12.5
10.0 10.0
7.5 7.5
5.0 5.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Census, NAR, DB Global Research
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Housing Supply
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Excess inventory below long-term trend
Thousands Thousands
US total vacant housing units
12000 12000
10000 10000
8000 8000
6000 6000
4000 4000
2000 2000
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: Census, Haver Analytics,DB Global Research
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Research
Inventory of new single-family homes for sale
moving higher but half of where it was in 2006
Thousands New single-family homes for sale Thousands

700 700
600 600
500 500
400 400
300 300
200 200
100 100
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

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Research
New homes are smaller
New single-family houses completed by sq feet of floor

area
Thous. Under 1,800 1,800-2,999 3,000 and over Thous.
800 800
700 700
600 600
500 500
400 400
300 300
200 200
100 100
0 0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
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Research
30% of new homes were
3,000 square feet or bigger in 2017
New single-family houses completed by sq. feet of floor
area
Under 1,400 1,400 to 1,799 1,800 to 2,399
2,400 to 2,999 3,000 to 3,999 4,000 or more
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
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Research
Housing Demand
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Research
For students beginning post-secondary education in 2003-04:
43% did not borrow and of those who did borrow 93%
have student loan balances that are less than $30k
Education attainment by student debt levels
Bachelor's degree Associate degree
Certificate No degree, still enrolled
No degree
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
Did not borrow <$10k $10k to $20k $20k to $30k $30k to $50k >$50k
% of total 43% 25% 16% 8% 5% 2%
Source: St. Louis Fed: http://research.stlouisfed.org/publications/es/14/ES_14_2014-06-09.pdf
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Gen-X-ers and Baby Boomers have driven
most of the recent growth in renter households
Millions Renter household growth, 2005-15 Millions

Due to Increase in Households Due to Increase in Rentership Rates Total
5 5
Millennial Generation X Baby Boom Pre-Baby Boom
4 4
3 3
2 2
1 1
0 0
-1 -1
-2 -2
Under 30 30–49 50–69 70 and Over
Source: JCHS tabulations of US Census Bureau, Current Population Surveys, DB Global Research
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Homeownership rate down for everyone
except people who are 65 years and older
Ppts Change in home ownership rate since 1994 Ppts
8 Under 35 35-44 45-54 55-64 65 and over 8
6 6
4 4
2 2
0 0
-2 -2
-4 -4
-6 -6
-8 -8
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys, DB Global Research
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Financing
Conditions and
Sales
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Research
Mortgage rates and 10-year
Treasury yields are highly correlated
10 yr treasury yield Vs 30 yr mortgage rate

(1970 to Dec 2018)
18 y = 0.9484x - 1.2751
at Constant Maturity (% p.a.)
10-Year Treasury Note Yield
16 2
R = 0.9779
14
12
10
8
6
4
2
0
0 5 10 15 20
FHLMC: 30-Year Fixed-Rate Mortgages(%)
Source: FRB, FHLMC, DB Global Research

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Research
Mortgage rates down recently
% %
US 30 year fixed mortgage rate
8 US home mortgage 30 year jumbo national average 8
7 7
6 6
5 5
4 4
3 3
Source: FRB, Haver Analytics, Bloomberg Finance LP, DB Global Research

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Research
Mortgage refi application activity at low levels
Index %
MBA mortgage loan applications for refinancing (ls)
Mar-16-90=100
30 yr fixed mortgage rate (rs)
7000 5.6
6000 5.2
5000
4.8
4000
4.4
3000
4.0
2000
1000 3.6
0 3.2
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: FHLMC, MBA, , Haver Analytics, DB Global Research
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Research
Purchase applications inversely related to mortgage rates
MBA mortgage loan applications for purchase, 4 week MA (ls) %

Index
Conventional 30 yr mortgage rate (rs)
Mar-16-90=100
320 5.6
5.2
280
4.8
240 4.4
4.0
200
3.6
160 3.2
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: FRB, MBA, Haver Analytics, DB Global Research

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Research
Housing affordability approaching 2006 levels
Index Index
Housing affordability index
220 220
200 200
180 180
Level of
mortgage
160 160 rate:
140 140
Current
120 120
0.5% higher
100 100
1.0% higher
80 80
1.5% higher
60 60
2.0% higher
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

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Mortgage payments as a percent
of income trending higher
% Housing affordability: payment as percent of income, U.S. %

26 26
22 22
18 18
14 14
10 10
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

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Only 2% of existing home sales are distressed
Distressed homes sales as % of total existing -home sales

Nov 2018
Nov 2017
Non distressed sales
Distressed sales
2%
4%
96% 98%
Source: NAR, Deutsche Bank Global Market Research

Deutsche Bank
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Research
About 60% of all homeowners have
lived in their homes for more than 10 years
% Share of homeowners in their homes for at least 10 and %
70 at least 20 years 70
At least 10 years At least 20 years
60 60
50 50
40 40
30 30
20 20
10 10
0 0
2001-2003 2009-2011
Source: US Bureau of the Census, Decennial Census (2000), American Community Survey, NAHB, DB
Global Research
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Research
Median square footage sold is at trend
Median Square Footage of New Homes Sold

Sq ft Sq ft
2,750 2750
Median sq footage
2,500 Median sq footage in detached homes 2500
2,250 2250
2,000 Trendline is through 2000

Median Sq Footage Series
from 1978-2011
1,750 1750
1,500 1500
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Source: US Bureau of the Census, DB Global Research
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Research
Credit availability steadily improving
Index Mortgage credit availability index Index

195 195
185 185
175 Higher Index=More Credit Available 175
165 Lower Index=Less Credit Available 165
155 155
145 145
135 135
125 125
115 115
105 105
95 95
85 85
75 75
11 12 13 14 15 16 17 18
Source: MBA, Haver Analytics, DB Global Research
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61
Research
Foreclosures and
Delinquencies
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Research
Single-family delinquency rates at 2006 levels
% Fannie Mae conventional single-family serious delinquency rates %

(% of total conventional single-family loans)
6 6
5 5
4 4
3 3
2 2
1 1
0 0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: Fannie Mae, Haver Analytics, DB Global Research

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Research
Negative equity declining across the country
% Zillow estimate of negative equity 2017 Q4* %
20 20
15 15
10 10
5 5
0 0
United States
EI Centro
Las Vegas
Jacksonville
Phoenix
Tucson
Vallejo
Melbourne
Atlanta
Riverside
Reno
Fort Meyers
Bakersfield
Stockton
Tampa
Port St. Lucie
Vero Beach
Sacramento
Sarasota
Merced
Modesto
*single- family homeowners with a mortgage
Source: Zillow, Haver Analytics, DB Global Research

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House Prices
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Research
The level of home prices now above the 2006/2007 peak
Index Case-Shiller composite 20 home prices, Jul-06=100 Index

FHFA house prices, Q2 07=100
110 120
100 110
100
90
90
80
80
70
70
60
60
50 50
40 40
99
20 0
20 1
20 2
20 3
04
05
20 6
20 7
20 8
20 9
10
20 1
20 2
20 3
20 4
20 5
16
20 7
18
0
0
0
0
0
0
0
0
1
1
1
1
1
1
19
20
20
20
20
20
Source: FHFA, S&P, Haver Analytics, DB Global Research
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Median existing home price inflation positive
% Median existing single-family home price %

yoy% 3m% AR (seasonally adjusted)
40 40
30 30
20 20
10 10
0 0
-10 -10
-20 -20
-30 -30
2002 2004 2006 2008 2010 2012 2014 2016 2018
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Quality-adjusted new home price inflation coming down
yoy% Quality-adjusted new single-family home price yoy%

15 15
10 10
5 5
0 0
-5 -5
-10 -10
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
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Price to rent ratios moving higher
1996-2003=1 Home price/rent ratios* 1996-2003=1

S&P Case Shiller home price index: composite 20
1.7 CoreLogic national house price index 1.7
CoreLogic national House price (distressed excl.)
1.6 FHFA HPI (purchase only) 1.6
1.5 1.5
1.4 1.4
1.3 1.3
1.2 1.2
1.1 1.1
1.0 1.0
0.9 0.9
0.8 0.8
0.7 0.7
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
*Uses owners' equivalent rent of residence from CPI

Source: S&P, CoreLogic, FHFA, Haver Analytics, Deutsche Bank Global Market Research
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Vacancy rates low for both renters and homeowners
% Rental vacancy rate (ls) Homeowner vacancy rate (rs) %
11.50 3.2
11.00
10.50 2.8
10.00
9.50 2.4
9.00
8.50 2.0
8.00
7.50 1.6
7.00
6.50 1.2
95 00 05 10 15
Note: A housing unit is vacant if no one is living in it at the time of the interview, unless its occupants are only
temporarily absent. In addition, a vacant unit may be one which is entirely occupied by persons who have a
usual residence elsewhere.
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Regional
Developments
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Permits moving sideways
Thousands Single-family building permits Thousands
1000 1000
Northeast Midwest South West
800 800
600 600
400 400
200 200
0 0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Deutsche Bank
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New single-family home sales down across regions
New Single Family houses sold

Thousands Thousands
Northeast Midwest South West
700 700
600 600
500 500
400 400
300 300
200 200
100 100
0 0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
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Existing home sales sideways
Thousands Existing single-family home sales Thousands
3200 Northeast Midwest West South 3200
2800 2800
2400 2400
2000 2000
1600 1600
1200 1200
800 800
400 400
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: NAR, Haver Analytics , DB Global Research

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…and condo and co-op sales moving sideways
Thousands Sales of existing condos and co-ops Thousands

Midwest South West Northeast
400 400
350 350
300 300
250 250
200 200
150 150
100 100
50 50
0 0
2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: NAR, Thomson Reuters Datastream, DB Global Research

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Mortgage Market
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GSEs currently provide almost
all liquidity in the mortgage market
% Agency share of mortgage related security issuance %
100 100
95 95
90 90
85 85
80 80
75 75
70 70
65 65
60 60
55 55
50 50
45 45
40 40
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
YTD
Source: SIFMA, DB Global Research

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A credit score of less than 650 is considered subprime
% of population % of populatio
45% Pre-crisis(Oct-2005) Oct-13 45%
Oct-15 Apr-17
40% Apr-18 40%
35% 60mn people have a 35%

subprime credit score
30% 30%
25% 25%
20% 20%
15% 15%
10% 10%
5% 5%
0% 0%
up to 599 600-649 650-699 700-749 750-850
Source: FICO, DB Global Research

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Prime borrowers slow to recover
after a hit to their credit scores
Share of borrowers whose credit score recovered after
foreclosure Percentage
Percentage
recovered recovered
100 100
90 90
80 80
70 70
60 60
50 50
40 Subprime - Recent 40
30 Prime - Historical 30
20 Prime Recent 20
10 10
Subprime - Historical
0 0
0 1 2 3 4 5 6 7 8 9 10
Years after foreclosure period
Source: Federal reserve, DB Global Research
Deutsche Bank
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Significant housing demand from babyboomers
Mln Household growth Mln
1990-2010
12 Harvard Joint Center for Housing Studies projection 2010-2030 12
10 10
8 8
6 6
4 4
2 2
0 0
-2 -2
-4 -4
Under 25 25-29 30-34 35-39 40-44 45-54 55-64 65-74 Above
years years years years years years years years 75 years
Source: JCHS tabulationsof HUD, 2013 American Housing Survey, DB Global Research
Deutsche Bank
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The Outlook
Deutsche Bank
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House prices are key for consumer balance sheets
Assets of household sector: Q3 2018

(in percentage)
Real estate
23.2
Other assets
41.2
Equities*
35.6
*For equities both Directly and indirectly held along with Noncorporate Business are included in
calculations
Source: FRB, Haver Analytics, DB Global Research

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And consumer spending mainly driven by homeowners
% Share of consumer spending by homeownership status %
(2017 consumption spending)
60 60
48.8
50 50
40 40
30 26.6 30
24.5
20 20
10 10
0 0
Homeowner with mortgage Homeowner without Renter
mortgage
Source: CES, BLS , Haver Analytics, DB Global Research
Deutsche Bank
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Over next ten Years, aging of the Millennial
generation will boost the population in their 30s
Millions U.S. population growth Millions
4 2005-2015 2015-2025 4
3 3
2 2
1 1
0 0
-1 -1
-2 -2
-3 -3
20-24 25-29 30-34 35-39 40-44
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Geographical distribution of housing boom/bust
Source: NY Fed, DB Global Research

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About 75% of US households live in homes
valued at less than 300K
Distribution of U.S. homeowners by house values
House value <150K 150-300K 300k- 650K-1M >=1M

650K
Units 27.8mn 28.0mn 16.1mn 2.5mn 1.0mn
Units w 19.2mn 19.3mn 11.1mn 1.7mn 0.7mn

mortgages
Of all homes w 36.9% 37.1% 21.3% 3.3% 1.4%

mortgage %
shares by
house value
Source: Loan performance/core logic, S&P/ Case- Shiller, DB Global Research

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Not all states are non-recourse
Recourse Recourse Recourse
State Classification State Classification State Classification
Alabama Recourse Maine Recourse Oregon Non-Recourse
Alaska Non-Recourse Maryland Recourse Pennsylvania Recourse
Arizona Non-Recourse Massachusetts Recourse Rhode Island Recourse
Arkansas Recourse Michigan Recourse S. Carolina Recourse
California Non-Recourse Minnesota Non-Recourse S. Dakota Recourse
Colorado Recourse Missouri Recourse Tennessee Recourse
Connecticut Recourse Montana Non-Recourse Texas Recourse
DC Recourse Mississippi Recourse Utah Recourse
Delaware Recourse Nebraska Recourse Vermont Recourse
Florida Recourse Nevada Non-Recourse Virginia Recourse
Georgia Recourse New Hampshire Recourse Washington Non-Recourse
Hawaii Recourse New Jersey Recourse W. Virginia Recourse
Idaho Recourse New Mexico Recourse Wisconsin Non-Recourse
Illinois Recourse New York Recourse Wyoming Recourse
N. Carolina
Purchase
Indiana Recourse mortgages Non-Recourse
N. Carolina
Other
Iowa Non-Recourse mortgages Recourse
Kansas Recourse N. Dakota Non-Recourse
Kentucky Recourse Ohio Recourse
Louisiana Recourse Oklahoma Recourse
Source: Richmond Fed, DB Global Research
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New home price divided by existing home price coming down
% %
A new home costs 120% more than an existing home
160 160
150 150
140 140
130 130
120 120
110 110
100 100
90 90
80 80
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Source: Census, NAR, Haver Analytics, DB Global Research

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Demographics projected to put pressure on home prices
going forward in English-speaking countries
Demographic impact on home prices
% %
70 70
Historic (1970-2009)
Forecasted (2010-2050)
35 35
0 0
-35 -35
-70 -70
UK AU US CA NZ IE
Source: BIS, DB Global Research
Deutsche Bank
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Research
Housing cycles: Slowdowns tend to last around 5 years
Housing cycles: distribution of durations Housing cycles: distribution of

(upturns) durations ( downturns)
frequency frequency
10 10 frequency frequency
10 10
5 5
5 5
0 0
0 20 40 60 0 0
durations (quarters) 0 20 40 60
durations(quarters)
Source: IMF, DB Global Research

Deutsche Bank
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FHA financing more homes
% New 1-family houses completed: types of financing %
Conventional finance FHA insured finance

VA guaranteed finance Rural housing finance
Cash finance
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
1999200020012002200320042005200620072008200920102011201220132014201520162017

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Research
Average FICO scores on new mortgages steady at 727
Score FICO score of all closed loans Score

755 755
750 750
745 745
740 740
735 735
730 730
725 725
720 720
715 715
Aug-18
Aug-17
Aug-16
Aug-15
Aug-11
Aug-12
Aug-13
Aug-14
May-18
Nov-18
May-17
Nov-17
Feb-18
May-16
Nov-16
Feb-17
May-15
Nov-15
Feb-16
Nov-11
Nov-12
Nov-13
Feb-12
May-12
Feb-13
May-13
Feb-14
May-14
Nov-14
Feb-15
Source: Ellie Mae, DB Global Research

Deutsche Bank
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Credit scores on purchase applications
only coming down very slowly
FICO Score of all closed loans

Score CON-REFI CON-PUR Score
780 FHA-REFI FHA-PURCH 780
760 760
740 740
720 720
700 700
680 680
660 660
640 640
Apr-16
Apr-17
Apr-18
Jul-16
Jul-17
Jul-18
Apr-2012
Jul-2012
Apr-2013
Jul-2013
Apr-2014
Jul-2014
Apr-2015
Jul-2015
Jan-16
Jan-17
Jan-18
Jan-2012
Jan-2013
Jan-2014
Jan-2015
Oct-16
Oct-17
Oct-18
Oct-2012
Oct-2013
Oct-2014
Oct-2015
Source: Ellie Mae, DB Global Research

Deutsche Bank
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Homebuilder ETF vs housing market index
% S&P homebuilders ETF relative to the S&P 500 (ls) Index

Home builders: housing market index (rs)
0 80
-10 70
-20 60
50
-30
40
-40
30
-50 20
-60 10
-70 0
06 07 08 09 10 11 12 13 14 15 16 17 18 19
Source: NAHB, S&P, Bloomberg Finance LP, Haver Analytics, DB Global Research
Deutsche Bank
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Units by intent of use
New privately owned housing units started in US, by intent

% of total housing starts
Single family-Built for sale Multifamily -Built for rent Single family-Contractor built
Single family- Owner built Multifamily -built for sale Single family-Built for rent
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Deutsche Bank
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Research
Multifamily starts are currently above their mid-2000s levels
Units, Monthly building permits : 5 + family building Units
12m MA United States (ls) 12m MA
40000 800
Four largest MSAs in the Eight district (rs)
35000 700
30000 600
25000 500
20000 400
15000 300
10000 200
5000 100
0 0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Note : Little Rock, Louisville, Memphis and St. Louis are the four largest MSAs in the Eight District.

Deutsche Bank
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Recently more owners and fewer renters
U.S. household count by tenure
Chg.y/y, thous. Total Owner Occupied Total renter occupied Chg,y/y thous.
2500 2500
2000 2000
1500 1500
1000 1000
500 500
0 0
-500 -500
-1000 -1000
06 09 12 15 18
Deutsche Bank
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Research
Median home sold is 28 years old
number Median age of sold homes number

of years of years
30 30
28 28
26 26
24 24
22 22
20 20
18 18
16 16
14 14
12 12
10 10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: Zillow, DB Global Research

Deutsche Bank
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More fixer-uppers in areas with more old homes
Fixer upper share of listings

30
Number of fixer uppers per 1k listings
25
Sacramento, CA
20 Los Angeles, CA
San Francisco, CA
15
10
Las Vegas, NV
0
0 10 20 30 40 50 60 70 80
Percent of housing stock built 30+ years ago

Deutsche Bank
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Research
Smaller lots, bigger homes
% Structure square feet Lot square feet %

25 25
20 20
15 15
10 10
5 5
0 0
-5 -5
-10 -10
-15 -15
99 03 06 10 14

Deutsche Bank
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Research
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Research
2000 - Jan
2000 - Jul
Deutsche Bank
2001 - Jan
2001 - Jul
2002 - Jan
% respondents
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
Torsten Slok, torsten.slok@db.com +1 212 250-2155

2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
January 2019
Consumer purchasing plans:
2013 - Jul
2014 - Jan
2014 - Jul
Plans to Buy Home Within 6 Months: Yes
2015 - Jan
2015 - Jul
2016 - Jan
Source: The Conference Board, Haver Analytics, DB Global Research
2016 - Jul
2017 - Jan
Consumer interest in buying a home falling sharply
2017 - Jul
2018 - Jan
2018-July
101
% respondents
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Housing inventory coming down
Mln US: existing home sales inventory

Mln
2008 2009 2010 2011 2012 2013
4.0 2014 2015 2016 2017 2018 4.0
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: National Assoc. of Realtors, Bloomberg Finance LP, DB Global Research

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Research
Home equity by generation
% Percentage of homeowners who owe more on their home than it is worth %

2007 2010 2016
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
0 0
Millennial Generation X Boomer Silent
Note: For Millennial 2007 data is not available and % was zero for Silent in 2007. Millennial generation: Born 1981 to 1996; Generation X: Born 1965 to 1980; Baby Boom:
Born 1946 to 1964 & Silent Generation: Born 1928 to 1945.
Source: PEW analysis of SCF database, DB Global Research

Deutsche Bank
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Silent generation has highest median home equity
$ Median home equity in 2016$ $

2007 2010 2016
180000 180000
160000 160000
140000 140000
120000 120000
100000 100000
80000 80000
60000 60000
40000 40000
20000 20000
0 0
Millennial Generation X Boomer Silent
Note: For Millennial 2007 data is not available and % was zero for Silent in 2007. Millennial generation: Born 1981 to 1996; Generation X: Born 1965 to 1980; Baby Boom: Born 1946 to 1964 & Silent
Generation: Born 1928 to 1945.
Source: PEW analysis of SCF database, DB Global Research

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Most new homes are 1800 to 2900 sq feet
Percent of single-family new homes completed by size

% %
1999 2017
50 50
45 45
40 40
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
Under 1400 1400 to 1799 1800 to 2999 3000+

Deutsche Bank
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Peter Hooper
Managing Director, Chief Economist
Deutsche Bank Securities, Inc.
+1 (212) 250-7352
peter.hooper@db.com
Peter Hooper is currently Managing Director and Chief Economist for Deutsche Bank
Securities. He joined Deutsche Bank Securities in the fall of 1999, first as Chief
International Economist and shortly thereafter as Chief US Economist. He became
Chief Economist and co-head of global economics in 2006. Prior to joining Deutsche
Bank, Hooper enjoyed a distinguished 26-year career at the Federal Reserve Board
in Washington, D.C. While rising to senior levels of the Fed staff, he held numerous
positions, including as an economist on the FOMC and as Deputy Director of the
Division of International Finance.
Hooper produces weekly and quarterly publications for Deutsche Bank with a focus on
US and global economic developments and Fed policy; he also comments on US
and global economic and financial developments in the news media. His US
Economics team has been ranked No. 1 in fixed income research by Institutional
Investor in 2010 and 2011. Hooper currently serves as a member of the Economic
Advisory Panel of the Federal Reserve Bank of New York, a member and former
chairman of the Economic Advisory Committee of the American Bankers Association,
a founding member of the US Monetary Policy Forum, a member of the Economic
Leadership Council for the University of Michigan, and a member of the Forecasters’
Club of New York.
Hooper earned a BA in Economics (cum laude) from Princeton University and an MA
and Ph.D. in Economics from University of Michigan. He has published numerous
books, journal articles, and reviews on economics and policy analysis.
Deutsche Bank
Brett Ryan
Director
 Brett Ryan joined Deutsche Bank's US Economics Research team in May

2010. Prior to joining the team, Brett spent five years at Deutsche Bank in the
institutional equity research sales group. Brett has a Bachelor of Arts degree
from the University of Pennsylvania; majoring in politics, philosophy and
economics.
Deutsche Bank
107
Research
Matthew Luzzetti
212-250-6161
Matthew.luzzetti@db.com
Matthew Luzzetti received a Ph.D. in Economics from the University of California, Los Angeles, focusing
on macroeconomics. Prior to that he worked as a research analyst at the Federal Reserve Bank of
Philadelphia. Matt joined Deutsche Bank in September 2012 and is part of DB’s top II ranked economics
team.
Deutsche Bank
Torsten Slok, Ph.D.
Chief International Economist, Managing Director
 Torsten Slok joined Deutsche Bank Securities in the fall of 2005.

 Mr. Slok’s Economics team has been top-ranked by Institutional Investor in fixed
income and equities for the past five years. Slok currently serves as a member of
the Economic Club of New York
 Prior to joining the firm, Mr. Slok worked at the OECD in Paris in the Money and
Finance Division and the Structural Policy Analysis Division. Before joining the
OECD he worked for four years at the IMF in the Division responsible for writing
the World Economic Outlook and the Division responsible for China, Hong Kong,
and Mongolia.
 Mr. Slok studied at University of Copenhagen and Princeton University. He has
published numerous journal articles and reviews on economics and policy
analysis, including in Journal of International Economics, Journal of International
Money and Finance, and The Econometric Journal.
Deutsche Bank
109
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Appendix 1
Important Disclosures
*Other Information Available upon Request
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recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company
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The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the
subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not
receive any compensation for providing a specific recommendation or view in this report. Torsten Slok
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DEUTSCHE BANK US Housing: Cooling Down

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US Housing: Cooling down

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Thousands Single-family building permits Thousands

Source: Census, Haver Analytics, DB Global Research

Thousands New single-family home sales (ls) Thousands

Source: NAR, Haver Analytics, Census, DB Global Research

Source: Census, Haver Analytics, DB Global Research

% respondents Consumer purchasing plan: home % respondents

8.0 Plans to Buy Within 6 Months: Yes (ls) 2.5

Index Traffic of prospective buyers of new homes

Source: NAHB, Haver Analytics , DB Global Research

710 Pre-crisis: 715 710

% Mortgage purchase applications and originations %

Applications 2016 Originations 2016

% % of loans going into foreclosure per quarter %

% Share in existing home sales

Source: National Association of Realtors, DB Global Research

% Single-family homes with mortgages in negative equity %

Source: Zillow, Haver Analytics, Deutsche Bank Global Market Research

% FICO score distribution by percentage of population* %

20 Today 30% of the

% Home ownership rate %

Source: Census, Haver Analytics, DB Global Research

2 yr avg Household Formations by Type 2 yr avg

% y/y S&P case shiller home price index:composite 20

Source: S&P, CoreLogic, FHFA, Haver Analytics, DB Global Research

Source: BLS, Haver Analytics, DB Global Research

Source: BLS, Haver Analytics, DB Global Research

Index NAHB housing market: present (ls) Index

% % of all 18-34 years olds living with their parents %

Source: Census, DB Global Research

% Young adults living in the parental home: 1960 to present %

60 18-24 year olds 60

Source: Census, DB Global Research

Months Avg Length of Time from Start to Completion: Months

6.8 Built for Sale 1 Unit Bldgs 6.8

Source: BLS, Census, Haver Analytics, DB Global Research

Avg sq ft Average square feet of floor Avg sq ft

Source: Census, DB Global Research

y/y chg Total number of households y/y chg

U.S population by age, Dec 2018

Source: Census, Haver Analytics, DB Global Research

Real residential investment: contribution to real GDP

Source: BEA, Haver Analytics, DB Global Research

Thousands New single-family homes on the market Thousands

% New home sales as % of all single-family sales %

Thousands New single-family homes for sale Thousands

Source: Census, Haver Analytics, DB Global Research

New single-family houses completed by sq feet of floor

Millions Renter household growth, 2005-15 Millions

8 Under 35 35-44 45-54 55-64 65 and over 8

10 yr treasury yield Vs 30 yr mortgage rate

Source: FRB, FHLMC, DB Global Research

Source: FRB, Haver Analytics, Bloomberg Finance LP, DB Global Research

MBA mortgage loan applications for purchase, 4 week MA (ls) %

Source: FRB, MBA, Haver Analytics, DB Global Research

Source: NAR, Haver Analytics, DB Global Research

% Housing affordability: payment as percent of income, U.S. %

Source: NAR, Haver Analytics, DB Global Research

Distressed homes sales as % of total existing -home sales

Source: NAR, Deutsche Bank Global Market Research

Median Square Footage of New Homes Sold