EFTA01385946

27 March 2015 US Fixed Income Weekly Figure 1: Housing's contribution to GDP still runs well below average 8% 7% 6% 5% 4% 3% 2% 1% 0% ti ;Ft 2 2 2 4 uS Siksce 564 045N Z Figure 2: Housing continues to rebound slowly from the crisis In resi construc as % WP 0.53% 0.07% 0.49% -0.16% 0.61% 0.04% lY After Recession 2Y After Recession 3Y After Recession • Average Post-WWII ■Current saw's. !Figure 3: Distressed loans Mill put some supply pressure on housing 10 8 % of Outst Mtg Loans 6 4 2 0 $ $ $ r$ $ § ta. >- 6 t? 13 0. 24I 2, -4 ,s828 - ,E24/ ■Serious DO % All Loans • FCL % All Loans NOW MOOS DO onclucles 904ay or longer tielonquencoos. FCL and RED Swap MIA w Secntorg Anano• LP 0. —NO o 8 Housing demand drag Demand has likely played a part in slow housing, too, starting with owners that bought their homes in the last decade. Thanks to a 38% drop in home prices nationally from 2006 to 2012, according to Case-Shiller, a lot of those owners walked out the front door without any equity and without the ability to reenter the market as buyers. This has almost certainly contributed to the drop in rental unit vacancies from 10.6% in mid-2009 to 7.0% today. As for potential new owners, Americans, even before the crisis, started moving into their own place at a much slower pace than the long-term average of 1.2 million new households a year, that is, until recently (Figure 4). Demand from former and potential new owners has been soft, but that should slowly improve. light credit And then, after supply and demand, there's credit. Credit has clearly tightened since the crisis, but it's difficult to come up with a precise measure. Nonbank lending to almost any type of borrower outside the agency market has largely disappeared. Bank lending has tightened dramatically starting in 2007, according to the Fed's senior loan officer opinion survey, with only minor correction in the last year or so—although this measure captures the number Deutsche Bank Securities Inc. Page 33 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0087414 CONFIDENTIAL SDNY_GM_00233598 EFTA01385946