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39 » VISIT US ONLINE @ DSNEWS.COM good shape—you have wage growth picking up, you have lower, cheaper gas prices, and a low interest rate going into the home buying season. In addition to that, you have a very strong U.S. dollar, which means if you are buying imports, the cost of the import in terms of U.S. dollars is actually down about 15 or 16 percent in 2015. All of that tells you that for consumers, this is a great time. You have very high confidence in terms of job security and in terms of cost of living. You see that in the jobs report.. e overall job growth is about 2 percent for the U.S., but if you look at consumer-concentrated segments, like tourism and hospitality, those are growing at over 3 percent. If you look at construction employment, which is driven by the housing market, that is up about 4 percent year-over-year. ose are really the bright spots in terms of the U.S. economy. Looking at some of the prime home buying demographic groups, those 25 to 44 years old, the unemployment rate last year was 4.8 percent. is year, it's down about 0.3 percentage points, so it's about 4.5 percent. If you look at where we are in the business cycle, we're probably in mid-cycle. Back in 2007, the unemployment rate for people in the prime home buying age group was about 4 percent. In 2000, that unemployment rate was under 4 percent. So I think there is definitely a long way to go in terms of improvement in unemployment rate, but I think we are in a very good spot. And the Fed is starting to raise rates, so that tells you that we are really in the middle of the cycle. In terms of housing, I think we are very posi- tive on both demographics and also in a cyclical sense. In the demographics, we expect about 45 million coming into the 25 to 44-year-old age group between now and 2020, and that's going to be a big driver for the housing market. We re- ally think the first-time home buyer segment and the baby boomer segment are the two drivers in terms of housing demand. What we are seeing in that group is very, very strong affordability, and I think that is going to be a big driver. We did an analysis just last month on overall affordability levels, and for first-time home buyers, since you are putting down less in terms of a down pay- ment, you would expect your monthly payment to be higher. at's an important point to keep in mind. Even for that group, we are looking at a monthly payment that is 24 percent of the buyer's income and that's below the 28 percent threshold for normal affordability. We did some analysis on that to see what would happen if interest rates were to rise and if home prices were to increase, because those are two trends that we truly expect to continue. What we found was that for af- fordability to go up to that level, we need home prices to increase another 10 percent and interest rates to increase another 100 basis points. In ad- dition to that, we need to keep income constant. One of the trends we've been seeing in the last few years is that wage growth is picking up. Even though it is going very slowly, it is still go- ing up. With income growth, we are going to see affordability normalize gradually, but we don't have any concerns as far as affordability. As far as housing inventory, when we look at our volume, which is driven by first-time home buyers, we have seen very, very strong growth for the mortgage insurance industry as a whole. For example, if you look at 2015, the strongest year in terms of purchase volume since 2007, if you compare our first-time home buyer segment to what it was in 2009 and 2010, we're up about four times. If you compare that to 2011 to 2014, we're up about 50 percent. So we're seeing tremen- dous growth as far as our first-time home buyer segment. I think that's one of the reasons why housing inventory has come down. So the low inventory is an effect—it's not really going to be the cause. at's really going to keep the hous- ing inventory level down, and that's one of the reasons that we think home prices will continue to appreciate over the next few years. First-time home buyers are going to think about the same factors: Are home prices going to go up, what's going to happen to income, what's going to hap- pen to interest rates. . .at should tell you that first-time home buyers want to come back into the housing market. I think the urgency is really building up in the housing market. Do you see the inventory issue improving at all this year? I think inventory will probably improve somewhat, but will improve slowly. I think on the new home sales side, one of the drivers is going to be a pick-up in single-family production. If you look at Zillow or any of the home selling sites and put in a filter for the last 10 years and you're looking for newer vintage homes, what you're going to see is that it's much lower than the previous 10 years. at's the result of very low production between 2007 and now. Home builders are definitely cutting back in terms of production, and that's going to turn around. In the last few years, the increase in housing starts has been primarily driven by the multi-family housing sector, and I think that's going to change in the next few years. In fact, just yesterday, there was a story about a disagreement within parties about volume vs. margin. In the last few years, there was a very big emphasis on margin among home builders. I think people are seeing the first-time home buyer segment opportunity and people are seeing the opportunity from increasing volume, and I think that's going to change the home building industry's strategy a little bit to focus more on affordability and focus a little bit more on volume. I don't think we'll go all the way back to the 2007 and 2006 levels, but I think the emphasis is going to change. e second driver for inventory to come back is higher prices causing homeowners to think about, "Do I want to stay in the home that I'm in, or now that I have more home eq- uity, do I want to move to a better place where there's better schools, closer to work, and better amenities?" I think having more home equity will allow many families to make that decision to move up much easier. So I think that's the other reason that housing inventory will come back. If you look at the turnover rate in the housing market, I think we're still below where we should be, taking into account home price appreciation and interest rates. So I think housing inventory is not going to be an impediment in terms of the housing recovery.

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