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Global Investment Outlook • Eric Lascelles • Daniel E. Chornous, CFA • John Richards
The aforementioned mortgage market
remains unfriendly – understandably so
– given still-high mortgage delinquency
and foreclosure rates (Exhibit 23).
And many households remain stuck in
underwater mortgages.
Finally, the U.S. has made progress in
its deleveraging odyssey. The business
sector has reached the finish line, the
banking sector is nearly done, and
households have made important
progress at cutting their household
debt-to-income ratios (Exhibit 24).
However, the process is not over.
Households likely have some distance
left to travel, and governments have
barely started. History tells us that postcrisis
deleveraging tends to take years.
Low ceilings and high cliffs
For all of the good work the U.S.
economy has managed, there are
two late-blooming and somewhat
intertwined fiscal risks that could cast a
dark shadow over the end of 2012. The
first is the U.S. debt ceiling, which will
likely present itself again sometime in
November. Without an increased debt
ceiling, the U.S. would lose its capacity
to finance its deficit and risk falling
into technical default. Recall that the
debt ceiling was most recently debated
and grudgingly lifted last summer, and
that it was a messy affair. As a result of
the debacle, the U.S. suffered a debt
downgrade from AAA to AA+ at the
hands of Standard & Poor’s.
The process is unlikely to be much
simpler a second time around. The
November elections should prevent
much progress until the last minute,
and predicting the actions of a lame
duck session of Congress – even one
with the same cast of characters as
EXHIBIT 22.
Normalized U.S. Housing Activity
Normalized U.S. Housing Activity Has Bottomed
4
3
2
Normalized Housing Activity
Maximum-Minimum Band
1
0
-1
Clear bottoming, only
`
-2
tentative rebound
-3
1963 1970 1977 1984 1991 1998 2005 2012
EXHIBIT 23.
Mortgage Delinquency Rate (%)
12
10
8
6
4
2
Note: Simple average of normalized single-unit housing starts, single-unit building
permits, existing home sales, new home sales and NAHB housing market index.
Source: Haver Analytics, RBC GAM
Housing Distress Remains High and Only Abates Slowly
Mortgage Delinquency Rate (LHS)
Home Foreclosure Rate (RHS)
0
0
2000 2002 2004 2006 2008 2010 2012
Source: Haver Analytics, RBC GAM
SAMPLE
EXHIBIT 24.
Household Debt-to-Income (%)
170
160
150
140
130
120
110
100
U.S. Household Debt-to-Income Ratio Is Delevering
1990 1993 1996 1999 2002 2005 2008 2011
Source: Haver Analytics, RBC GAM
6
5
4
3
2
1
Home Foreclosure Rate (%)
20 I The global investment outlook RBC INVESTMENT Strategy coMMITTEE Summer 2012