Fannie Mae’s Chief Economist Doug Duncan with Bruce Norris- Part 2

Douglas G. Duncan is Senior Vice President and Chief Economist at Fannie Mae where he is responsible for forecasts and analyses of the economy and the housing and mortgage markets. Duncan also oversees strategic research regarding the potential impact of external factors on the housing industry. He leads the House Price Forecast Working Group reporting to the Finance Committee.


Under his leadership, Fannie Mae’s Economic & Strategic Research Group (ESR) won the NABE Outlook Award, presented annually for the most accurate GDP and Treasury note yield forecasts, in both 2015 and 2016 – the first recipient in the award’s history to capture the honor two years in a row. In addition, ESR was awarded by Pulsenomics for best home price forecast.


Named one of Bloomberg/BusinessWeek’s 50 Most Powerful People in Real Estate, Duncan is Fannie Mae’s source for information and analyses on demographics and the external business and economic environment; the implications of changes in economic activity on the company’s strategy and execution; and for forecasting overall housing, economic, and mortgage market activity.


Prior to joining Fannie Mae, Duncan was Senior Vice President and Chief Economist at the Mortgage Bankers Association. His experience also includes work on the Financial Institutions Project at the U.S. Department of Agriculture and service as a LEGIS Fellow and staff member with the Committee on Banking, Finance, and Urban Affairs for Congressman Bill McCollum in the U.S. House of Representatives.


Duncan received his Ph.D. in Agricultural Economics from Texas A&M University and his B.S. and M.S. in Agricultural Economics from North Dakota State University.



Episode Highlights:

  • Wealth Tax
  • Homeownership Rate
  • Unemployment rate: U-3 and U-6
  • Inflation and Deflation
  • Foreclosures
  • Interest Rates

Episode Notes:


Narrator  This is The Norris Group’s real estate investor radio show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever changing real estate market hosted by author, investor and hard money lender, Bruce Norris.

Joey Romero  Welcome back. I hope you enjoyed part one of our interview with Doug Duncan. Here’s Bruce with part two.

Bruce Norris  Hi, thanks for joining us. My name is Bruce Norris. And today once again, we are joined by Doug Duncan, Fannie Mae, Senior Vice President and Chief Economist. California came up with something I didn’t know they had the right to think about. And so I wanted to ask you this about the national picture of creating a wealth tax. Is that is that something that might be considered?

Doug Duncan  Well, it’s been discussed on the democrat side of the political environment since at least the Clinton administration. And there have been some experiments in Europe, as I understand that I’m not deeply knowledgeable about this wealth taxes, but they have not to my understanding generated the results that was anticipated. It led to some capital flight and some other things like that, so that it didn’t get the the benefit. It’s a hard time, I have a hard time seeing how that could pass politically, because it’s not so much that people who have low wealth would be opposed to transferring wealth from high wealth people to themselves. That they believe themselves. If they are successful, they will one day be wealthy as well and don’t want to be taxed when they achieve that. Right. Okay. That’s really our about expectations of the American population.

Bruce Norris  Well, does that type of legislation get presented to the citizen? Or is it just passed by Congress? It seems like…

Doug Duncan  No matter what you think of them, they are representative government, which means we voted them in, right? Now, you know, there’s lots of angst about all that. But bottom line is we go into the booth and we pull the lever so we get the government that we vote for, and what they do when they get there. If, if you’re not paying attention and letting them know, as a citizen, what you think should be done, then yeah, they can they can do what they choose to do. But the it’s the power of the ballot. That is the discipline on on…

Bruce Norris  Okay. Percentage of homeownership, basically for forever, was 64 65%. And, yeah, it’s there. Now we went down to 62.9. Then we went up to bigger number 68. No, 69%. In 2006, 2016, we went down to 62.9. And right now we’re back to what normal 65? Is that about where we’re at?

Doug Duncan  …65 and a decimal point.

Bruce Norris  Okay. Uhm, do you see any policies that will try to get that to be a bigger number? And do you think that might be helpful for like our society in the sense that more people feel like they are participating in some of the goodies?

Doug Duncan  I’ll give you the same answer I gave back in 2006, which is because there had been a significant public official, a private, corporate executive that said, the objective should be a homeownership rate of 72 to 74%. And I said, Well, if you, if you actually look at the population, and its distribution by age, what you find is, if you look at the share of the population that’s under the age of 24, let’s say they’re highly unlikely to be homeowners. And then if you look at the portion of the population that’s say, over 80, or 85, when and this was a few years ago, when they would be moving out of their homes into perhaps senior living facilities, take that share. And then you take the share of people who really don’t care if they ever own a home and there is a significant share of them their high income renters.

Bruce Norris  Right.

Doug Duncan  You’re left with about two thirds of the people are going to be homeowners. So, I said, I don’t know how you change that unless you fundamentally change demographics. And within some timeframe, financing alternatives can increment that, changing increment. But then another time frame, aging might change the increment. So, it just seems to me like the the 65, 66, 67 range is kind of a demographically economically rational level. And that’s pretty much where we return to right, so…

Bruce Norris  That’s right. Okay. Which, which unemployment number do you pay most attention to? There’s, there’s U-3, and U-6. And one of U-6 is a bigger number. What does that include in, in it that U-3 does not?

Doug Duncan  Oh, I got to test by memory?

Bruce Norris  Oh, no, you don’t? Well, it’s a, it’s an 11%, and the others at 6.3. So, the 11% is basically saying there’s a lot of people that are discouraged and not looking anymore.

Doug Duncan  That’s right. Okay.

Bruce Norris  So, which of those do you think, like the more significant number at this point?

Doug Duncan  They’re both significant, but in different ways.

Bruce Norris  Okay.

Doug Duncan And well, I looked at a couple of other things. To supplement that I look at the employment to population ratio. So, what’s the size of our total population and how many people in that population are employed? And the second is I look at the workforce participation rate. And the workforce participation rate says these people, this group of people are in prime working age, how many of them are actually working? So, what those things tell me is what are the incentives to work? And what are the availability of options to work? And so to me, it’s it’s an aggregation of things. One of the things I’m worried about is that the CARES Act changed eligibility for unemployment compensation. And so, the, the, today what’s happening is we’re comparing to some degree apples to oranges, because we changed the conditions.

Bruce Norris  Okay. Okay.

Doug Duncan  So, we’re actually working on a little paper to try to explain to people, what you’re seeing today, you’re looking as though the prism is the same as it was pre-CARES Act, and that’s leading you to draw some, some conclusions that are not completely accurate.

Bruce Norris  Okay.

Doug Duncan  So, those are, you know, I know, that complicates things, some, but I feel like it’s pretty important from a policy perspective, to take some of those things apart.

Bruce Norris  At at 6.3% unemployment, and I would think the, the general consensus would be that’s going to improve on, on its own with vaccine and so forth. Why $1.9 trillion package when improvements already kind of in place and on its way?

Doug Duncan  Well, I’m, I don’t have a good answer for that.

Bruce Norris  Okay.

Doug Duncan  It wouldn’t be my objective, I think that it is an overstatement of what’s, what is needed. Now there, you have to go back what I was saying earlier about people who are hourly wage workers in the, in the discretionary spending area. That’s the group that is having difficulty. If you go back to the, the December employment data, which were released the first week of January, the headline of that monthly report said the US lost 140,000 jobs. But if you looked underneath the headline, if you looked at leisure and hospitality, which is where that discretionary spend is, there were a half a million jobs lost.

Bruce Norris  Yeah.

Doug Duncan  The only two other categories of job loss for education, which of course was going remote and state, state employment, which, likewise with some states, were having budget difficulties and cut back on services, all the other categories added jobs. So, this is a very targeted issue, which is driven by fear of congregating with other people. And so all the other job categories are recovering nicely. Manufacturing is back to where it was prior to the downturn. What sort of stuns me is that there are suggested there should be all of these significant policy changes when prior to the COVID. Unemployment was three and a half percent.

Bruce Norris  Yeah.

Doug Duncan  And if you’ve gone back 20 years and economists saw that number they say, Oh, my gosh, inflation must be 10%. Inflation, they couldn’t get it up to 2%. And we had three and a half percent unemployment. So, I’m I’m a little confused about how the policy process is thinking about that.

Joey Romero  Can I ask you, so if the fear of congregating is, is the main driving factor of the unknown, right? We’ll states that because well, maybe it’s fear. Maybe it’s just you simply can’t do it. You know, because of, you know, certain states are allowing, you know, certain things to happen. So will, will those states that were more open, recover faster?

Doug Duncan  They already have. It’s it’s clear if you, if you take a look at state GDP, you, there is a high correlation between state GDP growth and the degree of negative, I should say, inverse correlation between their economic growth and the level of lockdown. So, the more lockdown they are, the less growth they’ve seen that the data are quite clear on that.

Bruce Norris  I’d like to bat around inflation and deflation, because you just mentioned we had a three, three and a half percent unemployment. And we didn’t have inflation, we were still trying to get like to a normal number with other policies. So, I’m trying to understand it myself, because it looks to me like we keep on trying to prevent deflation. So, that’s kind of what I’d like to know, like, what are the elements of it? Because so, let me just run down a few, a few things, if you have high national debt, for instance, does that does that hinder growth? Is that deflationary in…

Doug Duncan  Well, the poster child there, of course, is Japan, which has huge levels of debt relative to their income and have neither had inflation nor growth. They’ve had neither. So, we’re not anywhere near where they are. I don’t know what the current number is. I know it’s past 250…

Bruce Norris  200%. Yeah, it’s way past, you’re, right. Yeah. So, it’s much more severe. Now. Okay. So, another question is demographics. Our demographics in favor, now one talk with the United States. So, demographics, is that in favor of inflation or deflation?

Doug Duncan  Well, it depends on that immigration discussion…

Bruce Norris  I thought you’re going to say that.

Doug Duncan  It would be in the absence of immigration, eventually, it could be inflationary, because there’s going to be bidding for workers of which there are less available. And so, wage rates would, would get pushed up.

Bruce Norris  Velocity of Money? Do you have inflation? Do you have to have high velocity of money? Because if I look at a chart, I don’t think I’ve ever seen a number this low and it’s declined for quite some time.

Doug Duncan  Yeah, the answer is yes. If you take Milton Friedman at his word, MV=PQ, if V is low uhm, no matter how big you can make M bigger, M being the money supply, V being its velocity, that P x Q is the you know, that’s the price level. And if V falls, then the level of inflation is going to be lower. And you’re right, the money supply has ramped up tremendously. But velocity has fallen off. And consequently, we’re seeing relatively little inflation. I, for me, personally, it’s hard for me to understand why we would want more inflation. Zero inflation is what protects the purchasing power of your currency.

Bruce Norris  Right.

Doug Duncan  If you care about the poor, the one thing that is most difficult for the poor is inflation, because they have so few assets to deploy, like higher-income households who can shift their portfolio around to take advantage or at least prevent the damage from inflation. The poor don’t have those tools. And so, I’m sure why the Fed is anxious to change from 1% inflation when it’s been so stable for so long.

Bruce Norris  And that it seems like despite their effort, even with three and a half percent unemployment, they’re not able to move it into another, into another number. So, well, what did happen, you know, I was kind of becoming an adult didn’t I have didn’t have a clue what was going on between 70 and 80. But I knew my house price went up, and I knew my wages kept going up. So, there there was inflation. There, was that, was that demographically the sweet spot for the United States is that what drove drove a lot of that?

Doug Duncan  Well, there’s a two or three things. One is the accumulation and deployment of capital. So, one of the things that the Reagan administration did was to advantage the development of capital relative to labor. And so you came out of that it was one of the aspects of taking inflation down was rebalancing the labor capital mix for businesses. So, it slowed the pace of wage increases in shifted some of the returns to capital, but balanced it out so that workers had more capital available to them and they became more productive. So, that increases Productivity helped to slow the pace of inflation. So, back in the 70s, and by the way, I’m still working on being an adult. So, I haven’t finished that job. But back in the 70s, there was an imbalance. And that’s when the whole wage rate issue was one of the drivers of inflation.

Bruce Norris  Okay. Right now in Florida for building houses, we have material costs going up. So, that seems to be inflationary. But I think it’s more driven on the supply side, having trouble getting here. Is that probably temporary?

Doug Duncan  Yeah, it’s one of the things is, is defining inflation. And if you think about a textbook, definition, an economics textbook, definition of inflation, it is sustained increases in the general price level. So, with prices of individual things are changing all the time. And so, and it is one of the things that we’re not great at measuring, as economists because as those prices change, people’s appetite for things change. So, if you if you’re, you know, you think about the fact that you buy fruit, apples, and if the and you also buy grapes, if the price of apples doubles, and the price of grapes stays constant, you might shift some of your consumption of apples to grapes, right?

Bruce Norris  Right.

Doug Duncan  And maybe the the net effect, if you include both the average price and both might not change at all. So, that’s the issue in measuring inflation is how do you how do you wrap all that together? And there are two ways we do that the PCE and the CPI. And then one of them adjusts the basket of goods that’s being measured according to the, how people are adjusting consumption and the other one is more, more static. So, right now housing has has been the component, which has been driving the level of inflation, more than most others medical services, I think, is another one that has been a component that’s been a driver of inflation. But those things have been offset by things like the decline in energy prices, for example. So, no question that the materials costs make their way into the CPI, whether they’re dominant enough to move it when other prices are falling is, is the ultimately the question because it we’re talking about the general price level, but housing, housing has been absolutely on the upside in inflation.

Bruce Norris  Now, is that, is that rent or, or price movement?

Doug Duncan  Well, it’s it goes back to that supply and demand issue, right? If…

Bruce Norris I’m saying what part of housing is considered a formula?

Doug Duncan  Yes, it’s, it’s the imputed rental cost.

Bruce Norris  Okay.

Doug Duncan  So, if you were renting the house you were living in, what would you have to pay for rent to rent that house?

Bruce Norris  Okay. Okay. What about things that are out in the future that are innovations? Are they, are they inflationary, deflationary and things like robotics? Is that inherently deflationary? Or is there like a whole new spectrum, spectrum jobs that opens up and it’s, it turns into inflationary?

Doug Duncan  They tend to be deflationary innovations tend to be result because there was either an inefficiency in the existing product set that was offered, or there’s something that’s more efficient in terms of the use of resources. So, if you think about the, you know, the classic cases, television sets are now just screens, you know, a 56 inch screen today is, you know, it might be 500 bucks or something. I haven’t bought one for a while. But if you go back 10 years, there might have been $5,000. So those prices have been falling consistently.

Joey Romero  It’s under 300 bucks now.

Doug Duncan  Is that what they are? I know you can get they’ll throw in a couple of small ones for you. So, no question that, now, people say you have to look at the price of automobiles, Well, okay, look at the longevity of those automobiles, if you take care of them how long they last today, and look at all the services that they provide, they have Wi Fi in them so that you can actually do telephone calls without holding your phone while you’re driving your truck. And it can be giving you mapping guidance and giving a more efficient route to get from one place to another. So, you’ve got all these combined services in something that used to be a kind of a standalone, mechanical transportation from point A to point B. Now, it’s got a whole bunch of services makes your time much more productive, because you can be doing, doing other jobs while you are driving. As long as your hands are on the wheel and not, you know. So, that’s the challenge is understanding the mix of attributes and how they contribute to productivity. I would argue all of that the chip based things that we see are increasing productivity broadly and holding down inflation across the economy, and not just in the US globally.

Bruce Norris  So, you viewed the next few years for builders to be very healthy.

Doug Duncan  We do for at least two to three years. The question really is the immigration question, because that gets combined with a couple of other things. One is the fact that the the 2007 to nine recession delayed childbirth for a number of people. And when they did take on childbirth, it was at a lower level. Now you’ve got another one with the COVID virus. So, in terms of the domestic birth rate, it’s probably actually fallen fairly significantly. And with no immigration, that, that’s a challenge as well. So, there will be at some point a slowdown. And then the other. Another question, and we’re going to do some research into this is in the seniors space, what should we be thinking about in the seniors space? Because I think the leading edge of the boomers is I think, 73, I may get these numbers off by ear…

Bruce Norris  That’s close, real close.

Doug Duncan  Yeah, and so, the data on health suggests that the incidence of disability increases by a factor of six between the ages of 65 and 75. Now, one of the things that we learned in the COVID period is you can do home health care remotely on your iPad with a zoom call with your doctor that actually enables you to stay in your house longer. And so, there’s, there have been technological adaptations that will allow people even though they may have some increase in medical issues to stay in their home longer than we thought before. So, how does that affect the supply side of the equation? In addition, there are fairly simple ways to adapt a home for aging, so replacing doorknobs with levers, putting safety bars in showers, making those showers wheelchair accessible by taking off the lips on, on the bottom of the shower basin, putting ramps in to get in the front doorway, so that it’s a, it’s a role in putting a master on the first floor with wheelchair accessible, accessible doors. So, there are a fairly low cost set of options to making homes more amenable for longer, longer living and the boomers have been consistent saying we intend to age in place. So, how does that play out dynamically? When as the next generation ages, how does that play work? We need to do some serious thinking on that.

Bruce Norris  Okay. Time for just a couple more topics one probably be pretty quick. There’s some concern. If I go on YouTube, I see headings foreclosures going to explode. Your take on that is?

Doug Duncan  Well, interesting. We’ve surveyed a lot about forbearance. And the initial take up in forbearance, but something like 8% of people in the mortgage took up forbearance, but about 50 of them, 50% of them did that as a precautionary movement. Again, not knowing what was going to happen with the virus, it was incredibly easy to acquire a forbearance. So, why not? As, as a precautionary measure, a lot of those people kept paying their mortgage the whole time, they never went to delinquent. And so, now the share of mortgages that have, are in forebearance has dropped to something around 4%. I don’t know the exact number today, somewhere around 4% of mortgage holders have a forbearance. Some of those will get a restructuring because as the jobs come back and their income comes back, we learned a lot about how to restructure successfully in the 2007 to 10 period. Some of those folks will get restructured, there’s a lot of equity in home. So, some of them even if their incomes don’t come back, we’ll be able to sell the house in a pre foreclosure sale and extract some equity to relocate themselves.

Bruce Norris  Right.

Doug Duncan  So, that’s, that will increase supply to some degree which will slow the pace of price appreciation. Then some of them will actually go through the foreclosure process because they just can’t read rescue the situation. And maybe they’re in an area where prices haven’t appreciated very much. So, there will be some rise in foreclosures. But of course, there’s lots of single family investors sitting on the sidelines, to take advantage of that, that opportunity to transition that property from an owned to a rental. And one of the things that we have seen, and you and I have talked about this for a decade, or more, Bruce, is that people who are in single-family rentals pay their rents, that, that it’s apartment buildings that take more cyclicality. Even as the economy goes up and down, the people that are renting single-family homes are pretty stable. And so, we think that, that, that investor group will come in and help with that transition.

Bruce Norris  Since we’re so stable, do you think you guys can loan us some more dough?

Doug Duncan  I’m gonna get in trouble.

Joey Romero  Bruce, Bruce just spoke this week, and a lot of the questions in the chat were, you know, regarding interest rates, where do you see them and how soon will there be movement there?

Doug Duncan  Well, in our current forecasts, you can see the the one that you have in front of you, we don’t see the 30 year fixed rate mortgage going past 3% until the latter half of 2022. However, if there’s additional $1.9 trillion stimulus is put in place, I have to believe the pressure is going to be up on interest rates. And whether it’s through inflation, or very strong economic growth, almost unprecedentedly strong economic growth that’s going to push rates up. And we’ll come back to that question Bruce asked about will the Fed try to take action to hold rates down? I’m not sure that they can and be credible in that environment. But if the stimulus passes, we’ll probably get that experiment.

Joey Romero  Well, then that, between that and the $15,000, you know, home credit, that’s gonna have some real impacts where homes are affordable. Like it’s not gonna it’s not gonna make a blip in California, but some other states are, it’s gonna really impact right?

Doug Duncan  Yeah, well, they could be offsetting forces. So, if rates rise, that it decreases affordability for some households, but if you are a first time buyer, that would put you in, in the game. So, it would, it would perhaps shift from existing homeowners who are moving up to first timers. And it just depends on the share of the population. And each of those groups that would make a move on which direction it would it would turn prices

Joey Romero  Well one of those biggest cohorts is the millennials and they’re still not fully in the game, so…

Doug Duncan  No, that’s right. They’re there, you know, that we’re kind of in a three year period where they’re kind of at peak homebuying years. So, they’re, they’re still, there the force to be reckoned with today.

Bruce Norris  Last question. Seems like our national debt is off to the races is, does that cause any concern for you as far as the future, I always thought we’d get about back to zero. I mean, that was in my head 10 years ago. And I think, okay, that’s not going to happen. But as an economist, how do you look at that and say, ‘Okay, this is a problem someday, that’s going to be huge.’

Doug Duncan  Yeah, I’m definitely in that camp. I think it’s there’s, there’s no responsible party in Washington these days, that, that is thinking about the long term impacts of very high level, levels of debt, we’re we have a level of debt that was at the peak of fighting World War II.

Bruce Norris  Correct.

Doug Duncan  It just doesn’t make common sense, if that’s part of these around the country is people are like that, from a common sense perspective, eventually, your income has to meet up with your obligations. So, how does that get fixed? Well, you can only raise taxes so far, before you start to slow economic activity. You it’s very difficult, because of the way politics works to cut expenses. And you can use monetary policy to inflate away the value of that debt. But of course, that has significant implications for income distribution, as well. So, you know, the hope would be a combination of rationalizing the tax system, not necessarily raising taxes, but rash-, in effect, it would raise taxes if you eliminated some deductions that were that were a function of unproductive activities, economically. But rather than just preferences to, to preferred population groups, and constraints on spending, and you don’t necessarily have to make outright cuts in spending, you simply have to constrain the pace of growth. If the pace of growth of spending slows below the pace of growth of revenue, eventually the problem goes away. But you have to be disciplined. Canada did that 20 years ago, they had his fiscal situation that was very much like ours. That’s what they did. They put in place growth friendly policies and constraint spending, and then in about a decade, brought it back under control. That’s the kind of leadership we’ll need in Washington.

Bruce Norris  Okay. Well, Doug, thank you so much for meeting with us again today. And thanks for all your participation in I Survived over the years, we really appreciate it.

Doug Duncan  Absolutely. It’s been a privilege to be invited. that’s a, that’s a great event. I hope you were able to get that reconstituted. It’s a really meaningful event and it gets to things outside of politics, it gets to people. And that’s the more important issue.

Bruce Norris  Yeah, now, I think you probably missed, maybe you don’t miss a travel as much, but I sure miss being in front of a live audience.

Doug Duncan Oh, absolutely. It’s my, there’s so much more energy. The questions are so much fresher. And it’s just really, it’s a much better environment. So, I’m hoping everybody gets vaccinated. It’s effective. It fixes all that and we can get back to get together. I’m willing to put up with flying in airplanes to get to spend time with people, so…

Bruce Norris Okay. All right, Doug, thanks a lot.

Narrator  For more information on hard money, loans and upcoming events with The Norris Group, check out For information on passive investing with trust deeds, visit

Aaron orris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go and click the Hard Money tab.


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