Housing Nearing Bubble

Home prices are rising rapidly — so much so that industry participants are warning that housing is entering another national bubble, according to the New York Times.
While the market is not in a bubble quite yet, there are troubling signs that housing is heading down that path.
Many homeowners anticipate housing prices will increase 5.7% next year, a dramatic hike when compared to the 4% expectation for 2013, Yale professor Robert Shiller explained.
"People who are now inclined to buy a home are most often just thinking that we are gradually recovering from a recession and that this is a good time to buy," Shiller wrote in the article.
He concluded, "The mental framing still seems to be about economic recovery and the likelihood that interest rates will rise. People mostly don’t seem to be prompted by the anticipation of another housing boom."

Government Shut Down WILL affect Real Estate

In the event of a government shutdown, most Federal employees are required to stop working because no funds would be available to pay staff, ultimately ceasing most housing agency’s functions.
Consequently, the Federal Housing Administration will be unable to endorse any single-family loans and staff will be unavailable to underwrite and approve new loans, according to a Department of Housing and Urban Development’s latest report.
If an application for an FHA-insured loan is not approved by the time of the government shutdown, it will not make it through the system, impacting affordability opportunities for homeowners.
Given that government-backed mortgages account for more than 90% of loans, the shrinkage in volume flow would critically hit the housing market.
When put into perspective, more than 9,000 HUD employees, only 3.8%, or 350 employees, will be able to work, according to HUD.
Currently, FHA endorsements currently represent 15% of the market, with 80% of loans endorsed by lenders with delegated authority.
In the event of a government shutdown, the Office of Single Family Housing will maintain the minimum operations necessary to support FHA’s existing portfolio.
These functions include operating both the FHA call center, servicing Secretary-held notes and mortgages, as well as ensuring the continuity of FHA’s real estate-owned properties disposition process — addressing REO health and safety violations and paying related contractor invoices.
Work during an appropriations hiatus includes the performance of functions that are funded through multiyear appropriations or where the failure to perform those functions could result in an imminent threat to the safety of homeowners and their property.
Furthermore, these activities are associated with FHA’s portfolio of insured mortgages, including multifamily, sing family and project-based rental assistance.
Nonetheless, it’s important to note that there are a few number of activities deemed excepted in order to preserve life and property, including Ginnie Mae.
"An interruption in the operations would create immediate and significant market disruption that would lead to financial losses for investors and increased mortgage rates for government-insured mortgage loans," HUD stated.
As a result Ginnie Mae would continue operations, specifically the government-owned enterprise’s ability to issue mortgage-backed securities and ability to receive and process monthly loans.
Additionally, government-backed home loans that are purchased and securitized by Fannie Mae and Freddie Mac will be unaffected by a shutdown since both enterprises operated autonomously.
"Will continue our day-to-day operations are a as private company in the market so there will be no change, no effect and will continue to operate as normal," stated Fannie Mae spokesperson Andy Wilson.
On a similar note, Freddie Mac would continue normal operations without interruption.
"Although we are currently in conservatorship and regulated by the Federal Housing Finance Agency, we are a privately held company and a temporary shutdown would have no direct impact on us," Freddie Mac spokesperson Brad German said.

3 OUT OF 10 BORROWERS CAN'T QUALIFY FOR MORTGAGE

Three out of 10 Americans are unlikely to qualify for a mortgage, despite historically low interest rates and levels of affordability not seen in years, data from Zillow (Z) revealed.
Zillow looked at 13 million loan quotes and more than 225,000 purchase loan requests on Zillow Mortgage Marketplace in September, comparing them to a similar study conducted in September 2010.
What Zillow found was discouraging for borrowers looking to buy a home — especially those affected by the recent financial crisis.
Borrowers who have FICO credit scores under 620 who requested purchase loan quotes for 30-year fixed, conventional loans were unlikely to receive even one loan quote in September. This was unchanged from three years ago, even if they offered a relatively high downpayment of 15%-25%.
According to data provided by myFICO.com, nearly 28.4% of Americans have a credit score of 620 or lower.
At the same time, the bar has been set higher for those looking to get the lowest available mortgage rates. Typically, the best mortgage rates are reserved for borrowers with credit scores of 740 or higher, compared to 720 in 2010. Data revealed that 40.3% of Americans currently fall into this category.
Three years ago, 47% of Americans had credit scores over 720 and were able to get the best rates. Borrowers with credit scores above 740 did not receive significantly better mortgage rates.
In the September study, borrowers with credit scores of 740 or above got an average low annual percentage rate of 4.42% for conventional 30-year fixed mortgages.
Borrowers with mid-range credit scores between 620 and 739 received APRs, on average, between 5.09%-4.47%, with the APR rising as the credit score drops. Those with credit scores below 620 received too few loan quotes to calculate the average low APR.
"Despite all-time high levels of affordability in the housing market, tightened lending standards mean that nearly one-third of Americans are unlikely to be able to achieve the American Dream of homeownership because they can’t qualify for a mortgage due to a low credit score," said Erin Lantz, director of mortgages at Zillow.
"Your credit score is the single most important factor in determining your mortgage interest rate and monthly payment. To avoid any surprises when buying a home, check your credit score and report at least six months before you intend to buy to see if there are any costly inaccuracies, pay down high-balance lines of credit and make sure your bills are always paid on time," he added.

Home Prices Are Up, but Gains are Peaking

Home prices in 20 U.S. cities rose in the 12 months through July by the most in more than seven years, helping boost owner equity.
The S&P/Case-Shiller index of property values in 20 cities increased 12.4 percent from July 2012, matching the median projection of 31 economists surveyed by Bloomberg and the biggest year-to-year advance since February 2006, a report from the group showed today in New York. On a month-to-month basis, price appreciation slowed.

Enlarge image

Home Prices in U.S. Cities Increase by Most in Seven Years

Andrew Harrer/Bloomberg

A potential homebuyer walks through a house for sale in the Logan Circle neighborhood of Washington, D.C.

A potential homebuyer walks through a house for sale in the Logan Circle neighborhood of Washington, D.C. Photographer: Andrew Harrer/Bloomberg

4:41

Sept 24 (Bloomberg) -- Jonathan Miller, president of Miller Samuel Inc., talks about the outlook for housing prices and market strategy. He speaks with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg Television's "Surveillance." Jim O'Neill, Bloomberg View columnist and former chairman of Goldman Sachs Asset Management, also speaks. (Source: Bloomberg)

7:42

Sept. 24 (Bloomberg) -- Daniel Arbess, a partner at Perella Weinberg Partners LP, talks about Federal Reserve policy and the impact on the U.S. housing market. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Audio Download: Shiller Says Boom in Housing Prices May Be Ending

Gains in home and stock values are contributing to increases in household wealth that are helping bolster consumer spending, the biggest part of the economy. Nonetheless, the appreciation in property values may cool over the rest of the year as mortgage rates close to a two-year high temper demand.
Price increases “will start to slow down to a fairly sustainable pace,” said Brian Jones, a senior U.S. economist at Societe Generale in New York and the best home-price forecaster over the past two years, according to data compiled by Bloomberg. “The increase in mortgage rates will slow things down a bit at the margin. As the economy does better, people will be in a better position to weather the higher rates.”
Another home-price gauge also showed improvement. Values climbed 1 percent in July from the prior month after a 0.7 percent increase in June, according to figures from the Federal Housing Finance Agency.

Confidence Dips

Consumer confidence in September dropped to a four-month low, another report showed. The Conference Board’s sentiment index decreased to 79.7, the weakest since May, from a revised 81.8 in August, according to data from the New York-based private research group. The measure averaged 53.7 during the recession that ended in June 2009.
Stocks fell as investors weighed the data for signs on the economy’s strength. The Standard & Poor’s 500 Index declined 0.3 percent to 1,696.99 at 10:05 a.m. in New York.
Estimates in the Bloomberg survey for home prices ranged from gains of 10 percent to 13 percent. The S&P/Case-Shiller index is based on a three-month average, which means the July figure was also influenced by transactions in June and May.
The July reading compared with June’s 12.1 percent year-over-year advance.
Home prices adjusted for seasonal variations rose 0.6 percent in July from the prior month, less than the Bloomberg survey median, which called for a 0.8 percent increase. Monthly advances over the past three months have averaged 0.8 percent, the least over similar periods so for this year.

Gains Peaking

“More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked,” David Blitzer, chairman of the S&P index committee, said in a statement.
The month-over-month gains were led by a 2.5 percent jump in Las Vegas. Property values fell in Minneapolis and Cleveland.
Unadjusted prices climbed 1.8 percent in July from the previous month.
The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index. Year-over-year records began in 2001.
All 20 cities in the index showed a year-over-year gain, led by a 27.5 percent surge in Las Vegas. San Francisco, Los Angeles and San Diego also showed gains in excess of 20 percent.

Southwest Rebounds

“The Southwest continues to lead the housing recovery,” said Blitzer. Nonetheless, values in all cities still remain below their prior peaks, he said.
Sales of previously owned properties rose 1.7 percent in August to a 5.48 million annual rate, the most since February 2007, as buyers rushed to lock in interest rates that were starting to climb from near record-low levels, data from the National Association of Realtors showed last week. The number of existing houses on the market was 2.25 million at the end of August, the fewest for that month since 2002.
Lawrence Yun, chief economist at the Realtors group, said the surge in sales in August was probably the “last hurrah” for the next year to 18 months as higher prices and the jump in mortgage rates hurts affordability for some buyers.
The rate on 30-year home loans averaged 4.50 percent in the week ended Sept. 19, close to the highest level since July 2011, according to data from McLean, Virginia-based Freddie Mac. The rate, which was as low as 3.81 percent at the end of May, began rising since Fed Chairman Ben S. Bernanke that month indicated the central bank may slow asset purchases.

Builder Sales

Lennar Corp. the third-largest U.S. homebuilder by revenue, said today that its fiscal third-quarter earnings rose as the company sold more houses and raised prices.
“We continue to see long-term fundamental demand in the market driven by the significant shortfall of new single-family and multifamily homes built over the last five years,” Stuart Miller, chief executive officer of the Miami-based builder, said in a statement. “While there may be bumps along the road that may impact the short-term pace of the recovery, the long-term outlook for our business remains extremely bright.”
Lennar’s sales rose to $1.6 billion in the three months through August from $1.1 billion a year earlier as the number of homes delivered increased to 4,990 from 3,655. The average selling price increased to $291,000 from $258,000, and orders jumped 14 percent.
The Fed last week maintained its $85 billion monthly pace of bond buying, saying it needs additional evidence of sustained improvement in the economy. “The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement,” policy makers said in a statement after their meeting.

Apparently it was a close call on whether not to raise rates- But What About October???

Apparently it was a close call on whether not to raise rates.  However, St. Louis President James Bullard says to expect a taper in the October Meeting-  What does this mean?  We are only weeks away from The Taper.

Federal Reserve Bank of St. Louis President James Bullard, a voter on policy this year who has backed record stimulus, said a small tapering of bond buying is possible next month after the Fed made a close call this week in deciding not to slow purchases.

“That was a borderline decision” after “weaker data came in,” Bullard said today on Bloomberg Television’s “Bloomberg Surveillance” with Tom Keene. “The committee came down on the side of, ‘Let’s wait.’”
Bullard called October a “live meeting,” because “it’s possible you could get some data that change the complexion of the outlook and could make the committee be comfortable with a small taper in October.”
The Fed this week unexpectedly refrained from reducing its $85 billion in monthly asset purchases, saying it needs to see more signs of sustained labor market gains. Chairman Ben Bernanke said Sept. 18 the central bank would decide on whether to taper purchases based on “what’s needed for the economy.”
Markets shouldn’t have been surprised by the decision because Federal Open Market Committee members have repeatedly said the decision to slow, or taper, would be “data dependent,” Bullard said.
“I’m a little dismayed at those in markets that are saying they’re surprised by this,” Bullard said. The Fed said that, “if the economy was going to improve in the second half of the year, and if we saw that improvement, we would taper.”
Bernanke’s remarks earlier this year on the prospect for tapering sent bond yields as much as a percentage point higher. Yields on the benchmark 10-year Treasury note climbed as high as 2.99 percent on Sept. 5 from 1.93% on May 21, the day before Bernanke first outlined a possible timetable for a reduction in the asset purchases.
This week’s FOMC decision not to taper helped reverse that rise and pushed back expectations for a tightening of monetary policy. The yield on the benchmark 10-year Treasury note was little changed at 2.75 percent as of 9:15 a.m. in New York, according to Bloomberg Bond Trader prices.
Investors see a 43% chance policy makers will increase the federal funds rate target to 0.5% or more by January 2015, based on data compiled by Bloomberg from futures contracts. The odds were 68 percent two weeks ago.
“Rates went up a lot over the summer” and “for many on the committee that was a surprise,” Bullard said. It wasn’t a “surprise for me because I’ve said the flow of QE matters a lot.”
So “when we threatened to pull that back, markets naturally” sent yields higher, he said. Bullard during the past two months has urged the Fed to hold off on adjusting so-called quantitative easing, saying any change should depend on whether inflation moves toward the Fed’s 2% target. Policy shouldn’t rely on central bank forecasts for the economy that have proven too optimistic in the past three years, he said.
“We got some weaker data, so that put the committee in a position where we could delay,” he said. With inflation low, Bullard said “we can afford to be patient.”
Bullard dissented from the FOMC’s June 19 policy statement, saying the panel should “signal more strongly its willingness to defend its inflation goal.” He dropped the dissent at the following meeting when the FOMC added language saying persistently low inflation posed risks to the economic outlook

Premier Nationwide unveils Lock and Shop borrower interest rate protection

This program aims to lock in interest rates for buyers, so that while they are shopping for a home, their interest rates are either locked, or will go down if the market goes down.

This is very interesting for several reasons:

1) This is a throwback to the housing boom- these type of programs were very similar
2) This is an admission by a lender that higher interest rates are truly hurting their purchase business (as opposed to what the National Association of Home Builders Says)
3) The happy days of the previous year and a half are not so happy

The one piece of good news for the lenders is that there is still purchase business to be had.  However, given that rates are going up, the buyers are qualifying for a lot less, which means their buying power lower.

Let me know your thoughts.

GSE Reform Update-

House Leadership Puts GSE Reform on Backburner
The House Majority Leader's failure to include mortgage finance reform in his legislative agenda for the fall has sparked more questions about whether Rep. Jeb Hensarling, Patrick McHenry and others can advance his legislation to the floor this year.