Real Estate News

by Rachel MusikerSeptember 26, 2013

For the fifth month in a row, competition among buyers for homes declined in August, further assurance that we are shifting away from the seller’s market that dominated the first half of the year toward one that is more balanced. Still, tight inventory conditions mean that across Redfin’s 22 markets, most customers making offers at the end of the summer faced competing bids. In August, 60.5 percent of offers written by Redfin agents across the country faced bidding wars, a drop from 63.3 percent in July and from 63.5 percent in August 2012. This was the first year-over-year drop in competition seen since Redfin began collecting this data in 2011.

Other findings include:

  • Competition declined most dramatically in Baltimore, with a drop from 50% of Redfin offers facing competition in July to just 29.8% in August. All of Redfin agents’ winning offers were equal to or below the asking>
  • Nationally, the average difference between Redfin’s winning offers and asking prices fell below zero (to -0.3%). Only San Francisco and Seattle had offers higher on average than asking prices, with 7.2% and 0.2% respectively.
  • From July to August, all-cash offers grew in popularity as a winning strategy in San Francisco(climbing from 4.0% of offers in July to 11.5% in August), San Diego (3.2% to 15.8%), Washington D.C. (4.7% to 10.5%) and Seattle (3.2% to 12.5%), proving that even as competition has waned, the buyers who remain are more willing to do what it takes to win.
  • Pre-inspections, completing the home inspection before making an offer, were not used in any of Redfin’s competitive offers in August. They had been a popular competitive strategy in Seattle,Baltimore, and Washington D.C. in each of the several months prior.
  • Of Redfin’s nine most competitive markets tracked in this report, just two got more competitive. Bidding wars picked up in August in San Francisco and Orange County, with 4.2 and 3.6 percentage point increases, respectively.
  • San FranciscoLos Angeles and Boston were the only cities that experienced a more competitive August market this year than last year. In all the other metro areas covered, competition for homes declined year over year.

Rebalancing Market Causes Homebuyers to Reassess Plans

The competitive landscape in the housing market has changed drastically from this spring. Home prices jumped by double digit percentages from last summer, and mortgage rate fluctuations threw many homebuyers for a loop. According to Redfin’s recent Buyer Survey, 63 percent of buyers said that rising mortgage rates this summer impacted their ability to buy the home they want while 20 percent said that higher rates led them to slow the pace of their home search. Moreover, tight inventory conditions and buyer fatigue from cutthroat competition this spring has led some buyers to postpone their home-buying plans until more homes come on the market.
Redfin agents in San Francisco point to rising mortgage rates and further tightening inventory to explain the increased competition they faced last month. “Once mortgage rates started to pick up, some buyers put their searches on hold, but at the same time, the already scarce inventory in Silicon Valley fell even further last month,” said Redfin agent Nicolas Meyer. “The number of offers per home has declined, but the buyers who remain are still bidding up home prices well above asking.”

Reduced Competition Makes Home-buying Less Risky

In some markets, reduced competition has led buyers to use risky or highly competitive strategies less often. In Baltimore, the substantial drop in competition means that buyers have been able to make offers that include all the contingencies meant for their protection. “A handful of our home-buying clients have recently gotten offers accepted that were contingent on the sale of their own home,” said Taylor Connolly, Redfin’s Baltimore market manager. “A contingent offer wouldn’t have stood a chance just a few months ago.” Taylor also suggested that Baltimore’s easing market is likely due to a backlog of foreclosures that are still hitting the market in Maryland.

The aggressive strategy of having an completing an inspection before writing an offer, which had become popular in certain markets including Seattle and Washington, DC, became obsolete last month. Agents and buyers are likely doing away with this strategy first because it is the most costly for buyers up front, committing several hundred dollars to cover an inspection for a home that dozens of other buyers are also having inspected with plans to write an offer.

Lower Mortgage Rates Could Boost Competition this Autumn

Lower mortgage rates this month could spur a slight boost in bidding wars in October. Mortgage rates began to ease in mid-September in reaction to the Federal Reserve’s decision to keep its stimulus program unchanged. As a result, Redfin agents in some markets reported a swift reaction among buyers. According to Redfin Seattle agent KC Brants, “Sellers over the weekend were so bombarded with offers that they began adding offer review deadlines—a tactic that was the norm this spring and early summer but had begun to phase out.”

Just 20% of the aid doled out by five giant banks under last year's national $25-billion settlement has gone to forgiveness of first-mortgage principal.

By E. Scott Reckard

September 25, 2013, 4:41 p.m.

When five giant mortgage firms signed a landmark $25-billion mortgage settlement last year, officials hailed debt forgiveness as the primary strategy to preserve homeownership.

The banks hoped to avoid further enforcement action over widespread foreclosure abuses; federal regulators and state attorneys general aimed to prevent even more foreclosures.

"This isn't just about punishing banks for their irresponsible behavior," Housing and Urban Development Secretary Shaun Donovan said. "It's also about requiring them … to help homeowners stay in their homes."

Advocates for borrowers took such comments to mean that the banks would prioritize debt write-downs on first mortgages, which banks resisted before the settlement. Now, with nearly all the promised relief handed out, it is clear that the banks had other ideas.

The vast majority of the aid to borrowers, it turns out, came in the form of short sales and forgiveness of second mortgages. Just 20% of the aid doled out under the national settlement went to forgiveness of first-mortgage principal, the kind of help most likely to keep troubled borrowers in their homes. In terms of borrowers helped, just 15% of the total received first-mortgage forgiveness.

The five banks collectively delivered twice as much aid using short sales, in which owners sell their homes for less than the amount owed and move out, with the shortfall forgiven.

In all, the lenders sought credit for nearly $21 billion related to short sales and $15 billion related to second mortgages. That compares with $10.4 billion in write-downs on first mortgages.

In California, Atty. Gen. Kamala D. Harris expressed a similar preference for debt forgiveness in announcing the settlement in February 2012.

"We insisted on homeowner relief for Californians," she said, "that will allow them to stay in their homes."

But the mortgage relief here followed the same pattern as nationally.

Harris negotiated separate commitments from the three biggest mortgage servicers — Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — and predicted that short sales would be a relatively small portion of the relief at $3.1 billion.

But a tally released Tuesday by UC Irvine law professor Katherine M. Porter, Harris' appointed monitor for the program, put the total at $9.24 billion.

That's roughly equal to the $9.2 billion in aid delivered through principal forgiveness. But more than half that total was applied to second mortgages, Porter said.

Just 84,102 California families had first- or second-mortgage debt forgiven, compared with the initial prediction from Harris' office that 250,000 borrowers would get such help.

Bank officials said the high volume of short sales in part reflected an enormous backlog of borrowers who, before the settlement was announced, already had failed to qualify for various loan modification programs. Other borrowers decided not to keep their homes, they said, for such reasons as divorce or a job offer in another city.

"The decision to pursue a short sale versus a retention option rests with the homeowner and not with the servicer," Wells Fargo said in a statement released by Tom Goyda, a bank mortgage spokesman.

Some foreclosure-prevention counselors and officials at advocacy groups nonetheless expressed disappointment that more first-mortgage debt was not eliminated.

"We all wish there had been more principal reduction, which is what is most helpful in keeping people in homes," said Kevin Stein, associate director of the California Reinvestment Coalition, a 300-member alliance that lobbies on behalf of low-income and minority neighborhoods.

Still, Stein said, the program set a good precedent, demonstrating that debt forgiveness can benefit lenders and borrowers alike without causing a wave of intentional defaults, as critics had warned.

Bruce Marks, founder of Neighborhood Assistance Corp. of America, a major housing counseling group, had a harsher assessment of the lack of aid to keep people in their homes.

Increase breaks a period of stagnation

Brena Swanson

September 25, 2013 7:01AM

Mortgage applications inched up 5.5% from a week earlier, the Mortgage Bankers Association said this week. This comes after last week's significant jump after weeks of little movement.

Furthermore, both the refinance and purchase index rose 5% from the previous week.

As a whole, the refinance share of mortgage activity stayed frozen at 61% of total applications.

The average contract interest rate for a 30-year, fixed-rate mortgage with a conforming loan limit fell to 4.62% from 4.75%.

Meanwhile, the 30-year, FRM jumbo dipped to 4.66% from 4.83%.

The average 30-year, FRM backed by the FHA decreased to 4.32% from 4.50%, and the 15-year, FRM dropped to 3.68% from 3.81%.

In addition, the 5/1 ARM plummeted to 3.39% from 3.55% a week earlier.

By Shobhana Chandra - Sep 24, 2013 9:07 AM CT

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.


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 asmortgage 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 FranciscoLos 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.

Some jumbo borrowers may find themselves sidelined, priced out of the market

September 23, 2013 12:07PM

The Federal Housing Finance Agency may reduce its conforming loan limits for Fannie Mae and Freddie Mac-purchased loans, creating a new opportunity for the private jumbo market to soar again.

While lower government-sponsored enterprise loan limits and higher guarantee fees reflect continued efforts to reduce the government's footprint in the mortgage market, a private-label takeover may be more expensive and burdensome to the market, analysts with Royal Bank of Scotland (RBS) said. In other words, it's not an easy transition.

"The lower loan sizes will continue to help boost the jumbo mortgage market as loans above the limit would have to be funded by private investors," explained RBS mortgage-backed securities analysts Sarah Hu and Ashley Gam.

They added, "However, without government backing, those borrowers who once qualified for conforming high balance loans will find themselves facing jumbo rates. In addition, they will have to meet jumbo/non-conforming guidelines that require larger downpayments and higher credit scores."

The jumbo market has continued to grow while the conforming market has continued to shrink on falling refinance demand.

For instance, jumbo loan originations reached $59 billion during the second quarter of 2013 — representing the highest volume since 2007, and a 9.3% increase from the first quarter of 2013, RBS pointed out.

Some market participants expect jumbo rates to go up by as much as 50 basis points, likely reversing the recent trend in which rates were in line with or sometimes even cheaper than conforming rates.

While the FHFA has not specified what the new loans limits would be, some mortgage experts believe limits will be reduced to $400,000 and $600,000, respectively.

Although a relatively small number of borrowers are in the impacted range on average, the change in loan limits will have a larger impact in certain high cost markets.

"While the change will be small, it will be assumed that borrowers in the middle class won't have an option for a home loan unless FHA takes over the loans that are no longer eligible," argued Mortgage Bankers Association CEO and president David Stevens.

For example, California has a higher concentration of large-balance loans compared to the rest of the nation — 15% of loans originated in the state had a loan amount between $400,000 and $417,000 from 2010 to 2013, RBS analysts noted.

The looming policy change points out two critical obstacles housing officials continue to face, including the availability of credit for potential buyers and guarantee fees.

With the ultimate goal of bringing private capital back to the market, the enterprises have gradually increased g-fees. RBS believes g-fees will go up to 70 basis points by the end of the year.

However, since there has not been a commensurate g-fee hike for jumbo loans, the spread recently declined.

With respect to trading, the impact of lower loan limits could slightly improve the convexity of the To-Be-Announced market — given that there might be less prepayment from the smaller-sized loans.

Over the past few months, average jumbo rates have been close to or even lower than conforming mortgage rates, with the difference between the jumbo spread down 25 basis points.

This recent trend is opposite of the usual positive jumbo spread, as jumbo rates are typically higher than conforming rates.

The reversal of the jumbo spread can be attributed to conforming jumbo mortgages holding lower loan-to-value ratios and higher FICO scores on average. Additionally, despite better credit quality, jumbo loans typically have higher-risk premiums.

"One of the possible reasons for this is that the GSEs have long subsidized conforming mortgages causing their guarantee fees to be underpriced and conforming rates to be artificially lower than jumbo rates," Hu and Gam stated.

Jumbo rates are also lower because of bank demand.

As refinance volumes taper, banks are aggressively making portfolio loans to make up for the reduced volumes elsewhere — jumbo loans with pristine credit are naturally the ideal target.

Overall, a lower conforming loan limit will help boost the jumbo mortgage market as loans above the new limit would have to be funded by private investors.

However, without government backing, those once eligible borrowers for conforming high balance loans will find themselves facing rates that could be priced at higher default risks and more expensive overall.

Homeowners with a mortgage insured by the Federal Housing Administration or the Department of Veterans Affairs should consider using their loan terms as a marketing tool when it comes time to sell.

Mortgage loans from both government agencies include a little-known feature known as assumability. In other words, the buyer of a home financed with an existing F.H.A. or V.A. loan may be able to take over, or assume, the seller’s loan, under the same terms, rather than take out a new mortgage.

During periods when interest rates are rising, homes offered for sale with an assumable, lower-rate mortgage may have extra appeal for certain buyers.

“You could now have a seller saying, ‘I have a great house to sell you and a great mortgage to go with it, which is better than my neighbor, who only has a great house,’ ” said Marc Israel, an executive vice president of Kensington Vanguard National Land Services and a real estate lawyer. “It’s a very clever idea.”

The savings for buyers assuming a loan extend beyond a lower interest rate. Assuming a loan is cheaper than applying for a new one because there are fewer settlement fees. An appraisal is not required (though a buyer may want to obtain one anyway). And in New York, borrowers assuming a loan do not have to pay the hefty mortgage recording tax a second time, Mr. Israel said.

F.H.A. loans do demand that the borrower pay for mortgage insurance over the life of the loan. But when assuming a loan, borrowers do not have to pay the upfront mortgage insurance premium required on a new loan, according to John Walsh, the president of Total Mortgage Services in Milford, Conn.

And, he noted, because the original mortgage holder would have been paying the loan for a number of years, the buyer assuming the loan will start at a point deeper into the amortization schedule than on a new loan. That means more of the monthly payment will go toward principal.

“In a rising rate environment, assumability is a very attractive option,” said Katie Miller, the vice president of mortgage products for Navy Federal Credit Union. “It ends up making homes that much more affordable.”

She emphasized, however, that loan assumptions are often not a viable option for first-time buyers if the seller has accumulated substantial equity in the home.

Say, for example, that the seller’s loan balance is $150,000, and the sale price for the property is $200,000. The borrower assuming the loan must come up with the $50,000 difference, either in cash or through some type of subordinate financing.

That can be too big a hurdle for first-time buyers. The more attractive option at Navy Federal is the HomeBuyers Choice loan, which offers 100 percent financing. These loans currently account for about a quarter of the credit union’s purchase volume, and 65 percent of those borrowers are first-time buyers, Ms. Miller said.

Borrowers seeking to assume a loan must also prove their creditworthiness as they would for any F.H.A. or V.A. loan.

Under F.H.A. rules, once a new borrower is found to be creditworthy enough to assume a loan, the lender must release the seller from any future liability for payment of that loan.

Borrowers considering loan assumption should weigh the costs against other loan options, paying attention to the principal and interest payment, the amount of cash required upfront, and the private mortgage insurance premium. “At the end of the day,” Mr. Walsh said, “if the prospective buyer can come up with the down payment and qualify for the loan assumption, then it could be a huge benefit.”

By Ruth Mantell

WASHINGTON (MarketWatch) - Existing-home sales rose 1.7% in August to a seasonally adjusted annual rate of 5.48 million, the highest level in more than six years, as buyers rushed to lock in mortgage rates before they increased any further, the National Association of Realtors reported Thursday. Economists polled by MarketWatch had expected an August sales rate of 5.2 million, compared with an unrevised rate of 5.39 million in July. Looking forward, rates that continue to rise will eventually pull back home purchases, NAR added. Mortgage rates started increasing in early May on speculation about the Federal Reserve tapering its massive asset-purchase program. On Wednesday, Fed officials said they will not taper yet. Also Thursday, NAR said the median price of a home was $212,100 in August, up 14.7% from the year-earlier level, the largest growth since October 2005, as pricier homes saw large annual sales growth. Inventories rose 0.4% to 2.25 million homes available for sale, representing a 4.9-month supply at current sales rates. NAR added that all-cash deals remained high in August, while there were relatively few first-time buyers and distressed sales.

Read the full story:

Existing-home sales highest in more than six years

MATTHEW BOESLER SEP. 16, 2013, 7:38 PM 7,523 11ERS/James Lawler Duggan

U.S. Federal Reserve Chairman Ben Bernanke takes his seat prior to delivering his semi-annual monetary policy report to Congress before the House Financial Services Committee in Washington, July 17, 2013.

Wall Street expects the Federal Reserve to announce the first reduction in the pace of monthly bond purchases it makes under its quantitative easing (QE) program at the conclusion of its FOMC monetary policy meeting Wednesday.

Right now, the Fed buys $45 billion in U.S. Treasuries and $40 billion in mortgage-backed securities each month – $85 billion of bonds in total – in a bid to stimulate the American economy. The consensus on the Street is that the Fed's first "tapering" of QE will consist of a $10 billion reduction in monthly purchases, bringing the monthly total to $75 billion.

The Fed has maintained ever since the tapering discussion began early this year that its decision to begin this process of winding down QE is "data-dependent" – in other words, as long as the economic data continue to show improvement in the health of the American economy, the Fed's plans for tapering remain on track.

Yet the data – especially in the labor market, where the Fed's focus lies – have been disappointing in recent months. The U.S. economy added only 169,000 workers to nonfarm payrolls last month, below consensus estimates for 180,000. July payroll growth was revised down to 104,000 from 162,000.

In reality, the Fed may have several reasons to begin scaling back QE that have little or nothing to do with improvements in the labor market, despite what the central bank says.

1. Frothy markets.

One is the risk of financial instability resulting from asset bubbles created by over-accommodative monetary policy. FOMC members flagged this as a potential issue in their April 30-May 1 meeting, according to the minutes from that meeting.

"At this meeting, a few participants expressed concern that conditions in certain U.S. financial markets were becoming too buoyant, pointing to the elevated issuance of bonds by lower-credit-quality firms or of bonds with fewer restrictions on collateral and payment terms (so-called covenant-lite bonds)," read the minutes. "One participant cautioned that the emergence of financial imbalances could prove difficult for regulators to identify and address, and that it would be appropriate to adjust monetary policy to help guard against risks to financial stability."

2. Effectiveness of QE.

Concerns over asset bubbles, in turn, could be changing the risk-reward tradeoff of further QE, given that the economy remains soft despite continued bond buying.

Goldman Sachs chief economist Jan Hatzius believes this may be the case, calling it the number-one driver of the coming reduction in QE.

"The main reason for this shift [away from QE], in our view, is that Fed officials now see asset purchases as less effective (and perhaps a bit more costly) than when they started the QE3 program," says Hatzius.

3. Bernanke's legacy.

Current Fed chairman Ben Bernanke's term at the head of the central bank expires in January, and at the White House, the search is on to find his replacement.

Bernanke is the Fed chairman responsible for introducing for first introducing QE as a policy tool to begin with – back in late 2008, when the banking system was in crisis and financial markets were in freefall.

QE has been something of a controversial policy from the start, and given the evolving views inside the Fed toward the risk-reward tradeoff of continued bond buying, Bernanke likely wants to be able to take credit for setting the central bank on a definitive course to reverse it before he leaves office.

"The announcement of 'taper' has NOTHING to do with the economy; it has everything to do with Mr. Bernanke's legacy," says Credit Suisse managing director Harley Bassman. "By stopping out the over-levered traders who were trying to monetize the 'Bernanke put', the FED has mitigated a 1994 or 1998 or 2007 scenario ... Mr. Bernanke does not want a Greenspan redux where a financial calamity occurs soon after his departure and he takes the blame."

UBS economist Drew Matus offers an argument along those same lines: "A move to taper QE in the fourth quarter would allow Bernanke’s successor to simply continue existing policy rather than having to 'own' the move. The net result would be to minimize the policy uncertainty which typically taints markets during a transition."

4. Credibility.

The Fed has done a lot in the past few months to prime markets for this initial reduction in the size of QE. As a result, a tapering announcement at the conclusion of this week's FOMC meeting on Wednesday is now the consensus call on Wall Street, and markets have arguably priced in this scenario.

"There is probably something like a 'Keynes beauty contest' phenomenon here, whereby the market and the Fed may each try to guess what the other is guessing," says JPMorgan economist Michael Feroli. "With expectations cementing around $10-15 billion, the Fed is likely to deliver a taper of that size."

If the Fed fails to deliver this week, it could create additional uncertainty in markets as participants recalibrate expectations, with perhaps an eye toward a tapering announcement at one of the next two FOMC meetings in October and December, both of which would likely be more problematic given upcoming budget battles in Washington and the ongoing Fed chair selection process.

5. A shrinking deficit.

Regardless of how the budget battles in Washington play out, one thing is certain – the federal budget deficit is projected to continue shrinking, which means the Treasury will be issuing less and less debt to cover government spending needs as time goes on.

Federal Reserve purchases of government debt via quantitative easing already account for an overwhelming majority of new issuance from the Treasury, and if the central bank doesn't reduce the amount of bonds it is buying as the Treasury reduces the amount of bonds it is issuing, the Fed purchases will account for an even larger share of the market than before.

This, in turn, would necessarily mean a reduced supply of Treasuries available to other market participants. Because Treasuries – one of the few remaining AAA-rated financial assets on the planet – are used as collateral in a host of transactions throughout the financial system, continued Fed purchases at the current monthly pace as issuance declines could weigh on the financial system's ability to lend and lead to an increased risk of further destabilization in the Treasury market.

Read more:

Are the numbers of first-time buyers shrinking, victimized by cash-bearing investors, credit-tight lenders mounting mortgage interest rates and soaring home prices? Are they “increasingly getting left behind in the real-estate recovery” as the Journal reported n July?

Well, not exactly, argue two economists from the Atlanta Federal Reserve. Reports based on surveys of Realtors to the contrary, first timers are doing just well as ever, thank you very much. “We do not share the concern about weakness in housing demand going forward because we are not convinced that the data indicates a material decline in first-time buyer participation,” concluded researchers Jessica Dill and Ellyn Terry.

Examining date from the Census Bureau’s American Housing Survey Public Use Microdata and the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey as well as other sources.

Claims of a decline in first-time buyer participation that appear to be based on a comparison of data across different surveys should be treated with caution, they said. There are several sources of data available for tracking the first-time buyer share of market. “In comparing the trends of each series separately, we don’t find there to be much in the way of a material decline in the share of first-time home buyers over the time periods and data series we examined.”

They examined the monthly American Housing Survey time series and he long-term linear trend line from October 1983 through September 2011 was slightly upward-sloping. Many have argued, though, that the first-time homebuyer tax credit program pulled demand forward and that the tax credit period (July 2008-September 2010) distorts the overall long-term trend. Indeed, when we exclude this time period, we find that the slope becomes slightly downward-sloping. They observed a similar trend when we fit a trend line to the National Association of Realtors’ Profile of Home Buyers and Sellers time series. From 2001 through 2012, the trend is slightly upward-sloping when they included the tax credit period and slightly downwardly-sloping when they excluded the tax credit period.

When the effects of the 2009-2010 homebuyer tax credit are removed from the data, numbers of first time home buyers barely changed during that period. “We agree that the tax credit period distorts the trend, we think it is best to exclude it when interpreting the trend in first-time buyer share, and we interpret the trend in the first-time buyer share as flat across each data series when the tax credit period is excluded,” they wrote.

Published: Tuesday, 10 Sep 2013 | 6:00 AM ET

By: John Carney | Senior Editor,


Four months ago something troubling happened in the housing market. The home price affordability index tracked by the National Association of Realtors slipped below it's long-term trend line, marking a possible beginning of a housing bubble.

On Monday, we got the fourth month of home affordability data coming in below trend, which is a strong confirmation that the housing market is once again in a bubble. (The NAR index is published with a two-month delay, so the latest numbers are for July).

 When the index is at 100, that means that a household earning the median income has exactly the amount it needs to qualify for a conventional mortgage on a median-priced home. When it is above 100, it signals that the median income is higher than needed to qualify for a mortgage. An AI score of 130, for example, would indicate that households earning the median income would have 30 percent more income than needed to qualify.

Rising interest rates and rising home prices put downward pressure on the affordability index, meaning homes are becoming less affordable. Rising incomes put upward pressure on the index, meaning homes are more affordable.

The index has been dropping rapidly since peaking in January at 210.7. We're now down to 157.8, according to the preliminary numbers released for July on Monday. Home prices have been rising and interest rates climbing, while wages haven't kept up. That's how we got to the lowest level of affordability seen since July of 2009.

According to the NAR, this shouldn't be dire news. A score of 157.8 officially indicates that a household earning the median income has 57.8 percent more income than needed to get a mortgage on a median priced home.

Unfortunately, it's not clear that the index is very useful on its face. The index has never, in fact, dipped below 100 since the late 1990s. Even during the height of the last housing bubble, the indexes lowest score was 101—the affordability nadir hit in July 2006. This is what has led folks like Barry Ritholtz to declare the index "useless."


A recent paper by three economists from Robert Morris University in Pennsylvania, however, suggests that the index can be used to detect housing bubbles. Adora Holstein, Brian O'Roark, and Min Lu track the index against its long-term trend line. When the index falls below trend, it marks a possible start of a housing bubble. They suggest that when the monthly affordability index value falls below trend for at least three months, a housing bubble probably exists.

Using the monthly composite home affordability index from FRED, the database maintained by the St. Louis Federal Reserve bank, we can chart out every single monthly index report and construct a long-term trend line.

As the Robert Morris economists found, affordability fell below its long-term trend in the beginning of 2004—marking the beginning of the housing bubble. Homes remained below the long-term trend for affordability until December 2008.

This year affordability fell below the long-term trend in April. We remained below trend in the May, June and July reports.

If the Robert Morris economists are right about below trend affordability indicating a housing bubble, we're definitely there right now.

This does not mean that home prices are poised crash immediately. Keep in mind that home prices continued to climb for over two years after affordability fell below trend, peaking in April 2006. But it may mean that the Federal Reserve might need to start raising interest rates sooner than some expect in order to deflate our new housing bubble.

Page 1 of 13



Click to read more

What a deal!
I’ve seen lots of courses like yours and never recommended any of them. But from what I know about your reputation, it appears you have the real deal... I’m pleased to have found you and have every intention of referring you whenever I can.

~Elliot F.    Real Estate Education Provider

Online Demo

Experience our Live Exam DEMO!

The demo contains 10 sample questions. The actual Prep exams are generated at random from 1000's of questions resulting in an unlimited number of different exams for students to take. All of our exams are 100% online and provide you with comprehensive auto-calculated results for you to use for study and review.



Click to read more

"As a result of using your program, I recently passed the state and national exams for my Salesperson license on the very first try! I was pleased to refer another young lady to your program at an orientation at the local board of realtors yesterday. She is awaiting approval to take her test and is petrified. I assured her that your program works! "

~J. Carter  
 Realtor® Abilene, Texas