Market @ A Glance

Market @ glance

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Beyond the headlines

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Beyond The Headlines

Mel Watt, the director of the Federal Housing Finance Agency, gave his first public speech this week since becoming the agency’s director in January. The speech outlined a broad shift in housing-finance policy, including maintaining the mortgage finance giants’ role in parts of the housing market, spurring more home lending, and aiding distressed homeowners.

Making sense of the story

  • Due to concerns about the slowing housing market, Watt announced that the government-sponsored enterprises would not reduce the limits on loans they guarantee.
  • The CALIFORNIA ASSOCIATION OF REALTORS® President Kevin Brown commented, “C.A.R. commends FHFA Director Melvin Watt for his announcement today that the FHFA will not reduce loan limits on loans eligible for purchase by Fannie Mae and Freddie Mac. Lower loan limits would have had an adverse effect in many parts of the country, but especially here in California where rebounding home prices and decreasing home affordability would hamper mortgage activity and impact the housing recovery.”
  • Currently, Fannie and Freddie will buy loans as large as $417,000 in most markets and as large as $625,500 in certain “high-cost” markets, including southern California.
  • Watt stated he would not comment on housing finance reform efforts, noting that “Congress and the [Obama] administration have the important job of deciding on housing finance reform legislation, not FHFA.”
  • The director announced the launch of a neighborhood stabilization pilot project in Detroit to help stabilize communities hardest hit by the foreclosure crisis.
  • Watt said this year the FHFA would explore establishing an independent dispute resolution program when lenders believe a repurchase is unwarranted.
  • Notably, Watt commented that he would focus on reducing taxpayer risk without necessarily shrinking the size of Fannie Mae and Freddie Mac, thereby suggesting he will aim to perpetuate the presence of the two government-sponsored enterprises in mortgage finance.

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Talking Points …

  • There was decreased housing affordability in all regions of the state during the first quarter of 2014, according to the CALIFORNIA ASSOCIATION OF REALTORS®. The state’s housing affordability has dropped 23 percent since its peak in the first quarter of 2012, and has steadily declined since then as rising interest rates and increasing home prices contributed to the lack of affordability.
  • Home buyers needed to earn a minimum annual income of $86,419 to qualify for the purchase of a $416,720 statewide median-priced, existing single-family home in the first quarter of 2014.  The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,160, assuming a 20 percent down payment and an effective composite interest rate of 4.46 percent.
  • Approximately 77 percent of the counties reviewed by C.A.R. experienced a quarter-over-quarter decline in affordability, and all counties realized a double-digit decline in year-over-year comparisons.


Americans Shut Out of Housing as FHA Fees Jump
Source: Bloomberg

For many buyers seeking a mortgage backed by the Federal Housing Administration, homeownership may no longer be attainable with increases in mortgage insurance fees, especially at a time when housing affordability remains a challenge for many Americans. The new FHA fees can tack on a couple hundred extra dollars every month, which experts argue has contributed to the decline in first-time buyers.
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Are Student Loans Really Killing the Housing Market?
Source: The Atlantic
Derek Thompson of the Atlantic points out that student debt is destroying demand among first-time buyers, but it’s not affecting their share of the market. Examining the statistics, he argues, “First-time home buyers make up a historically normal share of new homeowner families, but a historically small share of new home buyers, because a big slice of the housing market is owned by big institutional investors who aren’t living in the homes they buy.” He concludes that student loans are indeed depressing demand for homes, but only slightly more than the overall market for homes is already depressed.
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One in Three SoCal homes paid for with cash: Who’s buying?
Source: KPCC

Around 33 percent of all home purchases in California were paid in cash in the first quarter, the highest level since 2011, according to RealtyTrac. Beverly Hills, Arcadia, and San Marino were areas with a high percentage of home sales paid in cash, with many all cash buyers coming from overseas.
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Underwater homes: Minorities still suffering from housing collapse
Source: Mercury News
Of the 100 cities with the highest rates of underwater mortgages, 71 have populations that are more than 40 percent African American and Latino, according to UC Berkeley’s Haas Institute for a Fair and Inclusive Society. The institute posits that these communities are disproportionately struggling from the housing crash because they were initially targeted by subprime lenders and then hit with the steepest home price declines.
Geithner: We Didn’t Have Great Options on Housing Relief
Source: Wall St. Journal

Former Treasury Secretary Timothy Geithner has released a new book that provides his view of the financial crisis and defends several crisis-era decisions on housing. In describing the future of the U.S. mortgage market, he writes, “Congress will have to make some tough choices about the mortgage market—not just how to reduce the government’s dominant role, but how to balance the trade-off between safety and accessibility. We should require substantial down payments for borrowers, which would make it harder for some families to become homeowners but would help reduce the risk of the terrible collapses we saw in this crisis.”
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Survey: Americans Don’t Know How Credit Scores are Calculated

According to a new survey, only 42 percent of Americans understand that a credit score actually measures the risk of not repaying a loan and is not a measure of credit attitudes or knowledge. The results show that respondents had a vague understanding of how their credit scores are calculated and used.
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Beyond the Headlines

The Decline in Geographic Mobility

Source: The Federal Reserve

During the past three decades, geographic mobility within the United States has declined steadily. A combination of factors is cited as the reason for the decline in a study from the Federal Reserve, including an aging population, rising homeownership rates, and a decrease in labor market transitions. These labor transitions are defined as a decline in the fraction of workers moving from job to job, changing industry, and changing occupation. The study notes, “Declines in internalmigration since the mid-2000s have attracted the attention of researchers and the public because they coincided with a dramatic housing market contraction and deep economic recession.”

Making sense of the story

  • Between 1984 and 1985, 20.2 percent or one out of every five Americans over the age of 1 year moved. In the most recent period, between 2012 and 2013, the mover rate was only 11.7 percent.
  • According to the Census Bureau, 23.2 percent of those 25 to 29 years moved between 2012 and 2013. After 30, the share declines with age and for those 65 years and older only 3.7 percent moved between 2012 and 2013.
  • As the population ages, measures of geographic mobility are unlikely to return to levels seen in the mid-1980s. After all, by 2030 it is predicted that there will be 72.1 million seniors.
  • Particularly important to the housing industry is the mobility of individuals between the ages of 25 to 29 years, as they represent future first-time homebuyers.
  • For the second straight period, the share of movers doing so to own rather than rent a home increased. Between 2012 and 2013, 5.2 percent of all movers in the younger age group did so to own rather than rent, whereas between 2011 and 2010, 4.4 percent did so to own rather than rent.
  • The most common reason for people in this younger age group to move between 2012 and 2013 was to establish their own household at roughly 14.2 percent.

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In other news …


Aging Boomers to Boost Demand for Apartments, Condos and Townhouses

Source: Wall Street Journal

Aging baby boomers could reshape the U.S. housing market if many move out of the houses where they raised families in order to move into cozier multifamily units, such as apartments, condominiums and townhouses. This could present a huge shift in the country’s housing demand.

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Watt delays fee increase for Fannie, Freddie

Source: The Hill

Rep. Mel Watt took the reins on Monday as regulator of mortgage giants Fannie Mae and Freddie Mac, and Watt stuck to his plan to delay an increase on fees charged by the government-sponsored enterprises. Watt has stated he is concerned about the impact of a fee increase on the availability of mortgage credit.

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Mortgage credit loosens a bit

Source: HousingWire

A new report from the Mortgage Bankers Association indicates that mortgage credit availability has improved slightly. The index rating rose 0.6 percent from 110.2 in November to 110.9 in December.

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Federal Probe Targets Banks Over Mortgage Bonds

Source: Wall Street Journal

A new probe from federal regulators is examining whether Wall Street banks deliberately mispriced mortgage bonds to cheat clients in the aftermath of the financial crisis. While many post-crisis investigations have been winding down, this represents a new inquiry and a fresh round of scrutiny over questionable conduct when it comes to mortgage-bond sales by banks.

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Mortgage Rates Start 2014 on the Up and Up


The new year started with a round of increases in mortgage rates, which many experts believe reflects an ongoing trend for 2014. The 30-year fixed-rate mortgage averaged 4.53 percent (0.8 point) for the week ending January 2, up from the last week of 2013, according to Freddie Mac’s weekly Primary Mortgage Market Survey.

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Burbank to Brookline Soar in Suburb Shift: Real Estate

Source: Bloomberg

Experts posit that more capital will flow into secondary markets and select suburbs as the recovery broadens in 2014 because investors see areas just outside major metros as high quality investments. Many areas just beyond major markets are selling at premiums to real estate in cities.

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Yellen gets final stamp of approval to head U.S. Fed

Source: Reuters

This week the Senate confirmed Janet Yellen as the successor to Ben Bernanke as chairman of the Federal Reserve. She is the first woman to run the Fed in its 100-year history, and she will be tasked with scaling down the central bank’s bond-buying program.

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What You Should Know…

  • Mortgage applications increased by 2.6 percent for the week ending Jan. 3, according to index ratings from the Mortgage Bankers Association (MBA).
  • In addition, the MBA’s refinance index escalated 5 percent from the previous week after falling by 9 percent one week earlier. Comparatively, the purchase index dipped 1 percent from a week ago.
  • Overall, the refinance share of mortgage activity maintained the same level at 63 percent of total applications.


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Beyond the Headlines

CFPB Offers Additional Guidance on Mortgage Servicing Rules
In order to ensure a smooth transition and provide certainty to the market under mortgage servicing rules
that take effect January 2014, the Consumer Financial Protection Bureau (CFPB) has issued some
guidance about three specific servicing issues in light of public requests for further explanation. The
additional guidance addresses contact with delinquent borrowers, communications with family members
after a borrower dies, and treatment of consumers who have filed for bankruptcy or invoked certain
protections under the Fair Debt Collection Practices Act (FDCPA).
Making sense of the story
 The new rules are meant to establish stronger protections for struggling homeowners and protect
them from “costly surprises and runarounds by their servicers,” according to the CFPB.
 Borrowers still face serious problems seeking loan modifications or other alternatives to avoid
foreclosure, which the rules are intended to address.
 Since servicers must attempt to contact borrowers each time they miss a payment under the new
rules, the method of contact can vary depending on the number of days delinquent or whether the
borrower has responded to earlier communication attempts by the servicer.
 If a borrower dies, servicers still must have policies and procedures in place to promptly identify
and communicate with family members, heirs, or other parties who have a legal interest in the
 Even if a borrower seeks to restrict communication with servicers under the FDCPA, servicers
still must communicate with the borrower when it comes to requests for loss mitigation,
information requests, error resolution, force-placed insurance, initial rate adjustments on
adjustable-rate mortgages (ARMs), and periodic statements.
 The CFPB said further assessment is needed regarding how bankruptcy protections intersect with
its requirements for early intervention contact and providing periodic account statements.
Read the full story
In other news …
NAHB: Builder Confidence declines in October
Source: Calculated Risk
The National Association of Home Builders/Wells Fargo Housing Market Index reveals that builder
optimism has fallen in October, which can likely be attributed to the government impasse in Washington,
D.C. The shutdown has caused builders and consumers to take pause, according to NAHB Chief
Economist David Crowe.
Read the full story
Homebuilders lure buyers with extra incentives
Source: HousingWire
In order to stay competitive, homebuilders are turning to a variety of incentives to entice buyers amid
rising home prices and higher mortgage rates. Incentives include free appliances, blinds, premium
flooring, garage-door openers, and covering closing costs.
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Growing Divide Between Young People Able to Go It Alone and Those
Who Live at Home
Source: The Wall Street Journal
Growing income stratification is particularly apparent among Millennials when it comes to housing, as
there is a strong divide between those who have the means to become the head of a household – whether
as an owner or renter – and those who are forced to reside at home for economic reasons.
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Clustering of Richer Americans Grows
Source: The Wall Street Journal
Income segregation is growing across America as wealthier people flock to more expensive and affluent
neighborhoods. According to analysis of Census data by researchers Kendra Bischoff of Cornell
University and Sean Reardon at Stanford University, such clustering has doubled over the last four
decades from 15 percent to 33 percent.
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Senate’s housing finance overhaul could be slowed by government
Source: The Hill
Among the long list of items affected by the government shutdown is the overhaul of the housing finance
system. Legislative attempts to enact reform by the end of the year may be delayed since the shutdown
has slowed down progress and momentum from this summer. A broad bipartisan deal may be all the more
elusive since political paralysis has been exacerbated by the shutdown.
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Housing Affordability Hits Four-Year Low
Source: The Wall Street Journal
According to data compiled by the NATIONAL ASSOCIATION OF REALTORS® (NAR), the average
mortgage payment on the median priced home in August as a share of the median income was 16 percent.
Despite the fact that housing affordability hit a four-year low in August, NAR reports that homes are still
more affordable than any time between 1989 and late 2008.
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Housing boom in hardest-hit markets slows
Source: HousingWire
As investors leave the market, the sharp increase in home prices in some of the hardest-hit housing
markets is likely to fade over the next few months. Over the past 18 to 24 months, Phoenix, Las Vegas,
and Sacramento, Calif., are three markets that have witnessed surprisingly strong home-price inflation.
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What you should know …
 The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the
week ending October 11, 2013, indicates the seasonally adjusted Purchase Index decreased 5
percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared
with the previous week and was 1 percent lower than the same week one year ago.
 The impact of the government shutdown is apparent in the results of the MBA survey, as
Purchase applications for government programs dropped by more than 7 percent over the week to
their lowest level since December 2007.
 The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances
($417,000 or less) increased to 4.46 percent from 4.42 percent.