Carpe Diem

Case-Shiller Home Price Index for September confirms that we are now in the midst of a US housing market recovery

The Case-Shiller Home Price Indexes for September were released today, here are some highlights:

1. “Home prices rose in the third quarter, marking the sixth consecutive month of increasing prices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “With six months of consistently rising home prices, it is safe to say that we are now in the midst of a recovery in the housing market.”

2. On an annual basis, the Composite-20 index increased by 3% to 146.22 in September, the highest home price index since September 2010, two years ago (see brown line in chart). The Composite-10 index increased by 2.1% versus last September.

3. Annual home price increases for September were led by gains in Phoenix at 20.4% (highest annual increase since May 2006), followed by Minneapolis (8.8%), San Francisco (7.5%), Miami at 7.4% (highest since October 2006), Denver at 6.7% (highest since November 2001), Tampa at 5.9% (highest since October 2006), Seattle at 4.8% (highest since August 2007), and Dallas at 4.4% (highest since August 2007), Las Vegas at 3.8% (highest since August 2006) and Portland at 3.7% (highest since July 2007).

4. On an unweighted basis, the average annual increase in home prices for the Composite-20 cities was 4.8% for September, the highest since August 2006. Even without the 20.4% increase for Phoenix in September, the unweighted average of increases for the 20 cities at 3.95% was the highest since September 2006.

MP: As the chairman of the S&P Dow Jones Indices commented, the Case-Shiller home price data for September confirms that we are “now in the midst of a recovery in the housing market.”  Recent reports from Zillow of a 4.7% increase in October home prices and from Core Logic of a 5% increase in September home prices suggest that we can expect further home price gains when those significant increases are eventually reflected in the lagging Case-Shiller index, which is a three-month moving average.

 

56 thoughts on “Case-Shiller Home Price Index for September confirms that we are now in the midst of a US housing market recovery

  1. while prices are certainly up from a year ago, i’m not sure i would describe this as “the midst of a recovery”. it looked that way in 2010 too. when we exceed those price levels, i would say we are getting into the lower midst of a recovery.

    this looks like it may well be the beginning of a recovery, and maybe this is just a semantic quibble, but i would not call this the midst of one quite yet.

      • unknown-

        i see your point, but we need to look at some other factors as well. the FHA has been handing out some pretty unbelievable deals with below market interest and as little as 3% down.

        given that they now have deeply negative net equity, i suspect that tailwind to be greatly lessened in 2013.

        further, if twist expires at year end, that will put upward pressure on mortgage rates.

        absent such dramatic subsidies, the RE market my find further gains harder to achieve and if QE3 ends at some point, that’s another $45 billion a month in MBS purchase gone and rates will rise even more.

        don’t underestimate just what a huge program QE3 is.

        if US home sales are 4.75 million a year and avg price is $185k, then that’s about $880bn a year. QE3 is $540bn, 61% of that. i have some significant fears about what happens when that goes away.

        if the 30 year mortgage goes to 5-6%, this housing market is in real trouble.

        • “the FHA has been handing out some pretty unbelievable deals with below market interest and as little as 3% down.”

          FHA does not give out mortgages at “below market interest rates.” In fact, FHA rates are generally a scoche higher than GSE conventional/conforming rates.

          “further, if twist expires at year end, that will put upward pressure on mortgage rates.”

          Not neccesarily- this has been mentioned several times before, only to have market fears do Mr. Bernanke’s job for him, by institutions piling into Treasuries. Most mortgages are keyed off the 10Y T rate.

          “if the 30 year mortgage goes to 5-6%, this housing market is in real trouble.”

          Again, experience tells me differently. Talk to any realtor- the fear of tates going UP is enough to cause a buying stampede. I saw this in the 80s.

          • max-

            compared to the rates a first time buyer could get anywhere else, the FHA rates are WAY below market.

            many of those folks could not even get a mortgage absent the FHA even with 20% down, much less 3-5%

            you are comparing apples and oranges.

            the market interest rate for a 5% down loan for a 1st time buyer with mediocre credit is easily 3 times what the FHA charges assuming they could get such a loan at all.

            regarding the 10 year, what is it that you think is the key asset that twist buys?

            twist is aimed entirely at the long end of the curve.

            talk of your “buying stampede” is only a short term blip. when rates actually DO rise, houses become less affordable and prices falter. sure, saying that a sale is about to need my drive shoppers to the store, but when it really does end, demand and affordability drop.

            if price appreciation stops due to monthly payments rising, that cuts off demand as well.

            this is the worst possible situation for housing: rising rates and falling home prices.

          • Confusion abounds:

            max-

            “compared to the rates a first time buyer could get anywhere else, the FHA rates are WAY below market.

            many of those folks could not even get a mortgage absent the FHA even with 20% down, much less 3-5%

            you are comparing apples and oranges.”

            No, you are. If a person qualifies for a conventional loan, that rate be generally be lower than that of a comparable FHA loan. If their credit forces them into an FHA or Non Agency product, that is not FHA’s doing- its the borrowers credit that demands the higher rate. Just as it works with corporate credit.

            “the market interest rate for a 5% down loan for a 1st time buyer with mediocre credit is easily 3 times what the FHA charges assuming they could get such a loan at all.”

            Again- you’re not talking about a conventional/conforming loan.

            “regarding the 10 year, what is it that you think is the key asset that twist buys?

            twist is aimed entirely at the long end of the curve.”

            Buying has focused on both, and even if focused on the long end as it has recently, that WILL work to squash the rates down on the lower end of the curve. We’re at record low mortgage rates as of NOW.

            “talk of your “buying stampede” is only a short term blip. when rates actually DO rise, houses become less affordable and prices falter.”

            Again- and I don’t what the obsession is with taking two data points and ignoring everything else, its not that simple. If rates rise, that means the Fed is concerned about the economy growing too fast, and feels the need to put the brakes on. A stronger economy makes for a stronger housing market. You’re not going to have this rate environment if unemployment drops below 6%, and I guarantee you a lot more folks are going to be looking to buy a home with that kind of wind behind their back.

            Don’t fall for the Pethokoukis method of parsing economic metrics. NOTHING is that simple. NOTHING.

          • Just pay the insurance, and everything will be fine.

            Yeah, that’s what they’ve been saying for years, and all it got us was a Great Recession. “You’ll be fine, housing prices will only go up!” “You’ll be fine, home equity will only go up!” Well, fool me once. I told them they can take their offer and shelve it. When I am good and ready to buy a home, I will buy one. But right now is not the time for me (no matter how badly the government wants me in one).

          • No sir, you’re missing the point entirely. (Plus ca change…)

            The borrower- YOU- pays the insurance. If you default, the taxpayer, the bank, and everyone else is held harmless, just as if you totaled you car.

          • Actually, I was saying the attitude is the same.

            No matter how bad the deal looks, or how many questions arise, the response is always “it will be fine.”

            I don’t care how much insurance there is out there. There is no reason why a guy who can’t get a checking account should be able to get a home loan. I mean, that’s just damn irresponsible for everyone involved.

          • I believe a checking account is a requirement for obtaining a committment- they are going to ask you for three month’s statements. You have to prove to them where the down payment is coming from.

            If you need a house for a wife and kids, buy one. If you’re fine in an apartment, or you have a transient lifestyle, don’t.

          • I do have a checking account. I just can’t get another.

            My point still stands. This is some serious adverse selection stuff going on here. If I am typical of their borrowers, it’s no wonder why they are bankrupt.

          • Why do you need a second checking account, and pray tell, who would turn you down for one? My 18 year old daughter has one.

          • I’d like a second account for my bills. That way I can extract the money I need to pay my bills from my paycheck right away. I’ll be able to see what my “free” money is vs. my “tied up” money.

            But yeah. When your credit score is hovering around 400, they tend to get antsy.

            There is a lesson in all this: student loan repayments sneak up on you (the 6 month grace period ends quickly) and those companies are unforgiving.

            But still, is no one at the FHA vetting these offers? I mean, this is a serious breakdown of judgement here. There is no reason this offer should ever have gotten to me in the first place. I mean, if these are the geniuses we have running our government agencies, then do we really want them in charge of important things, like health care and national defense? For Christ’s sake, show some competency. Maybe then I’ll ease off my “government is the problem” rhetoric. But as long as things like this keep happening, then my point is just proven.

            Seriously, Max: these are the people you want controlling our economy and writing the rules, but they can’t even get a simple thing like a loan approval right? For that matter, they can’t even get mail delivery right.

            This is the best part about being lassez-faire: the government proves my case for me. While big government supporters need to rush around scrounging for evidence like a squirrel in winter, all I have to do is point and say “look what your brain-trust is doing now.”

          • Uh, you cannot get an FHA loan with a 400 credit score. And frankly, if your score is that low, and you’re 23 years old, I don’t see how you managed to accomplish that. It generally takes a Chapter 13 and a foreclosure to get a score that low

          • What I want to know is this: did no one, even if it was just some intern, raise their had and say “maybe giving this guy a loan isn’t a good idea?”

          • Apparently you can get a loan with a score that low. ‘Cause they offered it to me.

            Either that, or they were looking at an old credit score of mine. Either way, my point stands.

          • Let me repeat: you cannot get an FHA loan with a FICO score of 400, and since the lowest FICO score is 300, I don’t know what the hell you did to yourself, but either you have Nine Federal tax liens and a live bankruptcy proceeding going on, because you don’t get a score like that from paying your Macy’s bill late.

            I’ve looked at HUNDREDS of RMCR’s (residential mortgage credit reports.) People wanted for murder have higher credit scores than that, so either you’re telling me a story, or you’re one weird guy.

        • By the way, you don’t need to worry about Twist expiring at year-end. I was perusing the minutes from last month’s FOMC meeting and the FOMC is gung-ho on extending Twist into 2013. They just don’t know how they’ll pay for it, as they are running out of short-term securities.

          • max-

            no, you are comparing apples and oranges (or being willfully disingenuous).

            the market rate for a mortgage depends upon credit score, borrowing history, and collateral. those borrowing from the fha are getting far better rates that someone with their credit history could from any other source (assuming they could get a loan at all).

            stop and think max.

            if a borrower who uses the fha facility could get a better rate somewhere else, he/she would, right?

            thus, the FHA is pricing below the rest of the market or else why would you use them?

            you are trying to compare FHA rates for risky borrowers to conventional rates for less risky ones. that is apples and oranges pure and simple. FHA are non conventional loans for the most part. they are priced FAR lower and much more available than anyhting that looks like them would be by a private seller.

            and you seem to not understand operation twist at all. twist sells short end and buys the long end. that is WHY rates are so low now (well, that and the de facto nationalization of the us mortgage market). arguing that we have low rates now while twist is going on proves my point and refutes yours.

            when twist ends, all else equal, mortgage rates will rise.

            twist is scheduled to end at the end of this year.

            if it will be extended (or qe3 expanded) is a matter of some speculation, but if it does, rates are going up.

            your analysis of the fed is ridiculous. an end to twist could be driven by lots of things other than an economy growing too fast. you act like twist is somehow normal as opposed to the wildly interventionist and unprecedented act that it is.

            twist would be curtailed if a financial crisis were not deemed imminent or if the fed were finally called to task on its wildly inflating balance sheet or if we get a new fed chair who does not subscribe to the world according to helicopter ben.

            i don’t even know who this economist you are citing is, but as someone who does this for a living and has multiple degrees in it, i can tell you that of course nothing is perfectly simple, but there ARE important directional relationships. sure, all else is never equal, but are you really trying to claim that absent this literally unprecedented federal intervention into mortgage rates, lending standards, and the secondary markets for mortgage securities that housing would be acting as well?

            your thinking here seems very muddled and inconsistent.

          • Why do I feel that God has sent me to clean up the multiple manifestations of misinformation on message boards? (With apologies to Spiro Agnew)

            “max-

            no, you are comparing apples and oranges (or being willfully disingenuous).”

            I am NEVER willfully disengenuous.

            “the market rate for a mortgage depends upon credit score, borrowing history, and collateral. those borrowing from the fha are getting far better rates that someone with their credit history could from any other source (assuming they could get a loan at all).

            stop and think max.

            if a borrower who uses the fha facility could get a better rate somewhere else, he/she would, right?

            thus, the FHA is pricing below the rest of the market or else why would you use them?”

            You’re missing the point. There is a credit heirarchy in the mortgage business. The basis of the mortgage business is the conventional/conforming GSE loan. TRADITIONALLY, before the market blew up, this meant at least a FICO of 660 (hopefully higher) to start, along with other factors, including down payment and the nature of your credit history. Compensating factors included your job (civil servants like cops and teachers got preference due to their supposed security) your assets (including savings and retirement.)

            If for some reason, you fell out of the credit requirements the GSEs demanded, you had two options:
            Alt-A, which meant you had good credit, but there was a certain aspect of your credit history, perhaps a disputed judgment, that bounced you from a GSE loan.

            Or, you could go with an FHA loan. Neither interest rate for these products would be lower than a Fannie/Freddie product.

            Beyond, that, you would have to go with an “alternative” product, where rates are indeed higher. But those products may not be insured by the borrower, or anyone else, so, given the higher default risk, the rates are higher, just as you see with corporate paper. The investors who buy these loans, once collateralized by the lenders, want to be compensated for that risk.

            Why are FHA loans cheaper in rate? Because of the payment, by the borrower, of the Up Front Mortgage Insurance Premium. Right now, that rate is 2.25% of the mortgage amount, so for a $200,000 loan, the cost is $4500. That’s a pretty expensive policy, no? However, it is the insurance that keeps the rate lower because the risk has been mitigated by the insurance.

            With me so far? This is Bond Basics we’re talking about.

            “you are trying to compare FHA rates for risky borrowers to conventional rates for less risky ones. that is apples and oranges pure and simple. FHA are non conventional loans for the most part. they are priced FAR lower and much more available than anyhting that looks like them would be by a private seller. ”

            For the reason I mentioned above. The loans have a life insurance policy on them. The borrower defaults, and everyone still gets paid.

            “and you seem to not understand operation twist at all. twist sells short end and buys the long end. that is WHY rates are so low now (well, that and the de facto nationalization of the us mortgage market). arguing that we have low rates now while twist is going on proves my point and refutes yours.”

            No it does not, and I will thank you not to tell me my business. One crap headline out of Spain or Greece, and the Fed doesn’t have to spend a nickle buying any paper to lower the rate. The rest of the world will cheerfully oblige.

            “when twist ends, all else equal, mortgage rates will rise.”

            You’re using the Pethokoukis method again. Nothing else is EVER “equal.”

            “twist is scheduled to end at the end of this year.”

            When QE2 was supposed to end last year, people speculated that the 10 year would shoot up. it didn’t happen. Neither did S&P’s downgrade affect rates. Again: NOTHING IS THAT SIMPLE. You’re going Petho-koo-koo on me.

            if it will be extended (or qe3 expanded) is a matter of some speculation, but if it does, rates are going up.”

            Not ipso facto, and events have proven this to so already.
            Resistance is futile!

            “your analysis of the fed is ridiculous. an end to twist could be driven by lots of things other than an economy growing too fast. you act like twist is somehow normal as opposed to the wildly interventionist and unprecedented act that it is.”

            I’m not acting out anything. The whole purpose of twist is stimulus. Artificial, yes, but stimulative, certainly. It’s driving home sales, car sales, credit expansion, the complete restructuring of hundreds of billions of corporate debt, and on and on. At one point, it won’t be needed, but don’t think Bernanke or a successor will simply throw the anchor overboard one day and ratchet the 10 year back up to 5% in a week’s time.

            “are you really trying to claim that absent this literally unprecedented federal intervention into mortgage rates, lending standards, and the secondary markets for mortgage securities that housing would be acting as well?”

            No. Not at all, and I never averred that. We were talking about underwriting.

          • jon-

            i’m not so sure. fisher and bullard seem to be talking about ending it. it might get replaced with more qe3, it might just phase out.

            i think they are starting to really run out of runway on twist.

            the financial realities will bite at some point.

            i see it as too close to really call at this point about extension. this is like watching the kremlin in the 80′s.

          • max-

            “The borrower- YOU- pays the insurance. If you default, the taxpayer, the bank, and everyone else is held harmless, just as if you totaled you car.”

            this is magical thinking as well as being factually wrong.

            so just who pays out the insurance? the money elves? no. it’s the FHA. and what happens when the FHA runs out of money (as they just have)? yup, the treasury pays. automatically. there is no need of a bailout or any legislation. it’s just paid automatically. the FHA is deep into negative equity as we speak and getting worse by the day. i’m not sure it will leave a freddy or fannie sized smoking crater, but i would not be at all surprised to see losses get to $50-100 bn. they are 16 billion already and this is just the tip of the iceberg.

          • We’ve been through this before.

            The insurance fund is technically short, but it won’t be for long. This is the last of the blowback from the defaults generated by the economic meltdown, and all loans written SINCE that time are exceptionally strong because the prices paid for the homes were at depressed values. I don’t want to paste the report again, but the fund will be flush by the end of 2013.

            $16 billion in a housing market this size is pin money.

          • By the way- I just got an S&P report on this: the $16 billion insurance pool shortfall is a PROJECTION, and currently, there is no realized shortfall. Again, 2013 originations should cover this.

          • no max, YOU are missing the point and making internally inconsistent arguments. given that you seem to have some grasp of the facts, this must be willfull, depsite your fevent denials. methinks the plankster doth protest too much.

            let’s go back to the very basics here.

            the price of credit depends on the borrower, yes? can we agree on that?

            it also depends on the terms of the loan, yes? all else equal, a loan with 50% down will be cheaper than 5%, yes?

            we agreed so far?

            by your own admission, most fha loans are not conforming.

            most other loans (today) are.

            thus you have borrowers or lower credit quality getting terms that are better than those offered by banks and the gse’s.

            so on what basis do you deem it proper to compare them to the loans of higher quality loans to lower quality borrowers. it’s pure apples and oranges. this is so simple and basic there is no way you are misunderstanding it. this is willful misframing.

            any given prospective borrower faces a market for loans for any given set of terms. if you have a 650 fico and want to get a 5% down loan, you have a VERY limited market. the FHA will be cheapest. thus, they are below what the private market would be.

            that is the entire reason they exist max: to make loans cheaper and more available for first time borrowers.

            your argument about freddie and fannie being lower is ridiculous. that is not the market an FHA borrower faces. if they had credit that good and a down payment of size, then they would be facing a totally different market. that is not the market that the FHA serves.

            your argument is literally the equivalent of taking a great deal on a park avenue penthouse that is way below the market for comparable properties and claiming it is above market because of prices in detroit.

            market price needs to be standardized for what you are getting. if you are getting a loan with low downpayment and with a bad/limited credit history, FHA is BY FAR the best game in town.

            that is WHY it exists. seriously, why do you think it was created if not to help buyers get access to loans they otherwise could not and at better rates?

            what you are describing as “bond basics” is actually your total misunderstanding of how a market works.

            sure, you pay an fha premium. i get it. but you then get terms and an underlying rate you would not be able to get near. in most cases, these buyers could not get a loan with these terms at all. not at 20% interest would a private bank give you a 5% down loan with a 640 fico. they’d laugh you out of their office. the whole point of the fha is to subsidize buyers by giving them a combined rate and terms inclusive of the insurance premium that they could not get on their own.

            otherwise, what’s the point?

            you are just chasing yourself around in circles and missing this basic fact. the fha exists to subsidize buyers and get them cheaper access to credit.

            sure, this should theoretically be covered by the premiums, but right now, it’s not. the fha is bleeding red ink. your “everyone gets paid” claim falls apart under these circumstances. now, the taxpayer pays.

            “You’re using the Pethokoukis method again. Nothing else is EVER “equal.” ”

            and you are just being deliberately dishonest (again). by your logic, building a fire in the fireplace does not make the room warm because someone might open the window. it’s just sophistry and nonsense max.

            so what, no variable affects another because their might be other variables too? that’s just preposterous. are you seriously trying to argue that if, right now, twist went away, rates would not rise?

            and you wonder why you get accused of being disingenuous.

            and then you try to wriggle out using argument like “it will be gradual”. you don’t know that, nor does it make any difference. if rates go to 5% in 6 months or 6 days, it still has the same effect a year from now.

            you then go on to agree that twist etc has propped up the market right after arguing that ending it would likely not do harm.

            you cannot even seem to stay consistent here.

            your whole argument is that apples are oranges and that policies that prop up the housing market will not retard it as they are phased out. you are literally making no sense.

          • You’re not getting it. I am patiently explaining to you how this market works. But you seem to have trouble internalizing it.

            “let’s go back to the very basics here.

            the price of credit depends on the borrower, yes? can we agree on that?

            it also depends on the terms of the loan, yes? all else equal, a loan with 50% down will be cheaper than 5%, yes? we agreed so far? ”

            No- this is where you go wrong, and perhaps where your confusion lies.

            For example, let’s take two borrowers, both with excellent credit, stable employment histories, and have exhibited a conservative use of credit. They both qualify for a conventional/conforming loan. We use the term “conforming” by the way, because it conforms to Fannie and Freddie underwriting standards. We use the term “Non-Conforming” when they do not meet that standard, for one reason or another.

            Despite the differences in down payment, they will pay the same interest rate on the mortgage. The pricing structure for this product is such, that they will simply get the best conforming rate they can shop for and attain. The 5% down borrower, however, WILL have to obtain mortgage insurance, and the MI company underwrites that part of the mortgage.

            Let us bring a 3rd borrower into the equation. He has 10% down, his credit isn’t quite as good as the first two borrowers, having made a late payment on a car loans he has, and although he is in the same field, he had a job change last year. However, after looking at all the aspects, the borrower still can qualify for the conforming loan.

            From a 660 FICO with 10% down, to a 820 FICO with 50% down, if they fit into the conforming bucket, the rate is the same (providing they all go to the same bank.)
            All three loans can wind up being securitized into the same tranch of a Collateralized Mortgage Obligation.
            There is no “sliding scale” for the interest rate. You fit in, or you don’t.

            “by your own admission, most fha loans are not conforming.”

            Again- the term “conforming” refers to the underwriting template used by the GSEs. Example: Fannie and Freddie have mortgage loan limits which they cannot excede and so cannot underwrite or securitize. But what about a millionaire who can handle an $850,000 mortgage? He gets a “Jumbo” loan, but even so, without GSE involvement, the lender will use the Fannie/Freddie template to underwrite the loan. Why? That historically low default rate, and the GSEs massive database of trillions of dollars of performing loans makes them the masters of understanding mortgage risk metrics. We call the securitized CMO’s “private label.” (i.e., “Non-Agency”

            “most other loans (today) are.”

            Most other loans today are securitized by the GSEs and FHA since the crash. This was NOT the case prior to the crash, since I had mentioned, their market share had shrunk. This is easily verified.

            “thus you have borrowers or lower credit quality getting terms that are better than those offered by banks and the gse’s.”

            Not true at all. In fact, today, over 93% of loans are securitized by the “Guvvies.” There is almost no private mortgage lending in existence, although it is making a small comeback.

            “so on what basis do you deem it proper to compare them to the loans of higher quality loans to lower quality borrowers. it’s pure apples and oranges. this is so simple and basic there is no way you are misunderstanding it. this is willful misframing.”

            I’m not misframing anything, and I have no earthly reason to mislead or lie to you. Read what I wrote, and you will see how the market is structured.

            “any given prospective borrower faces a market for loans for any given set of terms. if you have a 650 fico and want to get a 5% down loan, you have a VERY limited market. the FHA will be cheapest. thus, they are below what the private market would be.”

            Yes, the rate is cheaper. But that is because the massive price of the insurance can make it so. All bonds are priced according to risk. If I remove the risk factor with insurance, holding the lien holders harmless, the market can offer a low rate. This is not possible if the loan has no safety net under it, and that is as it should be. Rate reflects risk. Kapish?

            “that is the entire reason they exist max: to make loans cheaper and more available for first time borrowers.”

            Not only first time homebuyers, but existing homeowners who have had some challenges during this recession can also go into an FHA loan to lower their monthly costs. However, again, they MUST fund their own insurance coverage.

            “your argument about freddie and fannie being lower is ridiculous. that is not the market an FHA borrower faces. if they had credit that good and a down payment of size, then they would be facing a totally different market. that is not the market that the FHA serves. ”

            Precisely, and I have never denied it. The GSEs service what we call the “A” paper borrower, FHA is a notch down from that, if the credit picture of the borrower is too sketchy for a conforming lender to take it. No biggie. Again, the borrower providing his own burial plot by paying the insurance is what makes the program work without cost to the taxpayer.

            “your argument is literally the equivalent of taking a great deal on a park avenue penthouse that is way below the market for comparable properties and claiming it is above market because of prices in detroit.”

            No, that is not what I have been saying, and by now, that should be self evident.

            “market price needs to be standardized for what you are getting. if you are getting a loan with low downpayment and with a bad/limited credit history, FHA is BY FAR the best game in town.”

            No question about it. But why complain? Its been a good program, and keep something else in mind: just because a borrower has bad credit at the time of origination, doesn’t mean their stuck with it for the rest of their lives. The creditworthiness of a borrower will change over the course of their lifetime.

            “that is WHY it exists. seriously, why do you think it was created if not to help buyers get access to loans they otherwise could not and at better rates?”

            And your problem with this is……..?

            “what you are describing as “bond basics” is actually your total misunderstanding of how a market works.”

            Uh, I think I know a lot more about that than most of the folks on this forum- including the scribes.

            “sure, you pay an fha premium. i get it. but you then get terms and an underlying rate you would not be able to get near. in most cases, these buyers could not get a loan with these terms at all. not at 20% interest would a private bank give you a 5% down loan with a 640 fico. they’d laugh you out of their office. the whole point of the fha is to subsidize buyers by giving them a combined rate and terms inclusive of the insurance premium that they could not get on their own.”

            Again: the borrower buys the insurance with his or her money, and there is no “subsidy” of any kind. Insurance reduces risk, and if I reduce risk on a piece of paper, I reduce yield. Simple as that.

            “you are just chasing yourself around in circles and missing this basic fact. the fha exists to subsidize buyers and get them cheaper access to credit.”

            If I cheapen the cost of the credit, it STRENGTHENS the borrower. Would you prefer predatory lenders charging them 12% and 4 points up front? What do you think the default rate on THOSE loans are?

            “sure, this should theoretically be covered by the premiums, but right now, it’s not. the fha is bleeding red ink. your “everyone gets paid” claim falls apart under these circumstances. now, the taxpayer pays.”

            Again- the $16 shortfall is a PROJECTION, and amounts to less than 1.4% of the reserve funds assets. I have no doubt that once the detritus of the housing meltdown is put behind us, the reserve fund will be flush again.

            “and you are just being deliberately dishonest (again). by your logic, building a fire in the fireplace does not make the room warm because someone might open the window. .”

            That analogy REALLY sucked.

    • A lot depends on what Congress does with FHA, Fannie, and Freddie and what the Fed does with its mortgage backed securities purchasing experiment. As long as the easy money flows into the market you could see prices go up and people being able to ditch their underwater homes. The problem is that such a path ultimately leads to a bigger bubble and puts serious pressure on the UST market. The easy prediction is that something that is fragile will ultimately break.

  2. Mortgage volume has been falling since 2005, even as rates have continued to fall to record lows. It appears low rates can do no more. Tight credit is one issue – which could be resolved by a nice drop in unemployment – which could be resolved by….

    • moe-

      real estate is trick as affordability really comes in 2 parts. low rates drive down monthly payments. that’s like a great drink special in the vip room.

      however, to get into the vip in the first place takes a down payment. unlike 2005, that has gone back to around 20% (pretty historically normal) unless you get some sort of government guarantee or have truly excellent credit and collateral.

      with so many underwater on homes or with sub 20% equity, i think that is likely the major gating factor. lots of folks can afford to drink in the VIP room once in, but far fewer look likely to be able to afford the cover charge.

  3. Vegas and environs are so effed up and overbuilt, you’re looking at a radioactive housing zone.

    Its places like this, where the worst of the excesses of the housing bubble that took place, that put the lie to the AEI narrative about Fannie, Freddie and CRA, and their supposed role in fomenting the housing bubble. Even a fool has to be able to see that.

    • max-

      that argument does not even make the rudiments of sense.

      it was all the low cost areas (like vegas, vallejo, etc) that were the epicenter of CRA and GSE activity. who do you think funded that overbuild?

      and how does buying up 40-50% of the mortgage market and pushing all that money back to banks not glut credit markets? you glut a credit market then you Require lending to bad credit risks at prime or near prime rates and you get a disaster.

      i have no idea where you get your info and got your finincial/economic education but you need some new sources and ought to ask for your money back.

      • I swear to God, will you people do your homework?

        “max-

        that argument does not even make the rudiments of sense.

        it was all the low cost areas (like vegas, vallejo, etc) that were the epicenter of CRA and GSE activity. who do you think funded that overbuild?”

        Vegas is a “low cost” area, huh? IT WAS NON GSE LENDERS WHO DID THIS. Will you finally get this into your head?

        Again: By 2003, BEFORE prices began to spike, GSE market share had plummeted by over half, all supplanted by mortgage lenders who had NOTHING TO DO WITH THE GSEs or ANY government afilliated program.

        CRA was NOT a SubPrime program, it was designed to prevent redlining in highly urbanized areas, and that leaves out the other hot zones like the retirement enclaves and empty condo skyscrapers in Florida, Arizona, Nevada and California.

        “and how does buying up 40-50% of the mortgage market and pushing all that money back to banks not glut credit markets? you glut a credit market then you Require lending to bad credit risks at prime or near prime rates and you get a disaster.

        i have no idea where you get your info and got your finincial/economic education but you need some new sources and ought to ask for your money back.”

        Once again, I will tell you that you will never learn what I forgot about this subject, and all you’re relying on is a BS narrative promoted on sites like this.

        The GSE default rate is about 6%. The default rate on Non-GSE loans is nearly 5 times that amount, so someone must have some pretty good underwriting. Secondly, the greatest price spike in housing occurred was when Sub Prime origination was at its peak- you can’t blame the price bubble on organizations whose market share was shrinking at the very same time.

        Again: I was a mortgage broker for 8 years, and I’m a Fixed income professional now, who deals with quite a few mortgage issues. I know what happened- you don’t.

        Simple as that.

      • i have max, but there is simply no talking to a guy like you who is impervious to logic and does not seem to believe in causality.

        your stat on gse market share is pure nonsense. they were 40-50% of the market at the top (and far more now). now you are just making stuff up. so what, it was 80-90% before. BS max.

        further, you leave out that they were buying MBS’s instead of mortgages, which had the same effect but crops out of your count.

        then, they slashed their credit standards and really opened the floodgates by buying up all the lair loan origination in precisely the areas (like vegas) you try to use to refute the painfully obvious.

        max, i used to trade this stuff (mbs’s, cds’s, cds2, etc, you name it) you literally have no idea what was going on if this is what you think.

        you claim to be a financial professional, but i have real doubts. you sound like some sort of night school financial planner to me who learned enough for a 7 and maybe a cfa but has no idea how these markets actually work.

        and then you just make up absurd numbers. the default rate on non gse is 30%? on what planet?

        first mortgage default rates never even reached 6%.

        delinquencies barely hit 10%.

        http://www.housingviews.com/2012/03/20/first-and-second-mortgage-default-rates-fall-again-in-february-2012/experian-8/

        sorry max, but you literally are just making up facts.

        this is not even disingenuous, it’s flat out lying.

        that’s twice in one post you are stone cold busted making up numbers.

        sorry max, i’m done. i had doubts about you misunderstanding vs being a liar. i am now certain about the latter and suspect the former may well be true too.

        you go in the larry pile of guys who are simply a waste of time to converse with.

        happy trolling.

        • At this point, everyone knows I’m married 25 years to the same woman, right?

          “i have max, but there is simply no talking to a guy like you who is impervious to logic and does not seem to believe in causality.”

          I have studied this issue to hell and back.

          “your stat on gse market share is pure nonsense. they were 40-50% of the market at the top (and far more now). now you are just making stuff up. so what, it was 80-90% before. BS max.”

          This was posted before- note the sharp decline of Agency securitization from 2003 on.

          http://research.stlouisfed.org/publications/mt/20080801/cover.pdf

          I guess you want to argue with FRED now, right?

          “further, you leave out that they were buying MBS’s instead of mortgages, which had the same effect but crops out of your count.”

          Of course they were buying the MBSs. Why WOULDN’T they?

          “then, they slashed their credit standards and really opened the floodgates by buying up all the lair loan origination in precisely the areas (like vegas) you try to use to refute the painfully obvious.”

          Again, these are the myths you were fed. No one “slashed credit standards” and although the GSEs did start buying higher quality non-conforming loans later on, the damage to the markets was already done, and the GSEs had to ask for permission to do it.

          “max, i used to trade this stuff (mbs’s, cds’s, cds2, etc, you name it) you literally have no idea what was going on if this is what you think. ”

          I suggest you read Larry MacDonald’s “Collosal Failure of Common Sense.” He was a former Lehman trader, and while you’re doubting MY credentials after providing this mass of detail, I find yours more doubtful.

          “you claim to be a financial professional, but i have real doubts. you sound like some sort of night school financial planner to me who learned enough for a 7 and maybe a cfa but has no idea how these markets actually work.”

          I assure you once again, that your insults will not change the facts, you simply choose to disbelieve them.

          “and then you just make up absurd numbers. the default rate on non gse is 30%? on what planet?”

          first mortgage default rates never even reached 6%.

          delinquencies barely hit 10%.”

          Please see page 23 of this Fed Reserve of San Francisco report, and it only goes up to 2006:

          http://www.frbsf.org/publications/economics/papers/2007/wp07-33bk.pdf

          Try this from the Chicago Fed:

          “For the past several years, the news media have carried countless stories about soaring defaults among subprime mortgage borrowers. Although concern over this segment of the mortgage market is certainly justified, subprime mortgages only account for about onequarter of the total outstanding mortgages in the United States. The remaining 75 percent are prime loans that are made to borrowers with good credit, who fully document their income and make traditional down payments. While default rates on prime loans are significantly lower than those on subprime loans, they are also increasing rapidly. For example, among prime loans made in 2005, 2.2 percent were 60 days or more overdue 12 months after the loan was made (our definition of default). For loans made in 2006, this percentage nearly doubled to 4.2 percent, and for loans made in 2007 it rose by another 20 percent, reaching 4.8 percent. By comparison, the percentage of subprime loans that had defaulted after 12 months was 14.6 percent for loans made in 2005, 20.5 percent for loans made in 2006, and 21.9 percent for loans made in 2007. To put these figures in perspective, only 1.4 percent of prime loans and less than 7 percent of subprime originated in 2002 defaulted within their first 12 months.”

          So you have up to 22% on Subprime by 2007. Believe me when I tell you that number accelerated after Lehman tanked.

          “sorry max, but you literally are just making up facts.”

          No I am not. I am giving you data amassed by professional analysts.

          “that’s twice in one post you are stone cold busted making up numbers.”

          No, my data says otherwise. Sorry.

      • Once again, I will tell you that you will never learn what I forgot about this subject, and all you’re relying on is a BS narrative promoted on sites like this.

        Again: I was a mortgage broker for 8 years, and I’m a Fixed income professional now, who deals with quite a few mortgage issues. I know what happened- you don’t.

        Simple as that.”

        And yet once again Max informs that he knows everything there is to know about this subject, and there,s nothing more he could possibly learn.

        It must be wonderful to be that smart!

        • No, but it is good to be informed. And I have never seen such outright manipulation of the public than on this issue.

          Don’t blame the banks, don’t blame the Fed, don’t blame derivatives, don’t blame Sub Prime, don’t blame leverage, oh, it must have been the CRA.

          Presposterous.

      • max-

        “I have studied this issue to hell and back.”

        be that is it may, you clearly have not understood it.

        once more you compare all manner of apples to oranges.

        you use subprime to try to stand for overall, and all manner of other chicanery while howling that others do not do their homework.

        you use total origination to try and stand for a market share figure.

        you are either a fool, a liar, or both.

        you are always somehow orthogonal to the issue being discussed and using data that does not actually address the question.

        if you think the data you linked is a response, then it is small wonder that all your “study” of the issue has led you nowhere.

        whichever the case may be, i am done wasting time with you and your endless misstatements, forays into illogic, and faulty comparisons.

        it’s a waste of time. you do not have even the basic ability to parse facts, make up and confuse data, and seem unable to grasp basic causality.

        happy trolling.

        • “I have studied this issue to hell and back.”

          “be that is it may, you clearly have not understood it.”

          Excuse me: I have PATIENTLY explained every issue you brought up with detail and clarity. You simply refuse to believe what is front of your eyes. I have provided hard numbers from impartial sources- and again, nothing moves you.

          “once more you compare all manner of apples to oranges.”

          I have done nothing of the kind. The mortgage market is stratified as to credit quality- and until you understand how that plays out in the real world, you will be stuck with your unfounded prejudices and baseless narratives.

          “you use subprime to try to stand for overall, and all manner of other chicanery while howling that others do not do their homework.”

          That statement is not remotely cogent.

          “you use total origination to try and stand for a market share figure.”

          Neither is that one.

          “you are always somehow orthogonal to the issue being discussed and using data that does not actually address the question.”

          Excuse me again: I have DIRECTLY counterpointed each individual issue you brought up, pointing out the fallacies of your statements, which, in case you haven’t noticed, are not backed up any facts. You think merely STATING an erroneous remark makes that a “truth.” You then call me a fool or a liar, but yet, you can’t say why.

          If your ego is so afflicted by losing the argument because you don’t know your subject, please don’t resort to insults and tell me I don’t know what I’m talking about. The wealth of detail and the resources I presented were more than enough to do the job.

          Spare me your caterwauling. You lost.

      • i just re read that sf piece again and it made it even more clear that you have no idea how to compare numbers max.

        that is data for subrpime in the worst markets. it does not even have an aggregate figure for those selected markets, much less for the nation as a whole and even less so for the OVERALL prime and subprime figures, which is what we were discussing.

        seriously, do you even understand the concept that apples are not oranges? over and over you commit this same fraud of trotting out some number that is different from the one being discussed and claiming it makes you right.

        it’s as if you think “it never reaches -300 degrees on earth” can be countered with data from neptune.

        and then you duck the whole MBS issue. if the GSE’s are going buy up exposure with MBS’s instead of raw mortgages, it may make the mortgage origination change, but not the net effect. they still wind up owning them.

        for someone who rails about not fixating on one term, you sure seem to try and do so when it suits you (even if it is the wrong term).

        this sort of bluster and obfuscation may work on those less familiar with the subject matter, but we made a lot of money around this issue especially through shorting freddy and fannie.

        i know exactly what they did and why their accounting was fraudulent.

        between those 2 and the fed, you got a crisis. trying to blame banks for originating product when they knew they could flip in in a matter of days to a bottomless buyer is just foolish as is blaming derivatives that were not that different (with the exception of the cds’s, and those were insurance) from the 80′s is just magical thinking.

        you may believe you have studied this issue, but you clearly do not understand it and i’ll also bet you did not see it coming just as you do not see the obvious impending disaster at the FHA unfolding even now that it is obvious.

        they are REQUIRED to have 2% reserves. they have no complied for 3 years. they have swollen their balance sheet from 300bn to 1.2tn in the hopes that they can dig their way out of the hole. but the reserves are gone, the defaults are high and still climbing, and a $1.2tn portfolio of crap is not going to bail them out. the default rates they are using actuarially are pure fantasy.

        this is going to be another big wipeout for taxpayers.

        try reading this:

        http://128.122.11.92/caplin/wp-content/uploads/2010/02/FHA-Sustainable-Homeownership-Revised-Final.pdf

        moving fees for new origination from 1-1.75 is too little too late.

        with over 30% of some vintages defaulting, it’s all over for the fha.

        most of that portfolio is 1% fee. default will be multiples of that.

        watch and see.

        • Oy, are you a pain in the @ss:

          “i just re read that sf piece again and it made it even more clear that you have no idea how to compare numbers max.

          that is data for subrpime in the worst markets. it does not even have an aggregate figure for those selected markets, much less for the nation as a whole and even less so for the OVERALL prime and subprime figures, which is what we were discussing.”

          One, the distinction you are attempting to make is not even germaine to proving your point. As an example: as has been long known by housing market observers, if you take out the hardest hit areas with peak to trough prices hovering around 45 to 60%, and leave them out of the mix, the foreclosure numbers don’t look that bad, especially when you consider what the economy has been through. Those areas were even given a name: “Sand States.” And if you mention that term to someone knowledgable about housing, they will immediately know what you are referring to. It was the secondary and tertiary markets that got hammered the most, including a lot of new construction, INCLUDING HOMES THAT WERE BUILT AND NEVER EVEN SOLD. I live in a densely populated area near New York. We haven’t experienced the foreclosure holocaust other places did, because the peak to trough pricing wasn’t as severe. So by stating “it does not even have an aggregate figure for those selected markets, much less for the nation as a whole” doesn’t really mean anything, especially since your ORIGINAL POINT, about CRA, could have have possibly affected the foreclosure hotspots I mentioned. I posted a chart on this in another thread, and sure enough, as soon as I silence one know-nothing, another one comes along with the same stupid argument.

          “seriously, do you even understand the concept that apples are not oranges?”

          I think YOU’RE a fruit.

          “over and over you commit this same fraud of trotting out some number that is different from the one being discussed and claiming it makes you right.”

          I have done nothing of the kind. You are obsfucating the issue because you make statements that are not grounded in fact. When the facts are shown to you, you accuse me of not knowing how to compare numbers, which is bullsh*t.

          “it’s as if you think “it never reaches -300 degrees on earth” can be countered with data from neptune.”

          What?????

          “and then you duck the whole MBS issue. if the GSE’s are going buy up exposure with MBS’s instead of raw mortgages, it may make the mortgage origination change, but not the net effect. they still wind up owning them.”

          Which was my point. WTF is the difference if they’re securitized into GinnieMae and Agency pools?

          “i know exactly what they did and why their accounting was fraudulent.”

          Fannie and Freddie resorted to accounting tricks. Did you know Freddie DELIBERATELY UNDERSTATED THEIR PROFITS? And did you also know these balance sheet shenanigans had absolutely NO effect on the housing market? You’re bringing out the “Raines” defense, which is common with your ilk.

          “between those 2 and the fed, you got a crisis. trying to blame banks for originating product when they knew they could flip in in a matter of days to a bottomless buyer is just foolish as is blaming derivatives that were not that different (with the exception of the cds’s, and those were insurance) from the 80′s is just magical thinking.”

          Excuse me again, because it is obvious you are really out of your depth here. We’ve been securitizing mortgages since 1982. The system worked wonderfully well before Subprime destroyed the market and the banks started committing mortgage fraud en masse.

          “you may believe you have studied this issue, but you clearly do not understand it and i’ll also bet you did not see it coming just as you do not see the obvious impending disaster at the FHA unfolding even now that it is obvious.”

          There is no “impending disaster” at FHA and your saying so just just wrecks your credibility- such as it is- even more.

          “they are REQUIRED to have 2% reserves. they have no complied for 3 years. they have swollen their balance sheet from 300bn to 1.2tn in the hopes that they can dig their way out of the hole. but the reserves are gone, the defaults are high and still climbing, and a $1.2tn portfolio of crap is not going to bail them out. the default rates they are using actuarially are pure fantasy.”

          this is going to be another big wipeout for taxpayers.

          “try reading this:

          http://128.122.11.92/caplin/wp-content/uploads/2010/02/FHA-Sustainable-Homeownership-Revised-Final.pdf

          I quickly skimmed the report- they are using 2007 originations, which, by this time, you don’t have to be an Einstein to figure out these loans will have high default rates. One, they paid top dollar. Two, the economy blew up less than one year later. What would you THINK the result would be? The authors are making predictions here, but recent price moves in the market may prove them wrong.

          “moving fees for new origination from 1-1.75 is too little too late.”

          S&P disagrees with you.

          “with over 30% of some vintages defaulting, it’s all over for the fha.”

          Hardly. And in any case, you’re wandering away from the original subject in a transparent attempt to salvage yourself.

          Here’s the S&P report:

          Nov 20 – The U.S. Department of Housing and Urban Development (HUD) announced Friday that the Federal Housing Administration (FHA) does not have
          enough reserves to cover its projected losses. Standard & Poor’s Ratings Services believes that even though the capital reserve position of FHA is negative, the agency has avenues to secure sufficient assets should it need
          them, and will be able to honor claims of housing finance agencies (HFAs) as it has to date. As FHA insurance is a significant provider of loan guarantees for most HFA single-family whole loan programs, FHA’s ability to pay claims is critical to the strength of these bond programs.

          Standard & Poor’s has ratings on 33 large single-family whole loan indentures.
          The percentage of loans with FHA insurance ranges up to 98%, while some indentures have no FHA loans.

          *** HFAs follow strict underwriting standards including obtaining three years of tax returns for all first time homebuyers, which is their primary market. On average, HFA loan performance has equaled that of nonagency prime loans, and delinquency has remained around 7%, with a smaller percentage going into foreclosure.***

          The HUD report indicated that the FHA mortgage insurance fund has a capital reserve ratio of negative 1.44%, or negative $16.3 billion at the end of
          fiscal 2012. This compares to a reserve position of $2.6 billion for fiscal 2011.

          We do not believe that this negative position impairs existing FHA loans should they go into default. FHA has the ability to access funds from the U.S. Department of the Treasury without congressional approval. FHA has until September 2013 to determine whether to seek funds from Treasury. It is our opinion that FHA will do so based on the fund’s position in 2013 as well as
          the economic forecast from President Obama’s fiscal 2013 budget.

          However, the difficult position that FHA finds itself may limit the number of
          loans that it guarantees going forward. As stated before, many HFA indentures
          include significant amounts of FHA loans. As private mortgage insurance has
          ceased to be an option for HFAs, the state agencies have relied more heavily
          on FHA for whole loan programs. A slowdown in FHA insurance would place more
          emphasis on insurance from the U.S. Department of Veteran’s Affairs and the
          U.S. Department of Agriculture, both of which have limited capacity and have traditionally insured fewer loans than FHA.

          Say goodnight, Gracie.

        • Try this:

          “About half of the new foreclosures were in four states: California, Florida, Arizona and Nevada, according to the report. Measuring both old and new defaults, 11 percent of all mortgages in Florida were in foreclosure at the end of the first quarter, the highest in the U.S. In Nevada, it was 7.8 percent, in Arizona, it was 5.6 percent, and in California, it was 5.2 percent. New Jersey’s foreclosure inventory was 4.3 percent, New York was 3 percent, and Massachusetts was 2.8 percent. ”

          http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anKvgNsd6mO8

  4. What all of you are missing is the far bigger picture. We are agreed that mortgage interest rates are at an all-time low, whoever the purveyor. It is worth noting that during the late 70′s/early 80′s, when rates were at an all-time high, prices for housing went to a floor not seen since the Great Depression in gold terms, and quite naturally, transactions plummeted as well, because people were not being paid in gold (thank you, Tricky Dick), or anything even remotely its equivalent, yet would be forced to repay the entire value of a home in roughly 3.8 years at the height of the madness, unless one had that nasty little negative amortization paragraph in one’s mortgage, as I, and many others, did.
    I do not deny that the madness was necessary, and I still consider Volcker to this day something akin to a hero, but do realize that with every incremental increase now in the Tbill–which, by definition, must happen, sooner or later, as we are at rates well below the natural rate of return, and certainly below both admitted BLS inflation and Shadowstats.com inflation (not to mention the eventual refusal of even the Fed to purchase our debt), there will be effectively an incremental decrease in the resale value of any residence, and it may well come sharply. This is what virtually everyone has refused to address (especially Bernanke, who knows full well what the eventual end of his policies will entail)…This utter criminality on the part of the Fed, which destroys the ability of retirees to make safe incomes while holding harmless the banks and the Treasury, at least for a while longer (despite the fact that the US is far more overextended than Greece, but is protected by having its own currency, controlled by the Fed) will eventually be the downfall of us all, I’m very much afraid, in the not too distant future.

  5. And as always Obama and his tax hikers to the rescue … with talk of getting rid of the mortgage deduction. Thanks Obama that will kill any recovery in houseing not too mention ObamaCare taxes along with incresing healthcare premiums … the fiscal cliff … and the 7000 news regulations dumped on us since the elections … Jesus Christ … is it too early to have a recall election ?

  6. Sorry, but visually the chart indicates an upward trend, a downward trend, and a flatline. The minor wiggles over the past 4 years are hardly a “recovery” unless you want to use the “summer of recovery” as a guideline.

  7. We have hit a relative bottom in the housing bust. If your definition of a relative bottom is recovery then you might have something. The bust overshot and and historic low rates have helped affordability. I sold a house in the spring of 2010 when the housing market had a nice pop.

    Home ownership is declining during this recovery which signifies that this is a bottom and upward prices are unsustainable.

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