Category Archives: Housing

Canada Tightens Mortgage Rules: Equivalent to 100bp Rate Hike

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too many new homes being built?
;)


Karim writes:

Canada Tightens Mortgage Rules: Equivalent to 100bp Rate Hike

  • Long expected but well overdue, Canadian FM Minister Flaherty announced yesterday a series of rule changes yesterday that tighten rules for home mortgages in Canada
  • The most significant is shortening the longest amortization period from 30yrs to 25yrs. In terms of monthly payments, this has the same impact as a 100bp rise in mortgage rates. About half of all mortgages have 30yr terms.
  • They also lowered LTV from 85% to 80% and tightened standards even more on mortgage loans in excess of $1mm.
  • This should definitely be viewed a form of tightening that will delay BoC rate hikes, and may even allow the Bank greater leeway to ease rates if they want to.
  • Standard behavior in the past is for borrowers to lock in terms before new rules go into effect. But with the broader message here that household debt levels are dangerously high, and more measures may be forthcoming to cool down the housing market, it wouldn’t be surprising if new mortgage activity isn’t as great as in years past.
  • The most basic market impact is for lower short-term rates and a weaker C$ based on likely narrower rate differentials to the U.S. going forward.

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Fannie Mae Won’t Seek Aid After Reporting $2.7 Billion Profit

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FNMA may have always had only a market to market issue and not a long term cash flow issue.

And its always been a public/private partnership with govt’s role that of the funding model, so I never saw govt funding as a ‘bailout’

The public purpose of FNMA is to get lower income earners in their own homes, which it has successfully done for maybe 50 years for millions of American owners and their families.

The ‘real’ cost of the program is the alternative use of the actual goods and services devoted to this mission.

(Just me, but seems like it’s been a net gain.)

Note that banking is a public private partnership as well, with govt providing the funding, directly or indirectly, and private capital pricing the risk. So for me, govt provided liquidity for banking isn’t a ‘bailout’ but a necessary and continuous condition, all presumably serving public purpose.

Fannie Mae Won’t Seek Aid After Reporting $2.7 Billion Profit

By Clea Benson

May 9 (Bloomberg) — Fannie Mae, the biggest backer of U.S. home loans, said it won’t seek Treasury Department aid after reporting net income of $2.7 billion for the first quarter.

The Washington-based company, which has operated under U.S. conservatorship since it was seized in September 2008, cited lower credit-related expenses, a decline in serious delinquency rates and a drop in its inventory of owned properties as contributors to the improvement, according to a statement released today. The company has drawn a total of $117.1 billion in aid while under government control.

The first-quarter profit reflected a “less significant decline in home prices,” the company said in a Securities and Exchange Commission filing.

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Global themes

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  • Austerity everywhere keeps domestic demand in check and export channels muted
  • Non govt credit expansion pretty much stone cold dead in the US and Europe
  • Rising oil energy prices subduing global aggregate demand
  • US federal deficit just about enough to muddle through with modest GDP growth
  • Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably
  • Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards
  • All good for stocks and shareholders, not good for most people trying to work for a living
  • Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening

So still looking to me like a case of

‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’

The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.

But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.

Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.

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New Home Sales Unexpectedly Slip 1.6% in February

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Seems low interest rates aren’t all the tool they’re cracked up to be?
But they’ve only been low for a bit over 3 years.
Monetary policy works with a lag and all that.
Much like Japan.
Again like the carpenter said of his piece of wood, no matter how much cut off it’s still too short?

Along the same lines, next thing they’ll be doing is increasing savings incentives to help investment.

And note the slight twist on the same theme, increasing bank capital requirements to support confidence.

It’s about aggregate demand, and how you can’t drain yourself to prosperity.

How hard is that?

New Home Sales Unexpectedly Slip 1.6% in February

March 23 (Reuters) — New U.S. single-family home sales fell in February, but a jump in prices to their highest level in eight months kept hopes alive of a recovery in the housing market.

The Commerce Department said on Friday sales slipped 1.6 percent to a seasonally adjusted 313,000-unit annual rate. January’s sales pace was revised down to 318,000 units from the previously reported 321,000 units.

Sales for November and December were revised up a bit.

Economists polled by Reuters had forecast sales at a 325,000-unit rate in February. Compared to February last year, new home sales were up 11.4 percent.

The median price for a new home rose 8.3 percent to $233,700, the highest level since June. Compared to February last year, the median price was up 6.2 percent.

The report, which rounded off a week of mixed housing data, followed a similar pattern seen in the market for used homes. Home resales fell in February, but prices rose from a year earlier. Housing starts slipped, while permits for home building approached a 3-1/2 year high in February.

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Bank of America tests Alternative to Foreclosure

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Must be reading my blog

BofA Tests an Option to Foreclosure

Bank of America is launching a pilot program that will allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.

While the initial scope of the “Mortgage to Lease” program is small—the bank began sending letters Thursday offering leases to 1,000 homeowners in Arizona, Nevada and New York—it represents a big change in the way banks deal with borrowers who can’t afford their mortgages.

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Today’s Data/Bernanke

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Karim writes:

Bernanke gives his latest Congressional testimony and takes Q&A at 10am tomorrow.
He’s unlikely to diverge much from the recent narrative and I expect him to focus more on the changes they made at the last FOMC meeting (easing via extending conditional commitment and new set of forecasts) than highlight more policy changes (QE3 or Twist 2). March/April a more likely time frame for next set of policy changes.

Today’s data backs up the view stated by the Fed in January and recent speeches:

  • House prices continue to fall. Case-Shiller HPI -1.1% in December and -4% y/y.
  • Core durable goods orders -4.5%. Even adjusted for new year effect (expiration of accelerated depreciation in December), still weak, with the 3m annual rate of change now -3.7% vs +1.7%.
  • Conference Board survey rises from 61.5 to 70.8, a 12mth high, with notable improvement in Labor Differential (Jobs Plentiful Less Jobs Hard To Get). But, Plans to Buy a Home in next 6mths drops 0.2, to lowest level since August 2011.

Fits in with the following from their last Statement (where they eased):

While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed.

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Housing Starts-GDP

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It was pretty lonely forecasting those kinds of GDP numbers several months ago!

While the 8% budget deficit keeps it all muddling through at modest levels of growth, it’s still a far cry from being ‘acceptable’ in my book, as it’s just barely enough to reduce the output gap.

And letting FICA go up at year end or somehow paying for continuing the current level could trim quite a bit of Q1 aggregate demand.


Karim writes:

Even though the 9.3% rise in starts was led by a 25% gain in the volatile multi-family component, this still represents ‘news’ for GDP forecasts as most (including the Fed) did not assume any contribution to growth from this sector.

Some Q4 GDP estimates starting to move from 3.5% to 4%, and Q1 also now looks to be in the 3.5% area (assuming payroll tax cut is extended).

Although still likely, FOMC may have a lively debate on extending ‘conditional commitment’ beyond mid-2013.

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Cost of Tax Cut: Another $17 a Month on Most Mortgages

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While it’s relatively small potatoes, it’s misguided. Without a proactive fiscal adjustment/larger deficit, the economy can’t do much more than muddle through without an increase in private sector credit expansion. And traditionally housing has been a substantial source of credit expansion. So, given their presumed desire for lower unemployment, hiking the price of housing credit- the only actual change come Jan 1 as FICA deduction are only not going to increase-seems counter productive.

In other words, the only change from Q4 to Q1 is the fee hike.

Cost of Tax Cut: Another $17 a Month on Most Mortgages

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Dec 17 (Reuters) — Who is paying for the two-month extension of the payroll tax cut working its way through Congress? The cost is being dropped in the laps of most people who buy homes or refinance beginning next year.

The typical person who buys a home or refinances starting on Jan. 1 would have to pay roughly $17 more a month for their mortgage, thanks to a fee increase included in the payroll tax cut bill that the Senate passed Saturday. The White House said the fee increases would be phased in gradually.

The legislation provides a two-month extension of a payroll tax cut and long-term unemployment benefits that would otherwise expire on Jan. 1. It would also delay for two months a cut in Medicare reimbursements for doctors that is scheduled to take effect on New Year’s Day. The House is expected to act on the bill early next week. Two more months of the Social Security tax cut amounts to a savings of about $165 for a worker making $50,000 a year.

To cover its $33 billion price tag, the measure increases the fee that the government-backed mortgage giants, Fannie Mae and Freddie Mac, charge to insure home mortgages. That fee, which Senate aides said currently averages around 0.3 percentage point, would rise by 0.1 percentage point under the bill.

For the holder of a typical $200,000 mortgage, that means their monthly housing payment would be about $17 higher.

The 0.1 percentage point increase will also apply to people whose mortgages are backed by the Federal Housing Administration, which typically serves lower-income and first-time buyers.

The higher fee would not apply to people who currently have mortgages unless they refinance beginning next year.

Because of the weak housing market and the huge numbers of foreclosures in the last few years, private insurers have not competed strongly for business with Fannie Mae and Freddie Mac, which have the backing of the federal government. As a result, about 9 in 10 new home mortgages are backed by Fannie Mae, Freddie Mac and the FHA.

President Obama and many congressional Democrats and Republicans want to curb Fannie Mae’s and Freddie Mac’s dominance in the mortgage market. Obama earlier this year proposed raising the mortgage guarantee fees they charge as one way to do that.

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