A no doubt incomplete roundup of housing news and some thoughts thereon.
New Home Sales
The Census Bureau issued their monthly report on new home sales.
Sales of new single-family houses in June 2013 were at a seasonally adjusted annual rate of 497,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.3 percent (±20.5%)* above the revised May rate of 459,000 and is 38.1 percent (±22.0%) above the June 2012 estimate of 360,000.
The median sales price of new houses sold in June 2013 was $249,700; the average sales price was $295,000. The seasonally adjusted estimate of new houses for sale at the end of June was 161,000. This represents a supply of 3.9 months at the current sales rate.
Even though some prior months were revised downward, this was a good report. The graph indicates a lot of room to run based on past recoveries and given the length of the downturn, the abnormally high level of distressed property which had to be absorbed and population growth, absent some exogenous shock, new home sales should continue on a nice upward path. As Mr. McBride points out this is decidedly bullish for the economy. Sales of existing homes as a catalyst for growth tend to be over emphasized. The housing sector boosts the economy most through the construction and sale of new homes.
A Private Mortgage Market
One of the arguments for maintaining a de facto government monopoly of the mortgage market is that no other lender can offer a 30 year fixed rate mortgage at a competitive price. Peter Wallison points out that this isn’t actually the case.
In yesterday’s hearing, some Democrats finally admitted that there actually would be 30 year fixed rate mortgages in a fully private system, but the new argument is that they would be too expensive. In dealing with Democrats, petrified that the government might lose some of its sacred territory, that counts as progress.
The argument that the 30 year fixed rate loan would disappear had become untenable. In my testimony, I introduced the fact that this week Wells Fargo (the largest mortgage lender in the US) was offering a 30 year fixed rate non-government mortgage for 4.5%, while the government form of the same mortgage was 15 basis points higher at 4.65%. Apparently, Wells had found a way — previously said by the Left to be impossible — to hedge a 30 year fixed rate loan.
Arnold Kling adds that there are factors which suggest that no one knows what the rate would be if there were no government guarantees. He points out that Frannie is under pressure to increase profits and is therefore padding its rate, while Wells as a too big to fail bank enjoys a subsidized cost of capital. True, but I don’t think it invalidates the point that no entity outside of government would offer the 30 year mortgage.
Wallison also points out the more important point. The 30 year fixed rate mortgage is a bad deal for borrowers and exists primarily to serve the interests of the real estate industry and home builders. Specifically, by lowering monthly payments it encourages buyers to purchase more expensive housing at the cost of paying more total interest, accepting a higher initial interest rate and accumulating equity at a slower rate.
Mortgage Modification Failures
HAMP is the government’s main foreclosure prevention program. It was established to assist borrowers via reduced interest rates, extended loan terms and reductions of principal. A new report by the inspector general responsible for overseeing the program (SIGTARP) says that things aren’t exactly going as planned. CNN Money summarized the problems.
Nearly 1.2 million mortgage modifications have been completed since the Home Affordable Modification Program (HAMP) was first launched four years ago. Yet more than 306,000 borrowers have re-defaulted on their loans and more than 88,000 are at risk of following suit, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) found in its quarterly report to Congress.
In addition, the watchdog found that the longer a homeowner stays in the HAMP modification program, the more likely they are to default. Those who have been in the program since 2009, are re-defaulting at a rate of 46%, the inspector general found.
You would expect the default rate to be decreasing as the portfolio ages, not increasing. The overall performance of the program is disappointing but the high re-default rate for the oldest participants signals major problems down the road. SIGTARP said it identified some issues which might be behind the defaults but said Treasury needs to identify the causes of the problem. Apparently they have no clue but did indicate they were, “…researching the performance of modifications under the HAMP program and working on ways to improve the re-default rates…” Sounds like they’re right on top of things, huh?
It won’t come as a surprise to you that this less than stellar program has been extended to 2015. The saving grace has been that relatively fewer homeowners than expected took advantage of this boondoggle so costs are going to be, by Washington standards, manageable. Let’s hope that there isn’t a sudden surge in interest over the next couple of years.