The first page of the Business Section of a prominent newspaper had these headlines on June 26, 2013:
Risk Seen in Rate Surge
“Mortgage rates have zoomed a full percentage point above their recent record lows, raising costs for borrowers and questions about the housing recovery.” Doug Duncan, Fannie Mae’s chief economist, was quoted as saying “the higher rates would have the immediate effect of pricing certain stretched borrowers out of the market. But he said he thought it would take rates rising to 6% over the next 12 months to depress home purchases and prices.”
Stay tuned!
Soaring Home Prices Raise Fear of Bubble
“Home prices in large U.S. cities rose sharply in April, posting the biggest one month gain in the history of the Standard & Poor’s/Case-Shiller index. Prices have risen so quickly in certain markets that some economists are warning of another housing bubble. San Francisco posted the biggest year over year gain, a whopping 23.9%. Home prices can’t continue at this breakneck pace for long without accompanying growth in jobs and wages, economists said. Relatively tight access to mortgage credit should also put a check on runaway prices. Said Richard Green, director of the USC lusk Center for Real Estate – ” I would be stunned if we keep going at this pace.”
Stay tuned!
Fannie, Freddie May Be Replaced
“Nearly five years ago, the subprime meltdown triggered a huge taxpayer bailout of housing finance giants Fannie Mae and Freddie Mac. Four Democrats and four Republicans want to shut down Fannie and Freddie over five years and replace them with a new government agency modeled on the Federal Deposit Insurance Corp.(FDIC).”
The problem? Fannie and Freddie have posted record profits under government conservatorship, paying a combined $65 billion in dividends to the government. Plus, Fannie Mae is set to make an additional $59.4 billion payment by the end of June. These payments have reduced the federal deficit, but if another housing bubble develops, taxpayers could be on the hook for pumping more money into Fannie and Freddie. The legislators want to avoid this by requiring private companies that package mortgages into securities – primarily banks – to hold at least 10 cents in capital for every dollar of the underlying loans to help cover potential losses. This is the first step in the reform process.
But, said Bert Ely, an independent banking consultant, the improved financial condition of Fannie and Freddie makes it difficult to shut them down. “The old saying is you prefer the devil you know over the devil you don’t know. And we know Fannie and Freddie.”
Stay tuned!
What does it all mean? My daily business activity tells me there is definite optimism amongst the folks. I think it is cautious optimism, however. Only time will tell what kind of playing field we will have and if the true players – you and me – will feel the confidence in our guts to spur a true and sustainable recovery.
Stay tuned!
