Housing Starts Rise 3.9 Percent in November

Nationwide housing starts rose 3.9 percent in November to a seasonally adjusted annual rate of 555,000 units from an upwardly revised number in the previous month, according to newly released data from the U.S. Commerce Department. This marked the first upward movement in new-home production since August, and was entirely attributable to a nearly 7 percent gain in single-family home building.

"Builders are very cautiously adding to their diminished inventories in preparation for the spring buying season and an anticipated modest revival in buyer demand when the economy shows more signs of improvement," said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. "That said, we are still looking at a very low level of housing production, due largely to builders' inability to obtain construction financing."

"The modest increase in single-family starts and permits in November is consistent with a very low inventory of unsold new homes and our member surveys that have shown a degree of optimism among builders with regard to sales expectations in the next six months," said NAHB Chief Economist David Crowe. "However, builders continue to find it extremely difficult to obtain credit for acquisition, development and construction activities, and this is weighing on their ability to initiate viable new projects that could generate much-needed job growth."

The 3.9 percent gain in overall housing starts this November was due entirely to a 6.9 percent increase to a 465,000 unit seasonally adjusted annual rate of new-home production on the single-family side. Meanwhile, multifamily housing starts declined 9.1 percent to a 90,000-unit rate.

Regionally, starts activity showed gains in all but one part of the country in November. The Midwest, South and West each posted gains, of 15.8 percent, 2.3 percent and 2.1 percent, respectively, while the Northeast posted a 2.5 percent decline.

Permit issuance, which can be an indicator of future building activity, declined 4 percent to a seasonally adjusted annual rate of 530,000 units in November, its lowest level since April of 2009. However, this decline was entirely due to a 23 percent drop-off in the more volatile multifamily sector, where permits hit a seasonally adjusted annual rate of just 114,000 units. In contrast, single-family permits rose 3 percent to a rate of 416,000 units – their highest level since this June.

Regionally, permit activity was mixed in November, with the Northeast and Midwest registering declines of 8.3 percent and 22.2 percent, respectively, and the South and West posting gains of 1.9 percent and 2.7 percent, respectively.

Obama’s Pick to Lead Fannie Mae, Freddie Mac Promises Leadership

President Barack Obama’s nominee to lead Fannie Mae and Freddie Mac recently pledged to Congress to offer not just management, but leadership, if he becomes the new chief of the troubled housing agencies.
Joseph A. Smith Jr., the North Carolina banking commissioner, was in Washington most of last week, meeting with senators, congressional staff and other officials.

He recently testified before the Senate Banking Committee, the panel that will consider his nomination to be director of the Federal Housing Finance Agency. The FHFA oversees not only the two mortgage giants, but also a dozen federal home loan banks that lend to community banks across the country.

Smith’s nomination comes as Fannie and Freddie remain in federal conservatorship, receiving $151 million from the Treasury Department to maintain their work in the housing market. Obama must offer Congress a plan in January for reorganizing the agencies.

Both play a critical role in the housing market by buying bundled mortgages from lenders and keeping cash in the system.

If confirmed by the full Senate, Smith would hold much of the responsibility for carrying out Obama’s plan. “The activities of Fannie Mae and Freddie Mac are national in scope but local in impact, directly affecting communities across the country,” Smith said. “Leadership in this context means determining how to address critical local needs in conjunction with the agency’s duties of conservatorship.”

The Senate Banking Committee, and then the full Senate, must vote on Smith’s nomination this month before Congress adjourns. Otherwise, the nomination expires and Obama must put forward the name of a potential candidate again in the next Congress.

Smith faced tough questions—but no time for answers—from Sen. Richard Shelby of Alabama, the committee’s top Republican. In a hearing cut short by Senate floor votes, Shelby used his time to pepper Smith with questions, but he said he’d wait until later for written answers.

Banking Committee Chairman Christopher Dodd, D-Conn. endorsed Smith and praised his qualifications, saying in a statement that he would work with top Senate leaders to get Smith confirmed before Congress adjourns.

Smith would bring to the housing agencies his reputation as a champion for states’ abilities to protect consumers against abusive mortgage practices. He oversaw implementation of North Carolina’s laws against predatory lending, considered some of the toughest in the nation, and he testified that he worked to get “undesirable characters” out of the mortgage licensing system.

He also has supported Fannie Mae’s and Freddie Mac’s ability to support homeownership.

November Housing Scorecard Shows Continued Signs of Stabilization in House Prices and High Home Affordability

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury released the November 2010 edition of the Obama Administration’s Housing Scorecard (www.hud.gov/scorecard). The latest housing figures show continued signs of stabilization in house prices and high home affordability due in part to record low mortgage interest rates. The housing scorecard is a comprehensive report on the nation’s housing market.
“The Obama Administration has made significant strides in promoting stability for the housing market and the nation’s homeowners. Through a range of swift actions since we took office, we’ve seen millions more families able to stay in their homes and a steady rise in responsible borrowers refinancing their loans or becoming homeowners,” said HUD Assistant Secretary Raphael Bostic. “But, while we cannot stop every foreclosure, we know that more has to be done to reach homeowners in distress and to help unemployed borrowers. That’s why we’re continuing to focus on successfully implementing the programs we’ve put in place—such as neighborhood stabilization funding, additional assistance on refinancing and emergency loans to help unemployed homeowners—and ensuring that help is available to homeowners as early as possible.”

“The recent reports of problems in the foreclosure process underscore the importance of helping responsible homeowners avoid the pain of foreclosure,” said acting Assistant Secretary for Financial Stability Timothy Massad. “As we implement additional program enhancements to reach more homeowners, we continue to stress to mortgage servicers the importance of making every effort to enroll eligible homeowners in HAMP and provide meaningful alternatives to avoidable foreclosures.”

The November Housing Scorecard features key data on the health of the housing market including:

-An additional one million families refinanced their mortgages in the last quarter, taking advantage of the lowest rates in history on 30-year fixed mortgages. Since April 2009, record low interest rates have helped more than 8.3 million homeowners to refinance, resulting in more stable home prices and $15.2 billion in annual borrower savings.

-As expected with the expiration of the Home Buyer Tax Credit, new and existing home sales have remained below levels seen in the first half of 2010. At the same time, home prices remained level in the past year after 33 straight months of decline and homeowners added $95 billion in home equity in the second quarter.

-More than 3.73 million modification arrangements were started between April 2009 and the end of August 2010—more than double the number of foreclosure completions during that time. These modification arrangements included nearly 1.4 million trial Home Affordable Modification Program (HAMP) modification starts, more than 600,000 Federal Housing Administration (FHA) loss mitigation and early delinquency interventions, and nearly 1.8 million proprietary modifications under HOPE Now. While some homeowners may have received help from more than one program, the number of agreements offered were more than double the number of foreclosure completions for the same period (1.6 million).

Data in the scorecard also show that the recovery in the housing market continues to remain fragile. While the recovery will take place over time, the Administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market.

Well-Kept Yards Signal Neighborhood Safety, Suggests New Relocation Survey

A new survey conducted by Relocation.com finds that 75% of Americans believe the most important factor in determining a neighborhood’s safety is the up-keep of surrounding homes, especially the conditions of the front lawns, which trumps even Googling neighborhood statistics to get a feel for a community.

The latest Relocation.com survey finds that 74% of respondents indicated they would select a neighborhood based on “word-of-mouth” or its local reputation over any other reason, while 67% of the respondents say they pay attention to local crime reports and statistics as reported in the local media. Less compelling, according to the Relocation survey are “a gated community with security patrols” and “proximity to a police or fire station” when determining the safety of a neighborhood.

“It’s interesting to see how home buyers determine neighborhood safety based on the neighborhood’s appearance and not as much based on police statistics or crime reports,” said Relocation.com Chairman and Founder Sharon Asher. “Our findings suggest that some home sellers who are struggling to generate interest may want to go the extra mile and help their neighbors with landscaping needs in order to create buyer interest.”

The Relocation.com survey was conducted in mid-October, 2010, in a continuing effort to provide information on lifestyle factors that drive moving and relocation decisions in the U.S.

Builder Confidence Improves in October

Builder confidence in the market for newly built, single-family homes rose three points to 16 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for October, released today. This was the first improvement registered by the HMI in five months, and returns the index to a level last seen in June of this year.

"Builders are starting to see some flickers of interest among potential buyers, and are hopeful that this interest will translate to more sales in the coming months," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "However, because most builders still have no access to credit for building homes, there is a real concern that we will not be able to meet the pent-up demand when consumers are ready to get back in the market. This problem threatens to severely slow the housing and economic recovery."

"The new-homes market is finally moving past the lull that occurred when the home buyer tax credits expired and economic growth stalled this summer," noted NAHB Chief Economist David Crowe. "While challenges such as competition from foreclosures, inaccurate appraisal values, and general consumer uncertainty about the economy and job market continue to be major factors, builders have seen a slight increase in consumers who are considering a home purchase. The toughest obstacles really come down to financing – the scarcity of construction credit for builders along with tougher mortgage requirements for consumers."

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three of the HMI's component indexes registered gains in October. The index gauging current sales conditions rose three points to16, while the index gauging sales expectations in the next six months rose five points to 23 and the index gauging traffic of prospective buyers rose two points to 11.

Builder confidence also improved across every region in October. The South and West each posted four-point gains, to 18 and 12, respectively, while the Northeast and Midwest each posted single-point gains, to 17 and 13, respectively.

Housing Tax Incentives Benefit Younger Households Most

New research from the National Association of Home Builders (NAHB) reveals that the benefits of housing-related tax deductions, such as the mortgage interest deduction, generally decline in value as individuals age. Using Internal Revenue Service Statistics of Income (SOI) data, NAHB was able to report for the first time how various tax deductions are used by different age groups. The analysis demonstrates that the biggest beneficiaries are younger households, who typically have large mortgages, small amounts of equity in their homes and growing families.
“Opponents falsely argue that the deduction is only for the wealthy, but it is clear that the mortgage interest deduction is also of great value to younger homeowners,” said Robert Dietz, assistant vice president for Tax and Policy Issues for NAHB. “Any tampering with this deduction would have a disproportionate impact, as a share of household income, on younger homeowners who have relatively higher mortgage interest payments. These are households who have growing demand for homeownership due to marriages and children.”

The average mortgage interest deduction peaks for taxpayers in the 35 to under-45 age group, followed by the 18-to 34-aged taxpayers, and declines as the taxpayer gets older. According to the research, this occurs because the mortgage interest deduction peaks soon after the taxpayer moves from renting to homeownership, and declines over time as homeowners pay down existing mortgage debt and increase homeowner equity.

When examining the age distribution of those claiming the deduction for mortgage insurance, which is associated with homeowners making a downpayment of less than 20%, the analysis found that the largest share—59%—goes to those aged 18 to under-45.

The age-related pattern for the smaller tax deduction for local and state real estate taxes, however, differs slightly. Unlike the mortgage interest deduction, which declines in value as taxpayers age, the value of the real estate tax deduction increases as taxpayers age, primarily due to increases in home values as household income and wealth increases.

The report also shows that both housing deductions—for mortgage interest and real estate taxes—fall as a share of household income for older taxpayers. In contrast, the share of other non-housing deductions, such as the medical expense, charitable contribution, and investment interest expense deductions, rises for taxpayers who are 65 and older.

NAR Says Families Will Suffer if Foreclosure Freeze Continues

Thousands of first-time and move-up buyers who hoped to make a foreclosed property their new home now face uncertainty, anxiety and possibly remorse as they worry that closing on their desired property could be in jeopardy.

For many, the dream of homeownership could turn into agony if their home purchase is indefinitely delayed by a moratorium on foreclosures declared by some banks, the National Association of Realtors® said today. The moratoriums are needed, banks say, to review all of the foreclosures in their portfolios to make sure they’re in compliance with the law and that titles are clear.

NAR warned that a prolonged review process would have a damaging impact on many communities and hinder the nation’s economic recovery.

“As the leading advocate for homeownership issues, we understand that many lenders need a time-out to review their actions to ensure that homeowners are not improperly foreclosed on and that the lenders are following regulations and state laws. After that, the foreclosure process must resume quickly to return stability to families, the housing market and the economy,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates, Tucson, Ariz.

Over the past few months NAR has met with officials of top banks to discuss market issues. NAR urged banking leaders to seek resolution quickly through loan modifications and the short-sale process rather than through foreclosure. “We stand ready to help lenders develop better short-sale procedures,” Golder said.

“There are valid foreclosures that should move ahead quickly, and we shouldn’t lump them in with mortgages that are suspect. That would cause deep problems in an already fragile market and throw many families into uncertainty,” Golder said.

Golder said that she is receiving reports from Realtors® that the moratorium is already creating some anxiety among purchasers as transactions are being delayed and that some foreclosure listings are being removed from the market.

Compounding the problem is that the requirements for foreclosure vary by state, and practices to meet these requirements vary by firm. NAR is working with regulators, such as the Federal Housing Finance Agency; and encouraging them to identify and quickly address process problems.

In a letter today to the U.S Treasury Department, the U.S Department of Housing and Urban Development, and the Federal Housing Finance Agency, NAR stated the hope that banks would complete their foreclosure review expeditiously to assure that the rights of borrowers are protected and remove doubt that buyers will receive clear title to their purchase.

“NAR has long urged the lending industry to take every feasible action to keep families in their homes with a loan modification and, if that is not possible, to give them a ‘graceful exit’ through a short sale. These options are far better than a foreclosure, and nothing has driven this point home more clearly than the questions being raised about foreclosures. Lenders should place additional resources into processing loan modifications and short sales,” NAR wrote.

Will Foreclosure Freezes Fix the Housing Market?

MoneyWatch)—On Friday, Bank of America announced that it would suspend foreclosures in 23 states while it amended filed paperwork. That makes B of A the third major bank in two weeks to put its foreclosure process in limbo. Two days earlier J.P. Morgan Chase announced it would freeze foreclosures on more than 50,000 homes currently in receipt of a foreclosure filing. Last week, Ally Financial Inc. (the former GMAC Mortgage) also froze foreclosures.
All three banks have admitted to problems in the processing of foreclosures, including the use of so-called “robo-signatures,” employees who job it is tp solely sign foreclosure docs without reviewing the paperwork.

Today, Ohio’s Secretary of State Jennifer Brunner asked federal prosecutors to investigate foreclosure irregularities in her state. Ohio has been pushing lenders to do better. On September 17, Ohio Attorney General Richard Cordray announced that the state court had affirmed its case and legal strategy of holding loan servicers accountable in the foreclosure crisis.

So will Chase’s and Ally’s foreclosure freeze ultimately fix the housing market? That’s one theory put forth in today’s New York Times. But, I’m not so sure. What will happen in the short run is that all of the banks will put a moratorium on the foreclosures. Law firms that have become foreclosures processing machines in places like Florida, will have a lot of extra time on their hands.

I suppose, in the best of all worlds, slowing down or freezing foreclosures might actually force lenders to take a harder look at ways they might keep folks in their homes, like doing more loan modifications. That would reduce the so-called “shadow inventory” and keep housing values from crashing again.

Again, that’s the best possible scenario. I think it’s too soon to tell. And, there’s a lot that’s going wrong with the economy right now (jobs, anyone?) which could complicate the view in any rose-colored glasses.

Right now, those who have Chase and GMAC on the top of their loans are getting a reprieve.

Obama Administration September Housing Scorecard Shows Continued Advances in Housing Market; Challenges Remain

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury recently released the September edition of the Obama Administration’s Housing Scorecard (www.hud.gov/scorecard), a comprehensive report on the nation’s housing market. The latest housing figures show continued signs of stabilization in house prices. Although existing and new home sales declined in July, recent data shows housing starts rebounded in August.

“Over the last 17 months, the Obama Administration has taken comprehensive action to keep interest rates at record lows, provide incentives to responsible home buyers, and help millions of families stay in their homes,” said HUD Assistant Secretary Raphael Bostic. “But we’re certainly not going to stop fighting to turn things around. That’s why we are focusing on successfully implementing the programs we have put in place, such as additional assistance on refinancing and helping unemployed homeowners stay in their homes, and will continue to monitor the market closely in case more is needed.”

“We’ve been steadily enhancing our programs to help struggling homeowners avoid foreclosure,” said Treasury Assistant Secretary for Financial Stability Herb Allison. “We understand that the foreclosure crisis can be highly localized and some regions have seen severe home price declines and faced severe unemployment. As a result, we have announced more than $4 billion for states hit hardest by this crisis. Our goal is to help build a sustainable, long-term housing recovery. As part of that effort, we have delivered critical support to struggling homeowners while the market continues to heal.”

The September Housing Scorecard features key data on the health of the housing market including:

-Families continued to benefit from the lowest rates in history on 30-year fixed mortgages. Since April 2009, record low rates have helped more than 7.1 million homeowners to refinance, resulting in more stable home prices and $12.7 billion in total borrower savings.

-Existing and new home sales shifted downward in July, though stabilizing housing prices drove improving expectations in some regions. As expected with the expiration of the Home Buyer Tax Credit, new and existing home sales showed a dip in July. At the same time, home prices have leveled off in the past year after 30 straight months of decline and homeowners added $95 billion in home equity in the second quarter.

-More than twice as many modification arrangements have begun compared to foreclosure completions. More than 3.35 million modification arrangements were started between April 2009 and the end of July 2010. These included more than 1.3 million trial Home Affordable Modification Program (HAMP) modification starts, more than 510,000 Federal Housing Administration (FHA) loss mitigation and early delinquency interventions, and nearly 1.6 million proprietary modifications under HOPE Now. The number of agreements offered continued to more than double foreclosure completions for the same period (1.24 million).

-More than 468,000 permanent modifications granted to homeowners; more than 33,000 homeowners received a HAMP permanent modification in August. In addition, servicers continue to work aggressively through their backlog of pending modifications, which is expected to decline in coming months. Homeowners in permanent HAMP modifications have a median monthly payment reduction of 36%, or more than $500 per month. Homeowners in permanent modifications saw their median first-lien housing expenses fall from nearly 45% of their monthly household income to 31%.

For more information, visit www.hud.gov.

Springfield, MO Makes Forbe's Top Ten Best Housing Markets for Investors

It has been a tough few years in the housing market, and the Greater Springfield area hasn't been immune. A frequent question on the minds of many is: "When will recovery begin?" The truly astute are wondering: "Where will the housing recovery take hold first?"

A clue to the answer to that question may have come this week, when Forbes.com released its list of the top ten housing markets in America for investors. The Springfield, MO MSA made the list at number nine.

From the story: “To select the best markets for investing, Local Market Monitor (a North Carolina - based real estate research firm) analyzed the 145 Metropolitan Statistical Areas with populations over 400,000 on a variety of factors, including historic population growth, job growth, housing price changes and the mix of jobs in an area, using data through Sept. 1. The investing sweet spot is a market where strong job growth is predicted over the next three years, the population was expanding rapidly before the recession began and home prices are at or near their bottom.”

The story could foretell good news for home builders, buyers and sellers. But it also represents a strong vote of confidence for the near-term strength of the region from an economic development perspective. Consider these excerpts from the story:

“LMM wasn't looking for markets that had come back--this list identified where they think the housing market will come back, with the greatest chance for price appreciation.”

"These are markets that in the past year have had sharp turndowns but we think they have longer-term potential," says Wizner. "Markets with longer-term prospects in general have had above-average population growth between 2000 and 2005."
As encouraging as it is for many that Springfield is a market expected to come back stronger and sooner than most, not every real estate investment here is necessarily a good one. Experts agree that the future holds a very different and dicier investment picture from what became the norm before the downturn. Investors will have to pay more attention than ever to studying precisely where those market opportunities exist here. They will have to be much more sophisticated about investment decisions in the future than most were in the past. That’s why the Home Builders Association of Greater Springfield made the decision last year to invest in bringing and making available locally an unprecedented level of construction market research and forecasting data. As the local market supplier of MarketGraphics research, the HBA brings invaluable insight to its members, lenders, and the broader real estate industry as an important tool for making careful, wise choices, even in the early stages of recovery.

Still, for many, it will be comfort enough to simply know that there ARE wise choices for real estate investment here. Many in local real estate have become accustomed to the view that, as difficult as it has been in the local housing market, they'd rather do what they do here than anywhere else in the country. Now, it appears, Forbes agrees.

Article by: The Home Builders Association of Greater Springfield

FHA Short Refinance Option Now Available

In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today will begin providing an additional refinancing option for underwater borrowers. Originally announced in March, this enhancement of Federal Housing Administration (FHA) refinance program will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lien holders agree to write off at least 10% of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth—also known as being ‘underwater’—because their local markets saw large declines in home values. As announced earlier this year, this change as well as other programs that have been put in place will help the Obama Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3-4 million struggling homeowners through the end of 2012.

Participation in FHA’s short refinance program is voluntary and requires the consent of all lien holders. To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth and be current on their existing mortgage. The homeowner must qualify for the new loan under standard FHA underwriting requirements. The property must be the homeowner’s primary residence and the borrower’s existing first lien holder must agree to write off at least 10% of their unpaid principal balance. In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75% and a combined loan-to-value ratio no greater than 115%.

To facilitate the refinancing of new FHA-insured loans under this program, the U.S. Department of Treasury will provide incentives to existing second lien holders who agree to full or partial extinguishment of the liens. To be eligible, servicers must execute a Servicer Participation Agreement (SPA) with Fannie Mae, in its capacity as financial agent for the United States, on or before October 3, 2010.

Smart Design Creates Energy-Efficient Home

The Lake County, Fla., home Paul Fallman shares with his wife and two daughters has 4,000 square feet of living space. Yet his electric bills have averaged just $180 a month so far this year, despite record-low winter temperatures and close-to-record summer highs.

His natural-gas bill for two tankless water heaters and a fireplace averages $25 a month.
“My focus with this house was energy-efficiency,” says Fallman, owner of Fallman Design & Construction in Clermont, Fla. “It’s so easy to do. It’s a great marketing angle. And it’s the right thing to do.”

The key to the energy-efficiency of the lakefront home, which is certified by the Florida Green Building Coalition, is its south-facing orientation, said Fallman, who has made green-building his specialty.

Before starting construction, he commissioned a solar-path study to track the angle of the sun in winter and summer. He used the information to design a home that would be flooded with sunlight during the cooler months, but shaded by porches, balconies and extra-wide roof overhangs when temperatures soar.

“It’s the single thing a builder can do to make a home more efficient without much more expense,” he says.

The three-garage home on the site of the historic Clermont Yacht Club, which was torn down in the early 1950s, is also angled to maximize views across two-mile-wide Lake Minnehaha. Facing the lake on the first floor are the kitchen, dining room, living room and master suite, which either open onto screened porches or are shaded by wide roof overhangs and high-performance windows—tinted, Low-E4 and argon-filled. Upstairs, covered balconies or roof overhangs shade the windows and walls of the three bedrooms and loft area. An apartment above a second garage has similar features.

To receive certification from the green building coalition, a home must be inspected by a green certifier and an energy rater, Fallman says. The green certifier makes as many as 10 checks of the site and home before and during construction, checking for items such as site drainage and properly sealed plumbing pipes, doors and windows. The energy rater conducts a duct-blast test, blower-door test and thermal-envelope test to determine how airtight the home is.

The Fallman home has a Home Energy Rating System (HERS) score of 62 out of 100. The lower the score, the more energy-efficient the home. For a home to be Energy Star-rated, it must score 85 or lower.

At present, about 70% of the payback for building green is improved energy-efficiency, Fallman says. Spending $3,000-$5,000 on equipment upgrades and an additional $2,000-$3,000 on green construction will pay for itself in 5-10 years, he figures.

Certainly, better air-handling equipment cuts down on dust and indoor humidity; better insulation creates a quieter home; drip irrigation in the yard saves water.

The Fallman home, which is on the market for $1.1 million, also features these energy-efficient elements:

-Fifty-year shingle roof with Icynene spray-foam insulation, which keeps cool air in, heat and dampness out; protects against dust and insects; and improves structural strength.
-Concrete-block walls with rigid insulation on the first floor, and 2×6 frame with R-19 batt insulation on the second floor.
-Semi-air conditioned, 200-square-foot attic, which keeps ducts about 30 degrees cooler in the summer so the air-conditioner doesn’t have to work as hard.
-Low-E4 windows with tinted, high-performance glass and wood frames which don’t conduct heat.
-Non-conductive fiberglass doors with insulated glass.
-Dual-compressor 20 SEER (seasonal energy efficiency ratio) air-conditioner and timeable bathroom fans for humidity control.
-Two tankless gas water heaters.
-Gas fireplace with electric ignition.
-Windows at the top of the stairs to vent rising hot air and ceiling fans in many rooms.
-Energy-Star appliances, which use less energy.
-Compact fluorescent lighting.

(c) 2010, The Orlando Sentinel (Fla.).

Distributed by McClatchy-Tribune Information Services.

Pending Home Sales Post Surprise Jump in July

Pending sales of previously owned U.S. homes rose unexpectedly in July, an industry group said on Thursday, suggesting a tax credit-related housing market decline was close to bottoming.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, increased 5.2 percent to 79.4 from June.

June contracts were revised to show a slightly bigger 2.8 percent decline instead of the previously reported 2.6 percent fall.

Compared to the July last year, pending home sales fell 19.1 percent. Economists polled by Reuters forecast the index, which leads existing home sales by a month or two, falling 1.0 percent in July.

Home sales and building activity have dropped sharply following the end in April of a popular tax credit for home buyers.

"Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery," said Lawrence Yun, NAR chief economist.

Housing Starts Rise 1.7 Percent in July

Nationwide housing starts inched up 1.7 percent to a seasonally adjusted annual rate of 546,000 units in July from a downwardly revised figure in the previous month, according to U.S. Commerce Department figures released today. The gain occurred entirely on the multifamily side, with single-family housing production falling 4.2 percent to 432,000 units.

“Builders are very reluctant to build more homes in view of the current state of the economy and weak buyer demand,” noted Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich.

“Right now the housing market is essentially in a holding pattern,” acknowledged NAHB Chief Economist David Crowe. “As our latest member surveys have indicated, builders are seeing greater hesitancy among potential home buyers who are uncertain about what’s in store for the economy and jobs going forward. That said, favorable home buying conditions including historically low mortgage rates and low house prices should help spur additional demand as the job market gradually improves later this year.”

The entire 1.7 percent gain in housing production this July was due to a 32.6 percent jump on the more volatile multifamily side, which brought that sector back closer to trend at a 114,000-unit rate following a major dip in the previous month. Meanwhile, single-family housing production declined 4.2 percent to a seasonally adjusted annual rate of 432,000 units, its lowest mark since May of 2009.

Two regions registered improved starts activity in July, with the Northeast and Midwest each posting double-digit gains, of 30.5 percent and 10.7 percent, respectively. The South, which is the country’s largest housing market, posted a 6.3 percent decline in starts this July, while the West posted no change in starts activity.

Permit issuance, which can be an indicator of future building activity, declined 3.1 percent to a seasonally adjusted annual rate of 565,000 units in July. Single-family permits fell 1.2 percent to 416,000 units, while multifamily permits fell 8 percent to 149,000 units. Regionally, permits fell nearly 26 percent in the Northeast, 1.1 percent in the Midwest, and 4.9 percent in the West, but gained 3.9 percent in the South in July.

Broad Stabilization in Second Quarter Metro Area Home Prices with Strong Sales

The real estate trend in firming home prices solidified in the second quarter with more metropolitan areas showing increases from a year ago, aided by a surge in home sales driven by the home buyer tax credit, according to the latest survey by the National Association of Realtors. In the second quarter, 100 out of 155 metropolitan statistical areas (MSAs) had higher median existing single-family home prices in comparison with the second quarter of 2009, including 14 with double-digit increases; two were unchanged and 53 metros showed price declines. In the first quarter of this year, 91 areas had higher prices, while only 26 MSAs experienced annual price gains in the second quarter of 2009.

The national median existing single-family price was $176,900 in the second quarter, up 1.5% from $174,200 in the same period of 2009. The median is where half sold for more and half sold for less. Distressed homes accounted for 32% of second quarter sales, down from 36% a year ago.

Lawrence Yun, NAR chief economist, said the correction in home prices appears to have ended in 2009. “All year we’ve been seeing relatively flat national home prices, which appear to be supported by market fundamentals,” he said. “Prices in some areas remain below replacement construction costs, so even with an elevated supply of existing homes on the market, we don’t expect any consequential movement in home prices for the foreseeable future. Very low inventory of newly built homes will also help to support home values.”

Yun urged caution on interpreting price data. “The median price is influenced by the mix of homes that were sold and do not reflect pure appreciation or depreciation,” he said. “The recorded home prices in many markets were significantly depressed last year because of a large percentage of distressed homes sold at discount. Now as more normal, non-distressed home sales are occurring, the median price in many areas is showing higher values.”

Total state existing-home sales, including single-family and condo, rose 9.1% to a seasonally adjusted annual rate of 5.61 million in the second quarter from 5.14 million in the first quarter, and were 17.3% above the 4.78 million-unit pace in the second quarter of 2009.

Sales increased from the first quarter in 44 states and the District of Columbia; 47 states and D.C. had increases over year-ago sales levels.

Regionally, the median existing single-family home price in the Northeast declined 3.2% to $238,000 in the second quarter from a year earlier. Existing-home sales in the Northeast jumped 14.9% in the second quarter to a level of 980,000 and are 23.6% above the second quarter of 2009.

In the Midwest, the median existing single-family home price increased 1.4% to $148,500 in the second quarter from the second quarter of last year. Existing-home sales in the Midwest rose 14.5% in the second quarter to a pace of 1.30 million and are 20.9% above the same period in 2009.

In the South, the median existing single-family home price slipped 2.0% to $155,500 in the second quarter from the second quarter of 2009. Existing-home sales in the South increased 10.9% in the second quarter to an annual rate of 2.10 million and are 18.8% above a year ago.

The median existing single-family home price in the West rose 2.6% to $219,700 in the second quarter from a year ago. Existing-home sales in the West fell 2.6% in the second quarter to an annual rate of 1.23 million but are 7.6% higher than the second quarter of 2009.

Remodeling Dips but Shows Signs of Stabilization

The remodeling market slid backward during the second quarter, according to the latest National Association of Home Builders' (NAHB) Remodeling Market Index (RMI). The RMI (combining current and future market indicators) sunk to 40.7 from 43.8 in the first quarter. Current market conditions slid back to 42.6 from 44.5 in the previous quarter. Future indicators of remodeling business declined to 38.9 from 43.1 in the last quarter.

The RMI measures market demand for current and future residential remodeling projects based on remodelers' perceptions and indicators of future activity like calls for bids. Any number below 50 indicates that more remodelers say market conditions are getting worse than report improving conditions. The RMI has been running below 50 since the final quarter of 2005 and during the last quarter approached break even again.

"Remodelers are suffering from weak consumer confidence and constricted credit lines," said NAHB Remodelers Chairman Donna Shirey, CGR, CAPS, CGP, a remodeler from Issaquah, Wash. "Homeowners are delaying remodeling projects because of economic uncertainty."

The current conditions indices for the remodeling market worsened in two regions: Northeast 41.4 (from 46.6 in the first quarter); and South 42.4 (from 44.1). However, current remodeling indices improved in the Midwest 44.7 (from 43.8) and the West 42.0 (from 34.8). Major additions fell to 44.2 (from 48.0), as did minor additions to 45.8 (from 47.3). Maintenance and repair indicators showed a milder decline, from 37.3 to 36.6.

All the indices for future remodeling business declined. Calls for bids dropped to 46.2 (from 49.4). Work committed for the next three months slumped to 27.9 (from 29.9). The backlog of remodeling jobs dipped to 37.7 (from 44.8), and appointments for proposals slid to 43.7 (from 48.1).

Responding to additional special questions in the survey, remodelers also reported on the changing composition of remodeling projects. Sixty-one percent said bathroom remodeling was one of their most common projects during the first half of 2010. Kitchen remodeling came next with 52 percent. In previous years, kitchen remodeling was reported as the most common activity by more than 70 percent of remodeler respondents.

In general, comparisons to historical data show that larger remodeling projects (such as room additions, whole house remodeling, bathroom additions, and second story additions) have been on the decline for several years. Smaller remodeling jobs (such as window and door replacements) have remained relatively steady, or, in the case of handyman services, actually increased. For example, only 29 percent of remodelers reported that room additions were a common activity in 2010, compared to 70 percent in 2004. Conversely, none of the professional remodelers responding to the survey reported that it was common for their companies to perform handyman services in 2004, while 33 percent of remodelers were regularly providing handyman work in the first half of 2010.

"While remodelers are continuing to struggle, we expect the rest of 2010 to be a period of stabilization for remodeling, with the first stages of recovery emerging by the end of the year, followed by a more robust recovery beginning early next year," said NAHB Chief Economist David Crowe. "For now, professional remodelers are taking on smaller projects and working to find consumers willing to spend money despite the economic uncertainty."

For more information about remodeling, visit www.nahb.org/remodel.

New-Home Sales Bounce Back from Record Low in June

Coming off an historic low in May, sales of newly built, single-family homes rose 23.6 percent to a seasonally adjusted annual rate of 330,000 units in June, according to U.S. Commerce Department data released today.

“Today’s numbers are an encouraging sign that new-home sales are coming back from an expected slow period that followed the expiration of the home buyer tax credit program,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “While we still have quite a way to go on the path to recovery, it’s good to see that we are headed in the right direction.”

“It’s worth noting that some of the new-home sales in June were due to move-up buyers who were able to sell their previous home to a tax-credit-eligible buyer while that program was active,” said NAHB Chief Economist David Crowe. “Also, while sales activity is still far from robust, it has picked up some momentum as positive factors such as historic low mortgage rates, great selection and attractive prices help draw potential home buyers back to the market. We anticipate that this momentum will continue along with a gradually improving economy, although other factors such as a critical lack of production financing remain a drag on housing’s recovery.”

Sales of new homes rose strongly in three out of four regions in June. The largest percentage increase was the Northeast’s 46.4 percent gain, followed by a 33.1 percent gain in the South and a 20.5 percent gain in the Midwest. The West was the only region where new-home sales did not improve in June, instead falling 6.6 percent to a new record low.

Meanwhile, the nationwide inventory of new homes for sale declined to 210,000 in June, the thinnest it has been since September of 1968. This amounts to a 7.6 months’ supply at the current sales pace.

Restoring AD&C Lending Key to Promoting Job and Economic Growth

With the Obama Administration and Federal Reserve this week sponsoring events that focus on how to ease regulatory burdens on the small business community that are constricting job growth, the National Association of Home Builders (NAHB) today urged policymakers to address the lack of financing for housing production that is impeding the housing and economic recovery.

"In normal times, housing accounts for about 17 percent of GDP," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "However, in the current economic climate, lenders have basically stopped making acquisition, development and construction (AD&C) loans and are calling in existing loans, even when the borrower's payments are current. Policymakers must act now to restore credit availability for viable home building projects; otherwise countless construction jobs will be lost, further jeopardizing the fragile economic recovery."

Federal Reserve Chairman Ben Bernanke said that the objective of a conference today at the Federal Reserve is to develop policies that will support the flow of loans to creditworthy small businesses. Meanwhile, the White House has asked business leaders and lawmakers to attend a jobs summit at the U.S. Chamber of Commerce on Wednesday to help identify regulatory obstacles that are hampering job and economic growth.

NAHB is reaching out to regulators, banks, Administration officials and members of Congress to seek action to reduce regulatory restrictions on AD&C credit and rein in overzealous bank examiners.

The vast majority of NAHB builder members are small businesses situated in communities across the nation who employ workers that contribute to the local economic base. NAHB estimates the one-year local impacts of building 100 single-family homes in a typical metro area result in the creation of 324 local jobs and an additional $21.1 million in local income and $2.2 million in taxes and other revenue for local governments.

Beyond its negative effect on home builders, the lack of AD&C lending has major implications for the economy and the nation, said Jones.

"Over the next decade, population growth will trigger demand for an average of at least 1.7 million additional homes per year," he said. "This translates into five million jobs and significant economic activity, including tax revenue. But without increased AD&C lending, this demand will not be met, jobs will be lost and job creation will suffer."

House Extends Deadline to Sept. for Homebuyer Tax Credit

The U.S. House of Representatives voted to give homebuyers who qualified for a federal tax credit more time to settle on their pending purchases.

The House voted 409-5 to extend the deadline for closing home purchases to Sept. 30. The program initially required borrowers who signed contracts before April 30 to complete paperwork by July 1 to get a tax credit of as much as $8,000.

The House measure accommodates borrowers at risk of being disqualified for the tax credit because lenders and loan servicers aren’t processing mortgages quickly enough. The Senate is considering similar legislation.

“We owe this to the people who have essentially followed the rule who are caught by a closing date,” House Ways and Means Committee Chairman Sander Levin, a Michigan Democrat, said before the vote.

As many as 180,000 homebuyers would lose their tax credit if Congress fails to push back the date, according to the National Association of Realtors, which sought the extension. Transactions at risk include as many as 75,000 short sales, or homes being purchased for less than the existing debt on them.

Top 10 Things You Should Know about Financial Reform

As the United States continues to put plans into action in order to help remedy the country’s financial situation, Americans are waiting optimistically to see the end result of the regulation bill that is moving through both the Senate and House. While the Senate recently approved their version of the big financial regulation bill by a 59-39 vote, the bill has now moved to a conference committee where it will be reconciled with the already passed House bill.
Here are the top 10 things you should know about the financial regulations bill.

1. End of too-big-to fail: If a big financial firm is failing, it will have only one fate: liquidation. There will be no taxpayer funded bailout. Instead, regulators will have the ability to shut down and break apart failing financial firms in a safe, orderly way – without putting the rest of the financial system at risk, and without asking taxpayers to pay a dime.

2. Close loopholes in regulation of major financial firms: Loopholes that allowed firms like Lehman Brothers, Bear Stearns and AIG to operate without tough standards or oversight were major contributors to the financial crisis. Regulatory reform will close these loopholes, and create accountable regulation for all firms that pose the most risk to the financial system. It will end the ability of financial firms to avoid tough standards by manipulating their legal structure.

3. Bring transparency to hedge funds: Financial reform will require advisers to hedge funds to register with the SEC for the first time, bringing transparency and oversight to these unregulated financial firms.

4. Constrain the size of the largest firms: Financial reform will prevent any financial firm from growing by acquisition to more than 10% of the liabilities in the financial system. This will reduce the adverse effects of the failure of any single firm and prevent the further concentration of our financial system.

5. Reform executive pay and strengthen shareholder protections: Financial reform will give shareholders a say in the compensation of senior executives at the companies they own, and require that the compensation committees of corporate boards are independent.

6. Separate banking and speculative trading – the Volcker Rule: Financial reform will protect taxpayers and depositors by separating risky, speculative “proprietary trading” from the business of banking.

7. Strongest consumer protections ever: Instead of seven federal agencies with only partial responsibilities for consumer protection, there will be one agency with the sole responsibility of establishing clear rules of the road for banks, mortgage companies, payday lenders, credit card lenders and other financial service firms and for enforcing these rules. From now on, every consumer will be empowered with the clear and concise information they need to make financial decisions that are best for them.

8. Crack down on the abuses in the mortgage markets at the center of the crisis: Financial reform will ban abusive practices in the mortgage markets, like those where brokers got paid more to put families into higher priced loans than those they qualified for, and require mortgage brokers and banks to consider a family’s ability to repay when making a loan. The reforms will also require lenders and Wall Street loan packagers to keep skin in the game when selling off loans to investors and make full disclosure so investors know what’s in those packages. Reforms of credit rating agencies will help make sure investors do not rely unwisely on their ratings on these packages.

9. Safer, more transparent derivatives market to help Main Street businesses: By bringing the derivatives markets out of the shadows, reform will benefit those businesses that use derivatives to manage their commercial risks. Reform will benefit Main Street companies at the expense of Wall Street’s hidden fees. That’s good for every farmer and every manufacturer that uses derivatives the way they were meant to be used. Derivatives reform also means the taxpayer won’t be on the hook for reckless risks of an AIG.

10. Support long term job growth by helping prevent future crises: By making the financial system safer and stronger, reform will reduce the chances that a financial crisis deprives businesses of the credit they need to grow and to create jobs. Financial reform will ensure businesses a more stable and predictable source of credit through the business cycle and reduce the risk of a sharp and sudden cut-off because of financial panic.

The Home Buyer Tax Credit Is Over, Now What?

The Home Buyer Tax Credit Is Over, Now What? In the aftermath of the deadline for the home-buyer-tax-credit, which advanced a significant amount of housing demand into April, monthly housing indicators turned negative.

Single-family starts fell 17% in May to a seasonally-adjusted annual rate of 468,000, which was a return to the level of May 2009. Single-family permits also dropped to similar year-earlier levels. The June NAHB/Wells Fargo Home builder sentiment index fell back five points to 17. May new home sales plunged 33% to their lowest level on record.

The deadline for signing a purchase contract has passed, but the deadline for closing is June 30 and could be extended to September if legislation already passed in the House passes in the Senate and is signed into law.

Since existing home sales are reported at closing, they are not expected to fall off until July. Nevertheless, they were down 2% to 5.66 million in May, although this could be due in part to a crush of closings causing delays and backlogs.

Putting the May sales decline into perspective, it was preceded by a 15% increase in sales in April. The average sales pace for the two months combined was 373,000, which was a 3% increase over the average for this year’s first quarter. A similar, although smaller, decline occurred in December, when the 2009 home buyer credit was scheduled to expire but was extended.

Beyond the influence of the tax credit, the more volatile multifamily starts jumped 33% to 125,000 in May from April’s 94,000 and multifamily permits were up 10%, suggesting that the apartment market may finally have reached bottom.

While vacancy rates remain high, they are down from their recent peak. Expected improvement in labor markets has also encouraged multifamily developers to begin planning new projects that can easily take one to two years to complete after they receive permits.

The real question now is whether what occurred in May is a harbinger of a housing market still unable to work up enough momentum on its own to sustain a recovery or simply a temporary side-effect of the tax credit doing its job.

Although housing activity in May was generally weaker than anticipated, several factors continue to support NAHB’s forecast for improvements in 2010. Mortgage interest rates are expected to remain at historically low levels for the remainder of 2010, with only a modest increase in 2011. House prices are back to where they were in 2003.

Although prices have been bouncing around, with small positive and negative changes from month to month, some markets have been inching upwards. The economy continues to show improvement in total output and employment growth, a vital element to housing demand. New home inventories are at their lowest level in almost 40 years, and any uptick in demand for new homes will almost certainly require increased residential construction.

From a longer perspective, the U.S. population continues to grow. Household formations have lagged behind trend as a result of the recession, and those unformed households represent the prospect of moves out of the overcrowded homes of friends and relatives.

And the economy in general has been advancing. Industrial production rose 1.2% in May and was up 7.6% from a year earlier. May capacity utilization rose to 74.7% from73.7% in April and 68.5% a year earlier. Retail sales stumbled in May, falling 1.2% from April, but were still up 6.3% from a year earlier. Despite May’s pullback in retail sales, both the University of Michigan’s consumer sentiment index and the Conference Board’s Consumer Confidence Index showed solid improvement for the month.

Meanwhile, according to government estimates, only a little over half of the funds from the American Recovery and Reinvestment Act — $409 billion of the $787 billion — has been distributed, leaving well over $300 billion in economic stimulus yet to come.

These economic and demographic forces are expected to provide sufficient stimulus to slowly push the housing market forward in the second half of this year. Financial Market Turmoil Turmoil in the Euro currency union stemming from fiscal problems in Greece and Spain and some other member countries has spilled over to the U.S. financial markets.

For now, the United States is benefiting from foreign investors seeking safety in Treasury securities and other U.S. fixed-income assets, pushing long-term interest rates lower. Below the 5% threshold for seven consecutive weeks, 30-year, fixed-rate mortgage rates are now among the lowest on record.

Although lower long-term interest rates are a positive for housing and the economy, the rising value of the U.S. dollar against the euro will increase the prices of U.S. exports and dampen demand for them in Europe.

Demand in Europe is likely to weaken further as governments on the continent impose stricter fiscal measures out of concern over their sovereign debt. On balance, lower interest rates but fewer exports will likely impose a minor drag on U.S. economic growth.
Federal Reserve Policy In statements from its June 22-23 meeting, the Federal Open Market Committee (FOMC) has indicated it will be continuing its monetary policy of “exceptionally low” interest rates for an “extended” period.

The FOMC’s assessment of the economy is in alignment with NAHB’s outlook. “The labor market is improving gradually,” and “household spending is …constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” the Fed said. It acknowledged that “housing starts remain at a depressed level.”

NAHB expects the federal funds rate to remain in the 0.0% to .25% range through the middle of 2011 as a relatively slow and prolonged recovery puts little stress on capacity and resources, keeping inflation in check. Low inflationary expectations, along with the situation in Europe, should help keep mortgage rates low.

NAHB projects that mortgage rates will remain below 6% through 2010 and most of 2011. Inflation Remains Tame The seasonally adjusted monthly Consumer Price Index was down in May for the second month in a row, falling 0.2% following a decline of 0.1% in April, but up 2.0% from a year earlier. Meanwhile, core inflation — excluding food and energy prices — rose a modest 0.9% from a year earlier, a rate consistent with the April data.

For the past year, the rental component of the CPI has been essentially flat, and as of May, it was down 0.1% from a year earlier. Homeownership “prices” are measured by using an owner’s equivalent rent that is largely driven by the rent index without utilities. That measure has also been drifting down — 0.3% over the past year.

The rent and owner components of the CPI make up 31% of the CPI. The soft rental market and excess vacancies have kept rents from rising, which has been a challenge to apartment owners who have seen other costs rising. It also has made it more difficult for multifamily projects to obtain financing.

Once the rental sector begins recovery and rents return to a more normal path, the CPI will also reflect the major influence housing costs have on overall inflation.

The Producer Price Index (PPI) for finished goods also fell for the second month in a row, down 0.3% in May after falling 0.1% in April. The May reading was up 5.3% from a year earlier, though that is down from March’s year-over-year increase of 6.0%.

Despite year-over-year declines in cement and gypsum prices, overall building materials prices in May rose 0.7% for both single-family and multifamily construction, their seventh consecutive monthly increase, and 4.6% and 4.7%, respectively, from a year earlier.

Some near-term price relief is likely at hand, with lumber prices in recent weeks retreating rapidly from their earlier increases.

House Passage of FHA Reform Bill

The National Association of Realtors® applauded the House for overwhelming passage of FHA reform legislation that would allow the Federal Housing Administration to adjust monthly premiums on mortgage insurance.

This bill, H.R. 5072, FHA Reform Act of 2010, would strengthen the FHA loan insurance program while keeping it available and affordable to responsible home buyers. Allowing FHA to raise the monthly insurance premium would let FHA lower the up-front premium that places a burden on cash-strapped borrowers at closing.

“As the leading advocate for homeownership and housing issues, NAR is very pleased that FHA will be allowed to play its intended countercyclical role to provide qualified borrowers with access to prime credit. FHA is a critical part of our nation’s economic recovery,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.

En route to passage, the House defeated an amendment that would have increased the FHA down payment from 3.5 percent to 5 percent, which would have disenfranchised more than 300,000 potential homeowners and would not have contributed significantly to FHA cash reserves.

“The current 3.5 percent down payment represents a significant financial commitment and sufficient investment to insure a borrower’s seriousness about homeownership,” said Golder. The proposed change could have an especially harsh impact on African American and Hispanic borrowers, who traditionally have much lower accumulated wealth and have benefited from the opportunities offered by fully documented, standard FHA loans with low down payments.

She also praised FHA’s aggressive efforts to protect taxpayers and manage credit risk.

Is Buying a Home in Today's Economy a Good Idea?

As a long-term investment, homeownership is still one of the best investments for individual households.

“Why” you may ask? After all, the headlines say the housing market is down and out, with defaults rising at an alarming rate, and mortgage markets so frozen that buyers can’t get a home loan at any price.

What buyers need to realize is that housing markets, like all markets, inevitably have their ups and downs. And homeownership has a track record that is virtually unmatched by any other purchase in terms of its real benefits.

Despite the turmoil in mortgage lending, if you have good credit, a job and steady income, you will find there is still plenty of mortgage credit to be had at good rates. For well-qualified buyers, rates are running at near historical lows.

Homeownership’s Real Value

Here are a few examples of why, dollar for dollar, homeownership is a solid stepping stone to a future of financial security and the single largest creator of wealth for many Americans.

Over the long-term real estate has consistently appreciated, even through periodic adjustments in local markets in response to economic conditions. On a national level, home appreciation has historically increased 5-6 percent annually, report economists at the National Association of Home Builders.

Five percent may not seem much at first, but here’s an example that will put it into perspective: Say you put 10 percent down on a $200,000 house, for an investment of $20,000. At a 5 percent annual appreciation rate, that $200,000 home would increase in value $10,000 during the first year. Earning $10,000 on an investment of $20,000 is an extraordinary 50 percent annual return.

In contrast, putting that $20,000 down payment into the stock market and getting a 5 percent gain would only yield a $1,000 profit.

Compared to Stocks

Looking at it another way, over a longer period of time, if someone put $10,000 into the stock market in 1997, the average annual S&P return would make that investment worth $21,500 today—an increase of $11,500. The median home price in 1997 was $140,000.

Today, that same home would have gained nearly $100,000 in value.

Don’t miss out on the benefits of homeownership.

Pending Home Sales Surge Continuing

Pending home sales have risen for three consecutive months, reflecting the broad impact of the home buyer tax credit and favorable housing affordability conditions, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator, rose 6.0 percent to 110.9 based on contracts signed in April, from an upwardly revised 104.6 in March, and is 22.4 percent higher than April 2009 when it was 90.6. That follows gains of 7.1 percent in March and 8.3 percent in February.

Pending home sales are at the highest level since last October when the index reached 112.4 and first-time buyers were rushing to beat the initial deadline for the tax credit. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said this second round of surging sales from the tax credit extension looks as strong as the original tax credit. “There were concerns that only a small pool of buyers were left to take advantage of the tax credit extension. But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales,” he said. “The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.” NAR expects a net of 1 million additional jobs in the second half of this year and about 2 million in 2011.

“The home buyer tax credit brought close to 1 million additional buyers into the market, which is now helping the trade-up market and has significantly improved the inventory situation. This stabilized home prices more quickly and has preserved about $900 billion in home equity; in turn, that is keeping additional households from going underwater and risking foreclosure,” Yun said.

30 Year Mortgage Rate Falling to Record Lows

U.S. mortgage rates continued their downward trek in the past week, edging closer to a record low set in early December, according to a survey released on Thursday by Freddie Mac, the second-largest U.S. mortgage finance company.

Lower interest rates on mortgages should buoy home loan refinancing activity, putting more cash into consumers' hands to funnel into the U.S. economy. It also makes homes more affordable during the most important period, the spring selling season.

Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.78 percent for the week ended May 27, down from the previous week's 4.84 percent, according to the survey.

That is below the year-ago level of 4.91 percent and also the lowest the rate has been since the week ended Dec. 3, 2009 when it hit a record low of 4.71 percent. Freddie Mac started the survey in 1971.

"These low rates will help to elevate home-buyer affordability and soften the effects of the sunset of the home-buyer tax credit," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.

Tax Credits Boost New-Home Sales in April

Sales of newly built, single-family homes surged 14.8 percent to a seasonally adjusted annual rate of 504,000 units in April as consumers rushed to beat the deadline for expiring home buyer tax credits, according to data released by the U.S. Commerce Department today. This was the strongest level of new-home buying activity since May of 2008.

“Clearly the home buyer tax credit program, which concluded at the end of April, was successful in getting the housing market moving again by helping many families achieve the dream of homeownership,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “Now that the program is over, other great buying incentives continue – including exceptionally favorable mortgage rates, very attractive home prices and the steadily improving economy – so there is good reason to expect the positive momentum to continue.”

“The surge of buying activity we have seen in the final two months of the tax credit program has been very encouraging, and has helped builders work down their standing inventories to near historic lows,” said NAHB Chief Economist David Crowe. “It stands to reason that this activity will level off over the next few months, as sales that would have occurred during that time were likely pulled forward to meet the April deadline. That said, today’s favorable home buying conditions, the recovering job market and reviving consumer confidence should help take the place of tax incentives to generate buyer demand.”

Three out of four regions posted substantial gains in new-home sales in April; the Midwest registered a 31.6 percent gain, the South, a 10.8 percent gain, and the West, a 21.7 percent gain. The Northeast posted no change in sales activity from the previous month.

The nationwide inventory of new homes on the market fell 5.8 percent to 212,000 units in April, its slimmest measure since October of 1968. Meanwhile, the month’s supply at the current sales pace declined from 6.2 in March to a modest 5.0 in April, the lowest since November of 2005.

Mortgage Rates at New Lows

Here's some good news for the US housing market: Thanks to the European debt crisis, mortgage rates are at historic lows.

The current average rate for a 30 year fixed loan is 4.87 percent, according to Bankrate.com. That's the lowest rate for the 30 years since Bankrate started keeping track 25 years ago.

Even jumbo loan rates—loans for more than $417,000—have fallen. The 30-year fixed jumbo loan is at an average rate of 4.5 percent, down from nearly 6 percent at this time last year.

"It's the best time in our generation to buy," says Mark Zandi, chief economist at Moody's. "It may be the best time in any generation. Mortgage rates are so low and with homes prices down and lots of inventory, you couldn't pick a better time to buy or re-finance."

Europe's debt crisis is behind the drop. Nervous investors are flocking to the security of US Treasurys, which pushes down their yield and influences a host of consumer interest rates—including those on mortgages.

The decline is also good news for homeowners looking to refinance, particularly those who owe more on their mortgage than their house is worth.

"There's a tremendous window on re-financing," says Greg McBride, chief economist at Bankrate.com. "That's particularly true for people who can take advantage of the government's Home Affordability Refinance Program (HARP)—which allows home owners to refinance into low mortgage interest rates even if they're property value has gone down."

HARP, which was due to end at the end of this June, now runs through June of 2011.

"Think of the benefits if you buy or refinance now," says McBride. "Locking in now at the lower rates means more more bang for the buck and more breathing room for homeowners when it comes to payments."

But the decline in rates probably won't last long, analysts say. So homeowners need to move fast.

"I think they won't last much longer than a month or two at the best," says Lawrence Yun, chief economist at the National Association of Realtors. "I can see them going up to 5.5 percent by the end of June if not sooner."

The reasons? Yun says the worries over Europe will be fading soon and investors will be looking at other assets besides US Treasurys. And there's the US deficit, which will push up Treasury yields.

"The US is fortunate now that there's no pressure on interest rates," Yun goes on to say. "But going forward, higher rates will be needed for financing the debt."

Zandi agrees. "Yes, I can't see these rates being this low in three to four weeks," Zandi says. "Investors will settle down and this current crisis (Europe) will pass and the focus will be back on US debt. It's really a now or never type of proposition, when it comes to getting these types of historic rates."

Plenty of Reasons to Buy a Home Even After the Tax Credit

Even though the home buyer tax credit expired on April 30 and won’t be renewed, there may never be a better time to buy a home than today, according to the National Association of Home Builders (NAHB). Many outstanding opportunities still exist for home buyers, but they may not be around forever.

“The home buyer tax credit was just one of many factors motivating Americans to buy homes,” said NAHB Chairman Bob Jones, a builder and developer in Bloomfield Hills, Mich. “But buyers can still take advantage of today’s low interest rates and competitive prices to get a home they may not have been able to purchase just a few years ago.”

Besides mortgage interest rates that have been hovering at near-record lows, homes in many markets have become more affordable. Prices have moderated from the highs of the housing boom that occurred in most of the country, especially in major markets where they had increased significantly.

Today’s new homes are also built to be much more energy efficient than homes constructed a generation ago, making them more affordable to operate. New homes are designed to support modern lifestyles with open floorplans, flexible spaces, improved safety features, and low-maintenance materials.

Consumers who are thinking about buying a home should not count on interest rates or prices staying at current levels, however. Mortgage rates are sensitive to market conditions, and even a slight increase can push monthly payments beyond a family’s budget. As the country recovers from the recession and people stabilize their financial situations, NAHB economists expect that home prices will begin to increase by 2011.

NAHB’s home buyer brochure “Opportunity Knocks for Home Buyers” describes many of the opportunities in today’s market, as well as the long-term financial benefits of homeownership. It provides examples of how interest rates affect monthly mortgage payments and the typical federal tax savings over the first five years of homeownership. The brochure can be downloaded from NAHB’s web site at: www.nahb.org/homebuyerbrochure.

The home buyer tax credit is still available for eligible home buyers who had a signed sales contract by the April 30 deadline and who close by June 30, 2010, as well as for qualified members of the military, foreign service and intelligence communities, who have until April 30, 2011, to sign a contract. For more information, go to www.federalhousingtaxcredit.com.

Optimistic Outlook for Housing, But Challenges Remain

10 States to See Normalized Housing Production Numbers Within 18 Months

May 19, 2010 - Economists participating in yesterday’s NAHB Construction Forecast Conference Webinar agreed that the housing market is on the road to recovery, but cautioned that several factors could contribute to a bumpy ride in the coming months.

“Home buyer tax credits clearly did their job and got people back into the marketplace,” said NAHB Chief Economist David Crowe, who also served as moderator of the two-hour webinar.

With the expiration of the tax credits in April, Crowe said the housing momentum is being carried forward by low interest rates, pent up household formations, stabilizing prices and budding employment growth.

However, many factors continue to drag on housing at this time – including the critical shortage of credit for new and existing projects, competition from short sales and foreclosures and regional economic disparities.

The availability of acquisition, development and construction (AD&C) financing remains a major concern as the industry moves forward, Crowe said. “Builders still tell us that credit is extremely tight. Banks are saying not so much. That gap is an indication that something is broken, at least when it comes to residential construction.”

NAHB is forecasting 552,000 single-family starts in 2010, up 25 percent from last year’s 445,000 level, which was the lowest annual output since 1959 when the government began collecting this data.

Suffering from an acute shortage of available financing and a significant shadow inventory of homes lost to foreclosure that are competing against normal inventory, Crowe said that multifamily housing starts are expected to lose further ground this year, falling 18 percent to 93,000 units, before rebounding to 150,000 units in 2011.

Crowe anticipates that nationwide home prices will remain flat this year and post a modest increase in 2011 and that mortgage interest rates will continue to stay low, barely breaking 6 percent by the end of this year, and not rising much above that level through 2011.

The road back to normal levels of residential construction will be longer for some states than others. By the end of 2011, the top 20 percent of the states will see their production levels back to normal. Those states include Texas, Oklahoma, Montana, Wyoming, Tennessee, Louisiana, Mississippi, Alabama and Arkansas and Kansas. The previous boom markets in California, Arizona, Florida and Nevada, along with the Great Lake states of Michigan, Indiana, Ohio, Illinois and Wisconsin that were hit by deep cuts in auto production and manufacturing, will be the last ones to recover.

Housing Demand Reflects Job Growth

Like his co-panelists, Mark Zandi, chief economist of Moody’s Analytics, said that housing will improve as the job market does. He forecast that the economy will average monthly job gains of 125,000 this year, 250,000 in 2011 and 300,000 in 2012.

Mirroring anticipated employment growth, Zandi expects GDP to rise 3 percent this year, approximately 4 percent in 2011 and closer to 5 percent in 2012.

The key factor driving housing demand is jobs, said Zandi. “We’re not going to get home sales unless we have jobs. Here the prospect is good. Business balance sheets are in good shape and improving rapidly. These are pre-conditions for better job growth and we should see the job market steadily gain traction.”

Zandi forecast that overall housing starts will total 700,000 units this year, close to 1 million in 2011 and about 1.7 million by 2012, which he describes as close to trend and consistent with demographics in a normal functioning economy.

Driven largely by the high foreclosure rate, Zandi expects that home prices will continue to fall modestly in 2010, down about 5 percent on a national average. He calculates that the difference between supply and demand is approximately 750,000 units annually, and it will require until the end of 2011 to work off this extra inventory.

“The good news,” he said, is “as the job market improves, so will household formations and demand. So I anticipate we will work off the excess inventory more quickly than the two-year period.”

He added that most of the housing surplus is regionally concentrated in Florida, around Atlanta, along the South Carolina coast, in Las Vegas, Phoenix, and Tucson and in the central valley of California.

Consumers Fuel Recovery

Taking the most bullish approach to the ongoing recovery, Chris Varvares, president of Macroeconomic Advisers, LLC, forecast that GDP will rise 3.7 percent this year and that housing starts will total 750,000, well above the Blue Chip Economic Indicators consensus of 690,000.

“Personal consumption expenditures are making a very solid recovery,” said Varvares. “Residential investment is going from a drag to a contributor. The difference between our forecast and the consensus is the strength in personal consumption and housing.”

Although the huge number of foreclosures on the market are accounting for about 300,000 to 400,000 fewer starts than there otherwise would be, Varvares said the fundamentals still point to a solid trajectory for housing.

“With prices stabilizing, demand is picking up and we expect builders to respond. By the end of 2011, we expect about 1.2 million housing starts. This suggests we can have recovery in starts this strong while simultaneously working down excess housing inventory.”

The panelists were in unanimous agreement on a number of areas – the Federal Reserve will likely continue to keep interest rates near rock bottom levels at least through the end of the year; the chance of a double dip recession is extremely slim; and policymakers will need to take action within the next two years to increase revenues and cut spending to rein in the burgeoning structural deficit.

Survey Suggests Affordable Prices and Mortgage Rates Could Help Propel Housing Market Past Tax Expiration

The majority of people looking for, or considering buying, a home had no plans to take advantage of the first-time or move-up/repeat home buyer tax credits, according to a survey recently released from Better Homes and Gardens Real Estate.

The survey, conducted earlier this year, was designed to identify factors affecting today’s home-buying decisions. It drew responses from among those across the country who are searching or saving for a new home, or who recently purchased a new home.
Of those respondents who are looking for, or considering buying, a home, nearly two-thirds (63%) believe it is a “buyer’s market,” more than half (54%) feel that mortgage rates are affordable, and 70 percent indicate that there are affordable homes on the market. Just about half (49%) feel that the economy gives them the ability to negotiate more than usual. However, only 39 percent surveyed said they had planned to take advantage of the tax credit before it expired on April 30, 2010.

“There has been a lot of speculation about the housing market after the tax credit extension expired,” said Sherry Chris, president and CEO of Better Homes and Gardens Real Estate. “The tax credit was truly a great motivating factor, with many home buyers taking advantage. However, we found that the tax credit was only one motivation. People buy homes for lifestyle reasons as well and I suspect that the normal seasonality patterns of home buying will still play out now that the tax credit has expired.”

The Better Homes and Gardens Real Estate survey was conducted online during the fourth week of February 2010 by Amplitude Research, Inc. The survey results referred to above were based on 422 out of 600 respondents with a maximum sampling error of +/- 4.8% at the 95% confidence level. More information about Amplitude Research may be found at http://www.amplituderesearch.com.

Pending Home Sales on an Upswing

Pending home sales increased again in March 2010, affirming that a surge of home sales is unfolding for the spring home buying season, according to the National Association of Realtors®. The Pending Home Sales Index (PHSI) forward-looking indicator based on contracts signed in March, rose 5.3% to 102.9 from 97.7 in February, and is 21.1% above March 2009 when it was 85.0; this follows an 8.3% increase in February. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said favorable affordability conditions have been working with the tax credit. “Clearly the home buyer tax credit has helped stabilize the market. In the months immediately following the expiration of the tax credit, we expect measurably lower sales,” he said. “Later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home values stabilizing.”

The PHSI in the Northeast declined 3.3% to 75.1 in March but remains 27.2% higher than March 2009. In the Midwest the index increased 1.2% to 98.9 and is 18.5% above a year ago. Pending home sales in the South jumped 12.7% to an index of 121.2, which is 28.3% higher than March 2009. In the West the index rose 1.9% to 99.9 and is 8.8% above a year ago.

“Another encouraging sign is the improvement in the availability for jumbo and second-home mortgages,” Yun said. “As bank balance sheets strengthen, it is just a matter of time before lending of non-government-backed mortgages steadily opens up.”

Armed Service Members Have Extra Year for Home Buyer Tax Credit

The National Association of Home Builders (NAHB) wants members of the military, foreign service and intelligence communities to know that they may have an additional year to buy a home and claim the home buyer tax credit, which expires for most Americans on April 30.

The law provides qualified service members who served on official extended duty outside of the United States for 90 days or more at any time between Jan. 1, 2009, to April 30, 2010, another year to buy a home and claim the credit. They have until April 30, 2011, to sign a sales contract, and until June 30, 2011, to settle and close on the home. Both the $8,000 first-time and $6,500 repeat home buyer tax credits are included in the rule.

“Congress recognized that many service members may have missed out on the home buyer tax credit due to being posted overseas,” said NAHB Chairman Bob Jones, a builder and developer in Bloomfield Hills, Mich. “It is only fitting that they be given another year to take advantage of this opportunity in appreciation of the sacrifices they have made serving our country.”

“Qualified service members” are defined as a member of the uniformed services of the United States military, a member of the Foreign Service of the United States, or an employee of the intelligence community.

The rule that requires buyers to repay the credit if they move out of their home within three years has also been waived for qualified service members if they have to sell their home due to receiving government orders for extended duty service.

NAHB provides information on the home buyer tax credit, including eligibility requirements and links to home buying resources, on its consumer website www.FederalHousingTaxCredit.com.

New Home Sales Surge 27%, Blowing Past Estimates

Sales of new homes surged 27 percent last month, bouncing off the previous month's record low and blowing past expectations as better weather and government incentives boosted sales.

The Commerce Department said new home sales rose in March to a seasonally adjusted annual sales pace of 411,000.

It was the strongest month since last July and the biggest monthly increase in 47 years.

Economists surveyed by Thomson Reuters had expected a sales pace of 330,000.

February's results were revised upward to 324,000, but remained an all-time low. Sales had been especially weak over the winter, partly due to bad weather in much of the country.

Housing Starts And Permits Rise in March

Nationwide housing starts rose for a third consecutive month in March to a seasonally adjusted annual rate of 626,000 units from an upwardly revised February number, according to figures released today by the U.S. Commerce Department. The rate of permit issuance for new housing construction also rose by a solid 7.5 percent in the month, to a seasonally adjusted annual rate of 685,000 units.

“After an uncertain couple of months, home builders are gradually getting back to what they do best as the spring home buying season commences and consumers return to the market,” said Bob Jones, Chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “While we still have a long way to go, today’s numbers are an indication that builders are looking down the road with a bit more optimism.”

“Today’s report is very encouraging, because it signifies that home builders are confident enough to begin work on homes that will very likely be completed after the expiration of the home buyer tax credits,” noted NAHB Chief Economist David Crowe. “The solid gain in permit issuance last month is particularly welcome news, since those numbers are generally a reliable indicator of future building activity. That said, considerable headwinds continue to impede housing’s recovery, including the critical shortage of credit for housing production that is stifling new development in reviving markets.”

While single-family starts slipped 0.9 percent in March, this small decline – from an upwardly revised number the previous month – was due entirely to a drop-off in the Midwest from an abnormally high February level; all other regions reported single-family gains in March. Nationwide multifamily starts gained 18.8 percent to a 95,000-unit rate for the month.

The 7.5 percent gain in nationwide building permits reflected a 5.6 percent uptick to 543,000 units on the single-family side and a 15.4 percent gain to a 142,000-unit rate on the multifamily side.

Regionally, combined single- and multifamily starts activity rose 18.2 percent in the South, which is the largest regional housing market, but fell 28.4 percent in the Midwest, 8.3 percent in the Northeast and 2.1 percent in the West.

Combined permit activity rose 17.6 percent in the Midwest and 18.4 percent in the South, but fell 19.5 percent in the Northeast and 6.7 percent in the West in March

Builder Confidence Improves in April

Builder confidence in the market for newly built, single-family homes improved significantly in April as consumers rushed to take advantage of home buyer tax credits set to expire at the end of the month, according to results of the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI surged four points to 19 in April, its highest level since September of 2009.

"Home builders reported some real improvement in current sales activity and traffic of prospective buyers through their model homes over the past month," said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. "While we remain cautious about what future months will bring, it's great to have this positive momentum at the start of the spring home buying season."

"An expected surge in buyer activity leading up to the expiration of the home buyer tax credits and a gradually improving economy helped to brighten builders' view of the marketplace in April," confirmed NAHB Chief Economist David Crowe. "Meanwhile, builders have a more neutral view of what may come in the next six months, and are very aware of the many factors that continue to drag on housing at this time - including the critical shortage of credit for new and existing projects, problems with inaccurate appraisals, and the ongoing flow of foreclosed properties on the market. Greater economic growth, particularly in the job market, and the abatement of these housing issues are needed to help move home building to a more sustained recovery."

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI's four-point gain to 19 this month returned it to where it was in September of 2009, just prior to the expiration of the last home buyer tax credit. The component gauging current sales conditions rose by five points to 20 - the strongest gain in that index since 2003 - while the component gauging traffic of prospective buyers rose a solid four points, to 14. However, the index gauging sales expectations in the next six months registered only a marginal one-point increase to 25, an indication of builders' continued cautious outlook.

The Midwest and South each registered substantial HMI gains in April, rising five points to 15 and four points to 21, respectively. Meanwhile, the Northeast posted no change at 22 and the West dipped two points to 13.

Editor's Note: The NAHB/Wells Fargo Housing Market Index is strictly the product of NAHB Economics, and is not seen or influenced by any outside party prior to being released to the public. HMI tables can be accessed online at: www.nahb.org/hmi. More information on housing statistics is also available at: www.housingeconomics.com.

Federal Government Needs Central Role in New Housing Finance System

April 14, 2010 - As Congress begins to debate how to reform government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Bank System, the National Association of Home Builders (NAHB) today called on lawmakers to ensure that the federal government continues to provide a backstop for the housing finance system to ensure a reliable and adequate flow of affordable housing credit.

Testifying before the House Financial Services Committee, NAHB Third Vice Chairman Rick Judson, a builder and developer from Charlotte, N.C., said the need for such support is underscored by the current state of affairs, with the GSEs, Federal Housing Administration and Ginnie Mae acting as the primary conduits for residential mortgage credit.

“NAHB feels the federal backstop must be a permanent fixture in order to ensure a consistent supply of mortgage liquidity as well as to allow rapid and effective responses to market dislocations and crises,” said Judson.

Regarding the future of Fannie Mae and Freddie Mac, NAHB recommended the following policy changes in terms of structure and operations to restore and improve the secondary mortgage market and housing finance system:

•Degree and structure of government support. While government support is needed to ensure that mortgage credit is available and affordable in all areas of the country under all economic circumstances, for the conforming conventional portion of the mortgage market, that support should not be provided directly to private companies. Rather, the federal government should provide an explicit guarantee of the timely payment of principal and interest on securities backed by conforming conventional mortgages, in the same manner that Ginnie Mae now provides guarantees for investors in securities representing interests in government-backed mortgages.
•Operation of the conforming conventional mortgage market. NAHB envisions that private companies, called conforming mortgage conduits (CMCs), would be chartered to purchase conforming conventional loans that are originated by approved mortgage lending institutions such as banks, savings and loan associations, mortgage banking companies and credit unions. CMCs would issue securities backed by those mortgages, which would carry a federal government guarantee of the timely payment of principal and interest for the securities investors.
CMCs would guarantee the timely payment on the mortgages that are pooled in the government-guaranteed securities and would be required to be well-capitalized and to maintain reserves at levels appropriate for their risk exposure. However, CMCs and the mortgages backing their securities would not have implicit or explicit support from the federal government. A fund would be established by the government to provide a guarantee of timely payment of principal and interest to investors in the securities. CMCs benefitting from the federal securities guarantees would pay a fee to capitalize the fund, which would be designed to mitigate the federal government’s risk so that it would only be exposed in the case of a “catastrophic” occurrence.

•Conforming conventional mortgages. Mortgages eligible for inclusion in securities receiving an explicit federal guarantee should be products with well-understood risk characteristics -- such as fixed-rate mortgages, standard adjustable-rate mortgages and selected multifamily mortgage loans.
NAHB is in the process of updating its policy on the future of the Federal Home Loan Bank System and believes that policymakers must account for their significant structural and operational differences from Fannie Mae and Freddie Mac when considering the future make-up of the housing finance system.

With Fannie Mae and Freddie Mac now operating under conservatorship and experiencing severe financial pressures, NAHB urged Congress to proceed with caution as lawmakers take steps to transition to a new housing finance system.

“Any changes should be undertaken with extreme care and with sufficient time to ensure that U.S. home buyers and renters are not placed in harm’s way and that the mortgage funding and delivery system operates efficiently and effectively as the old system is abandoned and a new system is put in place,” said Judson.