Page 47 - July-August 2018 GSE Report Flip Book

FANNIE MAE AND FREDDIE MAC JJUALN. U- ARUYG. 22001188
“In terms of housing—the economy is so much bigger than it was before, and housing is so much smaller,” testified Federal Reserve chairman Jerome Powell before the House Financial Services Committee. As a result, the Fed does not put as much weight as it once did in the housing market when determining its monetary policy. Moreover, factors that are holding back the housing market are not affected by monetary policy, but are largely impacted by the labor market and supply-side issue, which cannot be fixed by the Fed. Instead, these issues need to be addressed by Congress, according to Powell.
“In housing now, we do see that most of the borrowers now have higher credit scores so it’s a different market,” he told lawmakers. “If there’s a downturn we’re better prepared for it.” In fact, he added, that a good question Congress should be asking is: Did restrictions on credit availability go too far? While the restrictions on credit were necessary due to the bad decisions made in the lending sector—was it done at the right level? “It’s not too soon to be looking at that,” said Powell. (HousingWire, Kelsey Ramierz, 07/18/18)
In housing, is this time different?
The housing market’s fundamentals remain strong, but there are signs that price appreciation may be slowing, according to First American Financial’s chief economist Mark Fleming, who said:
The price appreciation experienced in the housing market during the mid- 2000s was characterized by a surge in demand driven by wider access
to mortgage financing. Price appreciation in today’s housing market is characterized by a shortage of supply. The supply of homes on the market remains extremely low, and the homes that hit the market sell very quickly— an indication that demand is outpacing supply.
As buyers pull back from the market and sellers adjust their price expectations, house prices will adjust, but the strong economic conditions and the shortage of supply relative to demand continue to support the housing market. We’re seeing the first indications that price appreciation may be slowing, but the underlying fundamental housing market conditions support a natural moderation of house prices rather than a sharp decline.
While unadjusted house prices are 1.3% above the housing market peak in 2006, consumer house-buying power has increased by 55% over the same time period. House-buying power, how much one can buy based on household income and the 30-year, fixed-rate mortgage, has benefited from a declining rate environment, and slow, but steady household income growth. Consumers buy homes based on how much it costs each month to make a mortgage payment, not the price of the home. Lower mortgage
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