FHFA: House Prices Rose 1% in November

The Federal Housing Finance Agency’s (FHFA)
Home Price Index (HPI) rose 1.0 percent from October to November reflecting an
increase in U.S. housing prices on a seasonally adjusted basis. As can be seen
in the figure below, the there is little difference between seasonally adjusted
and unadjusted FHFA figures.  The estimated
figure for October was revised down from a -0.2 change as first reported to -0.7.
 The current index is 183.8 a drop of 1.8
percent from November 2010 when the index was at 187.3. 

The current HPI is 18.8 percent below
the peak it reached in April 2007 and indicates that prices have returned to
roughly the same range as existed in February 2004.

The HPI is calculated using purchase
prices of houses with mortgages that have been sold to or guaranteed by Freddie
Mac or Fannie Mac.  The index is based on
100 representing prices for homes in the first quarter of 1991.

The HPI rose for all regions
except the Middle Atlantic division (New York, New Jersey, Pennsylvania) which
fell 0.2 percent.  The biggest increase
was in the West South Central Division (Oklahoma, Arkansas, Texas, and Louisiana)
which rose 2.1 percent.  West South
Central and West North Central (North Dakota, South Dakota, Minnesota,
Nebraska, Iowa, Kansas, and Missouri) were the only regions to increase on a
year-over-year basis.

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Momentum Seen for Home Improvement Spending

Spending
on home improvements and remodeling have shown signs of a rebound and the
Remodeling Futures Program at the Harvard Joint Center for Housing Studies is
projecting that sector of the economy will end 2012 on a positive note.

The
Joint Center produces the Leading Indicator of Remodeling Activity (LIRA) each
quarter.  It is designed to estimate
national homeowner spending on improvements for the current quarter and the
following three quarters.  The indicator, measured as an annual rate-of-change
of its components, provides a short-term outlook of homeowner remodeling
activity and is intended to help identify future turning points in the business
cycle of the home improvement industry.

The
figures from the most recent quarter, the fourth quarter of 2011, showed an
estimated four-quarter moving total of $112.4 billion in home improvement
spending compared to $113.8 billion in the third quarter.  This number is expected to dip further in the
first quarter of 2012, to $108.1 billion before starting to build at mid-year.

 “Sales of existing homes have been increasing
in recent months, offering more opportunities for home improvement projects,”
says Kermit Baker, director of the Remodeling Futures Program at the Joint
Center.  “As lending institutions become less fearful of the real estate
sector, financing will become more readily available to owners looking to
undertake remodeling.”

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FDIC Invites Comments on Stress Test Rules

The Federal Deposit Insurance
Corporation (FDIC) has issued a notice of proposed rulemaking (NPR) for
comment.  The NPR would require the
larger of the banks it regulates to conduct annual capital-adequacy stress
tests.  The tests are one requirement of
the Dodd-Frank Wall Street Reform Act and will affect FDIC-insured banks and
savings institutions with assets of more than $10 billion.  The FDIC currently has 23 financial
institutions meeting that criterion

The proposed rule focuses on capital
adequacy and defines a stress test as a process to assess the potential impact
on the bank of economic and financial conditions (“scenarios”) on the
consolidated earnings, losses, and capital of the covered bank over a set
planning horizon.  FDIC said that these
stress tests would be one component of the broader stress testing activities
conducted by the banks which should address the impact of a broad range of
potentially negative outcomes across a broad set of risk types with impacts
beyond capital adequacy along.  These,
however, are beyond the scope of the proposed rule.

Under the NPR each covered bank
would be required to conduct the test annually using the bank’s financial data
as of September 30 of that year.  Where
the parent company structure of the covered bank includes one or more financial
companies, each with assets greater than the $10 billion threshold, the stress
test requirement applies to the parent and to each subsidiary meeting the threshold,
however the FDIC will coordinate with other regulatory agencies to minimize
complexity or duplication of effort.

As proposed, FDIC would provide each
covered bank with a minimum of three sets of scenarios representing baseline,
adverse, and severely adverse economic and financial conditions and each bank would
use these scenarios to calculate the impact on its potential losses,
pre-provision revenues, loan loss reserves and pro forma capital positions for each quarter end within the
planning horizon.

The NPR also describes the content
of the reports institutions are required to publish, and the timeline for
conducting the stress tests and producing the required reports.

FDIC Acting Chairman Martin J.
Gruenberg said, “Both the FDIC and the institutions being tested will
benefit from the forward-looking results that the stress tests will provide.
The results will assist in ensuring an institution’s financial stability by
helping determine whether it has sufficient capital levels to withstand a
period of economic stress.”

The FDIC’s proposal will be
published in the Federal Register with a 60-day public comment period.

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Drop in Refinancing Curtails Application Volume

The Mortgage Composite Index, a measure of loan application
volume, was down 6.7 percent on a seasonally adjusted basis and 6.6 percent
unadjusted during the week ended June 29 compared to the week ended June
22.  The Mortgage Bankers Association
(MBA) released the Composite and other results of its weekly Mortgage
Applications Survey this morning.

The decrease in mortgage volume was attributed to a drop of
8 percent in the Refinance Index which was in turn driven by a drop in
applications for government-backed refinancing loans.  The share of refinancing applications was 78
percent of all applications, down one percentage point from the previous
week.  Applications for HARP refinancing
which is available only to current Freddie Mac and Fannie Mae borrowers have represented
a quarter of all refinancing applications for the last two weeks.

The seasonally adjusted Purchase Index was up one percent
from the previous week.  The unadjusted
Purchase Index rose only slightly from the previous week and was down 7 percent
from the same week in 2011.  

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

Both the contract interest rate and the effective rate for
all loan types decreased during the week and several rates hit new all time
lows
.   The average contract rate for 30-year fixed
rate mortgages
(FRM) with conforming balances ($417,500 or less) decreased to
3.86 percent with 0.41 point from 3.88 percent with 0.40 percent, the lowest
rate for those loans since MBA began tracking them. 

Jumbo 30-year FRM (balances over $417,500) dropped four
basis points to 4.08 percent with points up to 0.38 from 0.35.  This was the second lowest jumbo loan rate in
MBA’s history.   

FHA-backed 30-year FRM also set a new benchmark low with an
average rate of 3.69 percent with 0.46 point compared to 3.71 percent with 0.46
point.   

Fifteen-year FRMs set a new low at 3.20 percent with 0.47
point.  The rate the previous week was
3.24 percent with 0.44 point.

The average 5/1 adjustable rate mortgage (ARM) rate fell to 2.76
percent with 0.45 point, down from 2.81 percent with 0.41 point.  Applications for ARMs represented only 4
percent of all mortgage applications.

All rate quotes are for loans with an 80 percent
loan-to-value ratio and points include the application fee.

The MBA’s weekly survey covers
over 75 percent of all U.S. retail residential mortgage applications, and has
been conducted weekly since 1990.  Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100.

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Rents Increase as Vacancies Dry Up

Landlords boosted apartment rents to record levels in the second quarter as demand from tenants sitting out the home-buying market pushed vacancy rates to their lowest point in more than a decade.