Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
House Financial Services Chair Jeb Hensarling, R-Texas, used the 50th anniversary of the Department of Housing & Urban Development to, well, basically take a middle-finger selfie of sorts, saying its five decades of work amount to one big nothing burger.
As HousingWire reported, Hensarling said that despite myriad federal housing programs and initiatives, decent housing remains unavailable or unaffordable for far too many today just as it did five decades ago, and that HUD has failed to solve this persistent problem because it has failed to focus on its underlying cause: the very real human tragedy of generational cycles of poverty seen in so many communities.
But Hensarling lit a candle as well as cursing the darkness, calling for new ideas to fight the challenges of poverty and housing affordability.
So Anthony Sanders, distinguished professor of finance at George Mason University, answered the call with a blog post chock full of different ideas — and a warning about old ones. Here’s a taste:
Let’s start with housing policy under President Bill Clinton and HUD Secretary Henry Cisneros (followed by now NY Governor Andrew Cuomo). It was called “The National Homeownership Strategy: Partners in the American Dream.” The intention was to expand homeownership and open credit to households that had been previously shut out.
Essentially, The NHS called for a loosening of underwriting standards for lenders and their partners. Did it work? Yes, 1-4 unit mortgage credit grew at a rapid pace from 1995 through 2006.
So what does one suggest to Mr. Hensarling (that makes any sense)? Expand credit access … again? That really only works with rising incomes. Redo the FICO (credit) indices as HUD Secretary Julian Castro has recommended? That simply is a second-best solution to the real problem — no real labor recovery.
Relax QM (qualified mortgage) rules? Introduce NEW mortgage products (such as AEI/Ed Pinto’s Wealth Building Mortgage)? These solutions mask the real problem: lack of true economic growth and a labor market recovery.
I would recommend to Mr. Hensarling that trying to increase real median household income is the solution rather than credit/downpayment relaxation solutions.
And if you can’t afford to buy a home, rent.
Read the full post here.
Shots fired! Consumers and technophiles love Zillow, but their competitors, not so much. The National Association of Exclusive Buyer Agents launched an offensive citing a recent Morgan Stanley study that charges that Zillow Premier Agent Advertisers, those who pay extra to advertise on Zillow, have an increased number of dual agency transactions compared to other agents — which hurts buyers, they allege. It’s sure to be used by real estate agents who don’t like the way Zillow works.
According to the study, over 60% of Premier Agents reported that the advertising increased their dual agency transactions by about 30%.
NAEBA alleges that this is not in the best interest of consumers, citing a New York State Department of State Office of the General Counsel opinion that, “By consenting to dual agency, you are giving up your right to have your agent be loyal to you, since your agent is now also representing your adversary. Once you give up that duty of loyalty, the agent can advance interests adverse to yours.
Zillow’s Premier Agent program may appear to be listing the best agents for a consumer, but it’s simply an advertising scheme. From their website, “The Zillow Premier Agent program is designed with the simple purpose of bringing agents more buyers, more sellers, and more business.” Any agent who is willing to pay for the program is listed as “elite.” It has nothing to do with the agent’s quality of service, experience, nor capability to represent their clients well.
“Real estate buyers deserve to have someone on their side throughout the transaction,” says Chris Whitehead, NAEBA President. “Settling on a Zillow Premier Agent who is unlikely to be loyal only to them is not in the consumer’s best interest.”
Here's the deal. As with any survey, there are limits and there is context. For this survey, Morgan Stanley took a sample of just 211 premiere agents in a few select markets.
“In June 2015, we conducted an online survey with 211 real estate brokers and agents across 5 of the most populous metro areas in the country: New York, Los Angeles, Chicago, Miami and Dallas,” the study says.
Keeping in mind dual agency isn't even legal in a lot of markets — and let's be frank, as long as there has been real estate there has been dual agency, so that nothing new — the Zillow approach to consumers is not to force any agent on consumers. So it' s not quite as black and white when the premiere agent, the agent and the buying agent are all three accessible on free listings. I'm not sticking up for Zillow or the study, but you can check that for yourself. And I'm not saying Morgan Stanley doesn't have a point in some circumstances, but it's just not as blanket as NAEBA makes it sound.
Here's what Zillow told HousingWire.
“Zillow’s mission has always been to bring transparency to the real estate transaction and help home buyers and sellers make the most informed decisions, and to help connect buyers and sellers with an agent of their choice,” said Amanda Woolley, spokesperson for Zillow. “We believe that access to information creates a more efficient and ethical real estate marketplace.
“Buyers looking at for-sale listings on Zillow see four agents – the listing agent and three others – and can access in-depth information on agents, including more than 1 million reviews written by current and former clients,” she said.
Best way to judge this is to read the study for yourself. Oh, and look, here's a copy.
Also, does anyone remember the Credit Default Swaps (caps necessary) debacle? Well, the New Times reports a big settlement is in the works. Investment banker Christopher Whalen sent the below tweet to helpfully guide readers who want to know the latest to the article:
HousingWire regular and prolific mortgage finance commenter Logan Mohtashami, loan officer at AMC Lending Group, brings a provocative view on that burning question about interest rates and mortgage finance.
Those halcyon days of the Emergency Interest Rate Policy, just like the waning days of summer, are finally coming to an end. While you are packing away your white wingtips and croquet set, you may also want to think about the consequences of the first interest rate hike on the housing market.
You have probably heard on the financial networks that "interest rates are at all all-time low (true) and “higher rates won’t matter when the economy is strong” (hummm). You may remember back in 2013 when rates were rising and the same folks said an increase in rates would not matter because rates would still be so low. If you were paying attention, you may also remember my article from May 2013 that warned how the second hand of inflation could impact housing demand.
While millions of homes were purchased in 2013/2014, sales numbers did not come close to expectations. Adjusting to population, sales are low for existing homes, even with 15%-20% higher than normal cash buyers in this economic cycle.
I expect the US to continue to be a “renting nation” until the years 2020-2024, when demographics will shift so that home purchasing will be more manageable for many households. What I mean by that is that we have a very large number of 12-29 year olds and an especially big subset of 21-15 year olds. These “kids” will need to rent, date, marry, form dual income households and perhaps have or plan to have children before they will ready to buy.
There is light at the end of the renting nation tunnel but it is still some years away.
The bottom line message is don’t get caught up in the scaremongering hype about an 0.25% interest rate rise. The U.S. has the best domestic economy in the world for a mature country and things are only getting better! At some point we will have a recession and another recovery cycle, but the next decade looks a lot better than these past 7 years coming off the great recession.
And speaking of interest rates, it’s “days of awe” for our analyst friends at Bank of America/Merrill Lynch, who say they’re pretty sure that the Federal Reserve will hike interest rates this week, as the condition of market stability over the past two weeks has been met.
“Since we last published two weeks ago, risk assets such as equities and HY are modestly lower in price while agency MBS and cash IG and HY spreads have narrowed modestly,” says Chris Flanagan at BAML. “Given that the market-implied probability of the Fed tightening is currently at 28%, we think there is a good chance that risk asset prices go lower on a Fed move.
“At the same time, there is also a good chance that the removal of uncertainty brings in buyers at weaker levels. Given the too close to call nature of the upcoming Fed decision, and how the market may be positioned to respond, we think maintaining a neutral view on securitized products makes the most sense for now,” he said. “However, we see the risks to our view as skewed to the downside. Raising rates while inflation measures are trending lower doesn't make much sense to us and risk assets may end up seeing it the same way.”
Our friends at Goldman Sachs don't see it that way. In fact, they're in the kick-the-can crowd.
"We expect the message from the committee as a whole — including the “dot plot” and the post-meeting statement — to signal a December liftoff. Just a month ago, many officials thought that there was a strong case for an imminent move, and they have probably not changed their baseline view dramatically to date," wrote Jan Hatzius and Zach Pandl in an email to clients.
So Wednesday brings us the Federal Open Markets Committee meeting where we at HousingWire confidently predict with 100% certainty that there is, in fact, a cat inside Schrodinger’s box, and that’s all we know for sure.
But also Wednesday we will get the National Association of Home Builder’s builder confidence index for September.
The housing market index, a measure of homebuilder sentiment, has been very strong this year, reflecting low supply in the new housing market. Forecasters see the index holding at 61 in September. Expectations of future sales have been the leading component in this report.
On Thursday, the House Financial Services Committee meets at 10 a.m. ET for part three in the long-running saga of Dodd-Frank’s fifth anniversary.
The full committee will hold a hearing entitled “The Dodd-Frank Act Five Years Later: Are We More Free?” The two previous hearings examined whether Dodd-Frank has made our nation’s financial system more stable and Americans more prosperous. Thursday’s hearing will assess Dodd-Frank’s impact on the rule of law and individual liberty.
Also Thursday, we will get the housing starts report for August. Housing starts are expected to dip 3.2% in August to a 1.168 million annual rate, reflecting a prior dip for permits. But housing permits are expected to rise 3.7% to a 1.160 million rate, reversing a plunge in July that was skewed by a change in New York City real estate law. A drop in starts and a rise in permits could lower expectations for third quarter housing while raising expectations for the fourth quarter.
No banks failed the week ending Sep. 11, according to the FDIC.