FHFA House Price Index Up 0.5 Percent in November

U.S. house prices rose in November, up 0.5 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The previously reported 0.5 percent increase in October is unchanged.

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. From November 2014 to November 2015, house prices were up 5.9 percent. The index levels for October and November 2015 exceeded the prior peak level from March 2007.

For the nine census divisions, seasonally adjusted monthly price changes from October 2015 to November 2015 ranged from -0.4 percentin the West South Central division to +1.8 percent in the Mountain division. The 12-month changes were all positive, ranging from +2.6 percent in the Middle Atlantic division to +10.0 percent in the Mountain division.

Monthly index values and appreciation rate estimates for recent periods are provided in the table and graphs on the following pages. Complete historical data are available on the Downloadable HPI Data page.

For detailed information on the monthly HPI, see HPI Frequently Asked Questions (FAQ). The next HPI report will be released February 25, 2016 and will include monthly data through December 2015 and quarterly data for the fourth quarter of 2015.

FHFA has published HPI release dates for 2016, which can be found on the HPI Release dates page.

Good News for Home Owners

In an important victory for NAHB and home owners, the House today approved a five-year highway bill that will not use guarantee fees (g-fees) collected by Fannie Mae and Freddie Mac to pay for transportation programs.

The Senate is expected to approve the measure tomorrow and President Obama will sign the legislation into law shortly thereafter.

NAHB led the charge to strip a provision that would have used g-fees to help offset a funding shortfall from the final legislation.

G-fees are a critical risk management tool used by Fannie Mae and Freddie Mac to protect against credit-related losses on mortgages they have purchased or mortgage-backed securities they have guaranteed. NAHB has always maintained that these fees should only be used for their intended purpose – to protect against mortgage defaults and ensure the safety and soundness of Fannie Mae and Freddie Mac.

Despite strong opposition from NAHB, Congress voted in 2011 to enact a 10-year, 10 basis point increase in g-fees to fund the extension of the payroll tax cut. To help fund the long-term transportation bill, lawmakers subsequently proposed what would amount to a $1.9 billion tax on home owners by providing a four-year extension of the previous 10 basis point increase through 2025.

In an official statement, NAHB Chairman Tom Woods called it “outrageous” that Congress would consider using a g-fee hike to pay for transportation programs unrelated to the housing government sponsored enterprises.

“With first-time home buyers still hesitant to enter the marketplace, it makes no sense to impose what amounts to a new tax on homeownership that will disproportionately affect low- to moderate-income borrowers. Homeownership cannot, and must not, be used as the nation’s piggybank.”

Working with our Democratic and Republican allies in the House and Senate, NAHB ultimately was able to get the g-fee provision removed from the final transportation bill.

Young buyers want to live in the ‘burbs

The housing market is slowly gaining strength after the ravages of the Great Recession. Home prices are rising across the country, and both home sales and housing starts are up year-over-year. Home-builders are gradually gaining confidence, in part because of anticipated growth in the first-time homebuyer market.
That market has been severely depressed. From 2004 to 2014, the home ownership rate for those under age 35 fell from 43 percent to 36 percent, according to U.S. Census data. And economist Robert Dietz at the National Association of Home Builders said the proportion of single-family homes purchased by young buyers has fallen to 18 percent, from an historical average of approximately 30 percent.
But Dietz points to several recent indicators suggesting that more young people are now entering the market for first homes — or soon will be. He cites an increase in household formation, which has risen in the past three quarters, after falling during and after the recession. (Household formation is the establishment of new households — typically by young people moving out from their parents’ home or a roommate situation, or new families forming though marriage and domestic partnership.) The birth rate has started rising again as well.
Dietz said there is a popular stereotype of the so-called Millennial generation as averse to major financial and life-cycle milestones, like moving out on one’s own, starting a family, and buying a house. But in fact, he said, “consumer preference surveys have traditionally shown at least three-quarters of Millennials are interested in becoming homeowners eventually.”
He cited, among other sources, a recent survey of young people by Fannie Mae.
And the improving economy should finally put some wind at young peoples’ backs now. Jobs are more plentiful and secure now than several years ago, and interest rates remain low.
On the other hand, many young people carry a significant student debt burden, which may make it more difficult for them to take on additional debt and get a mortgage. Credit standards to obtain a mortgage are still very tight. And rents are climbing steeply in many markets, making it harder to save for a down payment.
Plus, in some of the hottest urban real estate markets — such as San Francisco, Denver, Seattle, and New York — first-time buyers face an “affordability crunch,” with rents and purchase prices simultaneously soaring in the most desirable neighborhoods.
An example is Portland, Oregon’s trendy Southeast Division Street, a busy urban strip lined with new apartment buildings, funky clothing stores, and a $4-per-scoop gourmet ice cream parlor where there’s often a line halfway down the block.
Inhabit Realty occupies a concrete-glass-and-steel office at street-level in one of the new mixed-use commercial buildings on the strip. Eric Hagstette is principal broker. “You have a local grocery store, you have shops, restaurants, parks, public transportation all at your fingertips,” said Hagstette.
“And that’s what’s driven our prices so high—because people want this lifestyle.” Hagstette said. “A new condominium home or townhome easily goes for $400/square-foot.” 
That works out to about $500,000 for a 1,500-square-foot 2-bedroom unit in a new building. Prices can be significantly higher for fully-upgraded and -renovated century-old craftsman homes on the neighborhood’s narrow, tree-lined streets.
This is not a real estate market that most young buyers — except perhaps the highest-paid tech and corporate workers — can easily buy into.
Fortunately, said economist Robert Dietz, most don’t want, or need, to. “In medium-sized and smaller metro areas, the traditional single-family home in the suburbs remains popular,” said Dietz.
The reason is partly affordability. The typical American starter home, likely in a suburb or small city, costs just $168,000, according to Fannie Mae.
“There has been an increase in college-educated young adults living in very dense urban neighborhoods — smart young things living in Brooklyn, in downtown San Francisco,” said housing analyst Jed Kolko at U.C. Berkeley’s Terner Center for Housing Innovation. “But it’s not true of that generation overall. Only about one third of 25-to-34-year-olds have a college degree. Today they are actually less likely to be living in urban neighborhoods, as opposed to suburban areas, than that same age group was in 2000.”
Josh Rief, who is 30 years old, recently took the home-buying plunge in the suburbs. He and his wife, Chelsia, purchased a five-bedroom, 2,800-square-foot house in a large housing development in Molalla, Oregon, about 40 miles from downtown Portland. There are farms and timberland all around.
Josh works at a local bank as a treasury analyst. Chelsia is a stay-at-home mom and also publishes a food blog part-time. They have three children, aged 11, 7, and 2. Chelsia said for more than a decade they rented — trying to save, living in cramped spaces.
“We were quickly growing too large for our other home,” she said. “We just felt like we needed to get the kids into a home that they could grow up in with more space, in a neighborhood where there would be kids their age.”
They paid $260,000 and got a mortgage just under 4 percent.
“We were just looking for a good, homey, secure spot,” said Josh. “We’d love to have a quirky little place in Portland with lots of character and history and everything else. But I’m not willing to pay an extra $300,000 for that right now. Right now, I just need space for my kids.”
And he’s found it — in the cookie-cutter suburbs far outside the hip urban hub. It’s likely to be a choice more young people make, as they graduate from their recessionary twenties into financial middle-age.

FHFA Directs Fannie Mae and Freddie Mac To Delay Guarantee Fee Changes

In early December, the Federal Housing Finance Agency (FHFA) announced plans to increase the base guarantee fee (g-fee) for all mortgages by 10 basis points, update the up-front g-fee grid, and eliminate the up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Fannie Mae and Freddie Mac since 2008 effective in March and April 2014. FHFA announced today that it has directed Fannie Mae and Freddie Mac to delay implementation of these changes.

FHFA Director Melvin L. Watt, who was sworn in as Director on January 6, said that he intends to conduct a thorough evaluation of the proposed changes and their likely impact as expeditiously as possible, and would give not less than 120 days’ notice after completing the evaluation before implementing any changes. “The implications for mortgage credit availability and how these changes might interact with the new qualified mortgage standards could be significant,” said Watt. “I want to fully understand these implications before deciding whether to move forward with any adjustments to g-fee pricing.”

FHFA announces increase in Guarantee Fees

The Federal Housing Finance Agency (FHFA) today took additional steps toward fulfilling the Strategic Plan for Enterprise Conservatorships that FHFA published in February 2012. That Plan established a conservator goal of gradually contracting Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying and shrinking their operations. The basic premise behind the “contract” goal is that with an uncertain future and a general desire for private capital to re-enter the market, the companies’ market presence should be reduced gradually over time.

When FHFA set forth the 2013 Conservatorship Scorecard in March, it also set an expectation that guarantee fees would continue to be gradually increased in 2013 in furtherance of the strategic plan. Today, FHFA directed Freddie Mac and Fannie Mae to raise guarantee fees in three components:

  • The base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points;
  • The up-front g-fee grid will be updated to better align pricing with the credit risk characteristics of the borrower; and
  • The up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Freddie Mac and Fannie Mae since 2008 is being eliminated except in the four states whose foreclosure carrying costs are more than two standard deviations greater than the national average.

FHFA expects these increases and decreases to produce an overall average g-fee increase of
approximately 11 basis points based on loan purchases of Fannie Mae and Freddie Mac in the
third quarter of 2013. This represents an average increase of 14 basis points on typical 30-year
mortgages and 4 basis points on 15-year mortgages. This increase follows FHFA-directed
increases of 10 basis points each announced in December 2011 and August 2012.

“Today’s price changes improve the relationship between g-fees and risk,” said FHFA Acting
Director Edward J. DeMarco. “The new pricing continues the gradual progression towards
more market-based prices, closer to the pricing one might expect to see if mortgage credit risk
was borne solely by private capital. The price changes provide better protection of and return
to taxpayers, who are providing the capital support that keeps these companies operating.

These changes should encourage further return of private capital to the mortgage market,”
DeMarco said.  Today’s increases not only advance the previously stated conservatorship goals and
commitments, they also advance:

  • the statutory directive in the Temporary Payroll Tax Cut Continuation Act of 2011 foradjusting g-fees based on risk levels;
  • the 2013 Financial Stability Oversight Council recommendation that g-fee increases beused to attract private capital to the mortgage market; and
  • the President’s August, 2013 request for FHFA to reduce taxpayers’ credit exposure by accelerating actions to draw private capital into the market to stand ahead of the Fannie Mae and Freddie Mac guarantee.

The g-fee changes being made today, including the improved risk sensitivity of the pricing
framework, are important steps to enabling Freddie Mac and Fannie Mae to deepen and
broaden the risk-sharing transactions with private investors they initiated this year. In the
coming years, FHFA expects risk-sharing transactions to cover a growing portion of the
companies’ new business and for the amount of risk transferred to private capital to continue to
increase.

Elimination of the across-the-board adverse market fee (except as noted) provides recognition that the nationwide stress in housing markets has eased. The experience with mortgage defaults the past several years, however, has amply demonstrated that mortgage investors and guarantors have significantly greater costs carrying out foreclosures in the few states that stand far apart from the rest of the country. As described in more detail in the paper entitled State-Level Guarantee Fee Analysis, maintaining the 25-basis-point adverse market fee in New York, Flordia, New Jersey, and Connecticut will provide taxpayers, as investors in Freddie Mac and Fannie Mae, an approximate compesnation for the difference in foreclosure costs in those states relative to the average costs across the country. FHFA anticipates that this adverse market fee will be re-evaluated and refined at least annually. While the broad adverse market fee is being eliminated, other changes to the up-front pricing grid offset this decrease for certain mortgages.

For loans exchanged for mortgage-backed securities, the price changes will be effective with
settlements starting April 1, 2014. For loans sold for cash, the price changes will be effective
with commitments starting March 1, 2014. Freddie Mac and Fannie Mae will work directly
with lenders to implement the changes.

Also today, FHFA released its fifth annual report on single-family guarantee fees, covering the
years 2011 and 2012. The g-fee changes being announced today respond in part to the findings
in this report regarding shortfalls in the risk-based pricing at the two companies.