Orphe Divounguy

🏡 New home sales plummeted 11.3% in May, hitting a 6-month low. #Builders are adapting but, #KPMG Senior Economist Yelena Maleyev writes, “The bulk of the activity won’t occur until 2025, when #rate cuts by the #Fed will act as a tailwind for the housing market.” #mortgage https://dy.si/ZFCBd4

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Housing market update on home builder confidence: > Builder confidence in the market for newly built single-family homes was 45 in May, down six points from April and the first decline since last November. > The HMI index charting current sales conditions in May fell six points to 51, the component measuring sales expectations in the next six months fell nine points to 51 and the gauge charting traffic of prospective buyers declined four points to 30. > 25% of builders cut home prices to bolster sales in May, ending four months of consecutive declines in this metric. However, the average price reduction in May held steady at 6% for the 11th straight month. > Meanwhile, the use of sales incentives ticked up to 59% in May from a reading of 57% in April. Link to report in comments. #nahbhmi #housingmarketindex #homebuilderconfidence #economy #housingmarket #realestate #newhomes #newlybuilthomes

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Assistant Professor S. Drew Peabody, PhD has two new research articles published. The first article published in the Financial Review discussed the influence stakeholders had on the green gap: https://bit.ly/44xtRpo. The second article published in the Journal of Financial Services Research focused on how banks balance retail deposits and wholesale funding to remain stable: https://bit.ly/3URVEO4

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A final reminder that Dataloft | A PriceHubble Company's Real Estate Economist, Julia Middleton is back this week to present her latest thoughts on the housing market outlook for our subscribers. The session will assess the key drivers of economic and housing market cycles and reflect on how these might impact the outlook. The presentation will include critical factors such as: interest rates and affordability, presenting scenarios on what this year holds for the residential sales and rental markets. Don't miss out! To register for the event, please use this link: https://lnkd.in/eZSuAF47 #pricehubble #dataloft #economicoutlook #housingmarketoutlook #propertymarketinsight

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I am closing out another week with a piece reflecting on all the Fedspeak and communication policy. The progress from the Volcker Fed to the Powell Fed in explaining itself to the public is immense, but with progress comes growing pains. The volume of Fedspeak now is painful. Communication and transparency are essential at the Fed. The Humphrey-Hawkins hearings and the accompanying Monetary Policy Report are important. Testifying regularly before Congress in public is essential to the Fed’s accountability. The press conferences after every FOMC meeting are also important. The Chair expands on the FOMC’s thinking and answers questions from journalists who write it up for regular people. The Chair channeling and explaining the FOMC is extremely helpful. On balance, the communication policy in the Powell Fed is a big step forward from the Volcker Fed. However, the current state of play threatens to undermine the Fed’s policy goals. Divergent views among Fed officials are healthy and to be expected; however, they have turned into a mess in public and do not inspire confidence. https://lnkd.in/e9Ub_dKm

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If America wants to modernize our infrastructure, we need to better tap the power of capital markets. State bond banks play a key role in that process, particularly for rural and smaller places who may struggle to access outside investment. Michael Gaughan and I propose how the federal government could extend bond banks’ reach. https://lnkd.in/ekjn5758   The concept of using infrastructure banks isn’t new to federal DC or state capitals. Publicly-owned banks can attract and deploy capital quickly, all while promoting the public good (think green banks) and at lower long-term prices. Infrastructure banks are the rare win-win-win for localities (projects built faster, cheaper), investors (steady returns, tax benefits), and states/feds (achieve broader goals, less net outflows).   One of the eye-opening lessons of the IIJA era is that smaller communities—whether rural or within bigger metro areas—need help accessing capital. They often don’t have the staff, financial know-how, or credit to benefit from up-front private financing like their big city counterparts can. Enter the state bond bank, which pools loans from around the state together into one security structure that stands behind tax-exempt bonds issued in the larger capital markets. The problem? Only 13 states currently have such structures—while other infrastructure banks may not address the wide range of projects that a state bond bank can.   Our recommendation is for the federal government to empower smaller places via state bond banks. A one-time, formula-based capitalization in every state—including the opportunity to start a state bank—can help extend bond banks’ reach. In turn, it will ensure projects from school modernization, water system repairs, and even new public pools will be built faster and cheaper. Let’s tap this win-win-win!

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The recent Federal Stress Test on the largest 31 banks does not tell the whole story. The real stress comes from the domino effect of even a single bank failure from just a regional bank, much less a major one. Look at recent history, when Silicon Bank failed in March of 2023, its real time asset base was fairly decent for a bank failure, having a large percentage of its liquid capital in U.S. bonds. The failure came from the "run on the banks liquid cash". We covered this is our 2024 U.S. Economic Report and again in our 2024 June Update. The pending economic slide will likely come from a combination of too much consumer debt now at record levels, interest rates higher for much longer (and actually increasing again by 2026) a soaring 2024 deficit, and business having to absorb another $1.7 Trillion in regulations issued over the last three years. At some point, a leaking dam has to break. The bank issue is just one breaking cog in our econmic wheel that is not alone in the challenges facing our U.S. economy.

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Two thoughts. There's an unfortunate FUD around FLDG in the co- lending context. Read the regs. It's not at all ambiguous if you read the regs scientifically - FLDG on revolvers expands the market for retail borrowers and MSEs in ways that FLDG on term loans can't. FAQ 10 should be reconsidered. Adding some more colour, India's HH credit : Nominal GDP is ~ 17 % & change. That same ratio for large economies ( US/ PRC/ Japan) is ~ 64 %. It's inevitable for India, 5th largest economy in the world with a median age of 28, to rely on credit for growth along the consumer and small business corridors. Regulators & policymakers should start getting comfortable with it. Black Dot Public Policy Advisors , #FLDG, #CreditGDP

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This month's edition of our Economic Policy roundup includes information on the Treasury Department’s first-ever Racial Equity Progress Report, Congressman Bobby Scott's report on the ineffectiveness of current labor penalties, the Institute for Women's Policy Research's data on Black single mothers in college, and more. Read it here: https://lnkd.in/ey5jEdyp

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The Federal Home Loan Banks Affordable Housing Program (AHP) has made over $8 Billion in grants available, including support for first-time homeowners and funding to increase the supply of affordable rental housing, since its inception. But, AHP impacts could be even greater if application and reporting requirements were less burdensome. The Council of FHLBanks applauds FHFA's initiative to simplify the AHP Application Process. The Council of FHLBanks looks forward to engaging in the process to streamline AHP regulations, hopefully leveraging the lessons learned from the FHLBanks' Voluntary Programs, to increase the access, the use, and the impact of AHP. The FHLBank System is set to deliver a record amount of AHP funding (figure below) and a record amount of Voluntary Program funding in 2024 (approximately $1 Billion combined) and looks forward to working with FHFA to make AHP funding even more impactful in the future. https://lnkd.in/e-FvAS_G https://lnkd.in/eAnrZSDJ #FHLBanks #FHFA #AHP #AffordableHousingProgram

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Fannie Mae and Freddie Mac just released data on 45 million loans that date back to 2013 with an original unpaid principal balance of $11.65 trillion 🙀. This massive data drop stems from the FHFA and GSEs' initiative to change credit scoring methods for eligible GSE loans via VantageScore 4.0 (VantageScore is jointly owned by Equifax, Experian and TransUnion) and FICO 10T by the end of 2025. This is a transition away from the Classic FICO model, which hasn't changed since 1821 🐴 (this is a slight exaggeration). Basically, the government says it wants credit scoring models to be more accurate and more inclusive. Trended data is a big component of the underwriting question. Although the GSEs are satisfied that the move from FICO Classic to more modern alternatives is sensible, lenders understandably want to look at the data themselves. Analysts at KBRA took an initial review of the data provided, with a focus on VS4 data relating to the historical loan performance data sets. It's pretty convoluted, but let's dive in. Here's what the report said: "Utilizing VS4 Current for calculating loan representative scores, KBRA compared the classic FICO score data for the loans in the aggregated GSE data set with the VS4 Current scores. The figure below illustrates the percentage of loans (by count) for each classic FICO score bucket that falls into a given VS4 Current score bucket. Loans that fall into the same bucket for both scores (for example, 750-774 classic FICO and 750-774 VS4 Current bucket) represent the percentage of the classic FICO score bucket where the two models produce the most similar result. In this case, for example, they represent 20% of loans in that bucket. Still, notable portions fall outside a +/-25 pt range, which reflects the differences in the model parameters, including the trended data that VS4 incorporates. Once FICO 10T data is available, a similar comparison could be completed, which would reduce the variance associated with the trended data feature of the models. Further, of the data set, less than three bps by loan count are loans where no FICO score was available in the data set. While KBRA notes that this observation relates to an exceedingly small portion of the matched data set, due to the fact that FICO score are typically required, this result illustrates VantageScore’s feature of producing scores for thinner file borrowers." Check out the comparison in the attached graphic 👇

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For the first time, the cost of servicing the national debt now exceeds federal spending on defense, Medicare, and Medicaid. The federal government has also spent more on interest this year than the combined total on veterans, education, and transportation. Federal debt servicing is now the fastest growing part of the federal budget. As the cost of servicing debt grows, it will put upward pressure on interest rates. It will also crowd out the ability to fund other budget priorities and could weaken future economic growth. This is according to analysis from Committee for a Responsible Federal Budget. For more information, check out: https://lnkd.in/dCxNWtVi #economy #debt #budget #interestrates

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Last week, the JPMorgan Chase Institute released new research examining how different mortgage lending models affect closing costs and the extent to which these costs vary across racial and income groups. Given the present state of the housing market—with a confluence of soaring home prices, declining housing supply, and rising interest rates putting homeownership out of reach for many American consumers—this research offers an insightful lens into the various factors contributing to the housing affordability crisis. Affordability conversations often focus on down payments, but closing costs can be substantial—potentially amounting to a hefty percentage of the purchase price. The mix of fees (e.g., appraisals, flood insurance, title insurance) and the evolving mortgage origination market directly influence the total costs borrowers may incur, making the selection of a lender a critical decision with significant financial implications. Additionally, our research examines the disproportionate impact of these financial implications on non-White and low-income borrowers and how mortgage literacy gaps exacerbate these disparities by undermining borrowers’ efforts to maximize mortgage affordability. The report had three primary findings: 1. Closing costs vary significantly by type of lender, with banks less expensive on average than nonbanks and brokers 2. Racial disparities in closing costs are greater among nonbanks and brokers 3. Borrower financial literacy affects the efficacy of mortgage shopping   Thank you to Makada Henry Nickie and Khushboo Chougule for this research!

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