American Enterprise Institute (AEI) resident fellow Edward J. Pinto is the codirector of AEI’s International Center on Housing Risk. He is currently researching policy options for rebuilding the US housing finance sector and specializes in the effect of government housing policies on mortgages, foreclosures, and on the availability of affordable housing for working-class families. Pinto writes AEI’s monthly Housing Risk Watch, which has replaced AEI’s FHA Watch. Along with AEI resident scholar Stephen Oliner, Pinto is the creator and developer of the AEI Pinto-Oliner Mortgage Risk, Collateral Risk, and Capital Adequacy Indexes.
Nationally, homes look overpriced, but there can be great variations on a regional or even neighborhood level. To gauge the sustainability of home prices within a metropolitan area generally, I suggest looking at measurements of market fundamentals such as unemployment, job growth, income, rental values, population levels, and mortgage rates.
Loan risk is at a higher level than is conducive to long-run market stability. Despite frequent assertions by the National Association of Realtors and other interest groups that the national credit box is too tight, the facts indicate it is loose by historical standards for prudent lending and is getting looser.
Once again, the National Association of Realtors and community advocacy groups call for a loosening of what they term “tight credit” conditions. Yet, in December, nearly one-half of all home purchase loans had down payments of 5 percent or less, and nearly one-quarter had debt-to-income ratios exceeding 43 percent.
The National Association of Realtors (NAR) reported today that existing Home Sales for December came in at 4.87 million. However, home sales are being helped by loose lending standards and interest rates still near their lowest level in decades.
As the U.S. economy continues to sputter, American Enterprise Institute economists identify five areas that could heavily affect an American recovery in 2014: trade, the Federal Reserve, housing, taxes and the Internet.