"If I could rearrange the alphabet, you and I would be together." Before you roll your eyes at that one, a buddy of mine said that to a gal at a bar twelve years ago and they've been married for the last nine. Strange things do happen. (On the other hand, another acquaintance told his soon-to-be ex-girlfriend, "My phone never rings and it's always you.")

Lenders and Realtors know that relationships can sometimes complicate things, and the Census Bureau tells us that about 18% of people 18 and older lived in someone else's household, up from 16% in 2007, prior to the start of the economic recession. Specifically, 41 million adults in 2011 lived in a household in which they were neither the householder, the householder's spouse, nor the householder's cohabiting partner. Between 2010 and 2011, the number of these additional adults increased by almost 2 million.


The fabled conforming loan amounts for 2013 were announced by "Frannie" yesterday, with both agencies leaving them unchanged. But if you want proof, here is the site from their conservator, the FHFA.

Every once in a while I try to state something factual, and yesterday the commentary repeated a letter regarding FHA and mortgage insurance. I received several comments, all basically saying, "Regarding the comment about FHA keeping mortgage insurance in place for the life of a loan being a HPA violation, I thought the same thing when I first saw the FHA Announcement.  Then I did a little digging and saw the HPA covers only PMI, private mortgage insurance.  So the law does not apply to anything FHA does with their mortgage insurance.  Here is the link I found." (II. SCOPE AND EFFECTIVE DATE: The Act applies primarily to "residential mortgage transactions," defined as mortgage loan transactions consummated on or after July 29, 1999, to finance the acquisition, initial construction or refinancing3 of a single-family dwelling that serves as a borrower's principal residence.4 The Act also includes provisions for annual written disclosures for "residential mortgages," defined as mortgages, loans or other evidences of a security interest created for a single-family dwelling that is the principal residence of the borrower (12 USC 4901(14) and (15)). A condominium, townhouse, cooperative or mobile home is considered to be a single-family dwelling covered by the Act. The Act's requirements vary depending on whether a mortgage is: A "residential mortgage" or a "residential mortgage transaction;" Defined as high risk (either by the lender in the case of nonconforming loans, or Fannie Mae and Freddie Mac in the case of conforming loans); Financed under a fixed rate or an adjustable rate; or Covered by borrower-paid private mortgage insurance (BPMI) or lender-paid private mortgage insurance (LPMI).)

Stable or rising property values are key to secondary marketing confidence by investors in residential (or commercial) loans. For years the press has talked about the housing crisis, about how property values are falling, and about how countless borrowers are underwater on their homes, owing more than the house is worth. But is this cycle coming to an end? The Wall Street Journal recently reported that new household formulation is also the highest it has been for six years. Not only do we have immigration, but the children are finally moving out! These new households will increase demand for rentals and home purchases for years to come, which will increase the tax base of state and local governments. Here is the link.

We've also seen a number of house price indicators (we seem to receive a handful every darned week!) increasing. The FHFA reported that U.S. house prices included in its study rose 1.1% in the third quarter. "With significant growth in home prices during the quarter and a modest inventory of homes available for sale, house price movements in the third quarter were similar to what we observed in the spring," said FHFA Principal Economist Andrew Leventis. "The past year has seen consistent price increases, but a number of factors continue to affect the recovery in home prices such as stagnant income growth, high unemployment levels, lingering uncertainty about the macroeconomy, and the large number of homes in the foreclosure pipeline." And we had this headline: "Home Prices Rise for the Sixth Straight Month According to the S&P/Case-Shiller," with the 10 and 20 City Home Price Indexes both climbed 3% in September, marking the sixth consecutive month of growth. The national composite was up 3.6% in the third quarter of 2012.

In October, home prices and sales increased compared to 2011 levels, while inventory remained a concern, RE/MAX revealed in a recent report. The company's housing data is based on a survey of multiple listing service data in 52 metropolitan areas. The median sales price in October 2012 stood at $158,900, a 3.7 percent decrease from September but a 2.1 percent increase from October 2011. The year-over-year increase is the ninth straight month of annual gains. And out of the 52 metro areas surveyed, RE/MAX reported 48 experienced yearly price gains and 18 posted double-digit increases.

Zillow's October Real Estate Market Reports show that national home values rose 1.1% from September to October to $155,400. This is the largest monthly increase since August 2005 when home values rose 1.2% month-over-month. October 2012 marks the 12th consecutive month of home value appreciation, further evidence of a durable housing market recovery. On a year-over-year basis, home values were up by 4.7% in October 2012 - a rate of annual appreciation we haven't seen since September of 2006, before the peak of the housing bubble.  Not that any and all forecasts are "spot on," but the Zillow Home Value Forecast calls for 1.5% appreciation nationally from October 2012 to October 2013. Most markets have already hit a bottom and 40 out of the 256 markets covered are forecasted to experience home value appreciation of 3% or higher, per Zillow's prediction.

Granted, not all areas of the nation, nor areas of every state, are seeing this. But then again, others are seeing even stronger appreciation, and fewer listings. Perhaps, for the housing market, the worst is over. And even "the smartest guys in the room" are getting into the game: "Goldman Sachs Group Inc., which survived the U.S. real estate collapse five years ago with the help of derivative bets against subprime mortgages, is promoting the opposite trade to clients as housing recovers. The firm, which teamed with four other dealers to create the ABX indexes, benchmark contracts that offered investors a way to protect against the risks of a crash, said in a Nov. 28 report on its top 10 market themes for 2013 that clients should buy some of the derivatives. Here's the URL, well written by Bloomberg.

Turning to the markets, no one is complaining about rates. Anyone who is should remember that a dragging economy is something that can push rates lower - and do we really want that? Probably not, and besides the fiscal cliff something to look for in the coming weeks is Federal Reserve officials facing critical decisions at their next policy meeting (December 11-12).  Analysts are pointing out that one of the main discussion points is whether or not to continue the bond-buying programs where the Fed has been purchasing mortgages backed securities (MBS) and treasury bonds. In September the Fed committed to buying $40 billion a month in MBS and that looks to continue into 2013 (hence the great rates for home loans). The more pressing issue could be the $45 billion a month program called Operation Twist (Fed buys long term treasuries and sells short term treasuries) which is scheduled to end in December. The Fed is running out of supply of current short term treasuries and in order to continue the program would need to create new bank reserves (i.e. print new money - something it is already doing by buying MBS).  Critics think that this could be inflationary while Fed officials believe they can manage the new reserves without inflation.

Whether it is extending flood insurance or dealing with the fiscal cliff, recently Congress seems to always drag its feet. Word comes out today that there is no progress on fiscal cliff talks. The markets will certainly let congress know the severity of falling off.  If they are successful and can come together with a plan, don't look for this to happen until the last moment. One thing related to residential MBS: gross supply in November has surged to $196 billion from $132 billion in October. This is the highest level since the spring of 2009 when refinancing activity was spurred by lower mortgage rates resulting from the Fed's $1.2 trillion in MBS purchases through QE1, as well as, programs enacted by Congress following President Obama's election to help borrowers refinance in the early stage of the housing/finance crisis. As Thomson Reuters points out, the motivating factor in this month's supply surge was the rush by servicers to close loans before a 10 basis points increase in guarantee fees takes effect on Dec. 1. It took place, however, when refinance applications surged in late September as mortgage rates fell to new lows in response to the Fed's QE3 program. "While November issuance was well above normal, which is roughly $130 billion currently, issuance in December is expected to be below normal as a result."

So yesterday MBS prices were unchanged while 10-year notes were marked lower by 1 tick (1/32) and closed at 1.62%. And today, the last day of November, we've had Personal Income which was unchanged for October, and Personal Consumption (Spending) which was -.2%, pretty much in line with expectations. Later we have the Chicago PMI (Nov) at 9:45AM EST. In the early going the 10-yr is down to 1.60% and MBS prices are maybe .125 better.

The American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.
The fisherman replied, only a little while.
The American then asked why didn't he stay out longer and catch more fish.
The Mexican said he had enough to support his family's immediate needs.
The American then asked, "But what do you do with the rest of your time?"
The Mexican fisherman said, "I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life."
The American scoffed, "I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC where you will run your expanding enterprise."
The Mexican fisherman asked, "But, how long will this all take?"
To which the American replied, "15-20 years."

"But what then?"
The American laughed and said that's the best part. "When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions."
"Millions...Then what?"
The American said, "Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos."