Agency Loss Estimates Lack Independence, Verifiability

More than three years into the conservatorship of Fannie Mae and Freddie Mac, moribund housing-market conditions remain a drag on households’ wealth trajectories and their confidence in the broader economic recovery. While a robust improvement in national price trends ultimately depends on job creation and endogenous demand for single-family homes, indications of a gradual stabilization of the housing-market trajectory are emerging.

As a function of updated housing-market expectations, as well as “actual results from the first of the projection period that were substantially better than projected,” the Federal Housing Finance Administration (F.H.F.A.) released a report last week updating its projections of potential agency draws from the Treasury under conservatorship. The upside adjustment to the projections should be considered in context, however, given limited transparency of the modeling process supporting the new estimates.

Sam Chandan, Ph.D.

Some Better Housing-Market News

Earlier this month, the National Association of Homebuilders reported that its homebuilder confidence index jumped 18 points in September, the largest one-month increase since the short-lived improvements that coincided with the homebuyer tax credit. The overall increase reflects gains in current measures of home sales and homebuyer traffic and a larger rise in expectations of home sales six months from now.

The S.&P. Case-Shiller House Price Index was unchanged in the month of August, and 3.8 percent lower year-on-year, the best over-the-year reading since February. Similarly, the F.H.F.A. House Price Index was 0.1 percent lower in the month of August after posting modest increases in each of the previous four months, ending 4 percent lower year-on-year.

Existing home sales dipped in September, according to data from the National Association of Realtors released week before last. September sales were more than 10 percent higher than a year earlier but are also down by almost 10 percent from January’s high. The inventory of homes for sale has fallen more consistently than sales have picked up, but remains elevated by any historic norm.

New home sales rose 5.7 percent in September with gains in the two largest regions, the South and the West, offsetting a fall in the Midwest. At September’s sales pace, the supply of new homes on the market also tightened to 6.2 months, the lowest level since April 2010. However, house prices continued to fall in the Commerce Department report, with the median sales price for new homes down 3.1 percent in September and 10.4 percent year-on-year.

Agency Loss Estimates Lack Independence, Verifiability