Spiro Hishmeh

According to the government, home values edged lower last month.

The Federal Housing Finance Agency's Home Price Index report shows values down by 0.3 percent from the month prior -- the index's first down month since April.

The Home Price Index is based on the value of homes financed via Fannie Mae or Freddie Mac and, in this sense, the FHFA Home Price Index is more of a "national" real estate index than its private-sector cousin, the Case-Shiller Index.

But like the Case-Shiller, the HPI is as notable for what it specifically excludes as for what it includes. Most notably, the Home Price Index doesn't account for homes meeting any of the following descriptions:

1. Is considered new construction
2. Is a multi-unit property
3. Is financed by an entity other than Fannie Mae or Freddie Mac

Given the resurgence of FHA financing this year, this last exclusion is especially glaring. FHA represents about one-third of all mortgage loans in 2009.

Because of these exceptions, some analysts label the Home Price Index incomplete. The same could be said of every method of home valuation, however. Case-Shiller only collects data from 20 markets, for example.

In light of these shortcomings, therefore, what's most important is to recognize that both of the "popular" home valuation reports show similar patterns -- home prices have leveled and are showing signs of a rebound.

For a region-by-region breakdown of the Home Price Index, visit the FHFA website.

Tuesday -- for the first time in a long while -- members of the press met the monthly Case-Shiller Index data with enthusiasm. And why shouldn't they? 19 of the 20 measured markets showed a slowing pace of home price decline in April.

Here are some of the headlines about the story:

• Case-Shiller Home Prices Decline Only 18% (Business Week)
• Case-Shiller Less Bad (Seeking Alpha)
• Home Prices In 20 Cities Drop Less Than Expected (Bloomberg)

Now, the headlines feel negative, but they're actually highlighting some key strengths in April's figures. For example, nearly half of the Case-Shiller markets posted gains in April and all but one showed month-over-month improvement.

It's a step in the right direction but doesn't mean that housing has turned around for good.

We have to be careful about how we interpret the Case-Shiller Index because it's an imperfect housing gauge. The most obvious Case-Shiller flaw is that it only measures home values in 20 cities nationwide and they're not even the 20 biggest cities.

Houston, Philadelphia, San Antonio and San Jose are excluded from the report and each ranks among the country's 10 most populous areas.

That said, the report is still important because the Case-Shiller Index identifies broader housing trends and that helps to shape economic policy.

Not only versus last month but also versus last year, the pace at which home values are falling appears to be getting slower. This is the third straight month Case-Shiller has reported as such.

Now, three months makes a trend, but the data has to stay strong through the summer months to mark a bona fide turnaround. If the Case-Shiller Index shows strength for May and June, it could be the signal for which the markets have been waiting.

The Federal Reserve begins its scheduled two-day meeting this morning.

It's one of 8 scheduled meetings for the Federal Open Market Committee this year.

When the FOMC meets, it discusses the financial and economic conditions around the country and, when appropriate, the group makes new policy meant to speed up or slow down the economy.

The main tool for reaching this goal is the Fed Funds Rate and, earlier this year, the FOMC lowered it to "near-zero" percent in an attempt to stimulate growth.

But the Fed has other tools at its disposal, too, not the least of which is its $1.25 trillion pledge to the mortgage markets.

Now, if you'll remember, the Fed made that pledge in two parts:

• Part 1 came in November 2008 for $500 billion
  
• Part 2 came in March 2008 for $750 billion
  

After each announcement, mortgage rates reflexively dropped and stayed low for a period of a day or two. Then, fears of inflation set in on Wall Street, causing mortgage rates to pop back up because inflation is a mortgage-rate killer.

The Fed isn't expected to increase its mortgage market commitment this week, but because mortgage rates are above the government's "target zone", it's possible that the FOMC uses its post-meeting press release to give markets some guidance and its plan for the next several months.

A statement like this could alternately raise mortgage rates or lower them, depending on what the Fed says.

It's for this reason that floating a mortgage rate through tomorrow afternoon is extremely risky. The Fed could say nothing about mortgages, or it could say a lot. Either way, a small, quarter-percent change in mortgage rates can add tens of thousands of dollars to the lifetime cost of a person's pending home loan.

The Fed's press release hits the wires at 2:15 PM ET Wednesday. If you're the cautious type, consider locking your mortgage rate prior to its release.

10 Cities For Job Growth in 2009

Employment figures released this morning show that the economy has now shed 3.6 million jobs since December 2007, included close to half that in the last 3 months alone. The Unemployment Rate is now 7.6%.

But jobs aren't fading in every housing market equally.

As reported by Ajilon Professional Staffing, there are still areas around the country in which unemployment rates are low and job outlooks are strong.

Led by Madison, WI, Ajilon calls them "10 Cities For Job Growth in 2009" and they are:

1. Madison, WI
2. Washington, D.C.
3. Boston, MA
4. Richmond, VA
5. Milwaukee, WI
6. Pittsburgh, PA
7. Baltimore, MD
8. Seattle, WA
9. Houston, TX
10. Dallas, TX

There's no common denominator uniting the list -- cities are buffered by industries as varied as healthcare, energy, and technology. However, it's worth noting that -- in each of these 10 towns -- housing markets seem to be performing above-average versus the rest of the nation.

Clearly, there's a link between jobs and housing.

For everything Real Estate checkout www.SpirosBlog.com or www.SpiroHishmeh.com

(Image courtesy: Forbes.com)

Don't let the plunging median sales price fool you -- December's Existing Home Sales data has home sellers smiling.

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today. It remains within a target range of 0.000-0.250 percent.

In its press release, the FOMC reiterated most of the key points from its December 2008 statement, including:

• The U.S. employment outlook continues to deteriorate
• Consumers and businesses continue to cut spending
• The housing sector is still showing weakness

In addition, the FOMC addressed the "extremely tight" credit conditions for U.S. households and business, even as it said some financial markets are showing signs of improvement.

To the Fed, the latter is a precursor for the former. For Americans needing new mortgages or other forms of credit, it may mean that getting approved gets easier sometime late this year.

Most importantly, the Fed's press release again mentioned the policy-setting group's intention to "employ all available tools" to promote economic growth. This includes the open-market purchasing of mortgage-backed debt that has helped fuel the current Refi Boom. The Fed indicated a willingness to extend the program beyond the initial $500 billion, if necessary.

For each of the Fed's interventions, though, there is a trade-off.

Buying securities costs money and the Fed -- literally -- comes up with the cash by printing it. The extra supplies devalue the U.S. dollar which, if left unchecked, can cause the Fed's plan to backfire in the form of runaway money supply-led inflation. The Fed is aware of this risk and is pledged to monitoring it closely.

Overall, mortgage rates worsened today after the Fed's statement.

For more info check out www.spirosblog.com or www.SpiroHishmeh.com

Source
Parsing the Fed Statement
The Wall Street Journal Online
January 28, 2009
http://online.wsj.com/internal/mdc/info-fedparse0928.html