Morning Report: Freddie Mac introduces automated appraisals for purchases

Vital Statistics:

	Last	Change
S&P Futures	2432.0	2.5
Eurostoxx Index	374.0	-2.8
Oil (WTI)	47.2	0.1
US dollar index	86.1	-0.3
10 Year Govt Bond Yield	2.16%
Current Coupon Fannie Mae TBA	103.09
Current Coupon Ginnie Mae TBA	103.97
30 Year Fixed Rate Mortgage	3.88

Stocks are higher this morning after yesterday's sell-off. Bonds and MBS are flat. 

There is a risk-off feel to the market as the current situation in Washington DC plus the terror attacks in Spain are causing investors to sell stocks and buy bonds. The post-election low on the 10 year was 2.14%, and we are getting close. Loan officers, maybe take a look at some old refi candidates that might have missed the boat and see if there is interest again. 

Freddie Mac is introducing an automated appraisal alternative for some purchases and refis. "Freddie Mac's automated collateral evaluation (ACE) assesses the need for a traditional appraisal by leveraging proprietary models and using data from multiple listing services and public records as well as a wealth of historical home values to determine collateral risks." ACE has been available for some refis since June, but will also be available for some purchases starting in September. This is one way to alleviate the problem of appraiser shortages. 

Freddie Mac has issued their outlook for the rest of 2017. Highlights include

• Housing starts will remain low, and should come in below 1.24MM (which is the long-term average). 
• Home sales will hit 6.2 million and mortgage rates will stay below 4%.
• House price appreciation will come in at 6.3% for the year.
• Cash sales as a percentage of sales will remain elevated in the high teens. This is lower than the peak of 35%, but higher than the historical average of about 10%. This difference translates into about $172 billion in fewer originations. 

Freddie Mac explains what is going on with the cash sales: "Usually, not many people like to invest a lot of cash into real estate, which is illiquid and has high transaction costs. However, in the current, highly-competitive housing market, a cash offer is an effective way to gain an advantage over other bidders. In a cash sale, the seller doesn't have to worry about the buyer's ability to obtain a mortgage or the chances that an appraisal will come in below the agreed sales price. And each cash sale means one less mortgage origination."

The Canadian real estate bubble will probably not affect the US all that much, however it could have an impact on higher priced properties, especially on the West Coast. Here is a chart comparing the US bubble to the Canadian one:

Note that the Canadian real estate market doesn't have CDO squareds, NINJA loans, pick-a-pay mortgages, or anything like that. Perhaps bubbles are caused by something else - like too much money chasing too few assets... 

Home sales fell 3.5% in July, according to Redfin as tight inventory continues to be a problem. Inventory fell 11%, and many buyers are pulling back from the market, waiting for new inventory. You can see just how much inventory has been falling on a YOY basis below.