Here’s the loophole that’s making the US housing market more shaky than it appears

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This housing market doesn’t appear to be built on the same creaky foundations as the subprime crisis.

Consider these stats from Fannie Mae FNMA,
+0.88%,
the US government-backed home mortgage buyer. The FICO weighted average credit score for a single family home was £748 in the first quarter. The LTV was 71% and there were only 4% of the houses with a LTV above 95%. The percentage of buyers with a debt-to-income ratio above 43% — typically the point at which lenders get nervous — was 29%.

They don’t like the days of no income, no jobs, no assets. But it ignores the rise in property prices.

As an example, an anonymous blogger named SoldAtTheTop went through house prices in Boston. The blogger calculated property values ​​as if they were continuing the trend of the eight years leading up to 2019. The author found that when prices returned to a more normal trend, the average loan-to-value ratio of a sample of jumbo loans tracked rose sharply 92% from about 70%. Jumbo mortgages are too big to be secured by Fannie Mae or Freddie Mac, and last year securitizations from them surged to a 14-year high, according to CoreLogic.

“The loophole in lending standards for this cycle appears to have been that property valuations were either unable to accurately reflect the outlandish price increases in the market, or were simply flatly ignored as borrowers came to the table with 20% came. 30% down payments and had good credit,” the author writes.

“I suspect my small sample is highlighting something important about housing market dynamics this cycle, which is that there is real, not yet fully recognized, systemic risk emanating from the prime credit market, particularly to privately funded jumbo performance -Loan. ‘ said the blogger.

Admittedly, the fact that the prices have overcooked compared to history doesn’t mean they will return immediately. The first casualty of the rise in mortgage rates was real estate transactions, not prices.

According to CoreLogic, home prices in May were still up 20% year over year, while pending home sales were down 14% year over year. However, forecasting firm Capital Economics says US house prices will soon start to fall by around 5%. Even then, as long as the U.S. job market remains strong and owners can continue to make their monthly payments, a fall in rates won’t immediately mean doom for jumbo mortgage holders.

The Buzz

Minutes of the Federal Open Market Committee’s latest meeting are due at 2:00 p.m. ET as investors try to gauge how far the central bank will seek to raise interest rates. There is also the ISM Services Index and job vacancy data, both due at 10am

Berkshire Hathaway BRK.B,
-0.65%
increased its purchases of Occidental Petroleum OXY,
-2.20%,
a new filing with the Securities and Exchange Commission shows it is approaching the 20% mark, where it could reflect a proportionate share of the energy company’s earnings to its own earnings.

cryptocurrency lender Voyager Digital VOYG,

filed for bankruptcy protection.

Just eat TKWY to go,
+20.72%
Stocks rose in Amsterdam after inking a deal with Amazon AMZN,
+3.60%
in which US Prime users can get a one-year membership of Grubhub and the internet sales giant can take a 2% stake.

The markets

US stock futures ES00,
+0.04%

NQ00,
+0.03%
indicated a somewhat weaker start. The yield of the 10-year Treasury TMUBMUSD10Y,
2,820%
was 2.81%. the euro EURUSD,
-0.62%
rose from a 20-year low.

The graphic

How unusual is it when stocks and bonds fall in the same half? This chart from fund manager Edmond de Rothschild shows just how strange it was. They say they are “positioned cautiously” but see ample opportunities in emerging markets and high yield, as well as in equities.

top ticker

Here were the most active stock tickers from 6 a.m.

ticker

security name

TSLA,
+2.55%

Tesla

GME,
-2.58%

GameStop

AMC,
-5.54%

AMC entertainment

NEVER,
+3.84%

no

AAPL,
+1.89%

Apple

AMZN,
+3.60%

Amazon.com

BABA,
+3.56%

Alibaba

ENDP,
-8.79%

Endo International

NVDA,
+3.04%

NVIDIA

EVFM,
+20.88%

Evofem Life Sciences

Random Reading

META from meta platforms,
+5.10%
Facebook and Alphabet’s GOOGL,
+4.16%
According to MIT Technology Review, Google funds global misinformation by paying millions in advertising dollars to clickbait actors.

In Switzerland, a “water battery” went into operation.

It’s NBA summer league time where you can see thrills like 7-foot-6-inch Tacko case that blocks his shot.

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