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WASHINGTON – Is there going to be an end any time soon to the continuing rising spiral in home prices and sales? Maybe not, at least judging by recently released data from the National Association of RealtorsT. Newly released data by the NAR for the 2Q2005 shows the majority of metropolitan areas in the U.S. experienced what the association described as “historically strong” annual increases in median existing home prices. The 2Q2005 report which covered changes in 149 metropolitan statistical areas, showed 94 of them saw increases above the U.S. historic average of 6.4%. Sixty-seven areas had double-digit annual median home price increases; seven areas had “moderate” price declines and none of these had previously reported rapid price gains. The national median existing single-family home price was $208,500 for 2Q2005, up 13.6% from the 2Q2004 when the median price was $183,500. According to NAR, since 1968, prices generally have risen one to two percentage points faster than the overall rate of inflation. Regionally, NAR says the strong price increase was in the West – the median existing single-family home price rose 19.5% over last year to $312,600 in the second quarter. This was particularly the case in the Phoenix-Mesa-Scottsdale MSA, followed by Reno-Sparks, Nev., the Tucson area, and Honolulu. Home price trends in the rest of the country mirrored what NAR sees happening in the West. In the Northeast, the median resale price during the second quarter was up 13.1% from the second quarter 2004. The strongest increase reported in the region was in the Atlantic City area – up 25.7% from the 2Q2004. In the Midwest, the second-quarter median existing-home price rose 12.1% from the same period in 2004, and in the South the typical existing home price was up 5.7% from a year earlier. Interestingly, neither price increases nor recent interest rate hikes by the Fed have dampened consumers’ appetite for buying homes. According to NAR, total existing home sales – including single family and condos – were at the highest pace on record in the 2Q 2005. While 2Q2005 data for credit unions was not available at press time, first quarter data showed the number of first mortgage originations for CUs was down 10.8% for the same period in 2004 – 86,735 and 97,263, respectively. In terms of dollar volume however, first mortgage originations for 1Q2005 was up slightly compared to 1Q2004 – $11,922,509,938 and $11,641,040,657, respectively. Callahan & Associates Industry Analyst Tom Geggel was not concerned about the decline in credit unions’ mortgage origination numbers. Referring to the findings of the Federal Reserve Board’s July 2005 Senior Loan Officer Opinion Survey on Bank Lending Practices, Geggel said, “According to a recently released survey of senior loan officers by the Federal Reserve, there has been an increase in interest-only and alternative mortgage products – up from 5% of residential originations in July 2004 to 25% in July 2005. Credit unions are not accepting these high-risk mortgages at the same rate as some of their bank counterparts. “With median home prices rising 13.6% nationally over the past year, many credit union members cannot afford the higher monthly payments required with escalating house prices. So while credit union originations might be lower, banks have loosened their underwriting standards to maintain origination volumes after the recent refinance boom.” The findings of the Fed’s survey that are based on the responses of 55% of domestic banks, in fact confirmed what many mortgage experts have known for awhile, that an increasing number of lenders are funding more non-traditional mortgages. The survey addressed changes in the supply of and demand for bank loans to businesses and households over the past three months. The survey also queried banks about recent originations of nontraditional mortgage products. Among the survey’s findings, more than half of the respondents indicated their share of interest-only and other non-traditional mortgages had been higher over the past 12 months than over the previous 12 months. Also nearly a third reported that nontraditional mortgage loans accounted for 16-50% of their dollar volume of residential mortgages. In addition, “a large majority” of respondents reported that their bank had securitized less than a quarter of non-traditional mortgages originated over the past year. A majority of the banks also indicated they were less likely to securitize nontraditional mortgage products than traditional ones. The second quarter 2005 survey was the first time the Fed included a set of special questions on nontraditional mortgage products in the quarterly survey. “The fact that more banks are offering riskier mortgage loans and are easing their securitization standards is allowing more mortgage originations to go through their pipeline,” opined Geggel. -

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