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24 THE HOUSING MARKET SPLIT e housing market has plateaued at a high level and will become more bifurcated between first-time buyers and repeat buyers in 2019, according to the American Enterprise Institute (AEI). e AEI, which published its findings on the housing market along with its National Mortgage Risk Index (NMRI), expects the higher-priced segment of the housing market to see a moderation in home price growth, especially in pricy coastal markets. "e current house price boom, now entering its seventh year, has been driven by two punch bowls, the Fed's accommodative monetary policy, now being slowly withdrawn, and easy first-time buyer credit made available by federal agencies, which continues unabated" noted Edward Pinto, Co-Director of AEI's Center on Housing Markets and Finance. "Continued credit easing for first- time buyers will offset the Fed's tightening and fuel further unsustainable entry-level home price appreciation." AEI said that it expected a slowing transaction volume in some markets because of tax law changes and affordability pushing buyers into more affordable markets. However, due to continued credit easing by FHA and Fannie Mae, the lower-priced part of the market consisting predominantly of first-time buyers would "likely see continuing strong house price appreciation with transaction volume remaining around its current high level." e NMRI found a huge spread of default rates across risk buckets as higher house prices concentrated at the lower end of the market, where leverage was seen to be increasing the most. Moving into 2019, the AEI projected even more risk as borrowers, especially, first-time buyers were forced to take on more leverage to buy a home. "Given the continued credit easing for first-time buyers with much higher risk profiles, it is too soon to speak of a turnaround in house prices," said Tobias Peter, Senior Research Analyst of AEI's Center on Housing Markets and Finance. "Our past research proves that in a tight housing market as little as 30 percent of borrowers with high-risk levels can effectively drive up house prices for everyone in a census tract." e NMRI indicated that the First-time Buyer Mortgage Risk Index (FBMRI) for August was up 0.6 points from a year ago. When compared to August 2013, the FBMRI has increased by 3.1 points and at a new series, high FHA's FBMRI stood at 28.6 percent in August rising 2.1 points from a year earlier. Fannie Mae's FBMRI stood at 10 percent rising 0.8 points from a year earlier and four points since September 2012. e data indicated that while repeat buyers had been able to avoid increasing leverage, the gap between first-time buyers and repeat buyers' risk had widened to 7.5 points from 4.6 points five years ago. THE RAMIFICATIONS OF FORECLOSURE Black Knight's latest Mortgage Monitor report revealed that, at the current rate of reduction (a six-month average annual decline of 27 percent), active foreclosure inventory will hit a record low in September 2019, with fewer than 200,000 cases nationwide. is is a dramatic change from the state of things only a decade ago. Although the market has shifted, the lessons learned from that period still have a lasting impact. Daryl Fairweather, Chief Economist at Redfin, spent a substantial amount of time in 2009 speaking to more than 100 homeowners facing foreclosures, the ramifications of foreclosures can leave an indelible mark on several households. She shared her takeaways from these conversations, in an article posted on Redfin's site titled "What I learned from 100 homeowners facing foreclosure in 2009." In order to better understand the underlying causes of the housing bubble that led to the subsequent crash, Fairweather explored the financial situation, employment history, financial literacy, and medical expense history of homeowners. What stands out in her assessment about their situation is a certain level of desperation and a call to help, which eventually led her to study more about how the economy is shaped through individual experiences and the financial consequences of their choices, she wrote in a recent blog on Redfin. Several homeowners, according to Fairweather, were ill-informed and lacked adequate experience about the housing market. e inability to detach themselves emotionally from their homes also played on how they valued their homes, often times above the market price. To ensure that individuals are economically and emotionally sound, there is a dire need to help consumers make informed decisions about their housing choices, which in turn affects their mental health. Providing easy access to as much as information possible to educate consumers about what goes on in their local market is also imperative to make a real difference. Fairweather pointed to the importance of education on the housing market to equip buyers and sellers to appropriate the right value, financial literacy as well as a deeper understanding of their local markets. Emotions play a big role in how buyers and sellers base their decisions. More avenues that educate, inform and inspire homeowners to pursue their dream of owning a home without facing foreclosures and eviction will help shape the economy in a more positive way, she wrote. Fannie Mae and Freddie Mac prevented over 63,000 foreclosures in Q3 2018, increasing the total number of preventions to more than 4.24 million since September 2008, according to the Federal Housing Financial Authority's Foreclosure Prevention Report. KNOW THIS

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