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14 ARE WE DIVING INTO ANOTHER HOUSING BUBBLE? e topic of bubbles forming in the housing market is something that has been thrown around for quite some time. As home prices soar to new heights—with no sign of decline— housing bubbles appear to be popping up in many markets. Housing markets situated in ever-popular (and expensive) San Francisco, California, are showing bubble signals, but experts believe that other markets are not too far behind. Zillow's Home Price Expectations Survey of 108 panelists showed that one-third of respondents agreed that the San Francisco housing market is in a bubble, while 20 percent indicated that the market is at risk for bubble conditions in the next year. "Without 20/20 hindsight, it's difficult to identify bubbles as they're happening, but it is very clear that nationally we are not seeing a return of the conditions that caused the last national bubble," said Dr. Svenja Gudell, Zillow's Chief Economist. "Tighter lending restrictions today mean we aren't seeing buyers get loans they realistically can't pay back, like we did in years past. It's significant that some experts are starting to worry about bubble conditions, but in my opinion, there's no real danger of a severe crash like the one we all remember from the last decade." In addition to San Francisco, California, New York City, New York; Houston, Texas; Los Angeles, California; Miami, Florida; San Diego, California; and Seattle, Washington were at the top of Zillow's list markets that are already in a housing bubble. "A handful of markets–especially the Bay Area–are very hot right now, and it's possible home values may actually begin to fall somewhat in these places as more residents are priced out amidst rising affordability concerns, especially when interest rates rise. Whether those local conditions constitute a 'bubble' is up for debate, even among economists," Dr. Gudell explained. According to Zillow's panelists, home values are projected to grow at an annual rate of 3.9 percent through the end of 2015, which shows that the housing market will start to slow. All panelists agreed that the expected average annual home-value appreciation rate is now just over 3 percent, resulting in a national median home value of more than $215,000 by the end of 2020. "e long-term outlook for U.S. home values has diminished to a three-year low, and a clear- cut consensus among the experts remains elusive, even at the national level," said Terry Loebs, Pulsenomics Founder. "Based on the projections of the most optimistic forecasters, home values nationally will increase 4.7 percent next year and surpass their May 2007 peak levels in April 2017. "In contrast, the data collected from the panel's most pessimistic respondents expect only 2.3 percent appreciation for next year, and even more subdued appreciation thereafter–a path that would delay the market's eclipse of the bubble peak until September 2019. e divergence of expert views regarding the existence of regional price bubbles and the path of future home values is a reminder that the U.S. housing sector has yet to fully heal more than eight years after the epic bust, and that significant risks have re-emerged within certain large metropolitan area housing markets." IS THE FINANCIAL STABILITY OVERSIGHT COUNCIL ENABLING 'TOO BIG TO FAIL'? e question of whether "Too Big to Fail" still exists remains a hotly debated topic among lawmakers in Washington, and it was the prime topic of discussion at December oversight hearing for the Financial Stability Oversight Council (FSOC) in the House Financial Services Committee. Eight of the FSOC's 10 voting members testified at the hearing; among those the Federal Housing Finance Agency Director Mel Watt, Consumer Financial Protection Bureau Director Richard Cordray, Comptroller of the Currency omas Curry, and FDIC Chairman Martin Gruenberg. e FSOC, like the CFPB, was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. While supporters of Dodd-Frank claim that the controversial legislation put an end to the taxpayer-funded bailouts for institutions deemed "Too Big to Fail," its opponents claim that the law actually codifies "Too Big to Fail" by giving the FSOC the authority to designate certain institutions as "systemically important." e Council's criteria for designating institutions as such as been another highly debated topic in Washington. "Of all of the Council's activities, none generates more controversy than its designation of non-bank financial institutions as 'systemically important financial institutions,' or SIFIs. Designation anoints institutions as 'Too Big to Fail,' meaning today's SIFI designations are tomorrow's taxpayer-funded bailouts," said Jeb Hensarling (R-Texas), Chairman of the Committee. "Designation also ominously grants the Federal Reserve near de facto management authority over such institutions, thus allowing huge swaths of the economy to potentially be controlled by the federal government." One non-bank institution designated by the FSOC as systemically important, MetLife Insurance, has sued to try to have that designation removed, claiming that the designation results in higher compliance costs which in turn lead to higher prices for their customers. Indeed, the Council's independent insurance expert, Roy Woodall, Jr., testified at the hearing that the systemically important designation attached to insurance companies such as MetLife has the potential to lead to higher prices for consumers. e transparency of the FSOC was also called into question during the hearing; it was brought out that the Council's meetings are mostly held in private and the publicly released minutes from those meetings do not contain much substantive information on what was discussed in those meetings. e Council also determined that the process for designating an organization as systemically important has been "marked by a striking lack of due process" and that organizations targeted by the FSOC for designation do not have access to materials the FSOC uses to make its determinations— and therefore they have limited opportunities to modify their activities in order to become less "systemically important." e Committee also determined that the regulatory process is politicized because the FSOC's authority is concentrated in the hands of its members—all of whom except one (Woodall) are heads of regulatory agencies, who have been appointed by the president. Such a structure "not only distorts the lines of accountability and expertise among regulators, it distorts the balance that exists within regulatory agencies and erodes their independence," according to the Committee.

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