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51 » VISIT US ONLINE @ DSNEWS.COM THE TALE OF TWO COASTS For all the ink spent keeping tabs how the lack of housing inventory affects affordability, it turns out that affordability hasn't gone anywhere. Based on the most recent National Association of Home Builders (NAHB)/ Wells Fargo Housing Opportunity Index, housing affordability remained essentially flat throughout all four quarters in 2017. According to the index, 60 percent of new and existing homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $68,000. at's effectively the same rate as in Q 3 and compared to a year earlier. Coupled with steady affordability, the national median home price fell $5,000 to $255,000 in Q 4, the report stated. Meanwhile, average mortgage rates moved from 4.1 percent to 4.06 percent. e Youngstown region and Syracuse tied as the most affordable major housing markets in the U.S. during the last quarter. In both metros, 88 percent of all new and existing homes sold in the fourth quarter were affordable to families earning the area's median income of $54,600 and $68,000, respectively. e Cumberland region, where Maryland meets West Virginia, was the most affordable smaller market. Nearly every home sold in the fourth quarter—97—was affordable to families earning the median income of $53,900. On the flipside of affordability and the country, Los Angeles was the least affordable market. Just above 6 percent of the homes sold in Q 4 were affordable to families earning the area's median income of $113,100. NAHB Chairman Randy Noel said that while builder confidence and consumer demand remain strong, buyers would likely enter the marketplace this year. "At the same time," he said, "builders are working hard to keep home prices affordable as they continue to grapple with persistent labor and lot shortages, burdensome regulations and rising costs for building materials. Another factor that could have a negative effect on housing affordability in the first quarter is a recent rise in mortgage interest rates." NAHB Chief Economist Robert Dietz said that ongoing job and economic growth are boosting housing demand—as are tight inventories and rising household formations are boosting housing demand. Dietz also said the new tax laws will have a dampening effect on home prices. "While it will further boost economic activity," he said, "the new tax law is expected to contribute to price softness in some high- cost, high-tax markets now that deductions for income and property taxes are capped at $10,000 per year." Meanwhile, NAHB has reduced its home price forecast this year to 2.9 percent as a result of the recently enacted tax reform legislation. FDIC DODD-FRANK STRESS TEST HIGHLIGHTS ECONOMIC EXPECTATIONS Unemployment, exchange rates, prices, income, and interest rates are some of the economic factors that will reveal whether banks in the U.S. are armed with robust capital planning processes and sufficient capital to continue operations during times of economic or financial stress. ese are also factors that reveal the expectations of economic forecasters. e Federal Deposit Insurance Corporation (FDIC) recently released these economic scenarios. Banks and financial institutions will use them with total consolidated assets of more than $10 billion for stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. e baseline scenario represents expectations of private sector economic forecasters. However, the adverse and severely adverse scenarios are not forecasts, but are hypothetical scenarios designed to assess the strength and resilience of financial institutions and their ability to continue to meet the credit needs of households and businesses under stressed economic conditions. Under the base scenario, real GDP Growth is expected to remain in the range of 2.5 percent in 2018, with slight changes in each quarter. Unemployment is expected to fall to 3.8 percent by the end of 2018, while mortgage rates are expected to rise to 4.5 percent by the end of the year from 4.1 percent in the current quarter. e House Price Index (HPI), which is the price index for owner-occupied real estate is also expected to rise to 199.3 points during the year. ough inflation is expected to remain stable at 2.1 percent across the year, disposable income could fall from 4 percent at the beginning of 2018 to 2.8 percent towards the end of the year. e results of these stress tests provide the FDIC with forward-looking information used in bank supervision and assist the agency in assessing the company's risk profile and capital adequacy. e baseline, adverse, and severely adverse scenarios for 2018 were developed in coordination with the Board of Governors of the Federal Reserve System and the Office of the Comptroller of Currency. Though inflation is expected to remain stable at 2.1 percent across the year, disposable income could fall from 4 percent at the beginning of 2018 to 2.8 percent towards the end of the year.

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