A weekend topic starting with CNBC. "With the U.S housing bubble far in the rearview mirror, home prices in most places have passed their pre-recession peak. In other spots, though, it's a different story. 'Some markets that experienced a huge run-up and then a big downturn are still waiting for a recovery,' said Lawrence Yun, chief economist for the National Association of Realtors. 'For some people, the decline from the time they purchased was so severe that it's taking a long time to recover.'"

"Nationally, the median home price is $226,700, according to Zillow. That's about 13% more than its 2007 peak of $200,500. Prices have pushed far higher than their previous peaks in some metro areas."

The Indianapolis Star. "For Central Indiana builders to meet employment-driven housing demands, construction would have to increase by 21 percent over the course of the next two decades, according to the housing study. While such studies might accurately point out a lack of 'new' affordable homes, a Ball State economics professor notes that, in truth, Indiana has a housing glut, largely due to older, often vacant homes that are affordable but not necessarily desirable.'"

"Professor Michael Hicks, along with research professor Dagney Faulk,published a study in February disputing the housing inventory shortage in Indiana, and said that new construction would only contribute to Indiana's existing excess housing supply."

"Hicks found 316,000 vacant single-family homes in Indiana. 'Statewide we have too many homes. Far too many homes that have to be bulldozed and removed,' he said. 'The problem is that they're not in the places people want to live.'"

"But perhaps more significantly, the homes that are being built are beyond what many people can afford to buy. New households can support homes that cost $260,000 or less, but many new homes are priced above that, the study found."

"Pent-up demand from the housing crisis has contributed to a trend in increasing land prices, said John Eaton, a custom home builder with about 25 years of experience in the industry. Eaton recently sold a home for $750,000 in an area he would never have expected to command such a high value near 38th Street."

"'If you had told me that five years ago, I would've told you you were insane,' he said. 'Before, the rule of thumb, you wanted the lot value to be 20 percent of the house. That's changed lot. Now we're in bigger city prices, some of these lots are 50 percent the value of the house.'"

"If you ask Steve Hatchel, chief business development officer for Indianapolis-based Arbor Homes/Silverthorne Homes, it's harder to build affordable housing in some communities now. 'Four or five years ago, our average price point was right at about $160,000 and now it’s running $215-220,000,' Hatchel said. 'Big difference.'"

From Knowledge@Wharton. "Wharton real estate professor Benjamin Keys discusses a new analysis tool he an colleagues have created that could be an early-warning signal when lenders relax mortgage requirements beyond a safe level."

"'This is a really nice indicator for when markets are looking a little bit frothy, a little bit bubbly.' Keys noted that late last year when some lenders began making loans that have echoes of the past. 'We saw this at the tail end of 2018. As interest rates started to go up, we started to see some lenders — even very traditional lenders — starting to make these loans that have some shadows of the types of loans that were so popular during the boom. And now these are not being called subprime or non-prime or 'alt-A.' The new name for them is non-qualified mortgage or non-QM. I think people are going to start to hear more about these types of loans.'"

"'You’re starting to see some things that look like teaser rates. You’re starting to see some contracts that look like maybe interest-only contracts, where you’re only paying interest on the loan for two, three, five years, and then you start to repay the principal at that point.'"

"'There’s certainly a lot of evidence that seems to point to the need for some form of risk retention, that that is going to align the incentives better than not. But right now, there are a lot of ways to avoid these kinds of rules. Anything that’s sold to Fannie Mae or Freddie Mac, for instance, doesn’t require risk retention. So, Fannie and Freddie are bearing a lot of that risk. Now, they haven’t moved their standards into this direction either, but we saw this at the tail end of the boom, as well — that Fannie and Freddie started to relax their standards to try to keep up with the private market.'"

"'If you look at the difference between the number of AAA-rated corporations versus the number of AAA-rated mortgage bonds, it’s just not even close. There are so many of these mortgage bonds out there with a AAA rating. You can get different types of investors willing to bear different types of risks, but the model really matters. The underlying model matters a ton. And this is something the rating agencies got wrong. They just simply didn’t realize how correlated these different markets were.'"

"'If you look back at the mistakes that the credit rating agencies made, we haven’t really replaced that. One thing I think is keeping this type of lending to a relative minimum — now it’s growing quickly.'"

From AEI Housing Center. "The 30-year mortgage amortizes extremely slowly, making it nearly twice as risky as a similar loan with a 20-year term. And the 30-year loan compounds risk-layering by promoting the use of higher combined loan-to-value and debt-to-income ratios (DTI)."

"The Housing Lobby unabashedly supports the broad availability of the 30-year mortgage, and even wants it extended to manufactured housing. This is because Housing Lobby sees the slow amortization as a feature that reduces monthly payments, making home 'more affordable.' They choose to ignore the bug–the 30-year loan, when combined with other risk factors, drives up home prices when the supply of homes is tight, especially for buyers of entry-level homes."

"Since 2012, lower priced entry-level homes have risen by about 55%, while move-up homes have risen by about 31%. This means lower priced entry-level homes that cost an average of $103,315 in 2012, cost a whopping $160,138 in late-2018. Thus, rather than making housing more affordable as its supporters claim, 30-year loans make housing less affordable."

"Fact 1: In December 2018, 30-year loans constituted 99% of all government guaranteed loans to finance a home purchase. Government agencies guaranteed 85% of home purchase loans. Fact 2: This was not always the case. In 1953, the year before Congress authorized the FHA to insure 30-year loans on existing homes, FHA’s average loan term was 21 years and conventional loans had a term of 15 years. Even as recently as 1992, 27% of home purchase loans had a term of 15- or 20-years."

"Fact 3: 30-year loans are much riskier than the 15- and 20-year loans they replaced. In general, a 30-year loan is about twice as risky as a 20-year loan with similar risk characteristics. A 15-year loan has about 60% less risk than a 30-year loan with similar characteristics. With the loans terms prevalent in the 1950s, it comes as no surprise that foreclosure levels in the 1950s literally rounded to zero. With the broad adoption of the 30-year loan by FHA in the late 1950s and early 1960s, foreclosure rates started to rise to concerning levels in the early 1960s.'"

"Fact 5: But it is the 30-year loan’s lower monthly payment that is its flaw. The pace of principal pay-down on a 30-year mortgage is agonizingly slow. At the end of 6 years, the balance on the 30-year loan is $89,138, compared to $78,749 for the 20-year loan. This helps explain why the 30-year loan is so much riskier. The paying down of principal through scheduled amortization is called earned equity. House price appreciation through rising prices, particularly when rising faster than inflation, is call unearned equity. Since the long term success of the 30-year loan as a wealth building tool is reliant on large doses of unearned equity on entry level-homes, it is fatally flawed."

"Back in the 1950s, before the large-scale adoption of the 30-year loan, the median home price was about 2 times median income. Today, this ratio is over 3.5. This result is predictable, as Ernest Fisher, FHA’s first chief economist in the 1930s and a university professor in the 1950s, observed that in a seller’s market, 'more liberal credit is likely to be capitalized in price."

"Fact 7: As the easy terms of the thirty-year loan gets capitalized into higher home prices, the dollars needed for a down payment of say 10% doubles as the price of a home doubles. Yet as already noted, incomes (and savings) do not rise as quickly. At the start of the current home price boom in 2012, first-time FHA buyers had a median down payment of $3800. In January 2019 the median down payment was still $3800, yet the median home price purchased had increased by 31%. This translates into more risk."

"Fact 8: A similar trend has occurred with respect to borrower DTIs. Since 2012, the DTIs of first-time FHA buyers have increased by 13%, an unsurprising result since wages have increased by only about 16% over the same period, but the price of homes purchased went up by 31%."

"The solution is simple. Stop putting FTBs in harm’s way and end the pricing penalty. This can be done by switching to a 20-year loan term that builds wealth more reliably and at much lower risk of default. Second, adopt policies to increase the supply of newly constructed entry-level homes."