New Home Sales Rise More Than Views, With Risk Share Looming

The Commerce Department said on Thursday that new home sales in the U.S. rose more than economists’ expected in August, with the prior month revised to show stronger sales than initially reported. U.S. single-family home sales gained 5.7% to a seasonally adjusted annual rate of 552,000 units last month, but the increasing share of risk in the housing market is trending higher.

“The strong spring 2015 home buying season has been paced by outsized gains for first-time buyers,” said Edward Pinto, co-director at the AEI International Center on Housing Risk, as well as the former executive vice president and chief credit officer for Fannie Mae. “Unfortunately, these gains are fueled in part by liberalized credit standards, which is creating demand pressure and driving real home prices higher. This will lead to future instability.”

The composite National Mortgage Risk Index (NMRI) for Agency purchase loans clocked in at 12.14% in August, up 1% from a year earlier. The monthly composite index, which measures how mortgage loans originated month-by-month would perform under severely stressed conditions, has now gained on a year-over-year basis every month since January 2014.

Agency loan originations continued to migrate from large banks to nonbanks in August, a shift that has accounted for most of the upward trend in the composite NMRI. Nonbank lending is substantially riskier than the large bank business it replaces.