Federal Home Loan Mortgage Corp (OTCBB:FMCC) released the August insight and outlook, showing absence of statistics that reliably can warn when a housing market is about to burst or when prices are on the verge of decline. The report stated that along with the indicators, there is a dire need of human judgment to assess the market scenario.
The discrepancy
As per the released report, the housing industry affordability metrics can tell when housing prices are high as compared to historical standards and to household income. However, still there is no way to know if or when prices will fall. There is a significant amount of disagreement evident among the different metrics.
The same area can be stated as overvalued in terms of prices by one metric and undervalued by some other housing metric. Such a situation makes it difficult to assess the market conditions. And as a matter of fact, the future path of prices turns to be an important factor while assessing the credit risk, and setting guarantee charges of the mortgages backed by mortgage giant Federal Home.
The highlights
Federal Home Loan Mortgage Corp (OTCBB:FMCC) owns a brownie point over local lenders and homeowners throughout the U.S. In the process, the decline in prices of isolated local house is averaged in with price jump in the rest of the country. Due to this approach, the collection of loans supported by Freddie experiences the average variation of house prices nationwide.
The problem is this diversification do not provides any cushion to Federal Home in case another housing bubble bursts in the future. Instead, the reforms and regulations placed in housing industry in last seven years provide protection against a recurrence of that experience.
In last trading session, the stock price of Federal Home declined 0.45% to close the trading session at $2.19. The decline came at a share volume of 1.04 million compared to monthly average share volume of 1.61 million.
