Economic Analysis

House Price Index Shows Decline 

In Affordability for 

Third Month in a Row

    SANTA ANA, Calif. - (BUSINESS WIRE) - 8/12/2021 - First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, released the May 2021 First American Real House Price Index (RHPI) on July 27. The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.

Chief Economist Analysis: Record Nominal House Price Appreciation Outpaces House-Buying Power Growth in May

    “Housing affordability declined on a year-over-year basis for the third month in a row in May, following a two-year streak of rising affordability,” said Mark Fleming, chief economist at First American. “The decline in May occurred even as two of the three key drivers of the Real House Price Index (RHPI), household income and mortgage rates, swung in favor of greater affordability relative to one year ago.

    “House-buying power increased by 8 percent in May compared with a year ago, propelled by lower mortgage rates and higher household income. The affordability gains from house-buying power, however, were offset by the third component of the RHPI, nominal house price appreciation, which reached a record 18 percent in May, surpassing the previous peak from 2005,” said Fleming. “As always, real estate is local and national affordability trends are not necessarily reflected in local trends, as house-buying power and nominal house price gains vary greatly from city to city.”

Affordability Declined in 49 of the 50 Major Markets

    “The drop in affordability was broadly felt as affordability declined year over year in 49 of the 50 markets we track,” said Fleming. “The five markets with the greatest year-over-year decline in affordability were:

1. Phoenix (-22.7 percent)
2. Seattle (-20.1 percent)
3. Kansas City, Mo. (-19.6 percent)
4. Tampa, Fla. (-17.8 percent)
5. Las Vegas (-17.2 percent)
   

    “Mortgage rates are generally the same across the country, so a decline in mortgage rates boosts affordability equally in each market,” said Fleming. “Household income growth and nominal house prices, on the other hand, differ from market to market, so the affordability dynamic varies as well.

    “In May, Phoenix had the greatest year-over-year decrease in affordability. While annual income growth was steady at 1.9 percent, Phoenix experienced the biggest annual increase in nominal house prices of any major market – 29.3 percent. The steep increase in nominal house prices overshadowed any affordability gains from increased house-buying power,” said Fleming. “A similar dynamic played out in Tampa as year-over-year nominal house price appreciation of 25.6 percent outpaced house-buying power.

    “In Seattle and Las Vegas, house-buying power ticked up as the positive impact of falling mortgage rates offset a decline in household incomes. However, like Phoenix and Tampa, nominal house price growth in Seattle (20.7 percent) and Las Vegas (19.9 percent) overshadowed the house-buying power gains,” said Fleming. “Kansas City was the only one of the five markets where house-buying power declined, combining with faster house price appreciation to drive a decline in affordability.”

Where Are Nominal House Prices Headed?

    “Declining affordability may cause potential home buyers on the margin to be priced out, prompting fewer or less intense bidding wars and causing house price appreciation to moderate. The increase in housing inventory may likewise ease pressure on nominal house price growth, though the increase remains small relative to historic levels and the broader housing supply shortage is likely to take years to reverse,” said Fleming. “Affordability trends in the coming months will depend on the supply and demand dynamics behind nominal house price appreciation – dynamics which will play out differently in each market.”

May 2021 Real House Price Index Highlights

• Real house prices increased 0.7 percent between April 2021 and May 2021.
• Real house prices increased 8.9 percent between May 2020 and May 2021.
• Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 1.4 percent between April 2021 and May 2021, and increased 8.4 percent year over year.
• Median household income has increased 4.7 percent since May 2020 and 78.0 percent since January 2000.
• Real house prices are 19.9 percent less expensive than in January 2000.
• While unadjusted house prices are now 30.1 percent above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 43.8 percent below their 2006 housing boom peak.

May 2021 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Arizona (+19.4 percent), Vermont (+17.0 percent), Washington (+16.6 percent), Nevada (+16.3 percent), and Connecticut (+15.4 percent).
• There were no states with a year-over-year decrease in the RHPI.

May 2021 Real House Price Local Market Highlights

• Among the Core Based Statistical Areas (CBSAs) tracked by First American, the five markets with the greatest year-over-year increase in the RHPI are: Phoenix (+22.7 percent), Seattle (+20.1 percent), Kansas City, Mo. (+19.6 percent), Tampa, Fla. (+17.8 percent), and Las Vegas (+17.2 percent).
• Among the Core Based Statistical Areas (CBSAs) tracked by First American, the only market with a year-over-year decrease in the RHPI is San Francisco (-0.1 percent).

Next Release

    The next release of the First American Real House Price Index will take place the week of August 30, 2021 for June 2021 data.

Sources

First American Data & Analytics
Freddie Mac
Census Bureau

Methodology

    The methodology statement for the First American Real House Price Index is available at http://www.firstam.com/economics/real-house-price-index.
 

Note: Original release date, July 27, 2021.

Investor Pleads Guilty To Bid Rigging, Mail Fraud

   (DOJ) - May 28, 2014 -- A Northern California real estate investor has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.
   Felony charges were filed in February in the U.S. District Court for the Northern District of California in Oakland against Charles Gonzales, of Alamo, Calif. Including Gonzales, a total of 44 individuals have pleaded guilty or agreed to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
    According to court documents, beginning as early as April 2009 until about October 2010, Gonzales conspired with others not to bid against one another, and instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda County, Calif. Gonzales was also charged with conspiring to commit mail fraud by fraudulently acquiring title to selected Alameda County properties sold at public auctions and making and receiving payoffs and diverting money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held.
   “The Antitrust Division’s ongoing investigation has resulted in charges against 44 individuals for their roles in schemes that defraud distressed homeowners and lenders,” said Bill Baer, assistant attorney general in charge of the Department of Justice’s Antitrust Division. “The division will continue to work with its law enforcement partners to vigorously protect competition at the local level.”
    The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at Alameda County public foreclosure auctions at non-competitive prices. When real estate properties are sold at the auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. According to court documents, the conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
    “The symbolism of holding illegitimate and fraudulent private auctions near a courthouse is deplorable,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The justice system will continue to prevail in this ongoing investigation pursuing bid rigging and fraud at public foreclosure auctions.”
    A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
    The charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. Investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400.
   Source: Financial Fraud Enforcement Task Force; Department of Justice

Real Estate Investor to Plead Guilty To Bid Rigging

   (DOJ) - 3/3/2014 - A Northern California real estate investor has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.
   Felony charges were filed recently in the U.S. District Court for the Northern District of California in Oakland against Charles Gonzales, of Alamo, Calif. Including Gonzales, a total of 44 individuals have pleaded guilty or agreed to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
   According to court documents, beginning as early as April 2009 until about October 2010, Gonzales conspired with others not to bid against one another, and instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda County, Calif. Gonzales was also charged with conspiring to commit mail fraud by fraudulently acquiring title to selected Alameda County properties sold at public auctions and making and receiving payoffs and diverting money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held.
   “The Antitrust Division’s ongoing investigation has resulted in charges against 44 individuals for their roles in schemes that defraud distressed homeowners and lenders,” said Bill Baer, assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The division will continue to work with its law enforcement partners to vigorously protect competition at the local level.”
    The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at Alameda County public foreclosure auctions at non-competitive prices. When real estate properties are sold at the auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. According to court documents, the conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
   “The symbolism of holding illegitimate and fraudulent private auctions near a courthouse is deplorable,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The justice system will continue to prevail in this ongoing investigation pursuing bid rigging and fraud at public foreclosure auctions.”
    A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
   The charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. Investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400.
   Source: Financial Fraud Enforcement Task Force

Brokerage Firm Owner Pleads Guilty to Fraud

   NEW YORK – 1/1/2013 - Mitchell Cohen, the owner of the now defunct Buy-A-Home real estate brokerage business, pleaded guilty on December 27, 2012, to one count of conspiracy to commit wire, bank and mail fraud in connection with a multimillion-dollar mortgage fraud scheme, announced U.S. Attorney for the Southern District of New York Preet Bharara.

   Cohen also pleaded guilty to one count of perjury in connection with statements he made in a contempt proceeding related to the December 2010 civil fraud lawsuit filed against him by this office. Cohen pleaded guilty before U.S. Magistrate Judge Ronald L. Ellis and is scheduled to be sentenced on April 26, 2013 by U.S. District Judge Denise L. Cote.

   The charge of conspiracy to commit wire, bank and mail fraud, carry a maximum penalty of 30 years in prison. The perjury charge carries a maximum penalty of five years in prison. Charges against Cohen’s co-defendant, Erin Davis, remain pending.
   “Mitchell Cohen was a tornado of mortgage fraud, and he left a trail of destruction in his wake – borrowers who could ill-afford the homes he pushed them to buy, banks that were saddled with the bad loans, and taxpayers whose tax dollars paid the insurance claims that had to be paid when borrowers defaulted. Cohen also thumbed his nose at the legal process by defying a judge’s order and then lying about it under oath. With his plea today, Cohen is owning up to his crimes,” Bharara said.
   According to the Indictment and statements made in public proceedings in Manhattan federal court: During the period charged in the Indictment, 2007-2010, the U.S. Department of Housing and Urban Development’s Federal Housing Administration (HUD-FHA) provided mortgage insurance to borrowers seeking residential mortgages. Unlike conventional loans, FHA-insured loans required little cash investment from borrowers and were more flexible in income and payment ratio requirements. To qualify for FHA mortgage insurance, a potential borrower had to meet HUD’s requirements regarding creditworthiness and ability to make mortgage payments. No undisclosed payments could be made or promised by third parties on behalf of the borrower in connection with a residential mortgage transaction. At all relevant times, certain private lenders were authorized to make commitments on behalf of HUD for the provision of FHA mortgage insurance. They did so through the execution and ultimate submission to HUD of various mortgage documents, forms, and supporting documentation. Because FHA-backed mortgages were valuable commodities, lenders typically sold them to banks that pooled them and then resold them to institutional investors.
   From April 2007 through October 2010, Cohen operated a real estate brokerage business in Queens, N.Y. known, at various times, as Buy-a-Home, LLC and First Home Brokerage, LLC (Buy-a-Home). Buy-a-Home employed several sales managers, as well as a number of sales agents who recruited clients who were usually first-time buyers to purchase homes. Cohen and Buy-a-Home employees facilitated the sales of the homes by preparing documentation to secure FHA-insured loans to fund the borrowers’ purchases.
   During that time period, Cohen engaged in a widespread conspiracy to defraud HUD into issuing FHA mortgage insurance and to defraud banks into purchasing the FHA-backed mortgages issued to Buy-a-Home’s clients in order to earn substantial profits. Through entities he controlled, Cohen bought, or promised sellers he would buy, homes at one price, and then he and others at Buy-a-Home recruited unsophisticated buyers of modest means and induced them into purchasing the same homes at inflated prices, which were typically $100,000 higher than the original sale price. To insure that the deals for these properties would go through, Cohen and others schemed to make the Buy-a-Home clients – who did not and could not qualify to receive FHA mortgage insurance – seem more creditworthy. In furtherance of this scheme:
   • Cohen directed Buy-a-Home employees to pay off borrowers’ debts, often with cash funneled through bank accounts belonging to the borrowers’ relatives, in order to make them appear more creditworthy and to make it seem that their debts had been paid by an appropriate source;
   • Cohen directed Buy-a-Home employees to provide cash to borrowers so that they could obtain certified checks falsely showing that they had sufficient funds to close;
   • Cohen directed borrowers’ relatives to sign false gift affidavits to make it seem that the borrowers’ debts had lawfully been paid, or that the borrowers’ funds for closing had been appropriately provided by relatives, when in fact they had unlawfully paid off the debts themselves or through Buy-a-Home; and
   • Cohen advised borrowers to make other false statements on loan applications submitted to HUD.
   In so doing, Cohen concealed the borrowers’ true financial condition from HUD and the banks that subsequently bought the FHA-backed mortgages, all in an effort to insure that Cohen and Buy-a-Home could profit from the deals. Cohen also made mortgage payments on behalf of certain borrowers to further conceal their financial condition and to prevent banks from enforcing their right to sell loans back to the lenders that first provided the borrowers with mortgages.
   Through this scheme, Cohen defrauded HUD into issuing, and banks into purchasing, millions of dollars in fraudulent loans. Furthermore, because the FHA insurance was based on false statements made to HUD, and the borrowers could not really afford their mortgages, many of the homes went into foreclosure proceedings forcing HUD to pay out at least $1 million in insurance payments.
   In December 2010, the Civil Frauds Unit of the U.S. Attorney’s Office for the Southern District of New York filed a complaint against Cohen and others alleging fraud at Buy-a-Home. On Dec. 29, 2010, the District Judge presiding over the civil action entered a preliminary injunction barring Cohen from participating in real estate sales involving HUD-insured mortgages and any advertising, marketing, or solicitation of business involving the same. Subsequently, in October 2011, the government moved for a finding of civil contempt against Cohen, alleging that he willfully violated the preliminary injunction by re-establishing Buy-a-Home under a new name – Y-Rent New York, LLC – which was nominally owned by Cohen’s wife and another individual, but was in fact operated by Cohen. In connection with his opposition to the contempt motion, Cohen filed a declaration on Nov. 11, 2011, in which he stated, under penalty of perjury, that he was not involved with Y Rent, did not train Y Rent’s salespeople, did not take certain types of business calls, and did not speak to prospective borrowers. As Cohen admitted during the plea, those statements were false.

   Source: Finance Fraud Enforcement Task Force

Real Estate Investors to Admit To Rigging Bids

   WASHINGTON – 10/27/2011 - Eight Northern California real estate investors have agreed to plead guilty today for their roles in two separate conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

   Charges were filed on October 27 in U.S. District Court for the Northern District of California in San Francisco against Gary Anderson of Saratoga, Calif.; Patrick Campion of San Francisco; James Doherty of Hillsborough, Calif.; Keith Goodman of San Francisco; Troy Kent of San Mateo, Calif.; Craig Lipton of San Francisco; Henry Pessah of Burlingame, Calif.; and Laith Salma of San Francisco.
   According to the felony charges, the real estate investors participated in a conspiracy to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in San Francisco County and San Mateo County. Doherty, Goodman and Lipton participated in the conspiracy in San Francisco, and Anderson, Campion, Kent, Pessah and Salma participated in the conspiracy in San Mateo.
   “The collusion taking place at these auctions allowed the conspirators to line their pockets with funds that otherwise would have gone to lenders and, at times, financially distressed homeowners,” said Sharis Pozen, acting assistant attorney general in charge of the Department of Justice’s Antitrust Division. “The investigation into collusion at these foreclosure auction markets is ongoing, and the Antitrust Division will continue to pursue the perpetrators of these fraudulent schemes until they are brought to justice.”
   The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at San Francisco County and San Mateo County public foreclosure auctions at noncompetitive prices. When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.
   According to court documents, the eight real estate investors conspired with others not to bid against one another at public real estate foreclosure auctions in Northern California, participating in a conspiracy for various lengths of time between November 2008 and January 2011. The real estate investors were also charged with conspiracies to use the mail to carry out a fraudulent scheme to make payoffs to obtain title to selected real estate at fraudulently suppressed prices, to receive payoffs and to divert money to co-conspirators and away from mortgage holders and others with a legal interest in these properties.
   Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. Each count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.
   The charges are the latest cases filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. To date, as a result of the investigation, 18 individuals have agreed to plead guilty.
   The ongoing investigation into fraud and bid rigging at certain real estate foreclosure auctions in Northern California is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm or call the FBI tip line at 415-553-7400.

   Source: U.S. Department of Justice release