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the latest SERVICING Or ig i nat ion Analysts Note Diversity in Price Improvements W Fed Policies Spell Risk Experts polled by Zillow say the Fed's monetary policies could be creating a new bubble. A majority of real estate experts responding to a recent Zillow survey expressed some concern that the Federal Reserve's current policies could lead to another housing bubble. Only 4 percent of respondents are not at all worried about a bubble resulting from the Fed's monetary policy that is keeping mortgage rates down. However, 48 percent see the Fed's policies as "a little risky," and the remaining 48 percent categorized the risk as "moderate to high." "How the Federal Reserve handles the eventual winding down of its policy of quantitative easing will be critical in determining if the current period of rapid appreciation is a benign bounce off the bottom or a more dangerous bubble being re-inflated," said Stan Humphries, chief economist at Zillow. The more than 100 survey respondents expect home prices to continue their upward trajectory this year and over the next few years. However, the general consensus is that price increases will slow after the next year or so. Experts expect prices to end this year 5.4 percent higher than their level at the start of the year. After capping off 2012 at $156,800, the median price would end 2013 at $165,280, according to the forecast. From 2015 through 2017, experts suggest a more modest rise per year of 3.5 to 3.7 percent. A cumulative rise of 22.3 percent is projected through 2017, according to Zillow's survey. The accelerated appreciation over the next year is "consistent with a market struggling to satisfy strong demand from buyers attracted by rock-bottom interest rates and improving economic conditions," Humphries said. However, as interest rates eventually move up from their current lows, price appreciation must slow or homes will "look very expensive relative to people's incomes as it gets more costly to finance a home," Humphries said. The Zillow survey, conducted by Pulsenomics, also inquired about whether the definition of a qualified residential mortgage (QRM) should include a minimum down payment. "Contrary to concerns expressed by certain policymakers, only a small minority of our expert panelists believe that including a minimum down payment requirement in QRM would pose a threat to the housing recovery," said Terry Loebs, founder of Pulsenomics. About 81 percent support the idea of a minimum down payment requirement, although a minority—about one-third—support a down payment requirement of 20 percent or more. The M Report | 45 se c on da r y m a r k e t In fact, even at a continued rate of 27 percent, which Villacorta deems unlikely, the Las Vegas market would take four years to match its peak prices reached in 2006. Phoenix experienced a 25.7 percent increase over the year, and its prices are 45.9 percent below their peak. Las Vegas also topped the list of top-performing markets for the rolling quarter ending in May with a 4.5 percent gain. Sacramento, California, ranked No. 2 with a 3.5 percent gain, followed by Chicago with a 3.2 percent gain, Phoenix with a 3 percent gain, and San Jose, California, also with a 3 percent gain. Cleveland topped the list of lowest-performing markets with a 4.3 percent quarterly decline. The Ohio metro was the only metro under Clear Capital's observation to record a price decline greater than 1 percent over the rolling quarter, according to Clear Capital. St. Louis and Detroit tied for second place with identical 0.7 percent declines. Birmingham, Alabama, took the No. 4 spot with a 0.4 percent decline, while Raleigh, North Carolina, and Dallas followed close behind with 0.1 percent declines. Looking forward, Villacorta expects the upward trajectory across the nation to "moderate over the near term," which will "provide a sense of stability that is essential for both consumers and lenders, as it allows for both parties to calibrate to the current housing landscape." a na ly t ic s hile national home prices continue to post gains, Clear Capital's VP of research and analytics, Alex Villacorta, insists "granularity in home prices remains key." Regional prices increased across the nation over the threemonth period ending in May, according to Clear Capital's most recent home price report, but metro prices were mixed. "While there's no questioning the validity of the recovery at this point, performances at the local level remained mixed when considering strength, sustainability, and relative positions to 2006 prices," Villacorta said. He suggested "the diversity in price performance at the local level is mainly a function of the severity to which a particular housing market was hit during the housing crash." Consistent with this observation, Las Vegas and Phoenix continue to lead the recovery at the metro level. At a broad regional level, prices increased the most in the West—2.4 percent—and least in the Midwest—0.7 percent. The South and Northeast fell in between with gains of 1.1 percent and 0.8 percent, respectively. At the metro level, Las Vegas outpaced Phoenix as the metro with the greatest price gain on a yearly basis. Phoenix held this rank from April 2012 until now. Las Vegas posted a 27 percent price gain over the year, but prices are still 57.1 percent below their peak. s e r v ic i ng National gains mask mixed local trends.