Economy Watch: Residential Price Increase Continues Deceleration; Fischer Lauds Financial Reform

In June, U.S. home prices were up 8.1 percent year over year and 2.6 percent quarter over quarter, both of which reflect a slowdown in average price increases. Fed Vice Chairman Stanley Fischer said that some progress has been made on the financial sector reform front.

Trulia reported on Thursday that in June, U.S. home prices were up 8.1 percent year over year, and 2.6 percent quarter over quarter, both of which reflect a slowdown in average price increases. But despite this national slowing in price gains, price increases continue to be widespread, with 97 of 100 metros posting year-over-year price gains – the most since the recovery began. Also, asking prices in June rose at their highest month-over-month rate (1.2 percent) in 16 months.

The price slowdown has been particularly sharp in the boom-and-bust markets of California and the Southwest, where the recession was severe, the recovery was dramatic, and the slowdown is now most pronounced, the company noted. For instance, in Phoenix, Las Vegas, Sacramento, and Orange County, price gains have ground to a stop or gone into reverse in the past quarter after posting gains of more than 20 percent year over year in June 2013. Although these four housing markets all still experienced average or above-average annual price increases in June 2014, their slowdowns or reversals in the most recent quarter foreshadow a continued deceleration.

Trulia also tracks for-rent property, and said that rent increases outpaced wage increases in all of the 25 largest metro areas. At the high end, rents rose more than 10 percent year over year in Miami, Oakland, San Francisco, San Diego, and Denver. Among these five markets with the largest rent increases, all but Denver are among the nation’s least affordable rental markets.

Fischer Lauds Financial Reform 

The FOMC minutes got a lot of attention this week, but there were other observations by the Fed, such as Vice Chairman Stanley Fischer’s comments on how much progress has been made on financial sector reform, given at the National Bureau of Economic Research in Cambridge, Mass., on Thursday. The short answer: some.

He said that the bottom line in capital and liquidity ratios, which is one of the major changes of the last 10 years, was that “the capital ratios of the 25 largest banks in the United States have risen by as much as 50 percent since the beginning of 2005 to the start of this year, depending on which regulatory ratio you look at. For example, the tier 1 common equity ratio has gone up from 7 percent to 11 percent for these institutions …”  In addition, the buffers of high-quality liquid assets held by the largest banking firms have more than doubled since the end of 2007, and their reliance on short-term wholesale funds has fallen considerably.

At the same time, the introduction of macroeconomic supervisory stress tests in the United States has added a forward-looking approach to assessing capital adequacy, Fischer asserted, as firms are required to hold a capital buffer sufficient to withstand a several-year period of severe economic stress. He added that a great deal of progress has been made in dealing with the TBTF problem (that is, institutions that are Too Big To Fail). “While we must continue to work toward ending TBTF or the need for government financial intervention in crises, we should never allow ourselves the complacency to believe that we have put an end to TBTF,” he explained.

On the whole, he lauded most of the reforms enacted during the throes of the recession. “We should recognize that despite some imperfections, the Dodd-Frank Act is a major achievement,” Fischer said.

Wall Street lost ground on Thursday, with the Dow Jones Industrial Average losing 70.54 points, or 0.42 percent. The S&P 500 was down 0.41 percent and the Nasdaq declined 0.52 percent.