Rates dropped slightly in the wake of last week’s increases, according to its Primary Mortgage Market Survey from Freddie Mac.

“While higher mortgage rates have led to a decline in home sales this year, the weakness has been concentrated in expensive segments versus entry-level and first-time buyer which remains firm throughout most of the rest of the country,” said Sam Khater, chief economist for Freddie Mac. “Despite higher mortgage rates, the monthly mortgage payment remains affordable. For many buyers the chronic lack of entry-level supply is a larger hurdle than higher mortgage rates because choices are limited and the inventory shortage has caused home prices to rise well above fundamentals.”

News Facts:

• 30-year fixed-rate mortgage averaged 4.83 percent with an average 0.5 point for the week ending Nov. 1, 2018, down from last week when it averaged 4.86 percent. A year ago at this time, the 30-year FRM averaged 3.94 percent.
• 15-year fixed-rate mortgage averaged 4.23 percent with an average 0.5 point, down from last week when it averaged 4.29 percent. A year ago at this time, the 15-year FRM averaged 3.27 percent.
• 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.04 percent with an average 0.3 point, down from last week when it averaged 4.14 percent. A year ago at this time, the 5-year ARM averaged 3.23 percent.

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More Californians could afford to purchase a home in the third quarter as flat home prices and stable interest rates combined to improve California housing affordability.

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in third-quarter 2018 edged up to 27 percent, from 26 percent in the second quarter of 2018 and was down from 28 percent in the third quarter a year ago, according to C.A.R.'s Traditional Housing Affordability Index from the California Association of Realtors. It was below 30 percent for five of the past eight quarters. California's housing affordability index hit a peak of 56 percent in the first quarter of 2012.

The Index measures median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The index is considered the most fundamental measure of housing well-being for home buyers in the state.

A minimum annual income of $125,540 was needed to qualify for the purchase of a $588,530 statewide median-priced, existing single-family home in the third quarter of 2018. The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $3,140, assuming a 20 percent down payment and an effective composite interest rate of 4.77 percent. The effective composite interest rate in second-quarter 2018 was 4.7 percent and 4.16 percent in the third quarter of 2017.

Conversely, housing affordability for condominiums and townhomes fell in third-quarter 2018 compared to the previous quarter with 35 percent of California households earning the minimum income to qualify for the purchase of a $479,390 median-priced condominium/townhome, down from 36 percent in the second quarter. An annual income of $102,260 was required to make monthly payments of $2,560.

Compared with California, more than half of the nation's households (53 percent) could afford to purchase a $266,900median-priced home, which required a minimum annual income of $56,930 to make monthly payments of $1,420.

Key points from the third-quarter 2018 Housing Affordability report include:

• Housing affordability improved from third-quarter 2017 in 10 tracked counties and declined in 33 counties. Affordability in five counties remained flat.
• In the San Francisco Bay Area, affordability improved from a year ago in San Francisco and Marin counties, primarily due to higher wages. Affordability fell in six counties (Alameda, Contra Costa, Napa, San Mateo, Solano, and Sonoma). Affordability held steady in Santa Clara County.
• In Southern California, affordability improved only in Ventura, and dropped in four counties (Orange, Riverside, San Bernardino, and San Diego) compared to a year ago. Affordability in Los Angeles County was unchanged.
• In the Central Valley, Fresno and Madera counties saw an improvement in affordability from third-quarter 2017. Housing affordability decreased from a year ago in eight counties (Kings, Merced, Placer, Sacramento, San Benito, San Joaquin, Stanislaus and Tulare). Affordability held steady only in Kern County.
• In the Central Coast region, only Santa Barbara experienced a year-to-year improvement in affordability, while three counties (Monterey, San Luis Obispo, and Santa Cruz) posted a decline.
• During the third quarter of 2018, the most affordable counties in California were Lassen (67 percent), Kern and Kings (51 percent), Tehama (49 percent) and Yuba (48 percent).
• Mono (11 percent), Santa Cruz (12 percent), San Mateo (14 percent), San Francisco (15 percent), and Santa Clara (17 percent) counties were the least affordable areas in the state.

The Federal Reserve has proposed a framework that ties the degree of regulatory scrutiny to amount of risk exposure of a bank. The proposal would reduce compliance rules for firms with less risk but would increase for firms with greater risk.

"The proposal would prescribe materially less stringent requirements on firms with less risk, while maintaining the most stringent requirements for firms that pose the greatest risks to the financial system and our economy," said Jerome. Powell, chairman of the Fed.

The framework establishes four categories of standards for large banking organizations--those with more than $100 billion in total consolidated assets. For instance, proposed categories could include Category I: Wells Fargo and Bank of America; Category II: Northern Trust; category III: Sun Trust and Fifth Third; Category IV: Silicon Valley and NY Community Bank. The Fed is accepting comments on the framework.

The changes would significantly reduce regulatory compliance requirements for firms in the lowest risk category, modestly reduce requirements for firms in the next lowest risk category, and keep, for the most part, existing requirements in place for the largest and most complex firms in the highest risk categories, according to the Fed.

"With these proposals, banking organizations will see reduced regulatory complexity and easier compliance with no material decline in the strength of the U.S. banking system," said Randal Quarles, vice chairman for supervision.

The factors that would determine the categories a bank is assigned to include: Asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets and off-balance sheet exposure. Each factor reflects greater complexity and risk to a banking organization, resulting in greater risk to the financial system and U.S. economy.

Firms in the lowest risk category-- most domestic firms with $100 billion to $250 billion in assets—wouldn’t be subject to standardized liquidity requirements. They would remain subject to liquidity stress tests and regulatory risk-management standards. Additionally, these firms would no longer be required to conduct company-run stress tests, and their supervisory stress tests would be moved to a two-year cycle, rather than annual. These reduced requirements would reflect the lower risk profile of these firms.

Firms in Category II--those with $250 billion or more in total consolidated assets, or material levels of other risk factors, but are not global systemically important banking organizations, would have their liquidity requirements reduced; but remain subject to a range of enhanced liquidity standards. In addition, the firms would be required to conduct company-run stress tests on a two-year cycle, rather than semi-annually. The firms would remain subject to annual supervisory stress tests.

Firms in the highest risk categories wouldn’t see any changes to their capital or liquidity requirements.

In sum, the Fed estimates that the changes would result in a 0.6 percent decrease in required capital and a reduction of 2.5 percent of liquid assets for U.S. banking firms with assets of $100 billion or more.

The regulatory capital and liquidity aspects of the proposals were jointly developed with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.