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FHA’s annual report spells hope for housing affordability

(REAL ESTATE NEWS) FHA’s report indicates that the health of the Mutual Mortgage Insurance Fund (MMIF) means more credit may be available to working families.

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Steady does ‘er

The Federal Housing Administration (FHA’s) just released actuarial report indicates that that the Mutual Mortgage Insurance Fund (MMIF) is on a steady financial trajectory.

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But wait, before your eyes glaze over, the National Association of Realtors® (NAR) says this “is an opportunity to make FHA’s low-down-payment mortgage option available to an even broader swath of borrowers.”

“FHA’s actuarial report shows that the fund has indisputably found its footing,” said NAR President William E. Brown, a Realtor® from Alamo, California and founder of Investment Properties. “That’s good news for taxpayers, and a reflection of FHA’s sound stewardship. It’s clear from this report that FHA can continue taking responsible steps to manage their risk even as they take action to make homeownership more affordable for lower- and middle-income buyers.”

Improving access to credit for working family

“FHA’s strong, sustained progress has helped fuel the housing market recovery over the past eight years,” said HUD Secretary Julian Castro. “Today’s report once again confirms that our steps to maintain a financially sound Fund are paying off, giving more American families the opportunity to afford a home of their own.”

“FHA has come a long way since our housing crisis,” said Ed Golding, HUD’s Principal Deputy Assistant Secretary for Housing. “With evidence that FHA’s fundamentals are strong and improving, there is no doubt that FHA is making steady progress accumulating capital and, at the same time, improving access to credit for working families.”

Delinquency rates are down

FHA’s MMIF is responsible for paying lenders if a mortgagor defaults, and a clear indication of health is the report’s findings that the MMIF fund’s “seriously delinquent” rate is at a ten-year low, and the overall economic value of the fund has increased by $3.8 billion.

In 2015, the MMIF also achieved a 2.0 percent capital reserve ratio for the first time since the Great Recession, and a 2.3 percent capital reserve ratio as of today’s FHA report.

FHA also reported a 3.2 percent reserve ratio for the “forward” program, which encompasses FHA’s non-Home Equity Conversion Mortgage (HECM) portfolio.

NAR points to weaknesses in the HECM that held back the overall FHA findings, but considering the MMIF’s “increasingly good health,” the trade group is “encouraging FHA to reduce mortgage insurance premiums to better reflect the risk in the marketplace and fulfill its mission of serving low- and moderate-income borrowers.”

NAR estimates that the 50-basis-point premium cut announced in January 2015 provided an annual savings of $900 for nearly 2 million FHA homeowners.

NAR supports changes

A recent Federal Reserve study found that the January 2015 reduction in mortgage insurance premiums had a quick and significant effect on FHA mortgage volume.

Therefore, NAR also supports eliminating “life of loan” mortgage insurance, which borrowers must continue to pay until the loan is extinguished or refinanced.

Conventional mortgage products, by contrast, traditionally require mortgage insurance only until a sufficient amount of equity is achieved on the property.

“FHA mortgages are an important option for buyers, but high premiums and lifetime insurance requirements can take that option right off the table,” Brown said. “By lowering premiums and eliminating life of loan mortgage insurance, FHA can expand on their work to serve a broad population of homebuyers. We look forward to working with them in the months ahead to bring these changes to light.”

#FHAMMIF

Real Estate Big Data

Median home prices hit $407K, home sales fall 3.4%

(REAL ESTATE NEWS) Home sales dip for a fourth consecutive month in May – what does this mean for the housing market going forward?

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For the fourth consecutive month, existing home sales (real estate contracts signed) fell 3.4% in May from April, and slumped 8.6% from a year ago, according to the National Association of Realtors (NAR). The average days on market fell from 17 days in April (and May 2021) to 16 days in May, and 81% of all homes listed sold in under a month.

The median home price rose 14.8% over the last year to $407,6000, the first time it has ever exceeded $400K. May marks the 123rd consecutive month of annual increases, the longest-running streak in history.

Inventory remains tight, but did rise 12.6% from April to 1.16 million by the end of May, marking a 2.6 month sales pace. Inventory is down 4.1% from May of 2021.

“Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance,” said NAR Chief Economist, Dr. Lawrence Yun.

“Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions,” Dr. Yun added.

He notes that it is expected that home sales in coming months will continue to decline in light of rising mortgage rates, yet appropriately priced homes will continue to sell quickly.

First time buyers made up 27% of sales in May, down from 28% in April. This diminishing number remains troubling, as the average hovered around 33% for years, and was at 31% in May 2021.

All-cash sales rising to 25% (up from 23% in May 2021), and individual investors or second-home buyers accounted for 16% of sales in May.

“Declining home purchases means more people are renting, and the resulting rent price escalation may spur more institutional investors to buy single-family homes and turn them into rental properties – placing additional financial strain on prospective first-time homebuyers,” said NAR President Leslie Rouda Smith.

“To counter this trend,” Rouda notes, “policymakers should consider incentivizing an inventory release to the market by temporarily lowering capital gains taxes for mom-and-pop investors to sell to first-time buyers.”

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Real Estate Big Data

NAR Chief Economist predicts housing market uncertainty

(BIG DATA) Warning bells on the housing market have been ringing for over a year. While this prediction isn’t a surprise, it’s disappointing news.

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The housing market is booming. Many experts are concerned about another bust like we experienced in 2008, but the conditions are much different today. Homeowners aren’t extended like they were when the market crashed in 2008. National Association of Realtors® Chief Economist Lawrence Yun suggests that the housing market is still uncertain, even though he says, “housing kept the economy afloat” during the pandemic.

What is impacting the housing market? 

Yun cites record-low inventory and inflation as “curveballs” to the housing market. Many economists, including Yun, have been concerned about low inventory for many years, especially in certain markets. Even though builders are working hard to construct new residences, supply chain and labor issues are not accelerating the process.

Yun is more concerned about inflation impacting the housing market. He says,

“wages have risen by 6% from one year ago…but inflation is 8.5%.”

Rising mortgage rates have made mortgages cost $300 to $400 a month more, according to Yun. Many working families can’t afford that. Yun predicts inflation is going to be high for several months. The market will slow as the Federal Reserve raises rates.

Yun also cites the Russia-Ukraine war as another contribution to the uncertainty of the market. The war is also driving inflation, not just overseas, but in the United States. With gas prices climbing higher each week, this is impacting the housing market.

Is real estate a good investment in this market?

Last year, when Yun opened the Residential Economic Issues & Trends Forum at NAR’s annual REALTOR® Conference & Expo in San Diego, he expected the “housing sector’s success to continue,” but he did suggest that 2022’s performance wouldn’t exceed 2021s.

“Rising rents will continue to place upward pressures on inflation,” he said. “Nevertheless, real estate is a great hedge against inflation.”

There’s a lot we don’t know about the future. It’s disappointing to think that the housing market may be uncertain, but real estate is still a good investment.

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Real Estate Big Data

Housing starts stagnate, market conditions are rapidly shifting

Housing starts for April stagnated, marking the second consecutive months of declines, and more renters being left out of this shifting market.

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Housing starts stagnated in April, down 0.2% from the prior month, according to the U.S. Commerce Department.

The sentiment appears to be that although this marks the second straight month of dips, most are seeing today’s news as a positive, especially as construction of new homes was expected to fall 2.4% in April.

Further, housing starts are up 14.6% from April of last year, driven primarily by multifamily construction.

But it’s worth not getting overly excited, given that permits dipped 3.2% in April which is a forward-looking indicator, so expect starts to continue cooling in a time where we quite need the inventory.

Demand for housing inventory remains high, but the National Association of Home Builders reports today that confidence in the single-family housing market fell dramatically in May, marking the lowest level in two years.

Dr. Lawrence Yun, Chief Economist at the National Association of Realtors said in a statement, “The worst of the housing shortage is ending, but market equilibrium between supply and demand is still some ways off.”

He notes that as mortgage rates increase, builders “are chasing rising rents, with fewer homebuyers and more renters being forced to renew their leases,” noting that even prior to the interest rate increases, rents were rapidly rising and vacancy rates rapidly declining.

Pointing to another market shift, Dr. Yun notes that “Some degree of a return to the office is also fueling back-to-city living where high rises are concentrated.”

That’s a problem.

“Even as home sales look to trend back to pre-pandemic levels after the big surge of the past two years,” concludes Dr. Yun, “inventory will not return to pre-pandemic conditions. That means home prices will get pushed even higher in the upcoming months, albeit modestly, given the supply-demand imbalance.”

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