One of the main points in President Barack Obama's speech about housing in Phoenix on Thursday was how far the housing industry has come since the bust of 2008 and particularly since he took office in January 2009.
The president reported in his speech that the housing market has not come all the way back yet and there is still work to be done. But according to one analyst, the president may have overestimated how far the housing market has come back and the administration's role in the recovery.
"We have come back off the bottom of one of the worst housing busts in the country’s history," said Rick Sharga, EVP at Auction.com, the largest online real estate market in the U.S. "But we’re still closer to the bottom than we are to the peak of the market during the housing boom. Prices have recovered, but are back to 2004 levels, meaning that we’ve still essentially lost a decade of equity. So there’s still quite a bit of room for expansion, and most people (myself included) are predicting that 2015 will be flat compared to 2014, and that 2016 may not be much better. So the market has gotten better, but it’s hardly robust."
Sharga said that the progress the housing market has made so far was mainly brought about by several factors.
"And it’s important to note that this 'recovery' was facilitated by unprecedented action by the Federal Reserve; several years of historically low interest rates; and government-backed lending that accounts for about 96 percent of all loans being issued," he said. "In a lot of ways, housing is still on life support; in stable, rather than critical condition, but hardly ready to fend for itself."
The president was in Phoenix to officially announce the lowering of Federal Housing Administration (FHA) mortgage insurance premium rates by 50 basis points down to 0.85 percent in order to allow more first-time homebuyers to enter the market. The lowering of MIPs by the FHA has been widely praised by government officials and housing executives alike. While Sharga said he believes that lowering the insurance premiums will result in only a "miniscule" risk to taxpayers due to the profitability of FHA, he said the impact it will have on home sales will be minimal if the administration's estimates come to pass.
"The administration estimates that 250,000 people may be able to buy a home due to the reduction over the next three years," he said. "If they’re correct – and frankly, this administration has always overestimated the impact of its mortgage and housing-related policies – those extra homebuyers will add approximately 1.6 percent more home sales than what’s already being projected. More likely, we’ll see the FHA’s share of loan volume go up a little bit, as their offerings will now be competitive versus conventional loans, especially for sub-729 FICO score borrowers."
During his speech on Thursday, the president encouraged the audience not to buy things they could not afford, saying the new lower FHA insurance premium rates are for "responsible borrowers."
"Overall, I thought the President made some good points (Thursday). I was pleasantly surprised to hear him urge people to not buy a home that they couldn’t afford," Sharga said. "Most of the rhetoric coming out of Washington over the past few years – and from this administration in particular – have painted borrowers as helpless victims and lenders as evil predators. It was refreshing to hear a clear message encouraging people to take personal responsibility for their personal finances."
Sharga was skeptical that the Obama Administration's Home Affordable Modification Program has had the effect on housing recovery that the administration is touting, however.
"HAMP was intended to save 4 to 5 million borrowers from foreclosure," Sharga said. "The last time I checked, there were about 750,000 modified loans in the HAMP program, and there are lingering concerns that many of them may re-default when their rates begin to reset this year. I believe that the HAMP program did have a role in pushing servicers toward better-designed loan modification programs, but to give HAMP credit for all the proprietary loan modifications made by servicers and lenders seems somewhat disingenuous, or at least too optimistic."
While the Obama Administration created the Consumer Financial Protection Bureau (CFPB) as part of the Dodd-Frank Wall Street Reform Act, the impact of the Bureau on lenders and housing as a whole may not be all positive, Sharga said.
"And the CFPB, with its QM and ATR rules, along with some of the regulatory uncertainty the administration has fostered with its record financial penalties to lenders, has essentially caused lending to all but the most qualified borrowers to seize up," he said. "This might be one way to define 'stability,' but it’s not doing much for the housing market, or for the broader economy."