Amid improving but still somewhat lackluster existing-home sales numbers for March, the National Association of Realtors (NAR) called for the Federal Housing Administration (FHA) to make more changes to its programs in order to help more first-time buyers enter the market.
Though existing-home sales increased over-the-month by 5.1 percent to an annual rate of 5.33 million in March, nearly erasing February’s disappointment, the same problems that have plagued the housing market in the last six months to a year are persisting—affordability and tight inventory, according to the National Association of Realtors’ (NAR) Existing-Home Sales Report for March 2016 released Tuesday.
“Closings came back in force last month as a greater number of buyers—mostly in the Northeast and Midwest—overcame depressed inventory levels and steady price growth to close on a home,” NAR Chief Economist Lawrence Yun said. “Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well. However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.”
Yun continued, "With rents steadily rising and average fixed rates well below 4 percent, qualified first-time buyers should be more active participants than what they are right now," adds Yun. "Unfortunately, the same underlying deterrents impacting their ability to buy haven't subsided so far in 2016. Affordability and the low availability of starter homes is still a major barrier for them in most markets."
NAR President Tom Salomone believes that the way to help more first-time buyers and middle-income households enter the mortgage market is for the FHA to lower mortgage insurance premiums.
“Reducing the Federal Housing Administration's annual mortgage insurance premium rate and repealing its life-of-loan policy requirement would certainly expand options for more of these buyers," Salomone said. "These changes would save consumers money and further strengthen the FHA's program by enticing more creditworthy borrowers to seek out FHA-insured loans.”
The last such reduction occurred in January 2015, when President Obama announced that FHA would be cutting its mortgage insurance premiums by 50 basis points down to 0.85 percent. At the time, the White House estimated that the reduction would translate to annual savings of $900 in mortgage payments for first-time buyers, and similar savings for existing homebuyers.
The lowering of the premiums at the time was highly controversial, however, because at the time the FHA’s Mutual Mortgage Insurance Fund capital ratio sat at 0.41 percent, less than one-quarter of the 2 percent threshold required by Congress. Many Republican lawmakers slammed FHA and the Administration for cutting off a revenue stream when the capital ratio was less than a quarter of its level required by Congress. In November 2015, however, FHA announced that the capital ratio of the MMI Fund had leaped from 0.41 percent in Fiscal Year 2014 to 2.07 percent in FY2015.
“Reducing the Federal Housing Administration's annual mortgage insurance premium rate and repealing its life-of-loan policy requirement would certainly expand options for more of these buyers."
Tom Salomone, NAR President
Salomone’s latest calls for action by FHA drew more criticism from those who say that further lowering the premiums will expose taxpayers to more risk. FHA was forced to take a $1.7 billion taxpayer-funded bailout in 2013 to cover the losses it suffered in the aftermath of the financial crisis.
Tobias Peter of the American Enterprise Institute’s Center on Housing Risk said that NAR failed to “connect the dots” from the existing-home sales data for March that was released on Tuesday.
“It is looser underwriting, especially from the Federal Housing Administration (FHA), combined with a strengthening economy, a constrained supply, and low interest rates that is driving house prices up much faster than wages or inflation,” Peter said. “Yet the NAR’s release continues to lobby for even looser underwriting as evidenced by NAR President Tom Salomone’s call for even further FHA mortgage insurance premium reductions.”
Peter continued, “The problem is obviously too much loose lending fueled demand chasing too little supply. What is needed is not more demand, but more supply. This is where the NAR could help. After all, Yun noted ‘affordability and the low availability of starter homes is still a major barrier.’
According to NAR’s data released Tuesday, the median home price was up by 5.7 percent over-the year in March, up to $222,700, marking the 49th consecutive month of year-over-year home price gains. While inventory increased by 5.9 percent over-the-month in March down to 1.98 million existing homes, it is still 1.5 percent lower than March 2015’s total of 2.01 million. Unsold inventory ticked up from a 4.4-month supply in February up to 4.5 months in March.
Meanwhile, properties remained on the market for an average of 47 days in March, the lowest total since August 2015. It represented a decline from 59 days in February and from 52 days in March 2015.
Click here to view the entire existing-home sales report for March.