New Flood Insurance Risk Rating Program on Hold

FEMA (the Federal Emergency Management Agency) has been working on the Risk Rating 2.0 project which originally was to be implemented in October, 2020. FEMA has decided to hold off on putting the program into effect until October 1, 2021.
Risk Rating 2.0 is the reconstruction of the National Flood Insurance Program’s (NFIP) risk rating system. FEMA’s National Insurance Program wants “to transform the way it rates it policies.”

The announcement explains that FEMA needs additional time to “conduct a comprehensive analysis of the proposed rating structure so as to protect policyholders and minimize any unintentional negative effects of the transition.”

The data sources for FEMA are a combination of multiple sources. They are using a combination of CAT models (catastrophe) and NFIP mapping data to come up with the system of rates. These include sources from FEMA such as mapping data, NFIP policy and claims data, U.S. Geological Survey (USGS), National Oceanic and Atmospheric Administration (NOAA), Sea, Lake, and Overhead Surges from Hurricanes (SLOSH), U.S. Army Corps of Engineers (USACE) and third party sources.

According to fema.gov, they have been “redesigning its risk rating system by leveraging industry best practices and current technology to deliver rates that are fairer, easier to understand, and better reflect a property’s unique flood risk.”

FEMA understands that purchasing flood insurance for homeowners can be confusing, time-consuming and expensive. Under the new rating system the policyholder’s experience will be more of a positive one. The new system will study each property individually and determine that property’s risk, the rates will be easier to understand for both the agents and the policyholders, there will be more types of flood risk rates, it will use the “latest actuarial practices to set risk-based rates” and will make it easier and less time consuming for agents to create a consumer quote.

The hold will work in the home owner’s favor as the rates for the new NFIP policies for single-family homes, multi-unit and commercial properties will change over at one time instead of the previous phases of the original proposal. Homeowners will have a better understanding of their policy, fairer rates and mitigation credits for any work they complete to reduce risk of future flood events with the new system. More homeowners will be able to keep their home instead of selling because they are not able to afford flood insurance.

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The New Year Brings a 13-Year High of New Home Sales

Lawrence Yun, chief economist of the National Association of Realtors predicts a new-home sales jump of 11% to 750,000 in 2020. The forecast would be the highest reading since 2007. This will bring a rise to a 13-year high in sales of new homes.

If this is the case, 2020 will definitely avoid a recession. Not only are new home sales on the rise, but sales of existing homes should rise 3.7% to 5.56 million making it the highest count since 2017.

“I think we will not be facing an economic recession,” Yun said. One reason, he said, is the economic stimulus provided by home-building.

“We need to produce more homes,” he said. “If we produce more homes, that is an economic stimulator and that growth will prevent us from going into a recession.”

The Department of Commerce saw a positive reading for the first time in six quarters when it came to home-building. With the predicted high of new home sales, many fear a rise in home prices. Yun feels this will not be the case, “we’ll see an increase in inventory, but not any oversupply, so home prices should continue to move higher – our hope is in a much tamer fashion.”

Builders are starting to put more energy towards the first-time home-buyer which means they are starting to build smaller houses.

The predicted median new home sales price will be down 4% from 2019 which will probably amount to $313,500. As far as the median home price of existing homes, Yun predicts it will rise 4.3% to $270,400.

As far as the financial aspect such as mortgage rates and bond yields, both are holding steady. The average U.S. rate for a 30-year fixed mortgage should remain at 3.7% for the first of half of the new year, however it will likely rise to 3.8% in the final two quarters. Bond yields are expected at “sub-4” rates which should continue through next year.

“We’re seeing some bond yields rising, but we even with some fluctuation, I think mortgage rates will be slightly under 4% for 2020, and the reasoning for that is the Fed communication saying they would not be raising interest rates in 2020 given that the inflation rate is under control,” stated Yun.

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Millennials Dominate When It Comes to Homebuying

When it comes to moving more, spending more and buying more, Millennials outpace the older generations.

Millennials have been in the lead for a year now when it comes to purchasing homes. According to , they have acquired more mortgages than previous generations. In the third quarter report, Millennials reached a share of 46% of mortgage originations, and 44% in primary home loan originations. Gen X was only reported at 17% and the Baby Boomers fell to 18% share in mortgage originations. As for primary home loan orginitations, Gen X was at 39% and Baby Boomers hit 16%.

Realtor.com

Several factors are driving the Millennial consumers. According to Porch.com, Milliannials move once every two years. They are also buying more expensive homes and increasing the size of their loans. Realtor.com’s Director of Economic Research Javier Vivas explains that Millennials are getting older, with better jobs and deeper pockets which give the ability to expand their collective purchase power.

Millennials median home price went up this year 6% to $250,000, while Generation X went up 5% and Baby Boomers increased only 2%. Millennials median loan amount is up to $231,590 which is a 7.3% increase from this time last year. Growth in mortgage debt for Millennials is also greater than

the 2.6% by the Baby Boomers and 4% by Generation X.

It will be interesting to see how the Millennials purchasing trend continues in the housing market. So far, Millennials dominate the housing market and it is said this will continue for years to come.

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Affordable Housing at the Highest Level in Three Years

The NAHB/Wells Fargo Housing Opportunity Index (HOI) that was published last week reports that housing affordability topped out at its highest level in the past three years. This stems from both the low mortgage rates and healthy job market.

“With mortgage rates at historic lows, consumers are experiencing greater buying power and increased affordability,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

Regions across the nation varied in the third quarter report. The most affordable housing marketing reported in the nation was Scranton-Wilkes-Barre-Hazleton, Pa. where 89.3% of new and existing

homes sold were to affordable families (with an area median income of $67,000). The least affordable major market was San Francisco where just 8.4% homes sold were to families earning the area’s median income of $133,800.

The top five affordable housing markets in the major regions were Indianapolis-Carmel-Anderson, Ind.; Youngstown-Warren-Boardman, Ohio-Pa.; Syracuse, N.Y.; and Harrisburg-Carlisle, Pa. The smaller regions included Monroe, Mich., Cumberland, Md.-W. Va.; Davenport-Moline-Rock Island, Iowa-Ill.; Kokomo, Ind.; and Elizabethtown-Fort Knox, Ky.

Those making the least affordable major markets were Los Angeles-Long Beach-Glendale; Anaheim-Santa Ana-Irvine; San Jose-Sunnyvale-Santa Clara; and San Diego-Carlsbad. In the smaller markets those that hit the bottom of the chart were all located in California. These included Santa Cruz-Watsonville; San Luis Obispo-Paso Robles-Arroyo Grande; Napa; and Santa Rosa.

Even with those areas that were not favorable to the affordable market, the total across the board was up to 63.6% from last quarter reported at 60.9%. The data was based off all the new and existing homes sold between July and September of this year. The homes were based off those sold to families earning the U.S. median income of $75,500.

Forecasters predict this is a great time to purchase a home with the national median home price holding steady at $280,000. With both the steady median home price and the average mortgage rates declining at a three-year low, now is the time to buy.

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