House-Passed Bill Gives First-Time Home Buyers a Break

We all know that buying a home is a big step for anyone especially for someone who is doing it for the first time. A bipartisan House bill passed at the beginning of July 2019 that will help ease the first time buyer’s anxiety over the home buying process. The bill will allow first-time home buyers to pay less closing cost if they go through homeownership counseling.

“The idea behind the legislation is that counseling should improve loan performance and make people better borrowers,” said Pete Mills, senior vice president of residential policy for the Mortgage Bankers Association, which generally supports the bill.

The Housing Financial Literacy Act applies to mortgages backed by the Federal Housing Administration and is a tool that can be used for first-time home buyers. Those eligible, will go

through counseling which teaches them ways to be financially responsible homeowners. Once completed, they would receive a discount on the upfront mortgage insurance that is required on FHA loans.

First-time home buyers tend to go with FHA loans because of the less-stringent requirements. Although the requirements are more lax than a conventional loan it requires more money for insurance premiums because the FHA loan is riskier. Today the delinquency rate on FHA loans is around 9% where the delinquency rate on a conventional loan is only around 3%.

The risk for the lenders on an FHA tends to be higher because a good many of the first-time home buyers using an FHA have low or moderate incomes with lower credit scores. Lenders require those using the FHA to pay mortgage insurance along with an upfront mortgage insurance premium. Currently the upfront amount paid is 1.75% of the base loan amount. If a borrower does not have the money upfront to pay the premium, the cost can be rolled into the loan. The Housing Financial Literacy Act allows a discount of 25 basis points making the premium amount 1.5% of the base loan amount instead of the 1.75%. As an example, the upfront mortgage premium on a $200,000 loan would be $3,500 but with the discount the first-time buyer would only need to pay $3,000.


Hopefully if put into law, the bill will not only help reduce cost, but also give first-time home buyers the tools to become financially responsible homeowners.

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Interest Rates to Remain the Same According to the Fed

A unanimous decision by the Federal Reserve the first week of June declared that interest rates would remain the way they were. This decision was made after reports revealed that the labor market is still not showing a strong recovery.  Even though there are still job gains across the board, they are slow and business investment has also not picked up.
Home buyers have enjoyed and even taken for granted interest rates that are historically low for the past 10+ years.  For those buyers who have been able to recover and succeed after the Great Recession, it is still one of the best times to buy a new home or buy an existing home in today’s housing market.

Predicted Rise in Interest Rate

Originally, the “Fed” had predicted that there would be two more rate hikes of the interest rate during 2016, but June’s meeting saw 6 members stating that with the slow growth of the economy, they only would really commit to a possibility of one more interest rate increase, citing the normalization of monetary policy taking a longer period of time than expected.
The good news is that the unemployment rate went down by 4.7%, but the gain of jobs in May, 2016, was only 38,000.  Also, the job increases reported in March and April were revised down by 59,000 – a loss of 458,000 in the labor force.

Strong demand still exists for employees and contractors in the residential construction sector.  The BLS JOLTS data shows that builders have approximately 200,000 unfilled positions.  However, during the course of April and May, 9,600 jobs were lost in the residential construction industry, and these jobs are now having to be refilled.

First-Time Home Buyers

Because of the cost of labor and materials to build a new home, first-time home buyers are finding it hard to acquire a new home.  Homes that are priced less than $150,000 account for only 6% of the market according to the National Association of Home Builders.  Currently approximately 31% of the home buyers surveyed expected to be able to pay less than $150,000 for their new home.

New home buyers in the market to purchase a new home will still benefit greatly from the significantly and historically low interest rates.  Any rise in the interest rate in 2016 will still probably keep the interest rate low enough to have affordable house payments.

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FHA Backed Loans Reported to Have Slight Increase

Certain pricing requirements, mortgage types, and age requirements are considered a trend for first-time home buyers.  Different housing market statistics are indicating that first-time home buyers may soon be increasing to pre-Recession levels. The first indication was a slight uptick in FHA (Federal Housing Authority) backed loans.  With the recent easement of FHA loan requirements including a lower percentage required for the down payment, more first-time home buyers are able to qualify for FHA mortgages.  The increase in FHA-backed mortgages went up to a 17% market share for a quarterly count of 23,000 FHA loans in the 1st quarter of 2016.

Pre-Recession Trends

 

Interestingly, in 2002 – 2003, well before the Great Recession, FHA backed mortgages were only 10% of the market share where in 2010, FHA loans had a 28% share of the housing market.  These statistics show a steady presence of FHA loans in real estate transactions.  It also indicates the necessity of a government supported loan program for struggling Americans who need assistance with their new home purchase.

Conventional home financing still makes up the majority of home purchases in America today.  For the first quarter of 2016, Conventional loans made up 68% of the homes achieved by home buyers.  The reason for this may be another market statistic which showed an overall increase of in personal income in the United States.  a 2.2% year-over-year increase for 2014 was reported with median income reported at $28,757.  This is 5.4% less than its high in 2007 right before the Recession, and it is still lower than income reported in 20000, but statistics show the trend of the total of personal income is and has been on the rise since it bottomed out in 2012.

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Permits, Starts, and Confidence in the Building Industry

Despite the frustration of finding lots on which to build and labor (employees and sub-contractors) to use to build new, single-family homes, the housing market is on an upward trend.  An increase in permits, starts, and confidence in the building industry by builders was reported by the National Association of Home Builders for the month of June, 2015.  New home permits rose in all 4 regions of the United States from the Northeast, Midwest, South, and West at 2.8%, 2.9%, 10.4% and 9.5% respectively.  The South gained a huge percentage jump in new home housing permits during June, and overall, single-family home permits rose .9% to 687,000 compared to previous months.

New home starts went up mostly for multi-family  building which went up by a huge 9.8% to over 1 million total units – 1.174 million to be exact.  Overall multifamily construction was up 29.4% for a total of 489,000 units.

“The multifamily gains this month are encouraging and show that the millennial generation continues to be drawn to the rental market,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, MO.

Builder confidence is also the highest it’s been since November, 2005.  While any number above 50 means that builders are thinking positively about sales conditions, sales expectations for the next 6 months, and buyer traffic; builder confidence rose in June to 60 averaged out over all three survey results.
“The fact that builder confidence has returned to levels not seen since 2005 shows that housing continues to improve at a steady pace,” said NAHB Chairman Tom Woods. “As we head into the second half of 2015, we should expect a continued recovery of the housing market.”
Buyers are actually seeing a little bit of a seller’s market because of the lack of inventory of new homes for sale.  A dearth of lots and a shortage of construction labor has contributed to a shrinking inventory of supply for homes to buy nationwide.  However, the strong numbers for new home permits in the Southern and Midwest regions signal that new home buyers will soon have homes from which to choose.  If you would like to build your home instead of buying an inventory home, Contact Ron Lee Homes at 985-626-7619 or e-mail Info@RonLeeHomes.com.

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