The housing market and ultimately home buyers have not been left untouched by the unfolding announcements taking place in Washington, D.C. since inauguration day.
On Jan. 20, shortly after President Trump was installed, the U.S. Department of Housing and Urban Development announced it was suspending indefinitely a planned reduction in the FHA Mortgage Insurance Premium rate. Mortgage insurance is required when a buyer is borrowing more than 80 percent of the purchase price of home.
In this case, for FHA loans, the MIP annual premium would have dropped from 0.85 percent to 0.6 percent. The National Association of Realtors estimated the reduced premium would save the average FHA borrower $500 a year in insurance costs.
“According to our estimates, roughly 750,000 to 850,000 homebuyers will face higher costs, and 30,000 to 40,000 new homebuyers will be left on the sidelines in 2017 without the cut in the months ahead,” NAR President William E Brown says.
To give a local perspective to these national numbers, let’s consider homes that closed the first week of January in Hamilton County. There were 60 closings during that period, with 39 offered FHA financing as an option. A total of six of these homes closed using FHA as their loan type. In the case of the first week of 2017, 10 percent of Chattanooga home buyers would have experienced savings if the reduction were in place at that time.
The affordability of an average home has been declining in the Greater Chattanooga area and across the nation in recent months. The Housing Affordability Index takes into account the average home price in conjunction with interest rates to create a measure of affordability. A higher number means greater affordability.
With home prices increasing 6.5 percent in 2016 and interest rates on the rise, the index decreased by 4.9 percent for the year and experienced a 7.6 percent decline for the month of December.
The decrease in the FHA’s MIP rate was seen as a means to combat the affordability challenge that have been brought about by a robust home sales market and increasing interest rates. Brown says our industry is disappointed in the decision but will continue to make the case to reinstate the cut in the months ahead.
The Greater Chattanooga Association of REALTORS is The Voice of Real Estate in Greater Chattanooga. The Association is a regional organization with more than 1,700 members and is one of more than 1,400 local boards and associations of Realtors nationwide that comprise the National Association of Realtors.
GCAR services Hamilton and Sequatchie counties in southeast Tennessee, and Catoosa, Dade and Walker counties in northwest Georgia. Go to www.GCAR.net for more information.