By Mark Hite
President, Greater Chattanooga Association of REALTORS®
The housing market and ultimately home buyers have not been left untouched from the unfolding announcements taking place in Washington DC since inauguration day.
On January 20th, shortly after President Trump was installed, the US Department of Housing and Urban Development (HUD) announced that they were suspending indefinitely a planned reduction in the FHA Mortgage Insurance Premium (MIP) rate. Mortgage Insurance is required when a buyer is borrowing more than 80% of the purchase price of home.
In this case for FHA loan’s the MIP annual premium would have dropped from 0.85 percent to 0.6 percent. The National Association of Realtors (NAR) estimated the reduced premium would save the average FHA borrower $500 a year in insurance costs.
NAR President William E Brown released a response to the announcement:” 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.”
To give a local perspective to these national numbers, let’s consider the homes which closed the first week of January in Hamilton County. There was a total of 60 homes which closed during this week and of those, 39 offered FHA financing as an option. A total of 6 of these homes closed using FHA as their loan type. In the case of the first week of 2017, 10% 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% in 2016 and interest rates on the rise, the index decreased by -4.9% for the year and experienced a -7.6% decline for the month of December.
The decrease in FHA 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. NAR President Brown’s statement continued” We’re disappointed in the decision but will continue making the case to reinstate the cut in the months ahead.”