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September 30, 2016

FHA Fee Cuts Expected to Boost Home Sales

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FHA Fee Cuts Expected to Boost Home Sales

What type of impact will the Federal Housing Administration’s move to lower insurance premiums really have on the housing market? Housing experts are making predictions that the lower fees could translate into thousands of new home sales this year and next.

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The Federal Housing Administration recently reduced its annual mortgage insurance premiums from 1.35 percent to 0.85 percent. According to estimates by the National Association of REALTORS®, the lower rates could result in big savings over time for borrowers. For example, a borrower with a $200,000 mortgage could unlock a savings of nearly $1,000 over the first year. By year five, the borrower may have saved nearly $4,800, and over 30 years potentially about an $18,000 savings.

The FHA’s lower pricing will likely draw thousands of credit-worthy borrowers back into the market, NAR notes. NAR Research has estimated that the fee reduction will price an additional 1.6 million to 2.1 million renters, along with many trade-up buyers. This could result in 90,000 to 140,000 additional annual home purchases, NAR estimates.

Estimates by Moody’s Analytics shows the reduction in the FHA premiums could amount to 45,000 additional new- and existing-home sales in 2015, and that single-family housing starts will rise by 20,000 as a direct result of the FHA reduction in premiums.

But the maximum impact of the FHA’s premium cut likely won’t come to fruition until mid-2016, according to Moody’s report. Then, it expects home sales to increase by 100,000 due to the FHA reduction, with 40,000 additional single-family housing starts in 2016 due to it as well.

“However, housing remains far from normal, and policymakers should continue to support it,” the analysts in the Moody’s Analytic report note. “While there is no magic policy bullet, allowing the FHA to reduce its insurance premiums for first-time and lower-income homebuyers will provide a meaningful boost. It will also protect taxpayers, as the premiums are high enough to put the FHA on solid financial ground.”

Source: “Moody’s: FHA Premium Cut Will Increase Home Sales By 45,000 This Year,” HousingWire (Jan. 28, 2015) and “FHA Lowers Pricing to Reflect Less Risk,” National Association of REALTORS® Economists’ Outlook Blog (Jan. 8, 2015)