First-time and moderate-income homebuyers are currently trapped in a market not working in their favor. With the housing market experiencing low-inventory and record breaking high-home prices, there is little to no room for these groups to find housing without breaking the bank.
According to a recent study from Point2 on home prices over the past decade (2011 to 2021), the overall median price of a U.S. single family home more than doubled, from $166,200 in 2011 to $353,600 in 2021, and the median home price more than doubled in 69 U.S. metros over the past decade.
Mortgage rates have also recently surged to their highest level in years, according to one of Freddie Mac’s recent Primary Mortgage Market Surveys®. The 30-year fixed-rate mortgage (FRM) went from an average of 6.66% the week of Oct. 3 to 6.92%% the week of Oct. 10, which is the highest recorded level since April of 2002.
Both of these increases have put a stress on prospective first-time, and moderate-income, homebuyers. This is where Federal Housing Administration (FHA) loans, and the annual mortgage insurance premium (MIP) that goes with them, come into play.
“FHA has been an important program for first-time homebuyers,” said Jessica Lynch, the National Association of Home Builders’ (NAHB) Vice President of Housing Finance. Referencing a study from the Urban Institute, Lynch said that “In June 2022, 83.3% of FHA borrowers were first-time home buyers.”
The combined forces of the Mortgage Bankers Association (MBA), Manufactured Housing Institute (MHI), NAHB, and The National Association of REALTORS® (NAR) recently sent a letter to the National Economic Council (NEC), urging them to support the reduction of the FHA’s MIP.
The letter states that “Lowering the MIP–with a focus on FHA’s recurring ‘annual’ premium–increases homebuyers’ purchasing power by reducing monthly payments and directly putting money into their pockets every month,” and that this reduction “also allows borrowers the flexibility to spend on necessary items like food, gas, education, and other monthly bills.”
Reducing the FHA’s MIP is a strong step in assisting first-time and moderate-income buyers achieve their dreams of homeownership, as stated by Jeremy Green, NAR Policy Representative on Federal Housing.
“As interest rates rise, first-time and low- to moderate-income buyers are priced out of the market because of high monthly payments,” said Green. “Reducing the MIP lowers costs for FHA buyers and puts them in a stronger position for homeownership to build generational wealth.”
MBA President and CEO Bob Broeksmit said that FHA is currently in a healthy enough financial position, which allows the Department of Housing and Urban Development (HUD) the opportunity to lower the MIP without issue.
“Despite the challenges associated with the COVID-19 pandemic, the past few years have seen FHA develop a much larger financial ‘cushion’ in its insurance fund,” said Broeksmit. “A hot job market and strong wage growth are driving housing demand, but purchase activity is muted because of high rates and low inventory. Against this backdrop, qualified borrowers should not be charged higher premiums than necessary.”
MBA and NAR also recently partnered with the NAACP, National Association of Real Estate Brokers, National Fair Housing Alliance, National Housing Conference and the National Urban League to follow up this initial letter with a subsequent plea to the NEC.
This plea, according to a release, was on behalf of the Black Homeownership Collaborative, a coalition of organizations dedicated to creating Black 3 million net new Black homeowners by 2030. The letter states that “Lowering the annual MIP would help reduce the cost of buying a home with an FHA mortgage, and ending the life of loan requirement would contribute to building wealth through homeownership in the Black community.”