First time home buyers, we need you.
It was a presidential priority as 2015 kicked off, and today lower mortgage insurance premiums from the Federal Housing Administration go into effect. The lowered rates for premiums is part of the plan President Obama introduced in early January to jump-start first-time home buying.
On Friday, the National Association of Realtors released its December report of existing home sales, which were up for the month but below economists’ expectations. Sales of existing homes fell 3.1% for all of 2014. That was the first year-over-year drop in four years.
Lawrence Yun, NAR’s chief economist, said in the report, “Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a down payment while looking for available homes in their price range.” Less than 30 percent of existing home sales in December and for the entire year were first-time home buyer purchases.
First-time home buyers, particularly Millennials, have been shut out of the market because of rising prices and wages that just won’t budge. “I think the big jump for first time home buying is still a little bit into the future,” says Jed Kolko, Chief Economist at Trulia. “Right now a lot of young adults are still living with their parents. When they move out, they will rent first before they buy.”
But, Kolko says, improvements in the job market will help Millennials get closer to buying. “They are going back to work,” says Kolko. “There was a big increase recently in how many of them have jobs. But it takes years to save for a down payment, build up an income history, and be confident enough about your income and job prospects to bet on buying a home."
The move by the FHA reduces annual insurance premiums by half a percentage point, which could save FHA borrowers up to $900 a year. For 30-year mortgages with less than a 5% down payment, the mandatory annual mortgage insurance rate is now .85% of the loan balance, down from 1.35%. For FHA-insured loans with more than a 5% down payment, the rate will now be .80% down from 1.30%. The rate cut will not change eligibility requirements for FHA loans.
The FHA move isn’t the only effort to boost home buying. Last month Fannie Mae and Freddie Mac announced they would be adopting new guidelines on down payments, offering 3 percent down payment loans for certain qualified borrowers.
But will these programs be enough? Until first-time home buying picks up, don’t expect housing to kick into high gear. “The housing market isn’t quite yet back to normal,” says Kolko. “Sales, prices are getting closer to normal, but there are some parts of the housing recovery that still have a ways to go.” Kolko says construction stands out as one of those areas, especially construction of single-family homes. “There has been a boom in apartment construction because there has been so much demand particularly from young adults who are moving out of their parents’ homes and becoming renters,” says Kolko.
But there is still a long way to go on the single-family side. Kolko says “that is important for the overall economy and is one of the ways housing isn’t giving back to overall economic growth.”
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