Four of 10 Recent Buyers Relied on FHA Loans

December 21, 2009

WASHINGTON, D.C.—The Federal Housing Administration insured the loans of 39% of recent buyers, according to new data from the REALTORS® Confidence Index (RCI) survey.

The 3,161 NATIONAL ASSOCIATION OF REALTORS® members responding to the November survey also said 51% of their customers were first-time homebuyers.

“FHA helps provide affordable mortgage financing to homeowners, particularly first-time home buyers who are so important in drawing down inventory to help stabilize the current housing market,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. “These recent survey results reaffirm that, despite its current challenges, FHA is a critical part of the American housing fabric.”

The RCI results also indicated that distressed sales increased to 33% of all home sales last month, and that both investors and first-time home buyers are competing for these properties.

The preponderance of distressed properties on the market has also influenced buyers’ perceptions of other homes for sale. REALTORS® report that many buyers have pricing expectations that treat every property as if it were in foreclosure.

In addition, REALTORS® expressed ongoing concerns with the impact of the Home Valuation Code of Conduct (HVCC) on recent appraisals. According to some survey respondents, inexperienced or out-of-area appraisers continue to rely heavily on sales prices of distressed properties, even when other comps are available.

The HVCC makes lenders responsible for hiring appraisers, but also requires lenders to insulate themselves from the appraisal process. That led to a dramatic increase of the use of appraisal management companies (AMCs)—large brokers for individual appraisers. AMC-assigned appraisers may be inexperienced and may not have any personal knowledge of a particular neighborhood.

These factors often adversely affected the sale or the sales process, which occasionally resulted in the loss of a sale or a homeowner’s inability to refinance into today’s lower rates.

“As most of us are aware,” said NAR Chief Economist Lawrence Yun, “the housing market recovery to date has been concentrated in the lower-end starter home segment. Although the mid-priced market has begun to show signs of life, it’s still far below normal activity.”

Although the market for upper-end homes market remains sluggish, enlarging the tax credit to include move-up buyers will add the necessary “juice” to broaden the recovery, he added.

With more move-up buyers in the market, there may be less impact in the overall net inventory (a person sells before buying so it looks as a “wash” on inventory). Still, the increased sales have the added benefit of making HVCC and appraisal issues less problematic since appraisers will have more recent home sales to use when setting values.

“Adding it all up, home sales are now expected to get a boost by roughly 15% next year,” Yun predicated.
He forecasts existing-home sales of 5.7 million units in 2010 (up from 5 million units in 2009) and 550,000 new home sales (up from 400,000).

“More important, inventory will likely fall to a 6 to 7 months’ supply by the middle of next year,” Yun said. “That draw-down of inventory means that that there are likely to be modest home price gains. Roughly speaking a 2% to 5% price gain is likely in many parts of the country in the next year.”

As always, there are some caveats. Despite the very positive news on the housing stimulus, there remain significant risks to the forecast. Mortgage rates will rise from their rock-bottom points as we move into the next year, Yun said.

“The labor market is another worry. Though anticipated, the rising unemployment rate is a painful reminder that not all is well,” he added.

“Despite the risks of rising mortgage rates and rising unemployment, the housing outlook has significantly improved. As the fear of falling home values disappears, that one key negative factor that has held back home sales will no longer be in play. Happier days are ahead,” Yun predicted.

Source: NAR