Real Estate

Topline

The Biden Administration on Wednesday unveiled a plan to help low-income and first-time homebuyers save an average of $800 per year on mortgage insurance costs starting next month—an attempt to help ease affordability concerns in the housing market as higher mortgage rates and elevated prices sideline many potential homebuyers.

Key Facts

Under the plan announced on Wednesday, the Federal Housing Administration will reduce mortgage insurance premiums—a monthly fee homeowners pay to insure their mortgages—by .3 percentage points to .55% for FHA-insured mortgages.

The program, which is set to take effect on March 20, will help an estimated 850,000 households save an average of $800 in 2023, according to the White House.

FHA-insured mortgages, which accounted for 7.5% of home sales in the third quarter of 2022, are targeted toward first-time homebuyers and offer more flexible credit requirements than other types of mortgages, effectively opening the door to homeownership for individuals who may not otherwise be eligible.

According to the White House, more than 80% of FHA borrowers are first-time homeowners, and over 25% of the homebuyers are people of color; the program does not have a minimum income level to qualify, but debt levels and credit ratings are still taken into account.

The plan comes at a time when mortgage rates have skyrocketed, reaching a 7% high last November and are currently sitting at 6.62%, according to the Mortgage Bankers Association.

“Some buyers will struggle with affordability because of this surge in interest rates,” says NerdWallet’s Holden Lewis, who notes the FHA reduction will save a homebuyer who takes out a typical $275,000 loan about $69 per month—a modest reduction to help lower the cost of homebuying.

Key Background

During the pandemic, demand for homes skyrocketed due to low mortgage rates and an influx of Americans working from home. With a shortage of new homes being built, the booming demand sent home prices to record highs, pricing out first-generation homebuyers who are less likely to have sufficient funds for a down payment as home prices increase.

Tangent

As higher mortgage rates and near-record prices crush housing demand, home sales in the U.S. have fallen for 12 straight months and are now down nearly 37% from one year ago, according to data from the National Association of Realtors. Meanwhile, the median existing-home price rose 1.3% to $359,000, marking 131 consecutive year-over-year increases—the longest on record according to NAR.

Further Reading

Housing Market Downturn Wipes $2.3 Trillion In Value As Experts Predict Prices Could Still Tumble Another 10% (Forbes)

Housing Market Slows Again As Hot Inflation Drives Up Mortgage Rates—Here’s What That Means For Buyers (Forbes)

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