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FHA Premiums; Fed criticism on rates; homebuilder woes 😭

By March 31, 2021 No Comments

HUD shocks experts by not reducing FHA premiums

Remember how just last month everyone was predicting the current administration would cut FHA premiums?

Well, it’s not going to happen. 

In a statement Tuesday, HUD Secretary Marcia Fudge cited rising delinquencies and said HUD has no plans to cut mortgage insurance premiums as FHA deals with the fallout from the coronavirus pandemic. (American Banker, metered paywall)

MBA President and CEO Bob Broeksmit said the trade group supports the decision.

“MBA commends Secretary Fudge for maintaining FHA’s current mortgage insurance premium pricing until we have a clearer picture of the long-term impact of the pandemic on FHA borrowers and the insurance fund,” he said in a statement.

“While it is desirable to have lower mortgage financing costs, particularly as rates rise and home prices continue to increase, we agree with HUD that we need more data about how the more than 1 million FHA loans that are delinquent perform as they exit COVID-19-related forbearance,” he added.

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Fed criticism on the rise as home price appreciation shows little sign of cooling down

The main reason home prices are now rising so quickly is that strong demand butting up against record low supply. Bidding wars for homes are now the rule, not the exception. 

Case in point, agent Ellen Coleman listed a fixer-upper in suburban Washington, DC for $275,000 on a Thursday. By Sunday evening, she had 88 offers.

Of those 88 offers, 76 were all-cash, said Coleman, who works for RE/MAX Realty Centre. There wasn't even enough time for all of the bidders to visit the property. She said 15 offers were sight unseen.

And as home prices rise, so does criticism on the fed policy toward interest rates.

The Federal Reserve had been tapering its purchases of MBS in order to normalize the market after the last recession, but it turned that taper around last March with the onset of the pandemic. It now owns more than a third of the MBS market.

At the start of 2019, the Fed held $1.6 trillion in agency MBS. It tapered that down to $1.37 trillion by mid-March of 2020. Then, when the economy and housing market were suddenly in Covid free fall, the central bank began buying more again. As of last week, the Fed held $2.2 trillion of agency MBS.

“They’ve continued on autopilot. I don’t think there’s been any discussion within the Fed. The Fed is just afraid to change because they don’t want it to be seen as a form of taking their foot off the pedal,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group in an article for CNBC.

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Here’s how bad things are for homebuilders right now

It doesn’t look like homebuilders will be able to solve the supply crisis anytime soon.

First of all the cost of lumber keeps spiking. Second, there simply aren’t enough boots on the ground to build our way out of this. 

In fact, construction companies will need to hire 430,000 more workers than they employed in 2020, according to an analysis of U.S. Bureau of Labor Statistics data released by Associated Builders and Contractors. 

“According to forecasts analyzed during the COVID-19 pandemic, an impressive 430,000 more construction workers still need to be hired in 2021 to meet the demand, evidence that the construction industry is powering America’s recovery and economic engine,” said ABC President and CEO Michael Bellaman in this article

“ABC’s annual forecast incorporates several variables that may affect the U.S. construction spend and employment demand over the next few years. These variables, which range from inflationary pressure, rising commodity costs and other global supply chain concerns to the regulatory and legislative trajectory of a new administration and the vaccine rollout domestically and even globally, are considered in the ABC cone of probability,” he added.

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