Federal regulators are considering reducing the down payment requirements for a handful of mortgage products backed by Fannie Mae and Freddie Mac. The proposal would lower payments from 5 percent to 3 percent in an effort to improve home sales nationwide.
Interest rates are still low -- and getting lower, according to Freddie Mac -- but sales continue to lag. The U.S. Department of Commerce, in fact, had to revise the sales rate it reported for August: 504,000 was pared down to 466,000.
September saw the annual rate climb just 0.2 percent. Minnesota is used to things slowing down as winter approaches, but nationwide the question remains: Where is the recovery?
Well, look at the numbers again. Month-over-month, single-family housing starts increased by 1.1 percent in September. Overall housing starts were up 6.3 percent, though. The recovery, such as it is, is in multi-family housing.
The dilemma for the federal government, lenders and, of course, the housing industry is how to tip the scales in single-family construction's favor. They have their work cut out for them: RealtyTrac reports that there is still a significant supply of underwater mortgages (8 million, or 15 percent of all mortgaged property). Without the equity from their current homes, many owners cannot afford to trade up.
According to a recent report from Trulia, potential buyers are shy on savings, too. That is where the lower down payment proposal comes in.
Housing analysts suggest that the Commerce Department's report often shows significant fluctuation month-over-month. Still, that volatility cannot bridge the gap between the current numbers and the 700,000 rate typical of the 1990s.
Millennials also think of housing differently from the way Baby Boomers did. A single-family home was a sign of prosperity when the Boomers were growing up. Millennials are less interested in owning, not at all helpful for the market, especially if Boomers are downsizing. Real estate market analysts may be befuddled over the next few years if the market adjusts to these new consumer behaviors. Rental rates may soar, and home construction rates may flatten out or fall.
Source: Star Tribune, "Sales of new US homes tick up 0.2 pct. in September; revisions wipe away much of August surge," Josh Boak, Oct. 24, 2014