Rate hikes affecting First-time Buyers per RisMedia

First-time homebuyers are shying away from their plans to purchase this spring, according to a recently released report by realtor.com®, due to the surge in mortgage rates in the last two months of 2016. Though rates have deflated since the end of the year, they remain hovering above 4 percent—high enough to scare off first-timers this spring, now down to 44 percent from 55 percent in October.

“The rise in rates is associated with an anticipation of stronger economic and wage growth, both of which favor buyers,” says Jonathan Smoke, chief economist for realtor.com. “At the same time, higher rates make qualifying for a mortgage and finding affordable inventory more challenging. The decline in the share of first-time buyers since October suggests that the move-up in rates is discouraging new homebuyers already.”
First-time homebuyers affording a 20 percent down payment on a median-priced home at the current average 30-year rate would be responsible for an additional $720 in interest each year, according to realtor.com’s report.

Record-high home prices will tamp down first-time homebuyers, as well. The median list price in December 2016 matched the median list price in July 2016: $250,000. Inventory in December 2016, in addition, remained limited, setting the new year up with the lowest inventory since the recession. The National Association of Home Builders (NAHB) expects single-family construction to grow 10 percent in 2017.

The rise in rates is not stifling demand overall, though, according to realtor.com’s report—in fact, repeat homebuyer activity has continued, as buyers, uncertain about the future, take advantage of still-low rates. Consumers recently surveyed by Fannie Mae believe now is a good time to buy a home, but also believe mortgage rates will rise in the year ahead.

“Last fall, we saw a large jump in the number of first-timers planning home purchases, which was very encouraging because their market share is still well below pre-recession levels,” Smoke says. “But, as evidenced by their decline in share, first-time buyers are really dependent on financing, and affordability is one of their largest barriers to homeownership. This number could continue to decline with anticipated increases in interest rates and home prices.”

FHA reduces annual premiums for Private Mortgage Insurance on home loans ...

Check out this excerpt from the story reported by Reuters ... 

The U.S. Federal Housing Administration will reduce the annual premiums on mortgage insurance on home loans the agency insures by a quarter point on Jan. 27, it said on Monday.

The FHA projected homeowners it insures would save an average of $500 a year with the new premiums.

The lower premiums will come after mortgage rates recently hit their highest levels in over two years and the FHA's Mutual Mortgage Insurance Fund has been recovering from the hit it took due to claims in the aftermath of the housing bust.

"After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families," Housing and Urban Development Secretary Julián Castro said in a statement.

The agency, which is part of the Department of Housing and Urban Development, offers mortgage insurance, often to first-time home buyers and those with low income or below top-notch credit. The insurance protects lenders in case of defaults.

The premium reduction was projected to lower the cost of housing for about 1 million households that are expected to purchase a home or refinance their mortgages using FHA-insured financing in the coming year, according to HUD.

The planned cuts will lower FHA insurance premiums to 55 basis points from 80 basis points on mortgages with loan-to-value ratios of or below 95. Premiums on riskier mortgages will drop to 60 basis points from 85 basis points.

The move places FHA mortgage insurance premiums "basically back to the pre-crisis levels" of 50 to 55 basis points, the statutory floor, JPMorgan analysts wrote in a research note.

Roger's comment: So while the Fed raised rates, this reduction basically will offset that increase, at least for loans requiring Private Mortgage Insurance ...