By Philip Haldiman, Editor-in-Chief | The Dealmaker
By now Air Force One has long catapulted President Barack Obama from this state, leaving Arizonans and the rest of the U.S. with the promise that mortgage insurance will be cut in half later this month.
Most people wouldn’t scoff at saving $900 annually – about $75 a month — which is what the average homeowner is expected to keep in their pockets thanks to the new proposal.
But in a land that relies on revenues related to real estate and where the housing market has remained stagnant, many local real estate experts say Obama’s proposal is a start, but not enough.
A number of industry professionals have chimed in with The Dealmaker on this issue. Here’s what they had to say:
Jim Belfiore, president of Belfiore Real Estate Consulting: The cut in mortgage insurance costs will undoubtedly expand homeownership and affordability for some people. The change is not likely to immediately significantly impact home purchase volumes, but it will allow more would-be FHA-loan-dependent homebuyers to qualify over the next 12 to 36 months.
Judi Butterworth, senior vice president for Velocity Retail Group: We’re a country of extremes. First Barney Frank wanted everyone to have the opportunity to own a home, so everyone did own a home for a few months, even though they had no proof of income. Then, everyone lost their homes, because the artificial values fell when no one could afford to pay for their homes. Now it’s time for more people to be able to own a home, which will lead to more aggressive policies in the next year so that everyone can own a home again, even for a few months.
In the meantime, no one has the credit ratings to qualify for a home, and the Millennials are too afraid to even think about buying a home because they saw all of their family members lose their homes. Besides, they want to buy Prius cars and protect the environment and change the world. Owning a home does not fit into their lives. Plus, they have too many student loans to pay off anyway, and they can only get a jobs in call centers or retail, continuing to rent for a long time. So, it doesn’t matter what President Obama proposes. The weather was nice, though, and the speech was short, so he was probably able to get a game of golf in.
Cameron Carter, director of the transactional department at Rose Law Group: This is a move that will benefit those who need it most — first time home buyers and those seeking to return to home ownership. We expect that the President’s new policy will also be welcomed by those in the real estate industry as there are a significant number of Arizonans who want to purchase homes, but are currently unable to qualify due to the lack of affordable financing alternatives.
Ed Hadley, president of the southwest region at Walton Development: Mortgage insurance is not the reason buyers are unable to buy. Although every little bit helps, this will have minimal impact in my opinion. It may put taxpayers at more risk without the added default insurance — I have not seen data on this reduction. We need better loan programs that entry level buyers can qualify for and are enticed to buy once they get a job that can support a house purchase and not rent. Employment is not secure enough these days for Millennials to make long term purchases, only family creation seems to be the main catalyst. I did not want to own a house until my wife told me she did.
Elliott D. Pollack, CEO of Elliott D. Pollack and Company: This will help things on the margin but it’s not a game changer. It might affect 5,000 people in Arizona. A game changer for Phoenix would be going back to the old FHA home limits. That’s a game changer. That would bring back 18-20 percent of the market. This is nice and everything helps, but why not just buy a home that’s $10,000 less? This flies in face of realty. The market we’re really looking for is new housing.
Jordan Rose, president and founder of Rose Law Group: This basically just makes Obama look like he is doing something. $900 will possibly allow four more Arizonans to buy a home this year. It is just not significant enough of relief to affect many people.
Fletcher R. Wilcox, vice president of business development at Grand Canyon Title Agency: The current annual mortgage insurance premium is 1.35 percent, and under the new plan it would go to .85 percent. So a borrower’s monthly mortgage payment will be cut by 0.5 percent. I estimate this change will increase overall single family sales 2-5 percent. This is assuming that it applies not only to first time homebuyers, but also boomerang buyers. This move benefits refinances more than it does purchases. Here is why: If a borrower’s current FHA interest rate is 4 percent and their monthly premium is 1.35 percent, they are paying about 5.35 percent interest on their loan. This does not quite work out to the aforementioned but is close enough for an example. If a borrower refinances to an FHA interest rate of 3.5 percent and now their mortgage insurance premium is .85 percent they are now paying 4.35 percent on their loan or 1 percent less. Paying 1 percent less will encourage a mini FHA refinance boom. Today’s announcement stimulates buyers to think about home ownership, and to talk to real estate agents and lenders to find out more information. This is a good thing. But Obama’s cut of .50 percent in the annual premium will be muted if the mortgage interest rate goes up .50 percent.
