Why FHA Loans Just Became Much More Attractive | (2.22.23)
“When you give joy to other people, you get more joy in return. You should give a good thought to happiness that you can give out.”— Eleanor Roosevelt
What Is Going On The Week:
• Today the U.S. Department of Housing and Urban Development (HUD) released an updated “Mortgagee Letter (ML) 2023-05” announcing the reduction of annual Mortgage Insurance Premium (MIP) rates for Federal Housing Administration (FHA) loans. This change will be officially effective as of March 20, 2023, however, many lenders will be implementing the changes effective immediately.1 Okay… so what does this actually mean? Ultimately, this means that FHA loans are now more competitive when compared to conventional options as this policy change will increase affordability for FHA borrowers. Moving forward, most loans will see a 0.30% reduction in annual MIP with some larger balance loans receiving reductions up to 0.55%. Further, FHA amended the base loan amount threshold for establishing MIP rates. This was done in order to remain aligned with the national conforming loan limits. The threshold will now be $726,200 whereas it had previously been $625,000. Due to this new alignment, loans greater than $625,000 (but less than or equal to $726,200) will see a reduction of up to 0.55% — dependent on the loan term. If you have questions about this specifically, do not hesitate to reach out to me! Happy to discuss this.
TL;DR — FHA loan Mortgage Insurance Premium (MIP) rates have been cut making them a more attractive option for borrowers.
• The National Association of Realtors published updated existing home sales figures for the month of January 2023. According to the NAR, annualized existing home sales came in at 4.0 million — below the pre-report market expectation of 4.09 million.2 As a quick reminder, this figure measures the annualized number of residential buildings sold in a given month but does NOT account for new construction. Today’s report marks the 12th consecutive month of declining home sales in the U.S. and also the slowest pace of sales for the past decade. A few other interesting pieces of data came out of this report, namely that the median existing-home sale price increased 1.3% from a year ago (now $359,000) despite the “market slowdown.” Finally, inventory of unsold existing homes has grown month-over-month and now sits at 980,000 nationwide — equivalent to ~2.9 months’ supply at the current pace of sales.
TL;DR — Existing home sale volume has declined for the 12th straight month reaching levels not seen in the past decade.
Chart Of The Day:
Businesses that IPO’d in 2020/21 have not performed well since going public…3
TL;DR — What do they say? Timing is everything…
Source: U.S. Department of Housing and Urban Development — Mortgagee Letter 2023-05.
Source: National Association of Realtors — Existing Home Sales Report.
Chartr — The Class Of 2020/21.