| 摘要 | Earlier this week, HUD announced a new condominium approval process that will “allow certain individual condominium units to be eligible for FHA mortgage insurance even if the condominium project is not FHA approved.” The National Association of Realtors was one of the first to applaud the move. NAR President John Smaby stated:
We are thrilled that Secretary Carson has taken this much-needed step to put the American Dream within reach for thousands of additional families. It goes without saying that condominiums are often the most affordable option for first-time homebuyers, small families and those in urban areas. This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.
The AEI Housing Center has previously analyzed policy changes that eased credit availability and found that the promised and actual outcomes were quite different. Let’s connect the dots by starting with housing market principles.
Home prices are driven by supply and demand. Affordability worsens when prices rise faster than fundamentals, such as incomes. FHA’s new condo rule did not expand supply. It did, however, increase demand by allowing borrowers to tap into high leverage FHA financing. While this gives them more “money” to spend, it comes with two detriments.
The first is higher borrower default risk due to higher leverage and risk layering. David Stevens, the former FHA commissioner and president of the Mortgage Bankers Association, summed it up succinctly in a recent Wall Street Journal article: “FHA is already a higher-risk program. Layer that on top of a higher-risk product called the condominium, and you definitely have to prepare yourself for the fact that in the next correction you’re going to take more losses at FHA than anywhere else.”
And second, without changing supply, any additional increase in buying power will be largely converted into higher condo prices. We expect this price impact will be nearly instantaneous in places where borrowers take advantage of newly available FHA condo financing. Consider a simple thought experiment: The housing market works similar to an auction, where prospective buyers increase their bids until only one person is left. The final sale price will be slightly above the price the second to last bidder offered.
Assume two buyers, A and B, bidding on the same condo unit, both determined to win. A has $100k to spend, while B has $105k to spend. Ultimately, B will win the auction and the final sale price will be $101k.
Now assume each borrower has gained access to FHA financing, which expands each borrower’s budget by $10k. Buyer B will still end up winning the auction, but the final sale price will now be $111k. The same condo units are still being sold to the same buyers, however, at higher prices.
Even if the policy applies to no more than 10% of units within a building (or no more than two units if the building has fewer than 10 units), it will take time for that limit to become binding. In the meantime, the higher priced units will become comps for other sales in the same building (and other similar condos in the same market area). This will ultimately raise prices for everyone, not just FHA buyers. Once the 10% threshold is reached, the effect will either dissipate, or –and this is more likely- the housing lobby will advocate for raising the threshold.
To those unconvinced by this logic, look no further than the outcomes of FHA’s mortgage insurance premium (MIP) cut from 2015. At the time, FHA stated that this change would “save more than two million FHA homeowners an average of $900 annually and spur 250,000 new homebuyers to purchase their first home over the next three years.”
The AEI Housing Center’s research demonstrates that home prices in neighborhoods with an FHA presence of more than 20% subsequently increased about 3 percentage points more over the following year than prices for homes in neighborhoods with a smaller FHA presence, which were not affected by the policy change. Likewise, the MIP cut did not expand homeownership. We find that only a sliver (around 35,000 buyers the following year) were new entrants to the market who previously could not afford to buy a house. This figure fell far short of the 83,000 new homebuyers per year (about a third of the 250,000 over three years) that FHA had promised.
The MIP cut and the condo rule have the same intent, but will likely have similar outcomes as they expanded demand without increasing supply when there was already a supply-demand imbalance. Similar to the MIP cut, it is therefore highly likely that the condo rule will not expand affordability for first-time buyers or increase condo sales. We will be testing the outcomes when enough data on transactions have accumulated.
In the meantime, borrowers and HUD should not be fooled by the NAR’s praise for FHA’s new condo rule. The real reason the NAR “applauds” this policy is that it increases home prices, which is great for people paid on commission. |
