Value of Membership: 6,300 new home starts saved

We continue our series about how your HBA and its affiliate, NAHB, have logged significant victories advocating for members in the legal, legislative and regulatory arenas during 2012. 
Our advocacy efforts have saved the typical home builder about $7,250 per housing start in 2012, including both single-family and multifamily.

Higher loan limit saves 6,300 new home sales in 2012. Home builders and buyers won an important victory in late 2011 when Congress restored higher loan limits through 2013 for FHA-backed mortgages. NAHB advocacy prevented the loss of 6,300 new home sales in 2012 and the 4 reduction of prices of another 20,000 new home sales. NAHB estimates three impacts from the higher FHA loan limits. (1) Sales of more than 1,300 newly constructed homes would not have occurred in 2012 if the loan limits had not been restored. (2) Just over 20,000 home sales would have occurred, but the higher finance costs would have reduced demand, lowering purchase prices by approximately 6% on average. (3) Finally, about 13,000 owners of existing homes in high cost areas would have been unable to sell their homes. That would have resulted in the loss of more than 5,000 new home sales to trade-up buyers. The total value for the industry was $1.904 billion in 2012.

Will expiring loan limits impact the Upstate?

By Matt Vaughn, Sales Manager
Homeowners Mortgage

Effective October 1, 2011, there will be a decrease in the GSE (government-secured enterprise) and FHA loans. This will decrease a bank’s opportunity to originate loans higher than the approved loan limit. Companies like Fannie Mae or Freddie Mac offer securities and guarantees to lenders that help grant favorable rates and loan securitization, thereby decreasing the risk to lenders origninating the loans.

As we close in on the deadline when the loan limits will expire, it is important to evaluate how that may effect our local market in the Upstate. The expiration of the loan limits, which have been statutorily higher since 2008, will directly affect 204 counties nationwide. None of those counties are located in South Carolina.

The limits were set in place under the 2008 stimulus package when financing was scarce for homebuyer’s whose loan amounts exceeded the $417,000 limits. Sensing a need to provide homeownership to borrowers in higher-priced markets where buyers could not afford the larger down payments for more expensive homes, the government assigned a new loan size to each county to 25 percent greater than its median home prices, not to exceed $729,750.

The new rule lowers the temporary increase to 15 percent from 25 percent above the median home price, not to exceed $625,000, effective October 1, 2011.

Another change taking place this fall will affect FHA loans. These changes will take place in 620 counties throughout the nation affecting 59 percent of all homes. That means changes in South Carolina for the following counties: Beaufort, Berkeley, Charleston, Dorchester, Georgetown, Greenville, Horry, Jasper, Laurens, Pickens, and York. For the Greenville market, the 3 counties located in the Upstate will see their FHA loan limit drop to $271,050 from $295,000.

When dropping the price threshold and assuming the minimum 3.5 percent down payment investment, according to NAHB 2,538 families in Greenville County will be affected by the reduced FHA loan limit. That may seem like a lot of families, but in order to understand the impact of changes in FHA loans it is important to focus on the statistics of borrowers obtaining FHA financing. According to HUD, 107,125 people used FHA loans to purchase homes last year with an average loan amount of $179,000 with an average credit score of 703; 77 percent of these loans went to first time home buyers. For those working, building and buying in Greenville County this means that the changes should not have a large impact on home sales in our area.

The average sales price of a home in Greenville County is between $160,000 and $170,000. Most homes here will not be affected by any upcoming changes. For those selling and building at a higher price, the good news is that conventional mortgage insurance companies have started to become more competitive now that FHA monthly premiums have increased, and should attract a larger percentage of buyers with money to put down looking for better payments.