The Obama Housing Plan Is A Complete Joke – Dave Kranzler

TND Guest Contributor:  Dave Kranzler |

Obama presented his plan for the FHA to reduce the down payment requirement for an FHA loan to 3.0%.   Big deal.  The FHA has been offering 3.5% down payment loans for quite some time now.  In fact, since 2008 FHA has been underwriting low credit quality mortgages, replacing the risky market niche vacated when the likes of Countrywide and Wash Mutual blew up.  FHA is now nothing but a giant giant taxpayer bailout waiting to happen.  And Obama just made it worse by further lowering the credit quality bar and reducing the amount of PMI insurance the future dead-beat borrowers have to pay.   Doesn’t matter anyway because the pool of reserves funded by PMI is miniscule compared to the eventual default liability taxpayers face.  2008/2009 vintage FHA paper is already experience close to 30% delinquency rates.

But Obama’s latest scheme to fleece the taxpayers won’t stimulate home sales  Why? Because mortgage rates and down payment requirements have already been near historically low levels anyway.  Low rates have not stimulated home sales.  In fact, the latest weekly mortgage applications report filed yesterday showed that mortgage purchase applications were down 33% from two weeks earlier and down 8% year over year.    A 30-year fixed-rate mortgage was 4.5% a year ago vs. 3.85% right now.  When you strip away the seasonal adjustments used to manipulate the numbers, both new and existing homes sales have fallen almost every month since July 2013.

This is occurring because a large majority of the country is now living paycheck to paycheck:  62% of Americans are literally one paycheck away from living on the street: LINK.   With real median household income nearly 10% lower now than in 2008, most Americans who don’t already have a home have no hope of buying one.    A down payment requirement that is slightly lower than what it’s been for several years now will NOT stimulate home sales.

But don’t take it from me, here’s some recent articles about what’s happening in the real world (sourced from The Housing Bubble blog):

– “After accelerating for the past several years, Houston-area builders will tap the brakes on new home construction in 2015″  link

– “After months of rapid growth, Miami-Dade County home sales declined 9.2 percent in November. Especially hard hit were condominiums, where sales dropped 16 percent to 1,077 units compared to 1,274 a year earlier”  link

–  “Single-family homebuilding permits issued by Regional Building – a yardstick to measure the pace of construction – totaled 2,438 last year in El Paso County, a nearly 9 percent drop from 2013, the agency’s report showed. Some homebuilders probably built too many speculative homes – those without committed buyers – in 2013 and pulled back last year”  link

–    “Homebuilders cut their spending on metro Phoenix land during 2014 as new home sales fell…Builders have been offering deals including no payments for a year and discounts of 10 percent to 20 percent on houses already built as they try to sell inventory.”    link

And here’s one from DataQuest on Bay Area sales in California:  November home sales in the Bay Area were at their slowest in 6 years – home sales dropped 22% from October and 10% from November 2013.

The housing market is starting to collapse and Obama’s ridiculous to move to lower the down payment requirement on FHA mortgages will do nothing to stimulate sales and it will shift a high degree of risk onto the taxpayers.  The only reason the homebuilder stocks are rallying like they are is because the Fed continues to inflate the stock market bubble.  This will end very badly.

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About Dave Kranzler:

 I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics.  Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

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