MarketWatch's Steve Goldstein takes a look how a federal program aimed at making homes more affordable may just have the opposite effect.
The reduction in mortgage insurance premiums for Federal Housing Administration (FHA) loans was aimed at saving families $900 a year--but may have actually raised home prices since it was first enacted in January.
The policy certainly helped to spur demand of FHA loans for home purchases, which have jumped 23% year to date. But according to Sam Khater, deputy chief economist of CoreLogic, the price of lower-end homes, which had been growing at an 8% rate, jumped up after the FHA announcement:
In August, the most recent month for which data is available, prices in this segment have grown 11%, faster than the 7% growth for all segments ... That extra 3%-per-year in home price growth, on a $180,000 home, amounts to $5,400, or basically, six years of insurance-premium savings. On a $140,000 home, that extra premium amounts to $4,200.
“In today’s market where supply is so tight, it’s not helping the cause to artificially stimulate demand,” he said.