View related content: Housing Center
Letting the patch expire in 2021, combined with dropping FHA’s DTI limit to 50 percent, will lead to about the same number of homes being sold, purchase loan volume will be largely unchanged, FHA’s volume will about unchanged, and the increase in entry-level home prices will be more in synch with rising borrower incomes.
Principle: The only plausible reason for the government to back the housing market is to help low or moderate income families buy homes. An evaluation of the GSEs 2018 business shows that the GSEs fail to meet this simple test.
Charts of the week: Similarities between Berkshire Hathaway and the highly leveraged entry level housing market
The house price boom, now well into its 7th year, has been driven by 2 punchbowls:
(1) Easy monetary policy which applied equally to all types of buyers, and
(2) Loosening mortgage underwriting standards by government agencies, which has almost exclusively been aimed at first-time buyers.
The implications of leverage during a long-lasting seller’s market, now in its 76th month, are higher house prices concentrated at the lower end of the market and in lower income neighborhoods where leverage has been increasing the most.