Ohio Housing Finance Agency (OHFA) Suspends Down-Payment Assistance

"...the Agency will temporarily discontinue our down payment assistance programs, effective...October 13, 2008. Borrowers can still purchase their home using the First-Time Homebuyer Program [without Down-Payment Assistance]."

See:
http://www.ohiohome.org/homebuyer/downpayment.aspx

The U.S. Department of Commerce recently reported that sales of newly-constructed single family homes increased 2.7% in September, 2008 over the same month for the previous year. Similarly, the National Association of Realtors (NAR) reported that September, 2008 sales of existing single family homes increased by 5.5% over the prior year. Is this the beginning of the end of the decline in the housing market, or just an aberration? Unfortunately, I believe it is the latter, not the former.

The most likely explanation of these results is the change in seller-funded down payment rules, effective October 1, 2008. One component of the "Housing and Economic Recovery Act of 2008" (H.R. 3221) includes Section 2113 which amends Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) by prohibiting the use of seller-funded down payment assistance programs (Nehemiah, Ameridream, Liberty Gold, et al).

I believe that home buyers rushed to take advantage of these seller-funded down payment assistance programs in September before they were outlawed on October 1, 2008. This resulted in an artificial and temporary surge in demand which was reflected in both the Department of Commerce and NAR surveys. It should be noted that the Ohio Housing Finance Agency (OHFA) also suspended its down-payment assistance program in October as well.

With the elimination of such incentives we will likely see a downturn in housing sales in October and for the foreseeable future. There remains two fundamental problems in our housing market that have yet to be addressed by lawmakers.

On the sales side, there still is too much "junk" inventory distorting the supply of available housing stock. This "junk" includes bank-owned, foreclosed, auction, short sale, pre-foreclose, upside down equity and over-priced, under-quality properties. In our market this could account for 30%-40% of the total ACTive MLS properties. Until the inventory is cleared of this "junk" we will continue to have slow sales and declining values.

On the purchase side, mortgage loans remain readily available at competitive rates and terms for borrowers with steady income and a reasonable credit score. The biggest obstacle appears to be the increased requirements for down payment (3.0% for FHA today, 3.5% beginning in 2009; and 5% for conventional loans). This is affecting first-time home buyers in particular, which ultimately affects potential move-up buyers who have a home to sell.

If our lawmakers would address these two problems immediately and concurrently we could expect to see an improvement in our housing market (subject to unemployment levels, which trump all).

The National Association of Realtors (NAR) recently proposed a 4-Point Housing Stimulus Plan to members of Congress that it says should be part of any new stimulus package.

NAR's plan would:

[1]
Make the $7500 first-time homebuyer tax credit available to all buyers and eliminate repayment requirements. The credit's limited availability and repayment requirement severely limit the credit's use and effectiveness.
[NAR did not propose a change to the tax credit structure itself which makes the availability of funds a "future" tax issue rather than a "present" down-payment assistance tool, which would actually be helpful. ~JW]

[2]
Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent. New rules for 2009 will reduce them. Now is not the time to limit mortgage affordability.
[This has little impact on our local market. ~JW]

[3]
Get the Treasury relief program back on track and target more funds to mortgage relief. Create a federal mortgage interest buy-down program to make below-market rates available and stabilize home prices.
[The bigger problem is upside-down equity rather than high interest rates. Affordable interest rates are presently available for refinances, modifications and work-outs from federal programs (Hope for American Homeowners), municipal/local groups and individual lenders (CitiBank/Countrywide et al). It's not so much the high interest rate as it is the extreme decline in market values of properties relative to their debt load. ~JW]

[4]
Permanently bar banks from engaging in real estate brokerage and management. The banks have proven they have enough to do to simply manage the loan process. Banks should not manage home sales and purchases.
[Agree. ~JW]

The National Association of Realtors^® (NAR) released their 2008 "Profile of Home Buyers and Sellers"[1] Here is what the data showed for home buyers.

WHO ARE THEY?
DEMOGRAPHICS. For couples: 61% are married; 7% are unmarried. For singles: 20% are women; 10% men.
First-time buyers are increasing as a percentage of total home buyers:
>Yr.2008=41%
>Yr.2007=39%
>Yr.2006=36%

First-time buyers are younger. The median age is:
>Yr.2008=30 years old
>Yr.2007=31 years old

WHAT ARE THEIR EXPECTIONS?
81% of home buyers used a real estate professional, comparable to 2007. For buyers who used an agent, 61 percent chose a buyer's representative.

Home buyers expect their real estate agent to:
1) help find the right house;
2) negotiate sales terms and price.

WHAT CAN THEY AFFORD?
The median down payment by first-time buyers is increasing (not necessarily by choice but likely due to new lending regulations):
2008=4%
2007=2%

Source of funds for first-time buyers' down payment:
69%=savings
26%=parental gift
16%=investment portfolio, retirement fund, 401(k), etc.
7%=loan from a relative or friend

HOW DO THEY SHOP?
Buyers used the following resources in searching for a home:
87%=Internet
85%=real estate agent
62%=yard signs
48%=attended open houses
47%=looked at print or newspaper ads

Few buyers rely on a home book or magazine, home builders, television, billboards and relocation companies. Buyers most commonly start their search process online and then contact a real estate agent.

Most popular Internet resources:
60%=local metropolitan websites (e.g.; http://realestate.cleveland.com/)
48%=Realtor.com
48%=real estate company websites
46%=real estate agent websites
43%=for-sale-by-owner websites
19%=local newspaper websites

WHAT DO THEY FIND?
Buyers searched a median of 10 weeks and viewed 10 homes.
87% of buyers who used the Internet to search for a home actually purchased through a real estate agent.

Where buyers first learned about the home they ultimately purchased:
34%=real estate agent
32%=Internet
15%=yard sign
7%=friend, neighbor or relative
7%=home builder
3%=print or newspaper ad
2%=directly from the seller
1%=home book or magazine

WHAT DO THEY BUY?
78%=single-family home
9%=condo
8%=townhouse/cluster-home

FORECLOSURES: Percentage of buyers who purchased a home in foreclosure:
2008=6%
2007=1%
Another 38% of buyers considered purchasing of a home in foreclosure but did not, primarily because they could not find the right home.

OTHER
92% chose a 30-year fixed-rate mortgage even though they plan to own their home for 10 years or less.
The level of for-sale-by-owner transactions was 7%[2]. This matches the results in the 2007 study and marks a downtrend from 10% in 2004.

CONCLUSION
"Given low home prices, plentiful supply and affordable interest rates, it's been an optimal time for entry-level buyers with a long-term view" said Lawrence Yun, NAR chief economist.

[1] ) Annual consumer survey for the twelve-month period ending June 2008.
[2] ) Factors out properties not placed on the open market.