After several years of extreme lows and highs, the notoriously volatile Phoenix housing market settled into unfamiliar calmness in 2014.
The year ended with tepid price increases and sales and unusually low numbers of buyers and sellers, a symptom of previous double-digit price growth, waning investor interest, tight lending standards, stagnant wages and rising student loan debt.
With the sluggish housing market now among the few bleak spots still remaining in the overall economic recovery, President Barack Obama discussed a new initiative to make home ownership more affordable for some Americans during his speech at Phoenix's Central High School on Thursday.
The initiative could save some borrowers $900 annually on average and bring up to 250,000 first-time buyers and about 800,000 refinances to the market over the next three years.
While local experts applaud Obama's plan, they expressed concerns that a large, sudden boost in demand could be problematic in metro Phoenix.
“My concern is that supply is actually quite tight," said Michael Orr, a housing expert at Arizona State University's W.P. Carey School of Business.
Obama's plan is to drop the annual mortgage insurance premium for FHA-backed loans, which are geared toward Americans with lower income and less-than-perfect credit.
Mortgage insurance is an additional fee that's rolled into a borrower's monthly payments and it guarantees the lender won't take a hit if a borrower defaults. It's normally required of all FHA borrowers and any conventional loan borrower making a down payment of less than 20 percent.
Since 2010, insurance premiums for FHA loans have climbed substantially, from .55 percent to the current 1.35 percent. On Thursday, Obama said the premium will be cut back to .85 percent, which is still higher than historical norms.
“These rates are for responsible buyers," Obama said during his speech in Phoenix. "We’re not going down the road again of financing folks buying things they can’t afford.”
Considering the roughly 5 million U.S. homes that sell every year, Orr said the president's plan alone won't make much of a dent in the demand problem.
But it could have a larger impact in conjunction with recent efforts by other mortgage industry players, he said.
Last month, for instance, financial giants Fannie Mae and Freddie Mac announced plans to offer loans to first-time buyers with down payments as low as 3 percent, down from 5 percent. It means Fannie-and Freddie-backed loans, which make up the vast majority of the U.S. mortgage market, now have a lower down-payment requirement than the 3.5 percent minimum for FHA-insured loans.
“In December and early January, new listings that are coming on are at an unusually low rate," Orr said. "So if demand suddenly shot back up to normal — and it’s a long way below normal, still — then supply, being quite a long way below normal, would be overwhelmed very quickly. And we’d end up with too much competition for homes and biding wars again, and that would put upward pressure on pricing.”
But even if Obama's plan has a minimal impact, lenders aren't complaining.
“You’re going to get more buyers in. It’s supply and demand," said Paul Hickman, president and CEO of the Arizona Bankers Association. "You reduce price and you’ll increase demand and so they’ll have more folks that can come in and potentially buy a house, and that’s a good thing from our point of view.”
