The Housing & Economic Recovery Act of 2008
Phoenix, Arizona (PRWEB) August 10, 2008
David Lorti, a Realtor with RE/MAX in Tempe, Arizona, estimates that with the elimination of down payment assistance tied to Federal Housing Administration (FHA) loans, the Phoenix residential real estate market could see a 10% or greater drop in home sales which would have serious repercussions given the market's already challenging climate.
Nestled in H.R. 3221, or "The Housing & Economic Recovery Act of 2008," passed into law on July 30th, the Congress and the President set a date of October 1st for the elimination of down payment assistance, a financing option for many homebuyers in the Phoenix real estate market.
Down payment assistance is provided in tandem with a Federal Housing Administration loan whereby homesellers can contribute monies through an intermediary toward a down payment for homebuyers to purchase a home. The intermediary acts as a pass-through for seller contributions and passes these monies to the buyer as a 'gift.' Ameridream Inc. and Nehemiah represent the most visible of these intermediaries and have been involved in several legal challenges with FHA over the down payment assistance option.
But the hard truth is that elimination of these programs may adversely impact the Phoenix housing market and do more harm than good in the short term. This is due to FHA loans and down payment assistance programs' prominence in the current housing environment.
FHA loans haven taken on a hugely important role in the Phoenix residential real estate market. As loan programs disappeared, credit requirements tightened, and down payment requirements rose to 10% or more, FHA loans presented the only option for homebuyers to get into properties with 3% or less down payment through the use of DPA. Some estimates are that FHA loans currently represent over 50% of closed residential real estate transactions for the year. As a result, the wholesale removal of down payment assistance programs may have an immediate impact.
"If the legislation holds, I believe we can expect two developments. First, there will be heightened activity in the period up to October 1st as affected homebuyers seek to lock into homes before they get sidelined and aren't able to. Second, we will see an appreciable decline in buyer activity and home sales as a result of down payment assistance's elimination after October 1st. Buyers who could have purchased homes will have to wait or give up their search," says David Lorti.
"We could see a 10% or greater decline in our already suffering housing market that potentially moves us away from a market that is recovering to one that is stinging. Taking this one step further, I don't know how much more the broader economy could handle if a similar result took place across the United States," says Lorti.
The Federal Housing Administration as part of the Department of Housing and Urban Development is staunchly against the use of the programs citing that down payment assistance transactions incur a disproportionate number of foreclosures when compared to loans where the buyer accumulated the down payment. Higher FHA loan defaults raise the costs and risks to FHA.
FHA cites that homeowners using these programs are able to buy their homes with effectively no money down and so have no personal stake in the properties themselves. With no personal stake, the buyers may not have the personal financial discipline to keep their commitments or the financial wherewithal to afford the properties in the first place.
Proponents counter that the programs simply allow viable and qualified buyers the ability to own their own homes and that elimination of the program will hurt American families.
"Regardless of the side of the debate one is on, the market reality is that wholesale elimination of the down payment assistance option does present a risk to the Phoenix housing market. It's been an important enabler and I hope there is a compromise solution that Congress and the President will take up before we see down payment assistance go completely away," says Lorti.
About David Lorti:
David Lorti is a professional Realtor for RE/MAX Elite in the Phoenix area and helps clients buy and sell homes. He holds a Master of International Management and Bachelor of Arts degrees and his insights have been quoted in several news outlets. He also holds a Certified Negotiation Expert (CNE) designation - one of only 1,600 realtors nationwide. His website, http://www.LortiHomesArizona.com , and monthly newsletter, Dave's Real Estate News You Can Use, offer additional information on Ahwatukee Real Estate, Chandler Real Estate, Gilbert Real Estate and other parts of the Phoenix Real Estate Market.
David S. Lorti, Realtor - MBA, CNE