The cuts to the FHA insurance premium had little impact on sales overall, but more borrowers used FHA insurance. Was the policy a success? Lowering the FHA insurance fees was the right idea at the right time. Due to the losses sustained and expected at the FHA insurance fund, the fees were raised to very high levels, making FHA the new subprime. When first-time homebuyer participation rates hit a three-decade low, I predicted that Pressure would mount to lower FHA insurance fees to revive home sales. Shortly thereafter FHA loan fees were cut in half, and I stated that Lowering FHA insurance fees will spur the housing market. Why was lowering the FHA insurance fee so important? My market studies…[READ MORE]

Since most people no longer fear being priced out, prospective home buyers see high prices as a deterrent rather than an incentive to recklessly jump into the market. Generally, when the price of any good or service goes up, buyer demand at the higher price diminishes because fewer people can afford higher prices. This isn't a particularly difficult economic concept to understand except that housing markets violated this idea repeatedly over the last 40 years. In the past, rising house prices often led to an increase in the quantity demanded, not because more people could afford it, but because buyers became more motivated in order to capture home price appreciation. When prices rise faster than their wages, people can obtain…[READ MORE]