On December 17, Congress passed an extension of the National Flood Insurance Program, known as NFIP, until May 31, 2012. This is good news because NAR research estimates that each day of an NFIP lapse results in the delay or cancellation of 1,332 home sale closings nationwide.
Floods are a devastating problem with a huge impact, not only on the real estate business, but on human lives. Anyone who has experienced the personal loss and the accompanying life disruption of home flooding knows how debilitating this is.
It doesn’t matter where one lives to be affected by flooding. From 1990 to 2005, flood disasters were declared in every state—along rivers and lakes, behind levees and dams, anywhere snow melted or rain fell.
Because of the rising cost to taxpayers of post-disaster payments for uninsured properties and the lack of a private market for flood insurance, Congress created NFIP in 1968. The idea was to ensure that, through NFIP, homeowners and renters could access affordable flood insurance.
Today, 5.6 million property owners rely on NFIP in 21,000 communities where flood insurance is required.
Adding to the problem, private markets will not guarantee access to affordable flood insurance. The four large insurers that write virtually all the private flood insurance today do so only for “high net worth” owners and high-value property at an average price twice the NFIP’s.
NAR is committed to protecting the long-term stability of the NFIP and to ensuring that flood insurance rate maps are regularly and accurately updated. Reauthorizing the NFIP saves taxpayers both money and property. That’s because historically, NFIP has collected enough revenue to cover its cost or pay back a short-term loan from the U.S. Treasury with interest.
Without NFIP, there would be more uninsured and unmitigated properties, taxpayers would still be “on the hook” for disaster assistance to these properties. Also, there would be no premiums to pay down any remaining loan balance or collect interest.
And not only does the reauthorization of NFIP makes good sense economically, it also is another element in bringing stability to the housing market. The real estate consumer will feel more confident in purchasing a home knowing that the property can be reasonably insured. This in itself brings stability to housing values and prices.
Over the next six months, NAR will continue to push Congress for a five-year NFIP re-authorization bill to provide certainty and avoid further disruption to real estate markets. Your Calls for Action remain essential in getting the message to Congress to stop this ongoing uncertainty when it comes to housing policies. Keep on the lookout for upcoming activity, and be sure to let Congress know where REALTORS® stand.
Winston Churchill once said, “All the great things are simple, and many can be expressed in a single word: freedom, justice, honor, duty, mercy, hope.”
I’d like to add another word to that list—home.
Throughout the ages, though the shape and fashion of home has taken many forms, it is a place all of humankind can relate to. In fact, the ever present hope of home has inspired us as a country and civilization since the founding of our nation. But the idea of home is not just an American value. The importance of home has driven nations throughout the centuries to both defend their lands and to liberate other lands so all could find a place to live securely.
Practically speaking, home provides one of the basic needs of all living beings, that is, it is a place of shelter. Still few would argue that it is far more than just a shelter. It is the stage, the set if you would, for each person to play out their life and all that comes with life, both the joys and the sadness. Truly the walls of home become a sacred place.
And so the Christmas story comes to mind, two soon to be parents seeking shelter find their home for a time in a stable that they shared with the animals. And then there was a star above them providing perhaps both hope and light.
Well, today we too need to look up a bit to see some of the stars—to see a few glimmers of light regarding homes in today’s fragile economy.
Existing-home sales rose 1.4 percent in October. They are 13.5 percent above the level of where we were last year.
In November, unemployment sunk to its lowest rate in nearly three years—8.6 percent. The decline was better than the experts predicted.
On the Friday after Thanksgiving—known as Black Friday and almost always the biggest shopping day of the year—a record 226 million shoppers flocked to stores and to the Internet, spending 6.6 percent more than last year.
And this month, spending on Christmas trees is projected to rise 3.1 percent this year. According to one research firm, Americans will spend $3.4 billion on Christmas trees alone. This would be the highest number since before the recession.
There are some real indications that the economy and home sales may indeed improve this coming year. Positive economic “lights” lead to a more stable residential market and an increase in home sales.
As Realtors, never let us forget how important our job is in helping others find their home. And as we face the year ahead, let us do so not with hype, but with genuine hope.
Happy Holidays to you all.
By Gary Thomas, 2012 President-Elect, National Association of REALTORS®
In 2011, all of you heard quite a bit about a devastating provision in the Dodd-Frank financial reform law called the Qualified Residential Mortgage or QRM.
There was quite a bit of activity before the August 1st deadline for a letter to be submitted to federal regulators.
After that, things have been kind of quiet. But don’t mistake that for inactivity. The regulators have been reading excellent comments about how this rule would devastate the housing market.
To keep the pressure up, we gathered the Coalition for Sensible Housing to plan strategy for the year ahead. The broad-based Coalition, forged by NAR along with 47 other organizations, focuses on the proposed Qualified Residential Mortgage (QRM) rule. Published on April 29, 2011, the proposed QRM regulation is a complicated issue that could hurt our businesses
It was a great meeting of minds. A lot of smart ideas were bounced around about how to keep the issue in front of elected officials, the media and the regulators.
Last week, there was a meeting of the Coalition for Sensible Housing to plan strategy for the year ahead.
The Coalition has made an impact. We have gathered support from 53 U.S. senators, who wrote and submitted a letter by the August 1st deadline. The letter expressed their intent on QRM and opposition to the larger down payment. In addition, 310 House members signed a similar letter. Regulators have received many comments and are currently digesting that feedback.
The issues surrounding QRM arose from the financial reform legislation. Congress sought to improve the quality of mortgage lending and restore private capital to the housing market. To discourage excessive risk taking, they passed the Dodd-Frank Act requiring that lenders securitize mortgage loans to retain 5 percent of the credit risk, unless the mortgage is a Qualified Residential Mortgage (QRM) or is otherwise exempt.
Unfortunately, the rule defining how the law should be enacted has been too narrowly written. Particularly troublesome are provisions mandating higher down payments—as high as 20 percent—with even higher levels of minimum equity required for refinancing.
Even if we succeed in eliminating the down payment rule, we still need to focus on the debt-to-income ratios and credit standards.
As proposed, the rule would disproportionally impact first-time and minority borrowers. In addition, the higher rates will slow home sales, lower home prices and likely slow the housing industry during what is a fragile stage of its recovery.
We’ve been working on the issue for some time now, and I wanted to let you know that it is still very much a priority for NAR. We don’t know when the final rule will come out, but we are continuing to push back—now and in 2012.
There was so much helpful and interesting information presented at Annual. Sometimes it can be a little overwhelming! Only now, a few weeks later, am I catching up on all of the excellent information. One item that is particularly valuable and worth taking a closer look at is the results of our recent survey, The 2011 National Association of REALTORS® Profile of Home Buyers and Sellers. It’s a useful picture of the latest trends in real estate.
What stood out to me was that home buyers are:
- Have higher incomes
- Are more likely to be married
Naturally, those who can afford to spend more are generally older and have higher incomes. In fact, the median age for overall home buyers rose from 39 to 43. The number of married couples buying homes rose 6 percent, while purchases by singles and unmarried couples were slightly down.
Most troubling though, is the fact that the market share for first-time home buyers fell to 37 percent in the past year—down from a record high of 50 percent in 2010. Although the high was in part due to a boost in sales from the home buyer tax credit, that’s still a decrease larger than what we’d expect, based on the average. Over the past year, repeat buyers made modestly higher down payments than the previous year, but their incomes were a full 11 percent greater.
We can conclude that there are still buyers out there, but qualifying for a loan is harder. This is due to an overly restrictive mortgage credit environment, in spite of plenty of affordable housing.
The survey tells us just how tight the credit market remains
It underscores concerns that the American Dream of home ownership may soon be out of reach for younger Americans. Tighter credit rules, along with legislative proposals to reduce or eliminate the Mortgage Interest Deduction and narrow the definition of the Qualified Residential Mortgage (QRM), threaten the housing industry during a fragile stage of its recovery.
The effect of QRM regulation would be to raise down payments to 20 percent to meet the requirements of a qualified residential mortgage. This would disproportionately affect first-time and minority borrowers.
But the impact of QRM regulation would go far beyond these two groups. Higher rates will slow home sales and lower home prices for all buyers at the very worst time.
With Social Security facing fewer contributing workers in the future, a house remains an important equity investment for young people. Now is not the time to raise new barriers to home ownership.
I was heartened to see that most buyers believe in the long-term value of home ownership. Seventy-eight percent of recent home buyers said their home is a good investment, and 45 percent believe it’s better than stocks.
After hearing the stories from members, as well as my own clients, it was so stark to see the impact of such tight lending standard quantified in the numbers. This means that we should keep our heads down, work hard, and know that there are still plenty of buyers looking for the right home.