As I posted previously, nowadays, First Time Home Buyers represent 50%+ transactions of residential real estate in US. In regular market, move-up-buyers represents 60-70% of transactions, this shows US residential real estate relies too much on First Time Home Buyers.
There are 3 things that drive First Time Home Buyers:
1. Rapidly declined value of US real estate market.
2. $8000 tax credit
3. FHA loan with 3.5% down payment.
Firstly, $8000 tax credit expires on November 30th 2009. I am pretty sure that Government will extend the this credit in order to continuously incentivize real estate market. But it is not yet determined yet.
Secondly, as for FHA loan, here is the summary of the problems:
- The share of FHA mortgage among residential real estate has gone up from 5% in 2005 to 23% in 2009.
- You can get FHA loan with 600 credit score (conforming loan requirement is around 700) and with 3.5% down payment.
- FHA has to have 2% of total mortgage outstanding amount as cash reserve but there is not enough cash to continue lending.
- Delinquency rate of FHA loan has gone up to 7%, much higher than prime loan.
- Therefore FHA either 1) tighten the lending guideline and reduce the lending amount or 2) need cash infusion from US government.
It is totally true that FHA is driving US residential real estate market. However, government has intentionally created source of bad debt for future.
I think most important thing for US residential real estate market is to revive the transactions amount move up buyers. "Moving Up" buyers are bread and butter of residential real estate. Move up buyers often create double transactions. Without reviving "Move Up" business, US real estate may face second dip......