Key facts
- Existing home sales have been near four million annualized for four consecutive years, a level not seen outside of a recession since 1993-1996.
- The 21st Century ROAD to Housing Act focuses on increasing housing supply to improve affordability.
- Existing home prices have increased 1.6% year-over-year, according to the NAR.
- The FHFA HPI shows a 2.1% year-over-year increase in home prices.
- Fannie Mae and Freddie Mac guarantee fees have risen to 65.2 basis points from 22 basis points in 2009.
- Ten basis points of the current guarantee fee are directed to the U.S. Treasury.
Highland Mortgage CEO Mark Milam argues that current efforts to address US housing affordability, including the 21st Century ROAD to Housing Act, are focusing on the wrong solutions. He contends that while increasing housing supply is helpful, it does not address the affordability of existing homes, which constitute 86% of sales. Despite a return of inventory to near-balanced market levels, existing home prices continue to rise, supported by homeowners' equity.
Milam points to expert forecasts, such as the Home Price Expectations Survey by Fannie Mae and Pulsenomics, which predict continued home price appreciation of 2% to 3% annually. He suggests that relying on a significant drop in mortgage rates below 5%, a 16% decline in home prices, or a 19% rise in incomes to restore affordability is unrealistic and could create new economic problems. A substantial price correction, for instance, would erase trillions in household equity.
Instead, Milam highlights that the costs within the industry itself, such as the guarantee fees charged by Fannie Mae and Freddie Mac, have significantly increased. These fees have risen from an average of 22 basis points in 2009 to 65.2 basis points, with a portion of this fee no longer directly supporting housing initiatives but rather the U.S. Treasury. He argues that borrowers are paying historically high fees while the entities collecting them are financially robust, suggesting a re-examination of these fees is warranted.