Nationally, housing prices might continue to fall....FHA
For those of you who are hold-outs in the belief we are experiencing a double dip in home prices…this new report from the FHA should convince you.
The Federal Housing Administration (FHA) submitted their annual report to Congress today and they predict a continuing decline of home prices going into the future.
In a report by the FHA on their government website, the administration reported that insurance claims declined which means either less people are buying homes and need FHA assistance, or the prices have declined and less money is needed to backstop home purchases.
FHA’s study finds that since last year, the capital reserve ratio held steady, insurance claims declined significantly, and the economic value of FHA’s single-family insurance program grew by more than $1 billion, from $3.6 billion in 2009 to $4.7 billion in 2010.
Like last year’s report to Congress, this accounting shows that FHA is sustaining significant losses from loans insured prior to 2009 and its capital reserve ratio remains below the congressionally mandated threshold of two percent of all insurance-in-force. However, the report concludes that under conservative assumptions of future growth of home prices, and without any new policy actions, FHA’s capital ratio is expected to approach two percent in 2014 and exceed the statutory requirement in 2015.
“It’s clear that FHA is in a stronger position today than we were just one year ago,” said FHA Commissioner David H. Stevens. “While we are not yet completely out of the woods, based on the evidence we’re seeing, FHA is weathering the economic storm while helping to create a firm foundation for our nation’s recovery.”

FHA’s capital reserve ratio measures reserves in excess of those needed to cover projected losses over the next 30 years. The independent actuarial reviews of the MMI Fund estimate FHA’s capital reserve ratio to be 0.50 percent of total insurance-in-force this year, falling fractionally from 0.53 percent in 2009. The difference is primarily attributed to the use of much more conservative assumptions regarding future house price growth than were used last year, which also resulted in an $8.5 billion decrease in economic value. However, that decrease was offset by a variety of factors, including an $8.7 billion increase in value due to better credit quality, loan performance, and the premium increase implemented earlier this year.

Since over 40% of home purchases go through the FHA each year, they are a very good barometer in determining the strength of the home markets, and in determining the direction of home values. Many monthly reports that come out of government agencies are based on faulty accounting methods, and in many cases, simple phone surveys. This report by the FHA is tied solely to applications and contracts that required FHA insurance for home purchases.