How the FHA and NAR Work Together to Hurt the Little Guy

According to the National Association of Realtors (NAR), pending home sales have reached their highest level in over ten years. At the same time, the real estate marketplace Zillow is reporting that home prices are rising faster than anyone expected mainly due to a lack of housing supply.

While the combination of increasing sales and rising home value may be good for homeowners, the news is very bad for low to moderate income first time homebuyers who desire more affordable options.

The NAR often expresses a desire to expand affordable housing options for low to moderate income families, but some of their actions have the opposite result. For example, NAR President Tom Salomone recently called for the expansion of government subsidized Federal Housing Administration (FHA) insured loans for low to moderate income earners stating, “reducing the FHA’s annual mortgage insurance premium rate and repealing its life-of-loan policy requirement would certainly expand options for more of these (first-time and middle-income) buyers.”

While this sounds helpful for potential homebuyers, the reality is that expanding the availability and cost of FHA insured loans increases housing demand and therefore the price of houses. This forces low to moderate income families to either wait even longer to buy their first home or take on a larger amount of debt.

In a recent op-ed, American Enterprise Institute scholar Tobias Peter shed some light on the NAR’s self-contradictory statements arguing that the NAR and FHA seem to work in tandem at the expense of low and moderate income potential homebuyers.

Peter argues that by expanding access to FHA insured loans, housing demand goes up, home prices go up, and the NAR makes more money. Peter writes, “This symbiotic relationship between the NAR and FHA, all cloaked in concerns about affordability, works however to the detriment of the little guy. By applying even more leverage, home prices rise faster than incomes, thereby putting the American Dream of homeownership even further out of reach.”

Unfortunately, this type of cronyism where special interest groups work with federal agencies to undermine the American people is rampant in Washington, D.C. If this is the type of activity the FHA engages in, maybe it’s time to get rid of the FHA entirely.

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