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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 70 September 2024 J O U R N A L will be provided when an application for FHA-insured mortgage financing is con- ditionally endorsed by FHA. The final pass-through interest rate for the trans- action upon completion of construction will be calculated using the floor and cap benchmark Treasury rates referenced above and programmatic spreads deter- mined by the Federal Financing Bank. "This innovative solution to rate uncertainty will increase the usefulness and reach of a program that has already developed thousands of new rental homes through collaboration among federal, state, and local housing resourc- es," Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said. "It is one of many levers we're turning to increase production of affordable rental housing for low-income individuals and families." A History of Risk Sharing "We believe this important update to the risk-sharing initiative will not only in- crease the creation of new, deeply afford- able housing for the nation's low-income families, it will also provide additional flexibility that will make the program usable by more state and local Housing Finance Agencies and their borrowers," Deputy Assistant Secretary for Multifam- ily Housing Programs Ethan Handelman said. "This change has long been sought by Housing Finance Agencies, and we're pleased to add it to the program enhancements we've implemented under the Biden-Harris administration." Since the Biden administration re- started the Risk Sharing Initiative in 2021, the program has already enabled access to more than $2.7 billion in financing for the development or substantial rehabil- itation of more than 16,200 affordable rental homes for low-income families, seniors, and persons with disabilities. In February 2024, FHA and the Federal Financing Bank announced they were indefinitely extending the program's availability. FHA anticipates that approx- imately 38,000 additional affordable rental homes will be created or preserved through the initiative over the next ten years alone. The State of Housing Starts According to the latest National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index (HMI), mortgage rates that averaged 6.92% in June continued to put a damper on builder sentiment. The report found that builder confidence in the market for newly built single-family homes was 42 in July, down one point from June, marking the lowest reading reported since December 2023. "While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as infla- tion data are showing signs of easing," said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas. The July HMI survey also revealed that 31% of builders cut home prices to bolster sales in July, above the June rate of 29%. However, the average price reduc- tion in July held steady at 6% for the 13th straight month. Meanwhile, the use of sales incentives held steady at 61% in July, the same reading as in June. The month of June found the highest yearly increase in building material prices since February 2023, as inputs to residential construction, goods less food and energy, rose 0.19% according to the most recent producer price index (PPI) report published by the U.S. Bureau of Labor Statistics (BLS). The Index for inputs to residential construction, goods less food and energy, represents building materials used in residential construc- tion. In May, the Index fell 0.26% after rising in April by 0.22%. Over the year, the Index was up 2.65% in June. Year- over-year growth has continued to climb this year, June's increase was the highest since February of 2023. Despite overall inflation declining, prices for inputs to residential construction have accelerated since the start of the year, leaving home builders to continue to deal with higher building material prices. However, more potential buyers may be coming off the sidelines and back into the market, as Freddie Mac reported in its latest Primary Mortgage Market Sur- vey (PMMS) that the 30-year fixed-rate mortgage (FRM) averaged 6.47%—the lowest level reported in a year. "Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less than fa- vorable employment report and financial market turbulence for an economy that remains on solid footing," said Sam Khater, Freddie Mac's Chief Econo- mist. "The decline in mortgage rates does increase prospective homebuyers' purchasing power and should begin to pique their interest in making a move. Additionally, this drop in rates is already providing some existing homeowners the opportunity to refinance, with the refinance share of market mortgage applications reaching nearly 42%, the highest since March 2022." FANNIE MAE WEIGHS IN ON EXISTING HOME SALES TRENDS A ccording to the Fannie Mae Economic and Strategic Re- search (ESR) Group's August 2024 commentary, total home sales are predicted to be lower than previously predicted through the end of 2024 and then not significantly increase until later in 2025, even with the recent decline in mortgage rates. In reaction to the more favorable rate environment, purchase mortgage applications have hardly changed, according to the ESR Group, and high-frequency indicators of house purchase demand, such as mortgage applications, showing requests, and listing views, continue to be lower than they were a year ago. the reduction of mortgage rates recently. Furthermore, a nearly all-time low percentage of respondents to the Fan- nie Mae Home Purchase Sentiment Index (HPSI) say that now is a "good time to buy" a house. Because of this, the ESR Group has revised down its prediction for total home sales to 4.78 million in 2024 and 5.19 million in 2025. This is because it anticipates that homebuy- ing will not significantly increase until income growth starts to surpass the