Hello, LOs!
Last year, for a time, down payment assistance looked like it was a real possibility. The chances for such a program now are vanishingly small, as the Build Back Better package is currently stalled in Congress.
But a policy debate surrounding when a down payment assistance program would be most effective caught my attention. According to my sources, some people in the highest circles of the federal government were wary of providing a demand-side stimulus at a time when the housing market is already overheated.
Fannie Mae's chief economist, Doug Duncan, told me this week that those concerns have merit. His research group conducted an exhaustive review of what the academic research says on down payment assistance, and found that a properly structured down payment assistance program, in a neutral market, "can be effective without adverse effects."
But in today's market, with incredibly short supply and house prices growing by double digits, it's a different story.
"If there's no movement in supply, and you increase demand, then price goes up," Duncan said. "And it goes up specifically to those who require assistance to buy in the first place, which suggests they're more financially fragile than those who don't need down payment assistance.
"But when house prices are already appreciating at 15%, 18%, 20% in a given year, to add to the demand side of the equation seems risky, especially given the kind of household that would be getting that assistance," Duncan said.
Edward Golding, who led the FHA from 2015 to 2017, told me he strongly disagrees with the argument that an overheated market is a reason to hold back on down payment assistance.
"Don't tell people that have been disadvantaged by successive policies, 'Just wait a little longer, you can have a house later.' Don't tell the people with 680 credit scores, 'You're going to be the instrument of controlling the housing market bubble,'" said Golding.
"If you truly believe that there is a bubble, there are twenty other levers you can pull tomorrow."
LOs, please weigh in. Is there a right time for down payment assistance? Send a note to gkromrei@housingwire.com
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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