Wednesday, October 17, 2012

Housing starts boosted by FHA loans

As discussed earlier (see post) a visible increase in US housing starts we saw in September (post-recession high) should not be a surprise. It is important to keep in mind that in spite of slow household formation, households have formed at a significantly faster rate than new homes have been built since 2008.

One factor that is also at play here is the FHA provisions regarding foreclosure. The FHA guidelines require a period of 2 years from Chapter 7 filing or 3 years from foreclosure or short sale, whichever comes later. Many of those who defaulted on their mortgages after the housing crash - amazingly enough - now qualify for FHA loans. This doesn't mean FHA loans are used entirely for new homes - it simply indicates that an increased pool of qualified buyers is creating incremental demand for single family homes. And that translates into more new homes being built.

Source: Barclays Capital
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