Program Upgrades Aging Housing Supply

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IRVINE, CA-The Federal Housing Administration's 203(k) program is the government's answer to the problem of the aging housing supply, according to Jake Adger, chief economist at locally based RealtyTrac. Adger says that through the program, owner-occupant buyers can finance the purchase, rehab and upgrade of an older home, while homeowners can also take advantage of the program to roll rehab costs in a refinance.

As GlobeSt.com reported yesterday, 71% of the inventory of US single-family homes were built before 1990, and 60% of 2013 sales year-to-date were for homes built before that year, according to RealtyTrac. These homes also, not surprisingly, sold for an average of more than $23,000 less than homes built after 1990.

Older homes are likely to be in need of major work if that work has not been completed recently by the previous owner, the firm also reports. Many older homes haven't been upgraded to include the latest technologies for energy efficiency and natural-disaster preparedness, or to include layouts and floor plans preferred by many homeowners today.

“Many consumers may not realize the FHA 203(k) program allows them the roll in the cost of both minor and major rehab into the purchase financing or a refinancing,” says Dennis Walsh, CEO of REBuildUSA, which connects buyers and homeowners with lenders specializing in 203(k) loans. “This means the entire layout of these older homes can be changed to fit with modern tastes and sensibilities.”

Walsh adds that adding rooms, knocking down walls and other changes that enlarge, modernize or open up a floor plan are common procedures for older homes. “Older homes do not have a separate master bath, or the existing master bath is just too small and outdated.”

Longtime homeowners who live in older homes can use the 203(k) program to refinance at a lower rate, RealtyTrac reports. Eight states have more than 100,000 homeowners who are estimated to be up to 10% underwater in their mortgages, Adger notes. With modest increases in home values, these homeowners should be able to refinance. Also, these homeowners may not be aware that they can refinance with a 203(k) loan even if their home needs major upgrades, as long as they have 5% equity and are not in default, according to RealtyTrac.

In addition, RealtyTrac reports that purchases of single-family homes by institutional investors, entities that bought at least 10 properties in the last 12 months, skewed toward newer homes, with 39% of year-to-date 2013 purchases for homes built in 1990 or later. The percentage of sales on homes built in 1990 or later by institutional investors exceeded 50% in 10 states, including Nevada, Idaho, Arizona, Mississippi and North Carolina.”

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