Sustained recovery continues to elude the real estate market, and policymakers are turning for help once again to the lower-income, first-time home buyer.
The latest step, announced by President Obama on Thursday, is the Federal Housing Administration's reduction, by a half-percentage point, of the annual insurance premium on a 30-year mortgage with a down payment of less than 5 percent.
FHA says the average annual savings, $900, will push 250,000 more first-timers into home ownership.
"Buying a home has always been about more than a roof and four walls," Obama said Thursday in a speech in Phoenix. "Over the next three years, these new policies will give hundreds of thousands of families the opportunity to own a home."
In 2012, 78 percent of its 733,698 home-purchase loans went to first-time buyers, FHA said.
The move follows those last month by government-sponsored mortgage-finance giants Fannie Mae and Freddie Mac to offer 3 percent-down-payment loans to qualified first-time buyers and others.
"First-timers have gone AWOL, weakening housing and the broader economy," said Mark Zandi, chief economist at Moody's Analytics. "The quicker housing returns to normal, the quicker the economy will return to full employment."
Economist Kevin Gillen, of Penn's Fels Institute of Government, said the fact that home prices have recovered significantly in many markets yet sales volume remains below average is symptomatic of the absence of first-time buyers.
Irvine, Calif.-based CoreLogic, which tracks real estate finance data, offered third-quarter evidence of home-price recovery, reporting Thursday that just 10.3 percent of the 44.6 million U.S. homes with mortgages had loans exceeding the properties' value, down from 25 percent in the depths of the real estate bust.
"Young people and low-income households have been frozen out of the housing market ever since the bubble burst," Gillen said, and "what we have in the recovery is middle-class and wealthy households trading homes with each other. We need to get these households back into the game before we can truly call it a recovery."
Lowering barriers to the mortgage market may not be enough, said Jed Kolko, chief economist for real estate search engine Trulia, who noted that "sluggish incomes and long-term demographic shifts will continue to hold back first-timers."
FHA raised mortgage-insurance premiums in June 2013 - the result, said Jerome Scarpello, of Leo Mortgage in Ambler, of "credit-challenged" borrowers flocking to the agency and its gentler underwriting rules. Inevitably, FHA defaults rose, along with fears of insolvency, he said.
Higher premiums - $225 a month on a $200,000 loan - deterred first-time buyers, Scarpello said, so lowering them may offer "the shot in the arm they need to enter the market."
"It's a positive message," said Patricia Settar of Berkshire Hathaway Home Services Fox & Roach Realtors, in Mullica Hill, adding that a savings of $75 a month on the mortgage-insurance premium "can get them $14,000 more value in a home."
Carol McCann of RE/MAX Millennium, in Somerton, said most of her buyers are with FHA, "and they seem to be jumping off the fence all of a sudden" as lenders ease guidelines and offer mortgages to those with credit scores as low as 580 in some cases.
Mickey Pascarella of Keller Williams Real Estate, in Center City, noted that FHA allows a seller's assist of 6 percent to finance closing costs, while conventional lenders require at least 5 percent down and capped closing-costs financing at 3 percent - meaning buyers need $13,500 more cash to close. For many, "that's simply not doable."
Chris Artur of Artur Realty, in Mayfair, said he hadn't considered the higher premiums a deterrent for his buyers, citing "grant programs out there to help with minimal down-payment requirements." Credit and debt levels are bigger issues.
"Lowering the scores and down-payment requirements will guarantee a never-ending flow of foreclosures" in Northeast Philadelphia, he said.
U.S. Rep. Ed Royce (R., Calif.), a member of the House Financial Services Committee, called the decision "a race to the bottom" between FHA and Fannie Mae and Freddie Mac, "in which the private sector is crowded out and taxpayers are left holding the bag."
This article contains information from Bloomberg News.