Out with the Old, In With the New

Trends in the housing market are on the upswing, and the stock market has shown remarkable earnings in the past year, all positive signs for a recovering economy. However, historical statistics show that one in three Americans pay more than 30% of their income in rent, all while wages remain stagnant or decrease, and cost of living continues to rise. Yet for every 1.5 new housing units built, 1 is demolished and the U.S. Department of Housing and Urban Development (HUD) estimates that 10,000 public housing units a year are lost due to aging, while the need for affordable housing for low-income renters continues to increase. So while new construction is rebounding, and inventory is increasing for high-end units, the inventory is decreasing for affordable rental units, leaving far fewer options for lower-income wage earners.

As refinance rates remain low and new construction gains steam, traditional lending options are getting their mojo back (GNMA, Fannie Mae, Freddie Mac, CMBS, etc.) In counterpoint, HUD is typically a counter-cyclical source of funding (See here for more information). However, in order to remain a viable option in the evolving funding markets, HUD has a new strategy for keeping interest in FHA-insured loans by initiating new programs, particularly their RAD program. The RAD program is a way for HUD to push their mission during a transition cycle, by offering creative finance options to rehab aging, affordable housing units, even as the wave of new construction units at a higher price point continues to surge.