A major cause of the sustained upward trend in FHA property values and mortgagors' incomes has been the general inflation which has characterized the postwar period. However, other major factors have also contributed to this upward trend. One of these has been the increase in land prices and development costs reflected by the 41-percent increase reported in land market price for new homes since. 1950. As a result of the postwar building boom, land sites in developed areas of many of the more heavily populated sections of the country have been almost completely used up, thus creating price raising competition among builders for suitable sites. High development costs have stemmed in part from the necessity for greater extension of utility lines.

The increase in the size of the homes has also contributed to the rise in property values. In 1954 the typical new FHA home was

4 percent larger in terms of calculated area, while the typical existing property was nearly 3 percent larger. These larger homes have found a ready market, particularly in view of the increase in the typical size of families in the postwar period. In addition, because of competition and buyers' demands there has been an increasing tendency in many sections of the country for builders to provide "extras"-fully equipped kitchens, more efficient closet and storage facilities, automatic heating and ventilating equipment, landscaping and plantings, and garage facilities. These have all been reflected in higher property value.

Another factor influencing property values in 1954 was the increasing availability of mortgage funds resulting from the cutback in the inventory and capital investment expenditures of industry and commerce, the reduction in reserve requirements for Federal Reserve Banks, and stabilization in the bond financing requirements of the Federal Government. With more money available for investment, lenders tended to be willing to lend on the average larger amounts of money for home mortgage purposes. This, in turn, enabled home buyers to purchase higher-priced properties.

Incomes of mortgagors involved in both new and existing-home mortgage transactions insured by FHA in 1954 were about 5 percent higher than the incomes of the 1953 mortgagors. This rise was not typical of the change in nonfarm family income from 1953 to 1954. Incomes of families covered by the Federal Reserve Board Survey of Consumer Finances averaged somewhat lower in 1954 than in 1953. The higher income level of buyers of FHA homes in 1954 may be indicative of the fact that these persons were buying more expensive homes requiring larger downpayments and larger monthly payments and thus larger incomes to meet these expenses.

In the last 5 years mortgagors' incomes have increased relatively more than mortgage amounts or property values in FHA new-home transactions. In existing-home transactions during the same period, mortgagors' incomes and mortgage amounts gained at about the same rate and slightly more than property value. The biggest gain in typical mortgage amount for new homes was during the years from 1946 through 1949 and reflects the liberalization of the maximum amount of mortgage and ratio of loan to value provisions of Section. 203 in 1948 to bring FHA mortgage amounts into line with increased construction costs during the postwar period.

The lower portion of Chart 33, showing trends in the loan-value, income-value, and income-mortgage payment ratios, points up the minimum change that has occurred with respect to the income-value and mortgage payment-income relationships. The loan-value ratio curve for new homes reflects the effect of changes in legislation and

credit control regulations. The comparable curve for existing-home transactions shows little change, remaining constant during most of the period covered by the chart.

Mortgage Characteristics

MORTGAGE AMOUNT DISTRIBUTION.-Single-family home mortgages insured under Section 203 in 1954 averaged about $9,100 on new properties and $9,300 on existing properties. The median for new-home mortgages was nearly $8,900 compared with $9,000 for existing homes.

As in the previous year, over two-thirds of the new-home FHA mortgages insured in 1954 were for amounts of $7,000-$9,999, with about 23 percent each in the $7,000, $8,000, and $9,000 groups (Table 60 and Chart 34). There were significant changes, however, in the proportions above and below this range-mortgages of less than $7,000 declining from 16 percent of the 1953 total to 6 percent in 1954, while the $10,000 to $12,999 range increased from 12 percent to 21 percent and the proportion of mortgages amounting to $13,000 and over more than doubled.

TABLE 60

Amount of mortgage for single-family homes, Sec. 203, selected years

Existing-home mortgages, as in 1953, were more widely distributed than new-home transactions, with relatively more cases in the lower and higher amount ranges. About half of the 1954 mortgages were for amounts of $7,000 to $9,999, with one-fifth in the $10,000 to $11,999 range, about 15 percent with amounts of $12,000 or more,

AMOUNT OF MORTGAGE

SINGLE-FAMILY HOME MORTGAGES, SECTION 203, 1954

and 13 percent in the $5,000 to $6,999 range. As with new homes, there was a general upward shift in existing home mortgages as compared with 1953-the less than $7,000 and the $7,000 to $9,999 groups declining 3 and 5 percentage points, respectively, while the proportion of mortgages with amounts of $10,000 to $11,999 rose 2 points and those of $12,000 or more were up 5 points.

RATIO OF LOAN TO VALUE.-New home mortgages insured under Section 203 in 1954 represented slightly smaller proportions of property value than in the previous year. As shown in Table 61, the loan-value ratio averaged 82 percent (83 percent in 1953) while the median ratio was down to 85 percent from 86%1⁄2 percent in 1953.

Nearly one-half of the 1954 new-home mortgages had ratios of 86 to 95 percent, with two-fifths reporting ratios of 76 to 85 percent. Those with loan-value ratios of 75 percent or less constituted only 11 percent, about the same proportion as in 1953. The biggest shift occurred in the 76 to 80 percent group (up to 29 percent of the cases from 22 percent in 1953) and the 86 to 90 percent mortgages (down to about one-fourth from nearly 31 percent).

Existing-home mortgage amounts averaged nearly 78 percent of property value in 1954, about the same as 1953, with a median ratio of 78.5 percent-only slightly above the year before. Over half of the

TABLE 61

Ratio of loan to value of single-family homes, Sec. 203, selected years

transactions were in the 76 to 80 percent loan-value bracket, with about 18 percent in both the 66 to 75 and the 81 to 90 percent brackets. Mortgages averaging less than two-thirds of the estimated value. represented slightly over 6 percent of the total, and just under this proportion had loan-value ratios of 91 to 95 percent. As compared with 1953, the most significant difference in the distribution was a decline in the proportion having ratios of 76 to 80 percent and the offsetting increase in the proportion of those with ratios of 81 to 90 percent. Most of the existing-home cases with ratios in excess of 80 percent (the maximum 1 for transactions not approved for insurance prior to the beginning of construction) represented transactions. involving properties approved by FHA prior to construction and constructed under FHA inspection in connection with previous transactions.

Most of the mortgages insured under Section 203 in 1954 were at or near the maximum amounts permitted under the legislation effective at the time the mortgages were approved for insurance. This is indicated by the data in Table 62, which shows the distribution of the new and existing-home transactions in various property value groups by ratio of loan to value. The median loan-value ratios (second column of the table) indicate that for homes valued below $12,000 the new-home mortgages represented markedly higher proportions of value than did the existing, while in the higher value categories the differences were negligible.

Under the provisions of Section 203 in effect until August 2, 1954, the maximum ratio of loan to value for new 1-family homes with FHA values up to $11,000 was 95 percent of the first $7,000 of value

14 Increased to 90 percent by the legislation approved August 2, 1954. It is probable that only a small number of cases were insured during 1954 in which this increase was a factor.