Is it me or are all FHA buyers needing closing cost assistance?

Since the beginning of 2017, I have sold four flips to FHA buyers.  Each one wanted closing cost assistance.  Two of these flips were in Oklahoma, one was in Texas, and one was in Philadelphia.  All of the closing cost assistance amounts varied, with two of them equally nearly the entire amount needed for the buyer to close on the house.  Am I the only one seeing this?  Although not as scary as the stated income, no document subprime loans of a decade ago, I think more lenient FHA lending may be putting a lot of buyers into situations that do not lead to long term successful.  Many lenders are now willing to go down to 580 FICO scores on FHA loans.  I will admit that I can see the appeal of financing as much as possible into a 4.5% FHA loan, however I get the feeling that in most cases the down payment assistance is out of pure necessity vs. taking advantage of our low interest rate environment. 

Why is it happening?       

The following chart is a bit dated, but I think the trend continues. Overall, inventory levels are low for starter homes, yet there are plenty of buyers.  Demand for start homes makes a lot of sense as rental rates have increased and FOMO has set in for those entry level home buyers that have been on the side lines for the past five years.  

Home builders have been reluctant to get back into the entry level home market due to lower margins. However, this has resulted in big opportunity for flippers.  I did the math and on two of the four FHA transactions, the monthly mortgage payment include PITI and mortgage insurance would have resulted in a lower monthly obligation compared to the market rent.  Although there is demand for starter homes, those that are buying are really stretching to purchase as can be seen in the follow chart.

A bit shocking...

I recently sold a house in the Dallas, TX area to a FHA buyer.  The sales price was $300,000 and negotiated "closing cost assistance" was $5,000.  The buyer's weak financial situation became more transparent as we went through the negotiations during the contract period.  Fortunately, the appraisal came in high enough to make the final numbers work, but not until after I "help" the appraiser better understand the market and found two additional comps that better matched our property.  It became obvious that the buyer was really having to scramble to get the money for the down payment.  Additionally, the buyer's initial hazard insurance quote came in high and push him over the debt to income threshold.  The closing was delayed a week to allow time to find a insurance carrier that offered a low enough premium.  I could not help but question why a buyer with a Formica budget felt the need to buy a 2,700 SF house with a pool and enough granite counter tops to choke a donkey.  

Why might it be a problem

It is common knowledge that a large portion of the US population maintains very little cash reserves.  I am seeing real examples in the FHA buyer pool.  I am all for increasing the rate of home ownership in the US, however I would rather see those people making major purchases doing so in a way that sustainable.  It seems if we go through an economic rough patch or if the new home owner goes through even a relatively minor life event that they will have little incentive perform on their loan.

Not only should prospective real estate investors tune into the new bigger pockets money podcast, first time home buyers should be paying attention as well.

Does anyone else have any FHA closing cost assistance stories to share?