Mortgage Lending Standards May Effect Housing Recovery 2014
A recent article in the Wall Street Journal, reported on an analysis released by economists from Goldman Sachs. The analysis showed that mortgage lending standards are a significant factor when it comes to the amount of homes predicted to sell in years to come.
“The Goldman economists say they expect new home sales to reach 800,000 units by 2017, up from 430,000 last year, based on traditional drivers such as job growth and household formation. But sales will only rise to around 600,000 units in 2017 if lending standards remain at their current levels.”
Applying and getting approval for a mortgage has become increasingly difficult in years past. “The report illustrates why some economists, together with policymakers at the White House and Federal Reserve, are warning that mortgage-lending standards have become too restrictive, years after carelessness by lenders inflating the housing bubble.”
The analysis also showed, “how sensitive any projections of home sales are to changes in credit standards. The WSJ reported last week that lenders had begun to slightly ease lending rules for certain borrowers.”
Lending standards are based on a number of factors such as credit scores and income levels. These have a direct impact on whether or not a homebuyer gets the seal of approval when it comes to a mortgage. The article continues to report that, “Nearly 40% of new borrowers last year had credit scores above 760, compared with just 25% before the housing bubble in 2001. Meanwhile, less than 0.2% of borrowers had credit scores below 620, compared to 13% in 2001.”
The report continued to conclude that, “around half of the decline in the household turnover rate between 2001 and 2012 is due to tighter lending standards.”
In addition, “A separate analysis from analysts at the Urban Institute, a think tank in Washington, estimated that around 200,000 fewer mortgages were made in 2012 due to credit standards that were more stringent than they were before the housing bubble.”
As you can see, getting approval on a mortgage can be difficult to do due to tight restrictions. These mortgage hurdles are impacting the housing recovery 2014 and any prediction of the market in the near future. As always, it is important to navigate these difficult waters with the help, guidance and expertise of a local and experienced real estate agent. This will ensure the process is seamless and have you in your new dream home as quickly as possible.
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