According to a Real Estate report last Tuesday, Capital Economics expects the housing crisis to end this year which is such a breath of fresh air for our economy. One of the main reasons is: loosening credit.
The average credit score required to attain a mortgage loan is now 700. This score is indeed higher than the previous requirements prior to the “bubble” crisis but it is consistent with the requirements one year ago.
Apparently, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.
However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability. With the lenders being a little more flexible, this will only help those who can afford to obtain a loan and maintain it as well. I personally as a single mother of three children struggled myself to get a loan due to my lack of work history. I was a stay at home mom for over 10 years and then I hit the workforce. My credit score was well over 750, had money in the bank, and plenty of equity, but still ... no loan.
Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings. Encouraging right?
Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”
In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.
While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements which is what I had struggled with personally for the last two years. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan. In fact, the same exact thing happened to one of my contracts with a client last year as well. They were pre-qualified to purchase a property, agreed on a price, contract was ratified, but then ..... once again ... no loan = no go which is NOT GOOD!
Unfortunately, with the lenders loosening their belts, the improvements on credit conditions won’t be enough to generate actual house price gains. So, it is safe to say that the prices of the homes will not be necessarily be increasing but may be stabilizing. You will see a switch in the market when the inventory gets low and that is when the market will slide into a “sellers” market once again. This won’t be happening anytime soon, but at least there is now a little light at the end of the tunnel!
Melissa Dunn
Homes for sale in Pawleys Island
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