Posts Tagged ‘Mortgage loan’

Housing Crisis to End in 2012 as Banks Loosen Credit Standards

From DSnews.com, by Krista Franks.

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit. 

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, 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.

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.

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. 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.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

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Monthly Payments for Home Buyers

staff photo of Lawrence Yun

Image via Wikipedia

 

Lawrence Yun, Chief Economist for the National Association of Realtors wrote the following column about our very low current interest rates, and therefore very low mortgage payments, on October 6th.    I wish to share his column with you: 

A home buyer purchasing a typical American home at the prevailing average mortgage rate  today would have a mortgage payment of  $698 a month. This figure is not much different from what a home buyer would have faced 30 years ago. In 1981, home prices were much lower but mortgage rates were reaching 18 percent. Today, home prices have come down by about 33 percent on average from the bubble years, but prices still remain comfortably higher than those of the 1980s. However, thanks to record low mortgage rates, the monthly payment obligations have been greatly reduced.

Compare the chart below on the 30 year payment growth of the overall consumer price index,  rent, food prices, gasoline prices, college tuition, and medical costs, versus the monthly mortgage payment. The rapid increases in college tuition bills may also imply too much demand, perhaps even a bubble in term of students not getting their money’s worth.  A recent spike  in college student loans is due primarily to weak job market conditions, but may also be due to ‘over investment’ in education in relation to the cost.

At the other end, one sees the slowest growth in monthly mortgage payments for homebuyers. It is not that this cost element rose slowly and steadily over time; rather, it is the result of volatile swings in home prices and mortgage rates. Compared with the other items, the value proposition for homebuying is blaring!

Very tight underwriting standards, unfortunately, are keeping some good, hard-working Americans from taking advantage of the super affordable conditions.

Please note that homeownership costs include not only principal and interest payments on a mortgage, but also property tax, insurance, and home maintenance costs, which probably rose in line with the overall consumer price index.

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