The Federal Reserve Board of New York released its update to the Survey of Consumer Expectations this morning. Consumer optimism toward housing has improved significantly at the lower credit spectrum from last spring, and remains robust at the middle and upper credit tiers. The positive trend relative to a year ago points to sustained improvement in demand for housing in 2015.
The share of lower-FICO borrowers who applied for a mortgage in February was 5.9%, up from 4.2% four months earlier and more than doubling the figure from February of 2014. As the survey data is not seasonally adjusted, it’s better to track the year-over-year trend. The share of borrowers in the middle tier of FICOs also rose from a year ago. However, the share of high-FICO borrowers fell modestly over this period.
More importantly, over the next 12-month period, borrowers in all credit tiers expect to apply for mortgage credit at higher rates than they did last February. Lower-credit borrowers expect to apply at a 75% higher rate than a year earlier, while middle and upper credit borrowers expect to apply at 40% higher and 14% higher rates, respectively. This across-the-broad improvement bodes well for a robust housing market in 2015. It also suggests improved millennial participation and household formation, which is likely fueled by improved employment trends. The improvement at the lower credit spectrum also likely reflects concerted efforts on the part of the administration to improve credit access via new low-down payment products from Fannie Mae and Freddie Mac, better pricing from the FHA and relaxation overlays by the retail operations of some banks that have resulted from changes to the rep and warrant framework. Constrained supply and supply miss-match remain a headwind to home sales, though.