Consumer credit has been recovering, but mortgage lending continues to lag.
Data from the Federal Reserve Board shows that consumer credit debt is now higher than it was before the recession, while mortgage debt continues to decline.
Based on information in the monthly REALTORS® Confidence Index (RCI) Survey (http://www.realtor.org/reports/realtors-confidence-index) many REALTORS® have indicated that lending by banks and other financial institutions continue to be too tight. NAR estimates an additional 250-300 thousand existing home sales under less restrictive conditions.
Meaning for REALTORS®: This is additional confirmation that a recovery is under way. Although there is some evidence of credit easing, prospective purchasers may need to be persistent in applying to several places for a mortgage—and will want to clear up any credit discrepancies before applying.
The Great Recession is over, but we are still short on jobs. In responding to the Realtors® Confidence Index NAR members indicate that credit standards continue to be unreasonably tight. The level of home sales appears to be held back by artificially tight credit standards. The data suggest that we could have up to an additional 850,000 home sales per year if credit standards were at the level used in the 2005/06 time frame—a prudent level of risk and mortgage availability. That would translate to an additional 425,000 jobs—a simple, no-cost fix that would help the economy.
What does this mean for Realtors®? Many financial institutions still have excessively high credit requirements for getting a mortgage—apparently as a result of the Great Recession and weakened loan portfolios. Being turned down for a loan may simply mean that the client applied to the wrong bank—one with a weak loan portfolio. In the current credit environment, persistence in looking for a loan as well as broadening the search to include credit unions and local and regional banks may yield results.