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 majority of REALTORS® continued to report rising home prices and improving days on the market. However, REALTORS® reported that the market remains hampered by a “demanding and rigid loan qualification process” that has made mortgage underwriting “a nightmare” and “the toughest hurdle.” This has led to cash buyers and investors easing out first time buyers using mortgage financing. Low inventory persists and REALTORS® have reported homes selling above the list price. Policy uncertainty on a variety of economic and and tax issues, mainly due to the tepid job growth and measures to avert the the fiscal cliff — continues to dampen the market. Hurricane Sandy also caused a temporary market slowdown in the affected areas, although a recovery is anticipated in the coming months.
What Does This Mean for REALTORS®?
Concerns over the residential home sale market are probably reflective of current economic uncertainties. In fact, the home sales markets have been recovering in price and sales in many areas, and mortgage rates are low—although finding a mortgage may take a number of applications. REALTOR® confidence is well above its level two years ago, and prices and sales are slowly increasing. Assuming that the economy continues and that the fiscal cliff issue is addressed — which is the assumption of most economists — one would expect a continued expansion of home sales.
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing starts and mortgage purchase applications.
We all know about the current historic low mortgage rates. Today’s report from Freddie Mac survey indicated a 3.55 percent average on a 30-year fixed rate mortgage. Sometimes it is worth reviewing past data, particularly for the younger generation, to check just how low the rates are today.
FHA’s Permanent MI Policy: Clever, but Still a Problem
When it was announced that the Federal Housing Administration would extend its mandatory monthly mortgage insurance premiums to a minimum of 10 years up to as long as the life of its 30-year loans depending on the size of the down payment, many market observers were incredulous. Others felt that it was a political move to shore up the FHA’s books in the short term only to be reversed in the long term as the financial pressures on the agency abated. However, given long-term prospects for the mortgage market, this change due June 3rd is wiser than first blush, likely to stay and it may benefit some consumers and the market. On the other hand, others will be hurt and more should be done to limit the impact on borrowers who would hold these loans to term.
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