Lending Environment Improving
Improvement In The Lending Environment
A couple of recent solid reports on mortgages paint a picture of a market that’s healing, with loan access and demand rising.
Recent mortgage reports indicate that consumer access to mortgages is opening up and demand is rising. Low interest rates are fostering rising demand in both existing and new homes. However, now the challenge is for available housing inventory to balance with the market demand.
The demographic profile of consumers is beginning to match boomers who, having endured the fall in home values that accompanied the recession. Having suffered the loss in home values and even short-sales or foreclosures in mass many households are very reluctant to reentering ownership ranks. And those that are buying homes are now bringing a new list of needs and wants. This shift is impacting the demand for existing inventory and reshaping the designs of new home construction…but the market continues to improve
Recently, the Mortgage Bankers Association reported that its monthly gauge of mortgage-credit availability grew in July, improving for a third consecutive month. MarketWatch reports improved access to jumbo mortgages and increasing demand Federal Housing Administration insured loans, which offer lower requirements for down payments and credit histories.
MBA also reported that its mortgage-credit-availability index rose 0.5% in July to 116.4 — the highest level in more than three years — signaling a loosening of credit.
The Fed just reported that more banks are easing than tightening standards for prime residential mortgages, and that they’e seeing stronger demand for these loans for the first time in a year.
However, there continues to be shockwaves from the loose underwriting and lending reflecting in stiff credit standards. Banks have paid out enormous penalties for shoddy loan practices which has made it much tougher for borrowers to qualify thus excluding many families who should otherwise be creditworthy.
At least three significant factors favoring in borrowers:
First – Job growth is improving, a trend that helps both household finances and encourages banks’ willingness to lend.
Second – MBA date loan applications to buy a home have been increasing since earlier this year, though they still lag behind MBA data show.
Third – Last year’s spike in mortgage rates dissolved lenders’ refi business, and they are now eager for loan revenue.
“The strengthening in mortgage demand evident in the Fed’s latest…survey suggests that the housing recovery is back on track after having stalled in the first half of the year,” Paul Dales, senior U.S. economist at Capital Economics, wrote in a research note. “Admittedly, the Fed noted that the level of credit conditions is still stricter than the average seen since 2005. After having tightened in the previous two quarters, though, at least standards are loosening once again.”
Reference Economic Focus