MARKET WATCH : Time to Remove the Monkey Wrench from the Gears
Many people are still shut out from the mortgage market due to either bad credit or insufficient down payment. This is producing a renaissance in rental properties. The Wall Street Journal reports that the average nationwide rate for apartments and home rentals is up 6.7 percent year-over-year. Rent increases for studio apartments and five-bedroom homes were particularly vigorous, rising 14.3 percent and 12.1 percent, respectively. Rent.com expects even more rent hikes this year.
This upward price trend in rents suggests to us that buying an owner-occupied home will become a more viable option over the next couple of years. Here, again, is another economics lesson: as investors buy rental properties because of rising rents, they also stimulate interest in more potential homebuyers who are renting.
Trouble financing a home purchase is the one variable that could derail our prediction of a housing recovery. Bloomberg News recently ran a compelling article that encapsulates our most frequent lament: we need more liberal and subjective underwriting standards to get more buyers into homes. Bloomberg writes, “While a record share of Americans want to buy homes, U.S. policies [on banking and lending], often working at cross-purposes, are making it more difficult.”
We’ve been saying for months now that the market has gone too far in the direction of excessively high standards. Security-filings data provided by Fannie Mae show that nine of 10 mortgages it bought in the first quarter of 2011 were for borrowers with credit scores higher than 700, a 32 percent increase in the percentage of these higher-score loans. Meanwhile, the average credit score for FHA loans was 701 in April, up from 669 three years earlier.
There is a disconnect at work. People, a lot of people in fact, still want a home. In May, a record 5.5 percent of Americans said they wanted to purchase a home, according to the Conference Board, a New York research firm. This is frustrating, especially when considering we have the expertise and experience to price risk, but many people don’t want to apply for a loan because they believe it is a waste of time.
It’s not a waste of time; we want to speak with anyone interested in a purchase or refinance loan. However, if there was a cause that we could all get behind, it is loosening up the lending purse strings and getting more people mortgages who are worth the risk and can afford it.
