Tighter lending standards portend a cooling of the housing market

Residential mortgage lending standards are tightening, reports the Mortgage Bankers Association as house prices hit all-time highs.

“The availability of mortgage credit in June fell to its lowest level since September 2020, ending more than six months of increased credit supply. The overall credit availability index remains close to 2014 lows as mortgage credit has not recovered since the sharp decline in the first half of 2020, ”said Joel Kan, Associate Vice President of Economic and Industrial Forecasts of the MBA.

He pointed out that the tightening in the availability of mortgage credit was occurring as a result of GSE policy changes that reduced the availability of high LTV refinancing loans, affecting both conforming loans and high balance loans eligible for the GSE. GSE.

The MBA expert added that there were the addition of refinancing programs designed to reduce costs for low-income borrowers, but the full impact of these new loan programs remains to be seen. Aside from the tight supply resulting from the policy change, there has also been a decline in jumbo ARM offers, which has contributed to the lowest jumbo credit supply since February 2021.

The report is another indication that the housing market is cooling.

For example, mortgage applications for the purchase of new homes are down 5.9% from a year ago, according to data from the Mortgage Bankers Association’s Builder Demand Survey for May. 2021. The BAS tracks the volume of applications from mortgage affiliates of home builders across the country. Requests were down 9% from April.

“Mortgage applications to buy a new home fell in May for the second month in a row, while the average loan size, at $ 384,000, increased for the fourth month in a row and hit a new high,” said Kan said in June.

MBA estimates that sales of new single-family homes were at a seasonally adjusted annual rate of 741,000 units in May 2021. It derives information on mortgage applications from the BAS, as well as assumptions about market coverage and other factors. The seasonally adjusted estimate for May is down 3.8% from April’s pace of 770,000 units. Kan says the new home sales rate has fallen about 20% since peaking at 927,000 units in October 2020. He attributed this to low housing stock and rising prices.

MBA estimated there were 68,000 new home sales on unadjusted data in May 2021. This is down 5.6% from 72,000 recent home sales in April.

Another indicator comes from Redfin, who recently noted that mortgage repurchase requests are on the decline since the end of March. They were up 0.3% week-on-week (seasonally adjusted) in the week ending June 4. Despite low mortgage rates and easier access to credit, they are now 7% below their average levels in January and February 2020.

Meanwhile, house prices continue to rise. Last month, the S&P CoreLogic Case-Shiller US National Home Price NSA Index announced its tenth consecutive month of price acceleration with a gain of 13.2% from last year’s levels, from 12.0 % in February.

This increase was last exceeded 15 years ago in December 2005, “and sits very comfortably in the top decile of historical performance,” noted Craig J. Lazzara, Managing Director and Global Head of Strategy at index investment at S&P DJI.

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