As a sign of mortgage lenders’ rising confidence in the housing market, restrictive lending standards are beginning to ease, and the credit freeze is starting to thaw. Lenders have started to accept lower credit scores and to reduce down-payment requirements.

Making sense of the story

• Lenders recognize that refinancing old mortgages will no longer be a huge profit center for banks, so competing for borrowers will be needed for business and future profits. As a result, lenders will have to open up to borrowers who may not have perfect credit or large down payments.

• For example, the lender TD Bank began accepting down payments as low as 3 percent through an initiative called “Right Step” for first-time buyers. A year ago, the program required at least a 5 percent down payment.

• Mortgage originations are expected to reach $1.1 trillion this year, which is down from $1.8 trillion last year and $2 trillion in 2012 due to less refinancing.

• While private lenders have shied away from low-down-payment mortgages in the past few years, in the past year, more than one in six loans made outside of the FHA included down payments of less than 10 percent.

• Credit scores for borrowers seeking conventional mortgages also are easing, as scores on purchase mortgages stood at 755 in March, down from 761 a year earlier.

• Smaller lenders are trying to appeal to first-time buyers while many larger lenders are gradually reducing down payments for jumbo loans in order to attract wealthy customers.

Source: Wall Street Journal

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Talking Points …

• As a sign that the housing recovery is in for a promising spring, homebuilders picked up the pace of new construction in March. Single-family housing starts increased construction by 2.8 percent, to a seasonally adjusted annual rate of 946,000 units, according to the Census Bureau and the Department of Housing and Urban Development.

• Regionally, production rose strongly in the Northeast and Midwest, with gains of 30.7 percent and 65.5 percent, respectively. However, construction dropped 9.1 percent in the South and 4.5 percent in the West.

• Multifamily construction fell 6.1 percent, to 292,000 units during the month of March.

Analysis of whether housing has lived up to its true potential as a catalyst for a stronger recovery has led experts to argue that while housing stopped being a drag on the economy a few years ago, it has failed to propel strong economic growth. Professors Atif Mian of Princeton University and Amir Sufi of the University of Chicago argue that rising home prices haven’t done much to stimulate the economy.

Making sense of the story

• The professors conclude that the home price gains of the past two years have had fewer knock-on benefits for the economy than in the past because those gains have done little to stimulate either new-home construction or increased spending paid for by home-equity borrowing.

• They argue current rising home prices won’t greatly stimulate the economy because gains that simply restore lost wealth aren’t as valuable as gains that create new wealth.

• Consequently, prices may need to rise even higher for the economy to enjoy any “wealth effect” because it is at that point when people will spend more because they feel richer as their home or stock portfolio rises in value.

• Growth is also deterred by tight lending standards, which have made it tougher for homeowners to take cash out of their homes with either a second mortgage or by refinancing into a larger first mortgage.

• Also, prices haven’t risen enough to encourage homeowners to sell, which is creating inventory shortages that are being blamed for sluggish sales volumes and higher prices.

• And while home prices are up, they’re still not up enough to encourage builders to build more homes because they face higher land, labor, and supply costs.

Source: Wall Street Journal

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Talking Points …

• Housing’s share of gross domestic product (GDP) was 15.5 percent in the first quarter of 2014, with home building yielding 3 percentage points of that total, according to the National Association of Home Builders.

• As an important source of economic growth, housing-related activities contribute to GDP in two basic ways. One, residential fixed investment (RFI), which measures the home building and remodeling contribution to GDP. Secondly, the measure of housing services, which includes gross rents and utility payments. For the fourth quarter, RFI was 3 percent of the economy.

• For the fourth quarter, housing services was 12.5 percent of the economy. Historically, RFI has averaged roughly 5 percent of GDP while housing services have averaged between 12 percent and 13 percent, for a combined 17 percent to 18 percent of GDP.

According to the Census Bureau, 64.8 percent of homes in the U.S. are owner-occupied, the lowest share since the second quarter of 1995, as more households rented and home sales remained low in the first quarter. Homeownership rates topped 69 percent at various times in 2004 and 2005 before the foreclosure crisis and housing crash.

Source: LA Times

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A new report by the Mortgage Bankers Association’s Research Institute for Housing America found that older Americans who own their homes are more financially secure and generally experience fewer impediments to good health compared with their peers who rent.

The new report provides a profile of the housing, functional status, and health status of the near-old (individuals aged 55 through 64) and older Americans (aged 65 and older) using the most recent data available from the Health and Retirement Study, a joint product spearheaded by the National Institute on Aging and the University of Michigan.

The principal findings of the report are as follows:

• There were more than 47 million near-old and older American households in 2010, of which 80 percent were homeowners.

• Housing is still the dominant asset in the portfolios of older Americans.  Median housing equity for older American homeowners was $125,000; the median housing-equity-to-income ratio was 2.4:1; and 50 percent of the typical older homeowner’s portfolio was composed of housing wealth.

• Forty-four percent of older renters spend more than 30 percent of annual gross income on rent, which suggests that the availability of affordable rental housing is a concern for older Americans.

• Older renters have almost double the number of limitations in their ability to conduct daily activities relative to homeowners.

• Thirty-six percent of older individuals have fallen in the last two years, and one-third of these have been seriously injured in a fall.  The likelihood of falls occurring rises steeply as housing quality declines.

• Thirty-one percent of older Americans have residences that have special safety features.  Thirteen percent have modified their home to be either more accessible or safer between 2008 and 2010.

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