Are tight lending standards to blame for the soft housing recovery?

by 13 Oct 2014
The housing market’s tight lending standards have been well documented.  From the former Fed chair claiming he can't even get his mortgage refinanced , to the countless number of reports released about credit availability, to the introduction of a new credit model, it would appear getting a mortgage is difficult.

And now, a new survey from the National Association of Home Builders (NAHB) reports that tight credit is negatively impacting housing construction. According to NAHB, tight mortgage lending standards have led to thousands of lost new home sales as the housing market tries to rebound after a rough start to the year.

NAHB said 83% of single-family builders surveyed said they lost sales during the last six months because buyers failed to qualify for a mortgage. Overall, the average share of sales lost due to rejected applications was 9.7% translating into 18,700 lost sales.

"While housing has seen some positive growth throughout the year, there is no denying that tight credit conditions are hindering a full, healthy housing recovery," said David Crowe, the NAHB's chief economist.
More than half of the home builders surveyed said that lending is "tight" or "very tight," while 11% indicated they were "somewhat easy." No builders described them as "very easy."

NAHB said it has supported many housing finance reform policies that would help reverse tight lending conditions, including: improved credit scoring models, a reduction of guarantee fees, passage of the Housing Finance Reform and Taxpayer Protection Act of 2014 and the FHA and FHFA’s efforts to reduce lender concern over mortgage insurance denials and forced loan buybacks.

The organization also said the tight lending market for potential home buyers is just one of the headwinds impacting the housing recovery today. Builders also reported that rising costs for building materials and shortages of finished lots and labor are also problems they are facing.

U.S. home sales slumped in August with sales of previously-owned homes falling 1.8% from July to an annual rate of 5.05 million, according to the National Association of Realtors (NAR). The decline ended four months of gains and pushed sales down 5.3% from the previous year.

NAR’s report also showed that the share of sales to investors fell to %12 in August – the lowest share since 2009. The data raised concerns about the housing recovery and reflected the market’s reliance on investor demand. 

Lawrence Yun, chief economist at NAR, said the housing market will increasingly rely on demand from traditional home buyers, who face borrowing hurdles like tight credit.


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