Home sales could increase 15-20 percent above what they currently are if mortgage lenders would return to more traditional credit standards, according to one leading authority on the housing market.
Saying that it might be time to "dial down the credit stringency" on mortgage loans, Lawrence Yun, NAR chief economist, noted last week that average credit scores for conventional mortgages that have been approved over the past four years have been in the 760 to 770 range. That compares to 720 for a conventional loan during more typical times, and 660 for an FHA mortgage.
The numbers suggest that home sales should be surging right now. According to NAR figures, over half of all renters are financially qualified to buy a home versus only one-third a decade ago. But even with low prices and interest rates, home sales remain sluggish.
Yun said there are about 8 million more renters who are able to afford a home than there were in 2000, but who are not becoming homeowners, either by choice or because they can't qualify for a loan.
Portrayed as barrier to building wealth
Speaking at the same NAR housing conference as Yun, Lucy Gorham, of the Center for Community Capital at the University of North Carolina, noting that while tight credit standards help prevent defaults, they also lock out large numbers of otherwise creditworthy borrowers.
She said that imposing higher requirements for down payments would be particularly onerous for middle- and low-income homebuyers, noting that only about 40 percent of current buyers are financially able to come up with a 20 percent down payment.
"Despite the recent housing crisis, homeownership continues to help build wealth for lower to middle-income households," she said. "A safe mortgage product with good underwriting helps lower loan defaults; requiring greater down payments simply closes off access to a greater percentage of borrowers."
Even with the drag created by tight credit, Yun said rising employment and pent-up demand means that housing prices should continue to rise, predicting a cumulative increase of 13 percent over the next two years.