Tight mortgage credit standards suppressed U.S. home sales by as much as 1.2 million units in 2012, according to a new analysis by the Urban Institute's Housing Finance Policy Center.

The study looks at the rates at which borrowers with different credit scores were approved for mortgages in 2001 and compares them to the approval rates for borrowers with the same scores in 2012. It concludes that tight credit caused a reduction in home sales of anywhere between 273,000 units and 1.22 million units in 2012, with the most likely figure toward the top end of the scale.

If the same credit standards were in place, the pace of 2012 home sales would have nearly matched those of 2001, assuming the higher estimate is used. The study notes there were a total of 5.01 million homes sold in 2012, compared to 6.25 million in 2001, a 20 percent difference.

Higher impact on minorities

The tighter credit standards hit minority buyers particularly hard, with both black and Hispanic homeowners accounting for declining shares of total mortgages. The study reports that African-Americans accounted for only 4.8 percent of all first-lien mortgages in 2012, down from 6.0 percent in 2001 and 8.0 percent at the peak of the housing bubble in 2005. Hispanics borrowers made up 8.85 percent of approved first-lien mortgages in 2001, peaking at 13.3 percent in 2005 and dropping to 8.6 percent in 2012.

Meanwhile, the shares of non-Hispanic white and Asian borrowers both increased, the former from 68.1 percent of the market in 2001 to 71.2 percent in 2012 and the latter rising from 3.8 percent to 5.7 percent, respectively.

" While all borrowers lost household equity in the Great Recession and are now feeling the crunch of tightening credit, minority borrowers may feel it most," wrote Laurie Goodman, the report's author and director of the Housing Finance Policy Center.

"Now, strict credit standards and lowered FICO scores due to missed payments or foreclosure prevent many of these same borrowers from entering the housing market despite lower prices," Goodman added.

Cash sales taking a bigger chunk

The report calculates there were 4.93 million first-lien mortgages issued in 2001, based on Home Mortgage Disclosure Act data, a figure that topped out at 6.03 million in 2005 and had dropped to 2.74 million by 2012.

Cash sales, primarily from investors, are accounting for a far larger share of home sales than previously. The study cites figures from CoreLogic that estimate that all-cash sales accounted for 39.7 percent of home purchases in 2012, up from 17.8 percent in 2001.

Many of those cash-only purchases appear to be turning into rentals. The study notes the home ownership rate fell from 69 percent of the population in 2005 to 65 percent in 2012, meaning that some 5 million former homeowners are now renter who are either unwilling or unable to buy another home.

Published on March 15, 2014