Mortgage Credit Trends Indicate Housing Has Turned a Corner

Originally published by: BloombergSeptember 18, 2015

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The ability to get a mortgage has been one of the biggest obstacles to the housing market since the financial crisis, as only the most qualified borrowers were able to get a home loan. Now, that's changing.

Outstanding home mortgage debt in the U.S. posted a 0.5 percent increase in the second quarter from the year before, the Fed's financial accounts report on Friday showed. That's the first year-over-year gain in mortgage debt since 2008, ending a streak of contraction that was unrivaled in data going back to 1949.

"This strikes us as a key turning point for the U.S. housing market, since it is obviously much easier to support an increase in sales volume and prices with a growing pool of finance," Michael Shaoul, chief executive officer of Marketfield Asset Management LLC in New York, wrote in a note to clients. "It also confirms some of the loan officer surveys that have suggested that mortgage lending standards are finally loosening at the same time that a stronger labor market increases the pool of willing and able borrowers."

In the aftermath of the housing-market crash, which was sparked by lenders giving mortgages to just about anybody who wanted one, banks tightened up on their requirements for borrowers' credit history and income. That's part of the reason the housing recovery has been so gradual.

Near the height of the housing bubble in late 2006, the median credit score for mortgage originations got as low as 707, according to the New York Fed's report on household debt and credit, which uses Equifax data. After the crisis the median score rose to 781 in the second quarter of 2012, which matched the highest in data going back to 1999. As of the second quarter of this year, it was 764.  The New York Fed says scores in its data set range between 280 and 850, with the highest score being viewed as a better risk. Scores are calculated from credit history.

In addition to less stringent lending standards, a labor market that's added 1.7 million jobs this year should help potential home-buyers get back in the game. Rising rents may also provide some incentive as they rival a mortgage payment.

Data on August sales of existing homes are scheduled for release Monday by the National Association of Realtors, followed by the Commerce Department's report Thursday on new-home sales. We'll see then if these trends are sustained.



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