Very often in real estate you have to look past the headlines to get the real news of what’s happening in the housing market. As the Federal Reserve Bank of Atlanta released borrowing data this past week it gleans from the Home Mortgage Disclosure Act (HDMA), I was reminded of this as I dug deeper into it.
At first glance, the data shows that fewer mortgage loans were made in 2011 (the year in which the data comes from) than in 2010. The 7.1 million home mortgage loans made in 2011 was a 10% decline from the previous year and the lowest since 1995 when 6.2 million loans were reported in the HDMA data.
But what’s interesting is that this actually represents a clear turning point for the market. The reason is because at the same time, the HDMA data showed that current home buyers appear more creditworthy on average than at any point in the past 12 years. In fact, the median credit score of mortgage borrowers has risen about 40 points since the end of 2006, the researchers said.
In a nutshell, this means we have more qualified buyers (in terms of credit history and score only) than we had at any point during the housing boom. That may not have meant that much during the boom because lending standards were more lax. But today, standards are tight and have remained one of the biggest obstacles standing between would-be buyers and their dream homes.
More creditworthy borrowers means more lending can happen. And that is fantastic news for housing markets that may still lag in demand.
In addition, the proportion of loans denied remained unchanged at 23% in 2011. Not fantastic news, but not bad either since we’re not seeing that number increase.
Call it a silver lining or call it inevitable – but the improving creditworthiness of borrowers was a needed component to the housing recovery. Lax standards became such the norm during the boom that the years that followed created a bit of shock for many borrowers. Also, lenders were hurting so much that they couldn’t take a chance on risky borrowers. That message seems to have taken hold in a grand way.
This baseline stability of borrowers is like a healthy tree root from which our market can grow. And I for one am happy about that!