Loan requirements still strict, but economists optimistic about real estate market recovery Reply

In numerous blog posts, I have written how lending standards are still too strict for low interest rates to have the positive impact on the real estate market that it has had in the past. Now a syndicated columnist for the Washington Post has noted that, in some areas, loans requirements are getting even tighter. However, there is also good news.

Here are some key facts cited by columnist Kenneth R. Harney, who looked at data compiled by a mortgage technology firm that surveyed about 1/5 of all new loans that were closed in August. It is also important to remember that these are national numbers and home buyers should discuss loan requirements with at least three community banks when deciding which loan product is right for them.

• The average FICO credit score for all new loans was 769, which was up 11 points from a year ago.
• The average score for Fannie Mae and Freddie Mac conventional loans was 763, which was up one point when compared with a year ago.
• A down payment of 21% with a debt-income-ratio of 33% was the average for a Fannie Mae and Freddie Mac loan.
• Those with a FICO score of 734 and a down payment of 19% were rejected.
• The average FICO score for people purchasing a home with an FHA loan, a product that requires less of down payment, was 700. This is 4 points lower than a year ago.
• The time that it takes to process a loan―from application to closing―is also taking longer.

Despite these strict lending standards, however, economists surveyed by CNN believe that the housing recovery is here. They cite the S&P/Case-Schiller home price index, an increase in home sales, and an increase in a jump in new home sales combined with the Federal Reserve’s QE3―the purchase of $40 billion a month in mortgages.

Further, the chief economist for the National Association of REALTORS®, Lawrence Yun, said that the Pending Home Sale Index (PHSI) shows 16 straight months of year-over-year improvements.

“The index shows 16 consecutive months of year-over-year increases, and that has translated into a higher number of closed sales. Year-to-date existing-home sales are 9 percent above the same period last year, but sales were relatively flat from 2008 through 2011,” Yun said.
NAR also projects that existing home prices are expected to rise 5% in 2012 and 2013. Also, the PHSI for the Northeast rose .9% in August, which is also 19.9% better than August 2011.

If you are planning on buying or selling a home in the Pioneer Valley or would like to learn more about the real estate market in your community, make your first call to Michael Seward at 413-531-7129.

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