No matter which metric, study, or chart you read right now, the indication is clear. The housing market looks to be in for a rough year. Tight credit standards are making it impossible for many willing buyers to purchase a home and the impact is being felt throughout the industry.
New home sales are down, mortgage activity is down, and Shaun Donovan, secretary of the United States Department of Housing and Urban Development, told a group this week that tight credit and the lack of private capital is leaving “10-15%” of borrowers behind.
But new data suggests that the problem might be much worse than that. Increasingly tight credit standards and fear of rejection are keeping nearly half of the potential buyers out of the market because they’re afraid they won’t be able to qualify for a mortgage. The game is over before it’s even begun.
As Pamela Hughes Patenaude of the Bipartisan Policy Center wrote Friday on HousingWire, the average credit score on loans to purchase homes in 2013 was 750, which is 50 points higher than it was ten years ago.
And as the credit standard rises, more buyers are just simply giving up on buying a home. Fear that they will not qualify for a mortgage has stopped 46% of potential homebuyers from pursuing the financing they’d need to buy a home, according to a national survey from loanDepot.
The survey also says that half of all Americans don’t even know what the minimum required FICO score is to qualify for a loan. And with 30% the population saying they’d like to buy a home in the next two years, that’s an enormous segment of potential buyers being left behind.
The fear of rejection is keeping potential buyers from even taking any steps to see if they could get a home loan. Of the 30% of the population who want to buy a home in the next two years, 74% haven’t pursued a mortgage or taken any action to see if they could get a loan at all.
All of the negative headlines about credit are affecting potential buyers. According to loanDepot’s data, only 18% of all Americans believe it’s easier to get mortgage now compared to a year ago, and 43% of people think it’s harder.
According to loanDepot’s data, fear of being unable to qualify for loan is affecting younger buyers more than any other age group. Nearly half (48%) of all potential homebuyers who don’t currently own a home are between the ages of 25 and 34, many of whom are potential first-time buyers. In fact, the market share of first-time buyers has declined from 54% of all sales in March 2009 to 28% in February 2014.
So as the negative headlines about the housing industry continue to pile up and we wonder where the buyers went, look no further than the credit standards. They’re keeping half of the buyers away.