New Mortgages Plunge by 4 Million from 2001 as Household Income Lags
By Anthony B. Sanders, Confounded Interest
I was interviewed today by Diana Olick on CNBC about an Urban Institute report with the provocative title of “4 million mortgages that never were: What happened.” (video below)
That is, there are 4 million fewer mortgages originated this year than in 2001, BEFORE the housing bubble. Conclusion? Credit is still too tight! (if you believe the Urban Institute report).
But comparing today’s mortgage market with the 2001 mortgage market is like talking about mortgage lending on the planet Mars. Two totally different planets.
First, let’s consider YoY wage growth in 2001 versus today. It is lower today than in 2001.
Second, how about Real Median Household Income and Labor Force Participation?? Both are noticeably lower today than in 2001.
With more expensive homes compared to 2001, it is more difficult today to qualify for your DEBT-TO-INCOME (DTI) RATIO. In other words, home prices are higher today than in 2001, but real median household income is lower (along with wage growth).
So, I can believe that are fewer mortgages being originated today than in 2001 … because millions of Americans are worse off today than in 2001.
But, does THIS look like uber-tight credit to you?
VA loans, 620 Min, 3.5% Down Payment. 60% debt to income ratio
FHA loans, 560-620 Fico Min, 3.5% Down Payment, 43% debt to income ratio
GSE Loans, 620 Fico Min, 3%-5% down payment, 43%-50% debt to income ratio
The answer is no, credit is NOT too tight. Borrower income compared to house prices and debt size is too low.
Comparing mortgages today with 2001 is like comparing them to mortgages on Mars. An irrelevant comparison to justify loosening credit standards.
So, let’s be careful folks about lowering credit scores (or changing them).