During the coming years the housing market is expected to be driven by minorities and young households. While this part at least is good news, experts at a recent forum are predicting problems due to income levels.
Until there is a greater credit access and incomes improve, the housing market is expected to perform below capacity according to an article in Realtor.org. Apparently households are feeling considerable levels of anxiety brought about by rising inequality and changes in technology and this is slowing down their entry into the housing market as they try to save for the future. In spite of the recent improvements to the real estate market, experts point out this only represents a partial recovery from the recent crisis although there are differing opinions as to how much the recovery is being affected by tighter credit conditions.
At the moment the typical credit school for FHA borrowers is 690 even though those with credit scores of 650 are allowed into the FHA programs. The typical credit score for borrowers looking to obtain financing backed by Fannie Mae and Freddie Mac is around 750, a high historical level. There are also concerns over the way the Federal Housing Administration and Fannie Mae and Freddie Mac base their approval models on credit scoring criteria that fails to reflect changes in demographics and improvements in data analysis.
The situation is also being hampered by property prices that are rising more quickly than incomes, as inventory levels of homes available for sale are still low. At the moment the number of new properties coming onto the market is around only about 50% of historical levels and this is creating a supply and demand inequality that is preventing younger households from entering the property market. The lack of supply of new homes is partially due to the difficulties faced by smaller builders in obtaining construction loans. Normally smaller builders would account for the bulk of new home construction but at the moment they are unable to compete for financing with larger builders who have access to a much wider range of financing.
For their part, banks are having difficulty in making loans profitably while still complying with the new regulations. While some experts agree credit access needs to improve, they still feel the fundamental problem is much deeper and is related to weak income growth in households which is limiting overall demand. As they point out it is a different type of economy to a few years earlier before the foreclosure crisis.