An End to the Housing Crisis on the Horizon as Banks Loosen Credit Standards
According to a new report released last week by Capital Economics, the housing crisis is expected to end this year as banks loosen their credit standards. The report shows an average credit score needed to obtain a mortgage is now 700. The number is still higher than it was before the crisis, but it is much better than a year ago.
Another survey from the Federal Senior Loan Officer, shows credit requirement in the last quarter of 2011 were consistent with the prior three quarters. Combined with these reports, there are many indicators that point to housing stabilization and more available credit. Now, banks are lending up to 3 ½ times the borrowers earnings. This is an increase from 3.2 during the crisis.
In addition, many banks are loosening the loan-to-value ratios, which is a clear sign of improved credit conditions. Many banks are now lending an average of 82 percent, which is higher than the 74 percent lending average in 2010.
However, even though there has been some slight loosening on credit conditions, many potential buyersare still having trouble meeting the credit requirements. Capital Economics reports 8 percent of potential buyers could not qualify for the loan, which ended up cancelling many contracts.
While the news of loosed credit standards opens the doors for great opportunities, it does not mean there will be actual housing price gains across the nation.