Last week, we got even more evidence that the mortgage system is seriously out of whack. This week, the Fed speaks and we get several reads on the housing market. The Census Bureau reports on new construction, the National Association of Realtors releases existing homes data and Redfin’s Market Tracker has July prices and sales. Across the pond, architects have designed an incinerator that blows smoke rings. Seriously. Read on.
Mortgage borrowers are doing a better job making their payments, and it’s no wonder. Only people with the best credit histories are getting loans.
A report from the Federal Reserve Bank of New York quantifies what we’ve known for a while, that the anything-goes mortgage heyday is well behind us. Of course that’s good. We don’t want a rerun of the mortgage bubble. Foreclosures are at their lowest since 2007 and delinquencies are down.
Here’s the flip side. As a country, we’re holding less mortgage debt, even as houses get more expensive. The sum of all mortgage balances fell $55 billion in the second quarter, to $8.1 trillion, the Fed found. During that period home prices rose about 6 percent from a year earlier.
What’s happening? Fewer of us are buying houses, buyers are putting more money down and cash investors are still big players in the market.
The broken mortgage system is a big culprit in all three cases. Lenders and borrowers are subject to more government regulation and banks have drawn their own rules tighter still, going to great lengths to avoid losses, fines and public shaming. The upshot–mortgages are harder to get, even for people who deserve them. Look at this chart from the Fed.
The median credit score for mortgage borrowers was about 720 between 1999 and 2007. Since the recession, it’s been 765. Between 1999 and 2007, 90 percent of borrowers who originated mortgages had credit scores above 590. Now it’s 645, Fed economists found. That’s a huge shift and just one symptom of tighter lending.
One reason banks won’t risk lending to homebuyers is that the federal government is already doing it. Fannie Mae, Freddie Mac and Ginnie Mae buy nearly all of our home loans, then sell them to investors. Investors buy them because they’re almost risk free. If I stop paying on my Fannie, Freddie or Ginnie mortgage, U.S. taxpayers will make sure the investor who bought the loan still gets his money. That’s why so many pension funds invest in Fannie, Freddie and Ginnie loans–they like the safety.
In July, Ginnie Mae, which backs FHA, VA and Department of Agriculture loans, hit a new record, guaranteeing more than $47 billion in mortgages.
Ginnie is doing a public service, “keeping mortgage credit available to middle class America,” President Ted Tozer said. He’s right. But the agency’s success is a bad thing, too. Ginnie and its cousins might be hurting homebuyers by crowding out banks that would be more willing to lend if they didn’t have to compete with the U.S. government.
Ginnie’s critics point to a recent FHA decision to cut loan costs. The agency was trying to make homeownership more affordable, but so far there’s no evidence that low-income or minority borrowers were helped, according to the free-market American Action Forum and American Enterprise Institute. Instead, buyers have taken advantage of the lower rates to buy more expensive homes. AEI analyst Ed Pinto calls it a “textbook case” of cheaper credit leading to higher prices.
The fact is, the U.S. government has dominated the mortgage business for nearly a century and things worked pretty well for most of that time. But now the system is broken and neither Washington nor Wall Street want to do the heavy lifting to fix it.
So how will we know when the mortgage market has fully recovered? When the government share falls from the current 71 percent to about 50 percent, where it was in 2001, says the Urban Institute.
Homebuilders are feeling better about things. Unfortunately, their optimism has yet to translate to more single-family construction.
Earthquake? Flood? There’s an app for that. HUD is making it easier to get help after a disaster.
Fewer people are carpooling, Census reports. More than 76 percent of people still drive alone to work. But the share of urban-dwelling millennials who drive to work has fallen 4 percent since 2006.
Housing affordability in California is getting worse. Only 30 percent of California households could afford a $485,100 median-priced home in the second quarter, down from 34 percent.
Corelogic updates its foreclosure data. Hint: It’s all good.
Fun with architecture: An incinerator that blows smoke. Er, smoke rings. And it has a ski slope. Coolness factor: Very high.
What do you want to know? Drop a note to lorraine.woellert@redfin.com.
Get all Redfin news and analysis here.
