“People have been on the sidelines now for five years,” Douglas Yearley, chief executive of Toll Brothers Inc., the largest U.S. luxury-home builder, said in a June 14 presentation. “And they need to, want to buy a house and they’re coming back out. They’re taking advantage of these great interest rates.”
That was the case for Jennifer and Ethan Ackerman, who bought a four-bedroom home in Alexandria, Virginia, in May.
“We thought we got a great interest rate five years ago with our first house at 5.25 percent, and now rates are below 4 percent, so we just thought this is a great time to buy,” said Jennifer Ackerman, 38, a director at a non-profit professional organization. “That was the real driving factor along with our family expanding and our old house being really small.”
At 1,900 square feet, their new place is twice as large as their old duplex and cost just 40 percent more. She estimated their new house would have cost $100,000 more five years ago.
Many banks, burned by the housing bust, remain reluctant to lend to any but the most creditworthy borrowers. Fannie Mae and Freddie Mac, which buy home loans and package them into securities with guaranteed payments to investors, require a minimum credit score of 660 for most home buyers. Fannie Mae and Freddie Mac borrowers have average credit scores of 763 and 758 respectively, according to the firms.
Banks say they may lose money if they lend to borrowers, who later default, and are forced to buy the loans back from Fannie and Freddie. The Federal Housing Finance Agency, which regulates the two government-sponsored enterprises, is working on ways to mitigate banks’ fear of the risk of repurchasing loans at a loss.
Fewer banks are tightening their underwriting standards, according to the latest annual survey of 87 banks with more than $3 billion in assets conducted by the Office of the Comptroller of the Currency.