Higher borrowing costs so far haven’t held back the housing market, which is surging after the worst downturn since the 1930s. Sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009 and the median price jumped 15.4% from a year earlier to the highest in almost five years, the National Association of Realtors said yesterday.
Home prices are still 28% below the 2006 peak, and mortgage rates, still near historic lows, are down from 6.8% in 2006 and more than 10% in 1990. That’s spurring buyers like Bulaich, who is closing today on the $158,000, 1,300-square-foot (121-square-meter) stucco home.
“All these people are flooding out there to buy a house right when the rates are going up, but it’s still pretty affordable,” Bulaich said.
The rebound has helped rebuild household wealth, which jumped to a record in the first quarter, after falling in 2007 when the housing crash plunged the U.S. into the longest recession since the 1930s.
The credit pendulum swung from irresponsibly loose during the middle of the last decade when lenders granted mortgages even to people with no income, no job or assets -- known as Ninja loans -- to extremely tight after the 2007-2009 recession. Even as Bernanke resorted to unprecedented measures, including holding borrowing costs near zero, the central banker said at the start of last year that housing was being held back partly by tight credit.
It’s now tilted closer to the averages seen in the late 1990s based on a combination of factors, such as loan-to-value, debt-to-income and credit scores, CoreLogic Inc. Chief Economist Mark Fleming said.
While credit may be opening, the process of getting a new or refinanced mortgage remains frustrating, because lenders are making more meticulous demands for evidence of borrowers’ finances, Fleming said.
That didn’t matter much to lenders last year as reduced competition and low mortgage rates allowed them to charge high prices for selling home loans into mortgage pools. Loan originations totaled $1.75 trillion in 2012 and the four biggest bank lenders reported more than $24 billion of revenue from originations as homeowners replaced their loans to cut costs.
Rising rates have already quashed refinancing, which has fallen to 68.7% of the market from 76% at the start of May, according to the Mortgage Bankers Association.
Further increases will flatten the wave of refinancing and force lenders to compete more aggressively for homebuyers, said Doug Duncan, chief economist at Washington-based Fannie Mae. In addition to easing underwriting standards, banks will also have to consider layoffs to cut costs and lowering margins to make up for lost refinancing revenue, Duncan said.
Lenders will see their refinance business fall to 45% of originations in the second half of this year and 35% next year, according to a Mortgage Bankers Association forecast.
“Companies, if they want to stay in business, they’re going to compete,” Duncan said.