There was great article in DS News the other day that spoke to the end of the housing crisis and cited lenders loosening up the credit standards as a major factor towards the crisis ending by year’s end. To read the full story, click here.

The analytics firm Capital Economics notes that the average credit score required to obtain a mortgage loan is 700, and while this is higher than scores required prior to the crisis, it’s about the same as one year ago. However, other market indicators point not just to the stabilization of lending standards, but also a loosening of credit availability. Banks are now lending amounts up to 3.5 times the borrowers’ income level. This is up from a low during the crisis of 3.2 times the borrowers’ earnings.

Banks are also loosening loan-to-value ratios (LTV), which denotes the clearest sign yet of an improvement in mortgage credit conditions. In contrast to a low of 74% reached in mid-2010, banks are lending at 82% LTV.

While credit conditions may have loosened slightly, some potential home buyers are struggling with credit requirements. Capital Economics points out that 8% of contract cancellations were a result of a potential buyer not qualifying for a loan. It is highly recommended that once a buyer starts to seriously look at homes, the potential buyer must get pre-qualified from a bank or lending broker. It’s the only way to know for sure that a buyer can afford the price point they are considering. Additionally, Capital Economics says, “Any improvement in credit conditions won’t be significant enough to generate actual housing price gains,” and potential ramifications from the euro zone situation do pose a threat to future credit availability.

If you would like to know more about what’s happening in the housing industry or about lending practices, give me a call at 415-755-8919, email rsmith@fhallen.com, or leave a note in the comments.

Posted by:  Rick Smith