Low interest rates have sparked housing market, but mortgage qualification may be tougher
Lexington, KY - The housing market is making a nice comeback in central Kentucky, according to most local real estate agents and mortgage lenders, but some believe it is still too hard to get a mortgage.
A Federal Reserve governor said as much this spring. While she expressed no desire to return to the early 2000s, when seemingly anyone with a pulse could get a mortgage, “I also don’t think it would be a good idea to go back to the quite restrictive credit conditions of the early 1980s,” Elizabeth Duke said, in a speech to mortgage bankers.
Lower credit scores that previously might have been considered acceptable now represent a red flag against a mortgage seeker’s perceived creditworthiness.
“Some people with damaged credit are seeing some problems getting into, or back into, the mortgage market. It’s getting pretty rigid,” said Dan Mason, chief lending officer at Traditional Bank in Lexington.
“That has been something that has prohibited some people from buying,” Mason continued.
Bill Potter, senior vice president for retail banking at Traditional Bank, feels other people are waiting, perhaps too long, for ideal conditions.
“For people who have been waiting on the sidelines for rates to drop, I think they should go ahead and start looking now,” he said. “The rates haven’t been this low in years, or in some cases, ever. Some customers have refinanced three times over the last three or four years. There are signs rates could be on the incline.”
While mortgage lending and refinancing is a huge business at the moment, qualifying is still a challenge. The Fed’s Duke said it was understandable for bankers to be wary of lower credit scores, but she added that the trend “has disturbing implications for potential new households” in the country, because younger borrowers usually have credit scores that are more than 50 points below older borrowers.
Meanwhile, people hoping to become first-time homebuyers or to move up to bigger, more expensive homes have some good news to consider.
“Everything is going in a good direction, from what we can tell from the statistics. Traffic and sales have increased, and inventory is declining a bit,” reported Al Blevins, president of the Lexington-Bluegrass Association of Realtors (LBAR).
Blevins said some sellers were hesitant to put their homes on the market, thinking prices would be too low, “but I think that’s changing a bit, both nationwide and in our area. Valuations are going up,” he said.
Comparing the first five months of 2013 to the same period last year, single-family home sales are up 23 percent and townhome sales are up 50 percent, according to LBAR statistics. In addition, from January through May in 2012, the average sales price of these residences was $152,192. During the same timeframe in 2013, the average sales price rose to $164,309, an increase of 8 percent.
The average number of days on the market for people selling properties is also dropping significantly.
More good news: new home construction appears to be on the upswing.
“We’re starting to see more new single-family dwellings going up, which we really need, because of the (lowering) supply,” Blevins said.
Housing inventory, which is measured by dividing the number of current listings by the number of home sales in the previous month, was 4.4 months in May. (Theoretically, if the market stopped adding new listings, this represents how many months it would take to sell out the entire inventory.)
Brad Johnson, RE/MAX Creative Realty agent and broker, has seen home sales rise significantly in the past few months.
“We’re even seeing multiple offers on some properties. I saw a home recently sell for over the asking price,” Johnson said. “The market seems to be red-hot for buyers, but it’s been good for sellers too.”
Johnson also sees townhome sales climbing.
“Many potential buyers are out looking now because they’re concerned that interest rates might rise. According to my website traffic, buyers are watching the market every day to see if new homes come on the market. A good home will sell quickly,” Johnson said.
Some bankers are seeing mortgage or refinance customers who are not able to buy as much home as they might have a few years ago. They may be fully employed, but their total income may be down at present.
“With rates so low, it has helped on the affordability scale,” Mason said. “Also, home prices fell hard in 2008-09, so you’ve had circumstances conspire to help other people to buy homes. For everyone, it’s a good time to buy.”