When mortgages were at record low interest rates and very easy to obtain by just about anyone who wanted to buy a house in the early 2000s, the market was flooded with buyers. The price of houses soared to record highs and all was good for about 3-5 years, when many of those loans had their first payment adjustment and the homeowners could no longer afford the house they lived in.
We all know the resulting aftermath, lots of defaults and foreclosures on risky loans that probably should never have been made. Those homeowners were then forced into the rental market with scarred credit reports and their prior homes, were auctioned off in many cases to investors. Lenders became very cautious about who they gave mortgage money to and the economy took a huge tumble.
Reluctance to lend has clearly slowed homebuying activity in many places, including Orange County. When only borrowers with gold-plated credit histories can get mortgages, homeownership levels tumble to generational lows. And, as a curious side effect, rents soar as landlords can’t keep up with the growing flock of people who can’t buy a home.
Last month, Orange County hit a milestone…we reached the peak pricing of our 2007 bubble market. This has led to a lot of mixed feelings about the stability of our housing market. Is this a bubble that will burst again? Is history repeating itself? Is it a good time to buy or a good time to sell? What to do…what to do…
This article from the OC Register, 3% down mortgage: Just what housing needed, highlights the reasons why this is not another housing bubble and why loosening lending standards may help rather than hinder.
Although some things are lightening up, such as offerings for zero down and low down payment mortgages. For those with poor credit, the days of easy credit are still far behind and it is still a long shot to homeownership in today’s lending market.
CoreLogic noted the very marginal house hunter – a borrower at the first percentile, arguably the least financially qualified – in 2001 had a typical credit score between 480 to 500 – a very poor risk – vs. today when the bottom-rung buyer needs a mid-quality score between 620 and 630. Yes, that’s the worst risk bankers will take!
Best case scenario? Mortgage lenders easing up to make credit more accessible, but responsibly so by ensuring the borrowers can actually afford their mortgage payments, may ease the affordability and housing availability crunch we are currently experiencing.