Mortgage Rates and Credit Scores Could Soon Slow Housing Activity
Wanna Buy a House? Good luck finding one. And if you do, you better have mortgage rates and credit scores on your side – unless you’re paying cash.
As the housing market continues to sizzle and homebuilder optimism remains near multi-year highs, it seems everything is set up for perfection. But it’s not. The inventory of homes for sale, both new and existing, continues to decline, driving a bidding war and double digit increases in prices.
If your debt/income ratios still look solid and your credit score is high enough, you shouldn’t have a problem qualifying for increasingly more stringent underwriting standards. (Some mortgage activity is for refinancing) But as prices continue to increase much faster than wages, affordability becomes more important – and more difficult to overcome.
Mortgage rates are at historical lows and rates are beginning to rise – perhaps signaling the end of sub-3% mortgages – which would reverse the affordability trend and when combined with the possibility of lower credit scores due to pandemic related challenges – consumers may have a more difficult time completing a home purchase.
One trend that may help extend home buying activity is homebuilders’ focus on building new homes in the lower tiered price ranges, but even that trend seems to be moving upward, with a greater number of homes being built in the $300k-$399K range, compared to homes in the $200k-$299K range – which were the highest category of homes built just a couple of years ago.
Despite the continued strong pace of sales, however, I remain convinced that declining affordability, rising rates, and stricter lending standards will soon lead to a pause in activity. When or how severe the pause will be remains to be seen.