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September 20, 2017

Builders: Tight Credit Caused 18,700 Lost Sales

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Builders: Tight Credit Caused 18,700 Lost Sales

Tight mortgage lending standards continue to drastically curtail new-home sales and are causing a growing number of deals to be lost, according to a survey by the National Association of Home Builders.

"While housing has seen some positive growth throughout the year, there is no denying that tight credit conditions are hindering a full, healthy housing recovery," says NAHB Chief Economist David Crowe. "These persistently tight mortgage credit standards continue to limit the number of creditworthy borrowers, particularly younger families and first-time home buyers, from entering the housing market."

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Eighty-three percent of builders say they have lost sales over the last six months due to buyers not qualifying for a mortgage. The NAHB estimates that those sales losses translate to about 18,700 new-home sales lost because buyers were unable to qualify for mortgages.

"We’ve seen banks and regulators swing the pendulum too far and create an environment where lending standards are too restrictive," says Kevin Kelly, NAHB chair. "We want a return to reasonable lending standards where qualified borrowers are able to obtain a mortgage and create the American dream for themselves."

Last week, media outlets reported that former Federal Reserve Chair Ben S. Bernanke, who has a net worth of at least $1.1 million, said that he couldn’t refinance his home in Washington due to the restrictive mortgage standards. Because of his recent job switch from chairman of the Federal Reserve to a fellow at the Brookings Institution, lenders may have deemed him as a credit risk .

Mortgage standards are at their toughest levels since at least 1998, according to a new index by CoreLogic. Credit availability for all home loans as of May was about half of what it was in the late 1990s, when the housing market was in recovery-mode similar to it is today, according to CoreLogic’s Housing Credit Index.

“It is clear that credit is quite tight relative to normal,” says Mark Fleming, CoreLogic’s chief economist. Fleming says that banks shouldn’t revert to the overly loose credit standards from the housing bubble, but he believes more lenders could expand credit like they did in the late 1990s, while still being cautious with their lending.

Source: National Association of Home Builders and “Tightest Credit Market in 16 Years Rejects Bernanke’s Bid,” Bloomberg (Oct. 8, 2014)