Looser Lending Restrictions Signal the Rebound of the Real Estate Market
Capital Economics expects the housing crisis to end and the overall real estate market to rebound this year primarily because of the loosening of the credit post-recession.
A few things are changing within the credit market that are favorable for borrowers. While the credit score required for a loan remains at round 700 (higher than pre-recession levels), banks are lending larger amounts to people. They are lending up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.
In addition banks are raising their loan-to-value ratios (LTV). If a borrower take out an $80,000 loan on $100,000 house they have an 80% LTV. Capital Economics denotes this as “the clearest sign yet of an improvement in mortgage credit conditions.” In contrast to a low of 74 % LTV reached in mid-2010, banks are now lending at 82% LTV today. While this is all good news for buyers, Capital Economics says “any improvement in credit conditions won’t be significant enough to generate actual house price gains,”.
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