Lenders looking for higher credit scores now
Highlights from the Boston Real Estate Now blog.
Nearly 30 percent of the adult population of our great country has abysmally bad credit.
How bad? Well even with a hefty down payment, they can’t get a mortgage, Zillow reported last week.
The survey examined 225,000 mortgage requests and 13 million loan quotes posted on Zillow Mortgage Marketplace this September.
House hunters with credit scores below 620 were out of luck. These would-be buyers “were unlikely to receive even one loan quote” from lenders for a 30-year fixed mortgage. Buyers who had saved up enough money to make a 15 to 25 percent down payment had no better luck, the survey said.
More than 28 percent of all adults across the country have credit scores under 620, Zillow noted, citing data from myFICO.com.
Of course, banks insist they are doing all they can to get money out on the street. After all, American taxpayers, including those with less than ideal credit scores, fronted the billions needed to bail out the nation’s major financial institutions during the dark days of the recession.
But Zillow’s survey found that bank lending standards have pretty much remained stuck in recession mode. In fact, there was no improvement over the results of a lending survey Zillow took in September 2010.
OK, with one exception, that is. It is now harder for even the most creditworthy buyers to get the best rates. House hunters now have to have a credit score of at least 740, up from 720 three years ago, Zillow found.
The already overpriced Boston area is even more expensive now, with home values rising more than 10 percent in August, Zillow reported last week.
That’s nearly double the pace nationally, with home values across the country (Zillow’s index includes both prices and assessed values) having risen by a comparatively modest 6 percent.
In fact, this is a reversal of the trend we have been seeing over the past year.
Greater Boston, which in most surveys includes everything inside the 495 beltway and some of the bedroom communities of Southern New Hampshire, saw a much less dramatic decline in home values than many other parts of the country after the bubble burst.
Hence, when home prices began to rise again, the Boston area posted respectable single-digit gains, compared with hard-hit markets like Las Vegas and Phoenix, which saw prices suddenly soar by 20 percent or more.
A relatively robust economy driven by high-paying industries like biotech is combining with decades of anemic home construction in a perfect storm of surging demand and dwindling supply. It may be good news for potential sellers, but for buyers, it’s getting tougher out there as the fall market heat up.
In its latest buy vs. rent report, Trulia says buying is cheaper.
That said, the gap is narrowing, with buying now 35 percent cheaper in most places across the country, compared with 45 percent a year ago.
The gap is closing even faster in Boston and its immediate environs, with Boston buyers seeing their discount shrink to 29 percent from 41 percent a year ago.
OK, so why is buying a house still cheaper than renting, even as prices post double digit gains?
Well, it’s those crazy, rock-bottom interest rates. In fact, if mortgage interest rates were 8 percent, renting, not buying, would be cheaper right now in the Boston area, Trulia notes.
But don’t worry, that won’t be happening anytime soon.
After edging up to 4.8 percent over the summer, interest rates are now on their way down again on the heels of the Fed’s announcement that it would maintain its bond buying program.
Interest rates began to fall immediately.
Basically, it is cheaper to buy rather than rent because the Fed is running the biggest home buyer subsidy program in history, dressed up as “quantitative easing.”
It makes the old, $8,000 home buyer tax credit look like chicken feed.
Home sales and prices may be back, but this is anything but a normal real estate market.