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Chrisman's Corner: The Overall Lending Environment

It seems that every week our industry has job and housing numbers to analyze, dissect, and help give us clues about the economy. Although the numbers have been mixed, our brokers kno that housing in the US continues to lag the nation’s overall economic expansion. For example, recent pending home sales report was quite disappointing with month-over-month growth of 0.4% vs. the expectations of 1%. While the “post-winter” recovery has taken place across much of the US economy, it remains absent in many areas of the housing sector. To be sure, apartment construction and rental business is doing quite well. The single family unit market however continues to struggle in many areas that JMAC serves.

Yet mortgage rates have declined sharply recently, with the 30-year fixed rate approaching 4%. Jumbo rates are even lower, due to no guarantee fees and lower loan level price adjustments. The question is whether this will provide some much needed relief to the housing sector.

The markets however are dismissing any significant benefits from these reduced mortgage rates. First, in the stock market, share prices of home builders continue to underperform the broader market. Lumber futures are touching fresh lows for the year, as markets point to expectations of persistent slack demand. A certain portion of lenders continue to have trouble with application volumes. So what gives?

While credit conditions have eased for auto and credit card financing, they have tightened for mortgages. Many households remain uneasy about job stability and lack the confidence to buy – even when they qualify for a loan. Family formation rates are still subdued, especially in the under-30 age group. The “rent generation” culture has been expanding – many potential first-time home buyers don’t want “the hassle” of going through obtaining a home loan, think that renting gives them more freedom, is less expensive, and causes fewer worries.

And the price appreciation that many housing markets has seen, in part due to low rates, is making things even worse for those hoping to buy their first home: affordability is down. The trick for JMAC’s brokers will be to gradually change the psychology of younger potential buyers, have the economy pick up more steam, and keep rates low – a triple play!