Homes For Sale in Santa Fe, Las Campanas NM

Credit Access Limits Recovery
At the Residential Economic Issues Forum at the 2014 REALTORS® Conference & Expo, NAR Chief Economist Lawrence Yun outlined the hurdles still hampering the recovery.
November 2014 | By Robert Freedman
The economy is recovering, household wealth is at its highest level ever, and the housing market is improving, but until lenders increase access to credit, sales will continue to underperform and demand will remain pent up, NAR Chief Economist Lawrence Yun said Friday.

Since the economic recovery began in 2010, home owners on a national basis have seen their equity position improve. That’s a trend that should continue in the years ahead thanks to steady U.S. economic growth, solid job increases, improving consumer confidence, and continuing low interest rates.

These conditions make it a good time for households to buy and start accumulating wealth, Yun said. But credit policies among lenders that add restrictions above what’s required by Fannie Mae, Freddie Mac, and FHA are making it too hard for many households, particularly those in the millennial generation, to buy.

He pointed out that, even factoring in the housing downturn, today’s home owners nationally have accumulated an average $200,000 in wealth, 36 times the average $5,500 in wealth of renters.

Yun said the share of first-time buyers, about 30 percent of the market, is at its lowest level in 30 years despite research showing that 75 percent of young households want to buy. “Living with their parents is not their vision of the American dream,” Yun said, eliciting chuckles from the audience.

And it’s not just young households having trouble buying. Yun said homeownership levels dropped by one million households between 2010 and 2014, despite the recovery in home equity, while the share of renters has increased by four million during that period.

Mel Watt director of the Federal Housing Finance Agency, which oversees secondary mortgage market companies Fannie Mae and Freddie Mac, in remarks he made to REALTORS® at the session with Yun, said his agency has been wrestling with lenders’ restrictive credit policies and is encouraging them to align their policies with what Fannie Mae and Freddie Mac require.

“It would be nice if [lenders] would come up to the plate and help us,” he said. “We’re trying to create the atmosphere and the circumstances” for them to feel comfortable enough that they can ease their credit restrictions above what Fannie and Freddie require.

One group of buyers whose market share is poised to grow is the 10 percent of Americans who have substantial exposure to Wall Street, because the stock market has been rising dramatically for the last several years. Flush times for those households should help grow sales of high-end homes and vacation properties, Yun said.

Yun is forecasting U.S. economic growth of 2.7 percent next year and 2.9 percent in 2016, about 2.5 million new jobs in each of those years, and interest rates to stay historically low, although they’ll likely start rising in early 2015.

Households “aren’t buying because there’s a fence in front of them,” said Yun, who encouraged Watt to continue its efforts to get lenders to ease their credit standards to a more reasonable level