Home / Daily Dose / The Impact of Credit Easing on Homebuyers
Print This Post Print This Post

The Impact of Credit Easing on Homebuyers

credit easingThe national home purchase market remained strong by the end of the first quarter of 2018 as recent credit easing efforts by the government agencies, especially Fannie Mae, supported the boom, according to the American Enterprise Institute’s (AEI’s) latest quarterly National Housing Market Indicators (NHMI) data released on Monday July 2.

The NHMI measure the size of the residential home purchase market by combining data from several sources and covers sales since the fourth quarter of 2012.

According to the NHMI data, 6.35 million home sales transactions were reported at the end of the first quarter, up 3.5 percent from the same period a year ago. However, AEI reported a slowing down in the growth rate, contributed largely by a lack of housing supply. “Although there continues to be very strong demand, the supply doesn’t seem to be expanding in sufficient amount to drive the annualized home sales more rapidly,” said Edward Pinto, Co-Director, Center of Housing Market and Finance at AEI, while presenting the findings of the NHMI.

The current increase in sales marked the 14th consecutive quarter of such increases despite a 7.3 percent year-over-year jump in FHFA’s national house price index in Q12018, the NHMI data indicated.

Looking at originations by the agencies, the NHMI data indicated that credit easing is likely to become capitalized in price in a market like this one, where the supply is constricted. “While FHA, Fannie, Freddie, and the VA have all been pro-cyclically supporting the boom through credit easing, Fannie’s recent credit easing efforts have been breathtaking,” AEI said.

Credit easing also indicates a higher mortgage risk, with the study’s National Mortgage Risk Index (NMRI) increasing from already elevated levels a year ago. The index which has now risen at more than 2 percent year-over-year for FHA loans was slightly higher for first-time buyers than for repeat buyers.

“For 2018 we expect continued easing for first-time buyers and FHA, helping fuel accelerating house price growth for entry-level homes,” Pinto said. “Entry-level homes will be less affordable and first-time buyers will be faced with a higher risk of default.”

Looking at the share of mortgage for first-time buyers, AEI found that the agency first-time buyer mortgage share index at the end of Q1 was slightly below its series high during the same period last year. The index stood at 60 percent down from 60.2 percent a year ago, but up from 56.8 percent four years ago. “We can only expect modest increases or even a slight decrease moving ahead in 2018,” Pinto said.

An interesting trend indicated on the NHMI was the increasing competition between Fannie and FHA for first-time buyers, which according to Pinto was a worrying trend. “Over the last nine months, Freddie has largely resisted this trend, but will likely eventually have to compete as well,” Pinto said.

About Author: Radhika Ojha

Radhika Ojha is an independent writer and copy-editor, and a reporter for DS News. She is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her masters degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha, also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Houston, Texas.
x

Check Also

Eye on Mortgage Delinquencies

March is typically one of the strongest performing months, with the lowest number of delinquencies. Did March 2019 keep up with the trend?

GET YOUR DAILY DOSE OF DS NEWS

Featuring daily updates on foreclosure, REO, and the secondary market, DS News has the timely and relevant content you need to stay at the top of your game. Get each day’s most important default servicing news and market information delivered directly to your inbox, complimentary, when you subscribe.