Real Estate & Mortgage Insights

Moody's: Mortgage Credit Will Loosen in 2013

This year promises to be another solid year of recovery for the U.S. housing market, a product of fewer mortgage delinquencies and greater demand, according to the latest Moody's Analytics ResiLandscape report.

The report said that 2012 was the healthiest year for the housing market since 2005, almost the peak of the boom. For instance, mortgage delinquencies dropped to pre-recession lows, with the 30-day delinquency rate falling to it 2006 level. The 60-day rate fell almost as much, sinking to its 2007 level.

Falling late payments translate into fewer foreclosures down the road, and less exposure to risk by mortgage lenders. A drop in foreclosures and delinquencies will encourage banks to provide more mortgage credit, according to Moody's.

Increases in demand for homes will also make for a positive 2013, the report said. As home prices have risen, millions of "underwater" homeowners have been able to float out of that category, allowing them the freedom to sell their homes once again.

In the third quarter of 2012, the number of borrowers with negative equity had fallen to 12 million, down from 14.6 million the year before and down from the peak in the second quarter of 2009 at 16.2 million.

"Being right-side up on the mortgage improves a borrower's credit profile. It also lowers the risk of default and increases the likelihood of trade-up buying," wrote the Moody's analysts.

And as more of those previously-stuck homeowners look to move up and as investors step up the pressure for discount properties, supply is not keeping up with demand, creating a sellers market in much of the country again.

"Home-buying plans are improving, owning a home remains highly affordable, and household formation is rising. At the same time, the supply of homes, particularly of new homes, is exceedingly tight and overall excess supply is shrinking," the Moody's report said

Large mortgage lenders over the past year-and-a-half have either loosened their lending standards or left them unchanged, according to the Survey of Senior Lending Officers, a good sign that more financing will be available to potential buyers this year.

"Although mortgage supply will remain constrained, improved consumer credit quality combined with steady growth in jobs, low mortgage interest rates and modestly rising house prices makes it clear that more households will be able to qualify for a mortgage," Moody's said.

"Greater credit availability will in turn help drive stronger home sales and stronger price appreciation and help keep the housing market and the larger economy on an upward path."

Still, while progress is exciting, it is important to keep things in perspective. Home sales and prices remain well below pre-recession averages. Housing starts, for example, totaled 800,000 in 2012, lower than any rate on record before the housing market crashed. There is yet a long road to be climbed, but at least the elements seem to be falling into place needed to make the ascent.

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