With home values in North Park and other neighborhoods in San Diego appreciating at record rates, some people think we may be heading for an additional housing bubble, just like the one we went through about 10 years ago. Some of the blame for the housing boom and bust lay in the loosening of lending standards for mortgage credit.
Researchers at the University of North Carolina conducted a study after the crisis and revealed the following:
“Lenders began originating massive numbers of high-risk mortgages from around 2004 to 2007, and loans from those vintage years exhibited higher default rates than loans created either before or after.”
A study by John V. Duca, John Muellbauer, and Anthony Murphy found that risky mortgages caused the housing crisis.
“Our findings indicate that swings in credit standards played a major, if not the major, role in driving the recent boom and bust in US house prices.”
How does mortgage lending from 2004 to 2007 compare to today’s lending for mortgages?
The Mortgage Bankers’ Association tracks mortgage Standards through the Mortgage Credit Availability Index (MCAI). Lending standards are tightening, as shown by the decline in the MCAI, although credit is also loosening, as indicated by the index’s increases. The chart below shows that we are nowhere near the standards that fueled the housing bubble, although you can see the index returning to the period between 2004 and 2007 when those standards were in place.
Conclusion:
Mortgage standards today have become very tight in some areas. Many qualified home buyers are having a hard time getting a mortgage. If you have been thinking of buying a home but are not sure how this all works, contact the McT Real Estate Group right away. Take a look at what today’s mortgage rates are. We will be able to sit down and go over a comprehensive plan of action with you that is in line with your goals.