The Credit Cycle
Our economic growth is very cyclical. And the last few cycles we have experienced have been some of the most severe we have seen in history. In the early 2000’s we had a very strong economic boom fueled by an explosion in real estate values. From late 2007 to the middle of 2009, we were subjected to a very severe recession, led by the collapse of the financial and real estate markets. Our latest cycle has been much less severe, as we have witnessed a very gradual recovery. But the length of the recovery has been extraordinary and is now approaching the longest recoveries in history, which have ranged from 80 to 120 months.
There are other types of cycles that typically occur concurrently with these economic cycles. For example, during the real estate boom, just about anyone could qualify to purchase a home. During the recession, credit standards tightened tremendously, and at that time only those with pristine credit could qualify for a home loan. Now, during the recovery, we have seen a gradual swing of the credit pendulum on the other side. No, we are not approaching the days in which anyone who breathed could get a loan.
However, if you look at many aspects of qualification, we have come a long way over time, just as the economy has. For example, FICO score minimums have come down. There are also more programs which require lower down payments. Though verification of income is almost universally required, there is more flexibility with regard to income qualification. As rates have moved up, lenders have become more adventurous regarding qualifying more prospects. Again, we don’t believe we are moving back to the cowboy days of the real estate boom. But we do believe that many who don’t believe they could qualify to purchase a home, now might very well be able to do so.
The Weekly Market Update
Rates were down slightly last week, but the survey data did not include a drop in rates on Wednesday of last week. For the week ending May 18, Freddie Mac announced that 30-year fixed rates fell to 4.02% from 4.05% the week before. The average for 15-year loans decreased slightly to 3.27%, and the average for five-year adjustables moved down one tick to 3.13%. A year ago, 30-year fixed rates averaged 3.58%.
Attributed to Sean Becketti, chief economist, Freddie Mac -- "The rate on 30-year fixed loans fell 3 basis points this week to 4.02 percent. However, this week's survey closed prior to Wednesday's flight to quality. The delayed impact of the associated decline in Treasury yields may push rates lower in next week's survey."
Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.