Strength of housing recovery questioned

Sept. 30, 2013 at 4:03 PM
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NEW YORK, Sept. 30 (UPI) -- The recovery in the U.S. housing market could run out of steam if it depends on investors to carry it along, an economic report explains.

In a report titled "Opening the Credit Box," Moody's Analytics economist Mark Zandi and Urban Institute market analyst Jim Parrott say rising home prices and interest rates will force the recovery to rely on first-time buyers, as investment buyers will begin to back away.

But first time buyers are not yet in a position to keep the recovery strong, Zandi and Parrott claim.

The Housing Wire reported Monday that the housing market's recovery has produced some positive data.

Zandi and Parrott report home prices are up 15 percent from two years ago and housing starts have doubled since their low point in the 2008-09 recession.

However, the average credit score among first-time home buyers is near 750, about 50 points higher than it was 10 years ago, the report said.

"Lenders have reassessed how much risk they are willing to take on, in part because they were burned badly in the crisis and in part because they have come to recognize a range of costs associated with riskier lending not fully appreciated before," the report says.

The costs that are now influencing lenders include the expenses associated with handling distressed loans, potential costs of litigation and risks to a firm's reputation, the report says.

Succinctly put, lending is tight. "Lenders are only willing to make loans intended for purchase by Fannie [Mae -- Federal National Mortgage Association] or Freddie [Mac -- Federal Home Loan Mortgage Corp.] or insurance by the FHA [Federal Housing Administration] if there is little prospect of default, so that they do not expose themselves unwittingly to the risk that they will bear the cost," the report says.

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