All but one thing is in place in San Francisco for the housing market to keep booming, and that is easier lending standards. We have extremely limited inventory, high rents, record affordability (thanks to those high rents and record low interest rates), and those factors have led to an incredibly robust San Francisco housing market in 2012 and early 2013. Should loan criteria ease, look out, we could be in for another amazing year or four in home price appreciation.
This weekend one lender told me about a 80/10/10 loan (10% down, 10% second) which she claimed only one bank in the entire country is doing. It only takes one to get the ball rolling. There are government sponsored options as well with Fannie Mae Homepath Loan which allows 10% down on loan amounts up to $625,500, and FHA up to $729,750. But for the market to really take off it will require the participation of private sector banks, with easier qualifying criteria, and higher loan limits, not just less cash for down payments.
Well, sure enough, several articles like this one are citing a Moody’s Analytics report (which is behind a pay wall) that loan criteria is likely to ease in 2013. Two excerpts from the article:
The housing recovery that began in 2012 regardless of constraints placed by a tight mortgage lending environment “promises improvements this year as the drivers of tough credit standards reverse,” according to Celia Chen of Moody’s Analytics, who authored the report.
Lack of accessibility to credit has weighed on housing demand and as a result hampered market rebound, but in 2013, the weight began to lift and will continue to do so as improving consumer credit quality and household balance sheets widen the pool of borrowers.
There are several factors that will improve over time. First, those with bad credit due to foreclosures and short sales and other financial problems suffered during the recession will slowly improve adding more potential home buyers. Second, as home prices rise there will be fewer and fewer delinquencies, and more and more formerly under-water owners above water. Third, lenders will be profiting all the way out, and as they see the likelihood of future loans to stay good, they will expand. Fourth, as lending increases, so does the economy and jobs, leading to even more potential buyers.
Will we ever get back to the bubble lending standards? I doubt it. But we hardly need that to have a sustained housing recovery and more price appreciation than we’ve already had.