While Home Buying Sentiment Rises, Credit Availability is Diminishing

While the economy has begun to show signs of recovery from the coronavirus crisis, and more positive housing signals are beginning to surface, but this is also while mortgage lenders are continuing to play it safe. Lenders have continued to tighten the reins when it came to issuing credit in May. The Mortgage Bankers Association’s (MBA) Mortgage Credit Availability Index (MCAI) retreating by 3.1% to 129.3, signaling a tightening of credit loaned to borrowers. The MCAI, which fell sharply as the COVID-19 pandemic began to take hold, it is now at its lowest level since June 2014.

Fannie Mae reported this week that its Home Purchase Sentiment Index (HPSI), which expresses consumer views collected in a national housing survey, rose 4.5 points to a May reading of 67.5. When asked whether it’s currently a good/bad time to buy a home, the net share of respondents who believe that it’s a good time to buy increased by 11 percentage points. The net share of Americans who believe mortgage rates will go down over the next 12 months also increased, up 10 percentage points from April.

It’s a slight improvement after the index came close to its all-time low the month prior, and marks the index’s first upturn since falling by double digits during March. The index, distilled down from survey answers to six basic component questions, was boosted by the net increases in positive replies to two specific questions in particular.

“Low mortgage rates have helped cushion some of the impact of the pandemic on consumer sentiment regarding whether it’s a good time to buy a home, which picked back up this month to late-2018 levels,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Although weakened income perceptions and continuing job loss concerns, particularly among renters, are likely weighing on many would-be buyers, purchase mortgage applications have returned to mid-March levels when pandemic response measures began ramping up.”

The survey net share of respondents that say it’s a good time to sell increased six percentage points during the month of May. This is indicative of the fact that home-seller confidence is bouncing back a little more gradually than homebuyer confidence. But, increased purchase activity in the near-term may improve the sentiments of some potential sellers, encouraging them to re-list their homes on the market.

The net share of respondents who believe home prices will spike, increased two percentage points, while the net share of respondents who indicated that their household income is “significantly higher” than it was 12 months ago has remained unchanged.

The survey did continue to show that there is continued consumer apprehensions about financial security, as the net share of respondents who also said they are not concerned about losing their job, has decreased by two percentage points.

Despite current housing market concerns remaining “substantially elevated compared to survey history,” Duncan observed the index’s growth as encouraging news. “As lockdown restrictions begin to ease across the country, we expect economic recovery to be largely shaped by consumers’ decisions regarding when and how to reengage in the economy. We believe this month’s HPSI results and Friday’s unexpectedly favorable labor market report to be encouraging signs for the months ahead,” he said.

“Mortgage lenders in May responded accordingly to the increased risk and uncertainty in the economy. There was a reduction in supply across all loan types, driven by further pullback in investors’ appetites for loan programs with low credit scores and high LTVs,” said Joel Kan, associate vice president of economic and industry forecasting for the MBA.

Credit tightened at both the high and low ends of the market, Kan observed, evidenced by greatly diminished access to jumbo loans as well as reduced availability of low down payment programs for many first-time buyers.

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