Lose the Recessionary Mindset, but Monitor Housing Market Closely

Don’t expect new mortgage products to carry the market in the future.

After several years of monitoring delinquency and losses, it’s important for credit union management to adjust lending criteria back to “normal” and to get loan underwriters and loan officers out of a recessionary mindset.

That’s not to say, however, that the recovery will be smooth sailing. The competitive landscape is as challenging as it has ever been due to high liquidity, high unemployment, and low mortgage rates.

Therefore, lenders must continue to monitor home prices, rates, inventory, new home starts, and inflation closely for signs of stress in the housing market.

Consider the example of a young couple buying their first home in Colorado Springs for $200,000. With a Federal Housing Administration (FHA) loan and 3% down, they’ll finance $194,000 for as low as 3.25% for 30 years fixed. Their principal and interest payment will be about $845. With an annual income of $48,000, their principal and interest will be 21% of their income.

Let’s assume that in three years this couple decides to move to Denver and they put their home on the market. They simply want to sell the home for what they paid for it.

The economy has continued its slow improvement, unemployment has finally declined to less than 6%, and the Federal Reserve has slowly eased the monetary measures it used from 2009 through 2013 to keep the economy afloat. Thus, the rate for a 30-year, fixed-rate mortgage is now 5.25%.

The couple who wants to buy the home is in a similar financial situation the current owners were when they purchased it in 2012. The new buyers have an annual income of about $54,000, which takes into account that the average income has risen 3% a year between 2012 and 2016.

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