Oh magic 8-ball, what don't you know?
If you read anything I write here regularly (and traffic numbers indicate you probably don’t), you will have read this a million times, but I will say it once more: the biggest issue facing the housing market today is the incredibly large supply of houses on the market and the massive amount of shadow inventory that will eventually make its way to the market. The housing sector will not heal until these houses are absorbed. The trouble is there is an extraordinary lack of demand right now. Current economic conditions are unfavorable for household formation, making it harder to absorb these excess homes.
Now there is an additional hurdle to a housing recovery. According to information from Zillow, relayed through a Housingwire.com article by Christine Ricciardi, nearly 30% of people have credit scores that disqualify them from getting a mortgage. This is going to make it a hell of a lot harder to get rid of all the houses. The Zillow report shows that nearly 30 percent of Americans have a credit score below 620, which is considered a baseline score to qualify for a mortgage (depending upon the lender and other factors, of course). This shouldn’t really come as a surprise, as unemployment has been running around 10 percent for some time now. People cannot pay their bills and maintain their credit if they have no income.
Not only are these people going to be precluded from buying a new house in the near future (barring some sort of massive shift in the way underwriting is done), but they will not be able to refinance their old mortgage, missing out of thousands of dollars worth of savings due to record low mortgage rates.
I’m not sure what the solution to this problem is. I don’t know if there should be some sort of credit amnesty or fast-track credit repair for those who have been hurt by the recession. I don’t know if we need a new system of underwriting that relies less on FICO than other metrics. What I do know is it is going to be difficult to sell all these homes that are sitting around if 30 percent of the marketplace is excluded from getting a mortgage right off the bat.
Do you have any sort of solution to this problem? What is your idea? Let me know in the comments section below.
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Sam Bradstreet
September 30, 2010 @ 3:31 pm
Enjoy your site more than you know!
We have the answer, we are just now getting the educational process started. I think I sent you the site, and it is about to be used on a few hundred condos in Philly and Phoenix and Boston, but the process of reeducating 300 million people on the other way to buy a house without a mortgage is a huge challenge. thanks
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