Mort­gage exec on hous­ing mar­ket’s chal­lenges

Daily Local News (West Chester, PA) - - BUSINESS - By Josh Boak AP Eco­nom­ics Writer

WASH­ING­TON >> From the out­side, the hous­ing mar­ket looks solid: Sales are climb­ing. So are prices. Mort­gage rates are near his­toric lows.

But the pic­ture gets more com­pli­cated the deeper you dig into the data. U.S. home own­er­ship rates have sunk to a half-cen­tury low. And qual­i­fy­ing for a mort­gage re­quires an all-but-pris­tine credit score. Which can make life hard for both would-be sell­ers and buy­ers.

The As­so­ci­ated Press spoke with Ro­hit Gupta, chief ex­ec­u­tive of Gen­worth Mort­gage In­sur­ance, about to­day’s hous­ing mar­ket.

Q: Why are mort­gage rates so low?

A: Rates have al­ways been tied to 10-year Trea­sury yields. The yield is the in­ter­est paid on gov­ern­ment debt. Con­cerns about a global slow­down have caused more in­vestors from around the world to put their money in Trea­sury notes, as has past gov­ern­ment stim­u­lus. This has kept rates low.

But the peo­ple re­ceiv­ing mort­gages also have bet­ter credit records than in the past. So there is less risk in lend­ing to them and, there­fore, lower rates. Credit gets mea­sured us­ing a FICO score, with 850 be­ing the high­est. Our av­er­age FICO for mort­gages is 740 to 750.

Q : Do peo­ple have the stan­dard 20 per­cent down pay­ments? A

: Even with the hous­ing mar­ket re­cov­er­ing, there are still plenty of first­time home­buy­ers who can’t af­ford 20 per­cent down. But mort­gages in­sured through Fan­nie Mae and Fred­die Mac in­creas­ingly have down pay­ments of 30 per­cent or 40 per­cent. Those are very pris­tine bor­row­ers.

Un­for­tu­nately, there are still bor­row­ers who don’t have the down pay­ment or the credit score. If you have 10 per­cent down with a FICO of 640, your in­ter­est rate will be so high that you’re prob­a­bly go­ing to just rent.

As more renters come onto the mar­ket, then peo­ple who once only had pri­mary homes are buy­ing houses for rental pur­poses. This trend re­duces the sup­ply of homes for sale, which means home prices go up. Q

: Can new con­struc­tion help? A

: Builders aren’t build­ing a lot of starter homes, in part be­cause of the costs of reg­u­la­tion and land. We’ve had this the­ory in­ter­nally that mid­dle class fam­i­lies would typ­i­cally buy four homes in their life­spans: A starter home, an up­grade home, their va­ca­tion home and then, fi­nally, their re­tire­ment home. But this con­cept of starter homes is get­ting tougher and tougher in the United States. Q

: Do you fore­see the home own­er­ship rate in­creas­ing from roughly 63 per­cent? A

: We be­lieve that hous­ing is ro­bust in the United States. And hous­ing is go­ing to be ro­bust over the next few years, un­less there is a neg­a­tive global event.

But that en­tire hous­ing story is not go­ing to move the home own­er­ship rate. This is be­cause un­der the cur­rent con­di­tions, a good amount of the pop­u­la­tion is stay­ing on the side­lines as renters.

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