Economy squeezing many out of housing market with tightened credit and higher prices

by | Jun 13, 2023

  • Mortgage lending showed only moderate growth in May, and some of that growth was due to additional business days compared to April. Year-over-year numbers declined appreciably.
  • Purchase loans accounted for a significant share of the market, indicating a strong purchasing market, despite rising rates and inventory shortages.
  • Economic uncertainty has led to tightening credit standards, higher down payments, and increased average purchase prices, knocking lower income buyers out of the market.

More and more American homebuyers are having a tougher time finding housing that they can afford. And Florida’s higher-than-average home values are making the problem felt more acutely here. According to the latest Originations Market Monitor report by Jacksonville-based Black Knight, Inc., the state of mortgage lending has seen moderate growth in May, largely due to the month having two additional business days compared to April. Despite this rise, the overall market remains restrained, with year-over-year numbers still showing declines.

The reasons are the same as they have been for months: high home values, tightening credit availability, and stagnating incomes making it more and more difficult to afford a home in the United States, and Florida is no exception.

Drawing data from Black Knight’s monthly mortgage report, rate lock activity, which is indicative of future lending transactions, saw an overall increase of 14% in May from the previous month, though on a daily basis, this only represented a 4% increase.

Purchase loans, which represent mortgages taken out to buy homes, made up 88% of all rate locks, a significant share of the market. This indicates a purchasing market the likes of which hasn’t been seen in decades, according to Andy Walden, Vice President of enterprise research at Black Knight.

“Nearly nine out of every ten mortgages originated today is a purchase loan,” said Walden, noting that this trend is occurring amidst the pressures of increasing rates, affordability challenges, and inventory shortages. Yet, despite this growth, purchase lock counts were down 37% from the previous year and 29% from 2019’s pre-pandemic levels.

While the mortgage market has shown some signs of recovery, it’s facing growing economic uncertainty. This has led to a widening spread between 10-year Treasury yields and 30-year mortgage rates, causing a rise in down payments and the required credit scores among those applying for new mortgages.

The average purchase price of homes increased for the sixth consecutive month, reaching $454K, with the average loan amount rising to $360K. Credit scores also saw an overall increase in May, a sign of tightening credit standards amidst economic uncertainty.

Furthermore, the housing market has seen a tightening of inventories across many regions. May saw a 21.5% increase in homes actively for sale compared to last year, but with a slowdown in new listings. Meanwhile, the median price of homes for sale only grew by a modest 0.9% annually in May.

Despite the rising prices and tightened inventories, the market has seen a decrease in home buyers. Forbes reports that existing home sales are down more than 20% from a year ago, based on data from the National Association of Realtors.

The data points towards a challenging housing market in 2023. Despite these challenges, it’s still a good time for sellers, as the average home prices are still historically high. Yet, the high prices and economic uncertainty have made it difficult for many Americans to afford a home, with less than a third of renters considering purchasing a home within the next year.

1 Comment

  1. NorthFloridaResident

    Insurance adding GREATLY to the real estate woes. Just got my Florida homeowner’s policy for a less than 2,000 sq ft house, not on the water, at an elevation of 22 ft above tide. Went from $6,000 last year to over $10,000 this year. How long are the increases going to keep coming?

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