Smart Borrower Blog

Mortgage Financing Fails to Keep Up With Rising Prices

May 22nd, 2013 @ 9:03 PM by Amber Nelson

Prices for U.S. homes continue their dramatic incline, giving the housing market a boost and contributing to the growth of the overall economy. But is the trend sustainable? Some economists suggest that ultra-tight mortgage standards may prevent the housing recovery from staying its course.

The National Association of Realtors reported this week that existing U.S. home prices rose 11 percent in April from the previous year. Home prices have now risen on a yearly basis for 14 consecutive months.

Yet even with rock bottom interest rates and growing demand, many Americans are unable to get a mortgage loan. The current housing run-up is instead being fueled mainly by all-cash investors.

“The robust housing market recovery is occurring in spite of tight access to credit and limited inventory. Without these frictions, existing-home sales easily would be well above the 5-million unit pace,” said Lawrence Yun, NAR chief economist in a statement. “Buyer traffic is 31 percent stronger than a year ago, but sales are running only about 10 percent higher. It’s become quite clear that the only way to tame price growth to a manageable, healthy pace is higher levels of new home construction.”

Even with more new construction, lending standards may continue to be the major roadblock to full recovery. During the last housing boom, when prices skyrocketed the mortgage market responded with new, risky loans to that helped borrowers “afford” the high costs. Of course, many of those exotic mortgages led to the ensuing financial crisis, but still, today lenders are unable to accomodate demand because of heighted loan requirements.

Certain markets could experience significant price stalls or drops in the coming months if investor interest cools off.

“Phoenix and other strongly rebounding markets will likely be buffeted by some volatility in home prices going forward,” said David Stiff, CoreLogic Case Shiller chief economist said in a statement. “As all-cash purchases and investor demand wane, it’s not clear if demand from first-time and trade-up buyers will immediately fill the void, as mortgage lending standards are still very strict and many consumers remain risk-averse.

For now, all-time record low interest rates are keeping homes affordable for the most creditworthy, but when (and not if) they start to rise, sales and prices could plummet with out increased financing.


About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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