Problems in the subprime loans market and a tightening of underwriting standards may cause total home sales to fall by about 100,000 to 250,000 across the country — or up to 3 percent per year during the next two years, according to the chief economist for the National Association of Realtors trade group.
“Foreclosures are increasing inventories in certain local markets. The projected flood of foreclosures are problematic and will add to the already loose housing supply in some local markets,” NAR economist David Lereah said in a statement, “but these local markets are exhibiting healthy economic activity, enabling them to be able to absorb increases in foreclosures.
“From a broader perspective, today’s subprime problems are occurring against a backdrop of cyclically low mortgage rates and a growing, healthy economy. Jobs and liquidity are plentiful in the marketplace, suggesting that the subprime problems may be a manageable problem within our $10 trillion-plus economy,” he stated.
“Tougher lending standards imposed by the marketplace and the regulators are necessary, but we need to be mindful of overcorrection,” he also stated. “Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch.”
Those prospective buyers who cannot purchase a home because of tightening standards “will probably, over time, purchase a home when they have attained the financial capacity to do so by saving for a down payment or growing their income,” according to the association’s announcement.
“Many of these households will seek mortgage loans from a revitalized (Federal Housing Administration), from lenders making loans that meet Fannie Mae and Freddie Mac standards, and from other lenders offering fair and affordable mortgage options to subprime borrowers. Remember, many of these borrowers are low-income, minorities and first-time buyers — all important participants in the home-buying marketplace,” Lereah stated.
Pat Vredevoogd Combs, NAR president, said in a statement, “FHA mortgages can help meet the demand for subprime mortgages and help fill the gap in the mortgage market left by the decline of subprime and nontraditional products. A few simple changes can make a big difference. NAR supports increasing FHA loan limits, allowing risk-based pricing of mortgage insurance premiums and reducing down-payment requirements to reflect today’s mortgage market.”