Eight Reasons the Housing Recovery's Been So Slow
July 10, 2014 11:30 AM
From tight credit conditions to empty nesters, here is a litany of problems weighing on the housing market, as summarized in the minutes of last month's Federal Reserve policy meeting. (Image: iStock)
'Restrictive credit conditions, particularly for households with low credit scores'
Mortgage lenders often demand that borrowers have FICO scores of 680 or more, far higher than what Fannie Mae, Freddie Mac or the Federal Housing Administration will allow. Such "credit overlays" have kept many borrowers, particularly blacks and Hispanics, out of the housing market. (Image: iStock)
'High down payments'
Many consumers work in jobs where they are not able to save enough for a down payment. However, down payment requirements are low by historic standards at 3.5% for a Federal Housing Administration loan. (Image: iStock)
'Low demand among younger homebuyers, due in part to the burden of student loan debt'
College graduates are saddled with an average of $29,400 in student loans according to the Project on Student Debt, making it tough to save for a down payment on a home. Plus, new mortgage rules require that potential homebuyers have a debt-to-income ratio of less than 43%, a barrier that is keeping recent graduates from buying a home. (Image: Thinkstock)
'Shortages of lots'
A dearth of buildable lots, especially in the most desirable locations, has emerged as a key factor holding back a more robust housing recovery, according to homebuilders. Construction of single-family and multifamily homes is expected to ramp up dramatically in the next year or so. (Image: Bloomberg News)
'Low inventories of desirable homes for sale'
With few move-up buyers, and many homeowners still underwater, homes for sale are scarce. This constrains activity on both sides of the market; buyers have fewer homes to choose from and sellers almost always need to buy another home when they do sell. (Image: Bloomberg News)
'An overhang of homes associated with foreclosures or seriously delinquent mortgages'
Distressed homes remain a drag on the housing recovery. Though foreclosures and delinquencies have dropped dramatically in the past year, there were 966,000 properties in foreclosure in May, according to Black Knight Financial Services. Another 1.2 million homes are seriously delinquent by 90 days or more. (Image: Bloomberg News)
'Rising construction costs'
Prices for key construction materials are expected to increase. The cost of softwood lumber has risen 40% from 2011 to 2013, according to the Department of Labor, though overall costs are expected to climb modestly, in the range of 1% to 5%. (Image: Bloomberg News)
'Structural changes in housing demand'
"An aging population and evolving lifestyle preferences
[are] boosting demand for multifamily units at the expense of single-family homes," the Fed minutes said. Some in the industry believe a structural change is underway, as buyers demand smaller, cheaper homes and more people choose to rent. (Image: Bloomberg News)
