Why a housing recovery could happen sooner than you think, in two charts
Here’s what needs to happen for the housing crisis to end: People need to buy more houses, and banks need to be more willing to lend to them.
The problem is, banks are still feeling nervous about lending to even creditworthy Americans, having been burned so recently by making loans to homeowners who couldn’t pay them off. As a result, by most measures, credit standards have remained extremely tight, fueling a lot of pessimism about the housing recovery. But Capital Economics, a UK-based research firm, believes there are signs that banks may be turning the corner.
Certainly, there are a lot of signs that lending hasn’t bounced back: the volume of mortgage lending has been falling, and lending standards are basically as high as they’ve ever been. But though banks have been reluctant to loan to more people, they are becoming more willing to loan more money to qualified buyers.
In a new research note, Capital Economics points out that the value of the average mortgage loan has sharply increased in recent months, and banks are financing more of the purchase price for homes, increasing the loan-to-value ratio.
As Capital Economics concludes, “This could be the very first sign that banks have become a bit more willing to lend,” explaining that it could be linked to other signs of economic recovery and fewer mortgage writedowns. For now, though, it’s still an outlier.