The rebound in the U.S. housing market has failed to materialise and it may be squahed by yet another factor before it even gets off the ground, according to Bank of America Merrill Lynch’s Jonathan Ellis.
That number isn’t rising interest rates, though those surely count, but rather the increasing FICO score (credit score) requirement for prospective home buyers.
From Bank of America Merrill Lynch (emphasis ours):
Although we do not expect any material changes in the form of significantly higher premiums (beyond the 25bp already announced) or a raised down payment requirement, we do think underwriting standards could be tightened. The average FICO score for FHA insured borrowers ticked up to 703 in January after being at 701 for the past three months below 700 prior to that. Although this increase may be reflective of borrower mix more so than a change in underlying standards, we do think a continued rise in average FICO scores would present the risk of cancellations for the homebuilders if prospective buyers have difficulties qualifying for an FHA insured mortgage.
While it is presumed an improving economic situation will eventually leak over into higher FICO scores for potential homebuyers, there’s no indication that will happen fast enough to prevent more downward pressure on the housing market.
Photo: Bank of America Merrill Lynch