The latest data suggests that while the value of banks’ average residential mortgage loans has increased, the volume of new loans has stayed relatively flat since 2011.
What’s caused this divergence? The clues may be in the home price data.
“Since 2011, the average value of a mortgage application for home purchase has increased by $US60,000 or 28%,” writes Paul Diggle at Capital Economics. “Over the same period, the average house price has increased by a more modest $US19,000 or 12%.”
What this basically means is that mortgage lending has been geared towards the most credit worthy borrowers, who tend to earn more and take out bigger loans. Diggle points out that the average credit score for successful mortgage applicants is 730, significantly higher than the average American credit score of 690.
This explains why the average value of mortgage applications is growing much faster than the price of homes.
Remember, tight credit conditions is one of the factors holding back the housing recovery. As the economy improves and incomes rise, new mortgage lending should rise.
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