Being able to buy a new home just got harder thanks to new mortgage lending standards.
Homebuyers will now need ‘pristine’ credit histories, a new study by PewResearch says.
Pew Charitable Trusts shared concerns about how stricter lending rules put in place after the housing crash that triggered the Great Financial Crisis is only making it harder for Americans to purchase a new home.
“These changes helped to reduce delinquencies and defaults but also made it more difficult for many Americans to qualify for a mortgage,” wrote Adam Staveski, a principal associate with Pew’s housing policy initiative, in the study.
Why It’s Become Harder to Buy a New Home
Why is it getting harder to buy a new home?
Buying a new home has been difficult as it is due to rising mortgage rates and price of homes.
Now a near-perfect credit history must be obtained to be considered for a loan.
“Over the last two decades, homeownership has drifted out of reach for many Americans, especially young adults, racial minorities, low- and moderate-income households, and those who live in rural areas,” said the Pew report.
Younger Americans such as Gen Z and Millennials are falling behind, primarily because they are still in a ‘building phase’ with careers, schooling, and credit history.
“Americans with a moderate credit score—which The Pew Charitable Trusts defines as 600 to 699—have been hit especially hard. In 2000, banks and other lenders originated approximately 1.08 million home purchase mortgages to applicants with a credit score of 601 to 660; 25 years later, they issued just 293,000—a 73% decline that cannot be explained by improvements in the average credit score of the population.
As a result, millions of potential borrowers have been shut out of the mortgage market.
A large proportion of those would-be borrowers are young people, first-time homebuyers, low- and moderate-income individuals, racial minorities, and residents of rural areas,” the report continued.
New Home Sales Fall
Home sales fall as home prices rise.
Despite a rise in mortgage rates, new home sales have fallen.
Fortune reports that sales of previously occupied homes in the United States declined in August to their slowest annual pace in over a year.
The primary cause? Rising mortgage rates and home prices.
Today, when Americans look at home prices to RedFin or Zillow, one can only think, “how the hell am I going to afford a proper home?”
For Gen Z and younger Millennials, it almost seems like an impossible goal at first glance.
Younger Americans are still building credit history, still building a career, still getting their lives in order and becoming a first-time homebuyer only fuels to daily life stress.
More discouraging is that new buyers have to sacrifice number of bedrooms and their environment, moving further away from the bigger cities, just to buy a new home.
Home sales also fell 1.2% compared with August last year. The latest sales tally is just shy of the 4 million pace economists were expecting, according to FactSet.
Americans have hit a pause button on buying homes, especially as mortgage rates continue to climb and the price of new homes skyrockets.
“Although borrowers now take on more debt as a share of their income than ever before, they must have a pristine credit history to be approved for a loan,” Staveski said.
He pointed out that credit scores reward borrowers with long credit histories and adequate financial cushions.
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