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Market Overview: Are Lending Standards “Too Tight”?

Around the third and fourth weeks of the month, we are treated to a deluge of national real estate data. We learn about general national trends over the preceding months (“construction activity increasing!” “home sales jump!”), and draw conclusion about the relative “health” of the housing market (“outlook improves as inventory rises!”).

There are two problems here for local buyers and sellers. 1) We focus on California and the Central Coast real estate market, and 2) From its release, the data is already stale. Buyers, realtors, and lenders grapple constantly with shifting conditions on the ground. The national one price median of $222,900 in July feels pretty disconnected from SLO County’s median of $485,000.

Any questions about home loans in California? We are The Mortgage Experts: ask us anything! We have a loan program to fit every need. Call 805.543.LOAN or email us today.

Still, it can be useful to understand the broader picture, because although real estate markets are “local”, national real estate and lending policies have top-down implications.

For example, the Federal Reserve’s beefed-up third round of “Quantitative Easing” was specifically tailored to push mortgage rates down and stimulate struggling real estate markets. SLO County buyers benefited. The record-low mortgage rates helped spur the rapid real estate recovery. Today – just 24 months later – prices are up 22.8%, supply is low, and middle-income buyers are struggling mightily to compete in the market.

So what does all of this mean for us Californians and Central Coasters?


1) Real Estate

In our mid-year overview of the SLO County real estate market, local realtors identified low supply, rising prices, and tight lending as the primary challenges for local buyers. Moving forward, we expect the market to achieve a better balance of supply / demand that will slow price gains and increase inventory. [Second quarter overview of SLO County real estate market]


2) Lending

Last week, we published our mortgage rate projections. Rates are still very near record low levels, but in the coming year, we expect the 30-year fixed to move closer to 5.0% than 4.0%. Click here to learn why.

Another recurring question around the lending debate: will lenders loosen qualification standards? The “tight lending” myth goes like this: lenders upped their standards after the real estate crash and many “on the bubble” buyers are unable to qualify.

First of all, standards are already loosening. National data shows the following: 1) the availability of for-sale homes is low (but rising), and 2) foreclosure activity continues to drop. As volume slows and lending-risk declines, lenders are loosening standards to drum up business, thus making it easier for buyers to obtain home financing.

Another point to consider: lenders compete for clients. So while one lender might have high standards, other lenders might be more willing to take on risk.

In the past month, we have qualified a borrower with zero credit history, and another with a 550 credit score and student debt trouble. The benefit of our “mortgage branker” model (both a broker and a banker) is that we can shop around to find a loan from many different banks. Where one bank might refuse a borrower, another might accept. The flexibility that we offer our clients makes it much easier to qualify for a loan.

So to potential buyers, we offer the following advice: 1) don’t “self-qualify” from the couch. Talk to a mortgage expert and learn about the possibilities. 2) Shop around! This is a competitive business. Where one bank offers a high mortgage rate or denies a loan application, another might vary well accept.

Knowledge is power, and we are happy to hand it out for free. Give us a call at 805.543.LOAN or contact us here to set up a free pre qualification discussion about your finances.


Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email us here to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

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