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the latest S e c on da r y M a r k e t a na ly t ic s se r v ic i ng or ig i nat ion ANALYTICS Market Tight Credit Expected Shifts from Seller Control to Cinch Further A decline in government share may lead to a shrinking market if lawmakers aren't careful. M ortgage lending remains tight compared to historical norms, and lending could tighten even further as the government takes steps to lessen its role in the market, according to a recent report by Moody's Analytics and the Urban Institute. While the report conceded "underwriting does not appear overly tight in terms of debt-toincome or loan-to-value ratios," the report's authors said the credit scores required to obtain a mortgage loan today are abnormally high. Not only is the average credit score of a GSE-backed loan today about 50 points higher than that of a GSE loan pre-crisis, but also the researchers pointed out, "Households with high scores today earned them during a tough economic period with high unemployment, weak stock prices, and declining house values." "In contrast, households had a much easier time obtaining high credit scores in the late 1990s and the early 2000s," they said. On the other hand, current debt-to-income ratios average between 35 and 45 percent, just slightly higher than the 30 50 | The M Report percent average of pre-crisis days, according to the report. Loan-to-value ratios today average between 85 and 90 percent, again just slightly higher than pre-crisis average of 75 to 80 percent. Looking ahead, the researchers said, "Some impending moves by Fannie and Freddie and possibly the FHA will tighten the credit box further." For example, the GSEs are increasing their down payment requirement from 3 percent to 5 percent and reducing the loan amounts they will accept. The Federal Housing Administration (FHA) is likely take similar measures, according to the report. "Reducing Fannie and Freddie's outsized role in the mortgage market is ultimately desirable but will significantly tighten the credit box and impair the housing and economic recoveries if private mortgage lenders are not able to fill the void when that contraction occurs," the report said. "[I]t will clearly be important for policymakers to ensure that as they curb government lending, they shrink its market share, not the size of the market," the analysts stated. Redfin agents report a market swing back as buyer competition declines. R eal estate agents say the housing market is beginning to shift from seller control, and they expect price gains to moderate over the next several months, according to the latest survey from Redfin, a national technologydriven real estate broker. "At the end of this summer, you could smell the rubber on the road from buyers hitting the breaks," said Sara Fischer, a Redfin agent from San Diego. The percentage of real estate agents who say now is "a good time to sell" a home is on the decline, while the percentage who say now is "a good time to buy" is on the rise, according to survey results. In the third quarter, 72 percent of agents said now is a good time to sell a home. While still a majority, the percentage is down from 86 percent in the second quarter of this year. On the flip side, 55 percent of agents say now is a good time to buy a home, an increase from 46 percent in the second quarter of this year. Consistent with another Redfin survey released recently, the majority of Redfin agents—56 percent—noted a decline in competition over the last three months. Twenty-two percent of agents said they have noticed an increase in competition over the same time period. While the biggest challenges agents see for buyers are limited inventory and bidding wars, agents identified unrealistic expectations of their homes' values as the biggest challenge for sellers. The Redfin survey detected a sharp decline in the percentage of agents who believe home prices will rise in the next few months. About 68 percent of agents say prices will rise in the coming months, down from 97 percent in the previous survey. Twenty-two percent of agents say they expect prices to remain about the same in coming months, up from 10 percent in the previous quarter. Eleven percent expect prices to drop in coming months. While still a minority, this is up from 4 percent in the second quarter.