There Is One Crucial Obstacle To The Housing Recovery
Housing analysts have been turning extremely bullish and a few expect home prices to rise 8 percent this year.
Paul Diggle at Capital Economics is one of them. But the housing recovery still has some hurdles it needs to clear.
"Capacity constraints in lenders’ mortgage departments are one of the few remaining bottlenecks in the housing recovery and one of the factors contributing to the marginal role being played by mortgage- dependent buyers," he writes.
While some people focus on the slow rise in residential construction employment, Diggle pays more attention to the slow pace of job growth in the real estate credit sector.
Between 2005 - 2009, employment in the real estate credit sector fell by 45 percent, while mortgage applications fell 75 percent. Since then however, mortgage applications have "almost doubled", according to Diggle, while job growth in the real estate credit sector has only increased by seven percent.
Admittedly real estate credit workers tend to have a smaller role in the economy than home construction workers, but this is key to the capacity constraints among mortgage lenders, which in turn is impacting the housing recovery.
The number of mortgage applications being processed by each employee is close to a record high. And the time taken to process a loan is also at "historically high" levels.
"Lenders’ need to manage the level of mortgage applications given their constrained processing capacity is one explanation for why mortgage rates are at record highs relative to MBS yields and credit scoring criteria are very strict. All of this has helped contribute to the marginal role being played by mortgage-dependent buyers in the housing recovery.
"Either way, the bottom line is that an easing in capacity constraints is a necessary precondition to mortgage buyers playing a fuller role in the housing recovery."
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