We’ve been inundated with news stories about the housing market recovery, along with a few counter-arguments by skeptics who think we still have a long way to go. These analyses tend to focus on prices, sales or new homes built. While those figures are important, they often leave out an important factor: credit.
To buy a home today, you need decent credit. In 2012, some 75 percent of residential mortgages originated went to borrowers with VantageScores in the top two tiers — “A” and “B” borrowers.
Those states where residents have strong credit scores, and where they are actually qualifying for loans are in a better position to contribute to a robust recovery. Indeed, everyone from the National Association of Home Builders to Federal Reserve Chairman Ben Bernanke have bemoaned tight credit standards as a drag on the recovery of the housing market.
We examined credit-related factors that can aid, or conversely hinder, the housing recovery across the nation, using data from the Experian-Oliver Wyman Market Intelligence Reports. Experian recently launched IntelliView, a Web-based query, analysis and reporting tool that crunches the data in these reports. We used this tool to compile our list, including supplementary data obtained from Corelogic. All data is from the fourth quarter of 2012 unless noted and the District of Columbia is included in the rankings. Specifically, we included in our rankings:
1. Percentage of mortgage accounts 90+ or more days delinquent. We included this factor because severe delinquencies are hard to cure, and make it difficult for the homeowner to refinance or buy a new home if they are able to sell.
2. Percentage of new new mortgage accounts originated. This figure represents how many new home loans are being generated in that state compared to the population. It can include loans that were used to refinance an existing mortgage as well as those used to purchase a home. Since lenders now require higher credit standards and many require a down payment of at least 20 percent (or an equivalent amount of equity for a refinance), a greater number of new mortgages should indicate a healthier mortgage market in that state.
3. Average VantageScore by state (as of December 2012). Credit scores will most certainly play an important role in a robust housing recovery. After all, builders can build all the houses they want, but it doesn’t do any good if borrowers can’t qualify for mortgages to buy them. A high credit score makes it easier to buy without enough cash saved for the purchase.
4. Foreclosure Inventory (as of November 2012). Foreclosed homes can be a drag on prices and can also be challenging to buy without sufficient financial resources often needed to get a mortgage and/or fix these homes up.
The following are the best and worst states, according to our rankings:
The States That Will Lead the Recovery
% of mortgages 90+ days delinquent: 1.9%
Average VantageScore: 766
New mortgages as % of population: 0.99%
Foreclosure inventory: 1.1%
A good solid showing in all categories helped Montana score well. Mortgage originations aren’t particularly high; the state ranks 38 out of 51 on that factor. But delinquencies and foreclosures are low and credit scores are solidly high, coming in at 14th highest in the country.
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% of mortgages 90+ days delinquent: 1.64%
Average VantageScore: 769
New mortgages as % of population: 1.07%
Foreclosure inventory: 0.8%
Similar to South Dakota, Nebraska’s ranking was dragged down by a low rate of new loan originations. Similarly, delinquency rates and foreclosure numbers were low. And credit scores for those who live in Nebraska are strong; they come in at 12th highest nationwide.
3. South Dakota (tie)
% of mortgages 90+ days delinquent: 1.49%
Average VantageScore: 775
New mortgages as % of population: 1.19%
Foreclosure inventory: 1%
Tying for third place, South Dakota earned its spot with a very low delinquency rate, high credit scores and few foreclosed homes. If more mortgages were being originated there, it could have easily stolen one of the top two spots. But on new loans, it ranked a low 45 out of 51.
3. New Hampshire (tie)
% of mortgages 90+ days delinquent: 2.16%
Average VantageScore: 777
New mortgages as % of population: 0.75%
Foreclosure inventory: 0.4%
Being able to claim the spot as the state with credit scores higher than 48 states and the District of Columbia helped boost New Hampshire’s ranking to our third spot. (It tied with South Dakota in overall score.) On all other factors the state is in the top 25% of the country, and it didn’t score poorly on any factor we considered.
% of mortgages 90+ days delinquent: 1.93%
Average VantageScore: 783
New mortgages as % of population: 0.92%
Foreclosure inventory: 1.2%
Minnesotans, on average, have the highest credit scores in the country. Their rate of 90+ delinquencies is fairly low; they’re not in the top 10, but come close at the #12 spot. There isn’t a huge number of foreclosed homes available and in terms of new mortgages they are slightly lower than a majority of states (33 states rank better for this factor). These factors all came together to earn them second place in our rankings.
1. North Dakota
% of mortgages 90+ days delinquent: 1.19%
Average VantageScore: 778
New mortgages as % of population: 1.4%
Foreclosure inventory: 0.7%
North Dakota enjoys the top spot in part due to the fact that it came in first with the lowest rate in the country for mortgages that are 90+ days delinquent. Residents can also brag that their credit scores are the second best in the country, and their foreclosure inventory rate is third best. The only factor the state didn’t score well on was the percentage of new mortgages originated; there they came in near the bottom of the country.
[Related Article: 10 States With the Highest Credit Card Balances]
The States That Will Trail the Housing Recovery
47. South Carolina
% of mortgages 90+ days delinquent: 3.17%
Average VantageScore: 725
New mortgages as % of population: 0.63%
Foreclosure inventory: 3.1%
Credit scores in South Carolina rank near the bottom of the country (44 out of 51). Combined with a fairly high foreclosure inventory rate and a high rate of severe delinquencies, it wound up near the bottom despite ranking 15th in the country for new mortgages.
% of mortgages 90+ days delinquent: 3.29%
Average VantageScore: 759
New mortgages as % of population: 0.85%
Foreclosure inventory: 4.7%
High delinquency and foreclosure inventory rates dragged Illinois’ ranking down. Credit scores, though, are about in the middle of scores nationwide, which should be helpful if the number of foreclosures and delinquencies can be curbed. The rate of new mortgages is fairly low when compared to other states and will have to be addressed for this state’s market to move forward.
% of mortgages 90+ days delinquent: 5.25%
Average VantageScore: 734
New mortgages as % of population: 0.54%
Foreclosure inventory: 10.4%
Florida ranked dead last in mortgage delinquencies and foreclosure inventory. Residents’ credit scores aren’t great but aren’t the worst, either. (They ranked 38 out of 51 on that factor.) What saved Florida from the very last spot was a fairly robust new loans number. In fact, the Sunshine State ranked eighth on new loan originations.
% of mortgages 90+ days delinquent: 2.85%
Average VantageScore: 749
New mortgages as % of population: 1.09%
Foreclosure inventory: 2.8%
Unlike some of the other states on our list, Delaware doesn’t rank worst on any of the factors considered. But fairly high delinquencies, mediocre credit scores, a moderate foreclosure inventory and a relatively low number of new loans originated all combined to create a low overall score.
% of mortgages 90+ days delinquent: 4.79%
Average VantageScore: 722
New mortgages as % of population: 0.72%
Foreclosure inventory: 4.7%
Nevada nearly leads the country in the percentage of mortgages that are delinquent (only Florida is higher), residents’ VantageScores are on average some of the lowest in the country, and it has a high foreclosure inventory. These factors combine to make it the state that is least likely to lead the housing recovery.
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