Monday, April 05, 2021
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Housing prices in Rhode Island and across the country continue to climb. But, another factor is making homeownership even more difficult — higher and higher credit score demands for mortgage approval.
Rhode Island homebuyers face an ever-increasing number of challenges — upward spiraling prices, lack of supply, and higher and higher credit scores to be approved for mortgages.
The median price of a single-family home in February in RI was $320,000, a 16.4% increase from 12 months earlier.
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It is now year after year of double-digit price increases.
But this explosion in prices is different from those in the past.
According to the Wall Street Journal, “Home prices are increasing at the fastest pace in 15 years, propelled by a record-low supply of homes for sale and a flood of well-off workers looking for second homes or space for home offices. The median existing-home price topped $300,000 last summer and has stayed there ever since.”
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Homeownership Rate Far Below 2004
Homeownership rate continues to rebound from a modern low of 63.7 in 2016, but it is significantly lower today than it was in 2004 when it hit the high of 69.2%.
In 2020, homeownership was 65.9%.
Credit Standards Are Getting Tougher and Tougher
“Because mortgage credit is more difficult to obtain, it is a more competitive environment overall,” said Dr. Lawrence Yun, chief economist at the National Association of Realtors to the Wall Street Journal.
About 70% of mortgages issued in 2020 went to borrowers with credit scores of at least 760, up from 61% in 2019, according to the Federal Reserve Bank of New York.
The median credit score of borrowers approved for mortgages reached 786 in the fourth quarter of 2020, up from 770 during the same period in 2019.
Lower-income borrowers are being adversely impacted too. “Stricter credit requirements appeared most clearly at either end of the mortgage market. The average credit score for borrowers approved for Federal Housing Administration loans rose to 672 in the fiscal year 2020, up from 666 in 2019. FHA loans typically have lower incomes and smaller down payments,” reports WSJ.
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