Home Seller's Biggest Challenges are Sufficient Equity, Credit Score

Home Seller's Biggest Challenges are Sufficient Equity, Credit ScoreThe home seller in the recovering housing market faces two primary challenges: having sufficient equity to use as a down payment on a new home and a qualifying credit profile.
It is estimated that 45 percent of all mortgaged homeowners have insufficient equity, or more than 80 percent loan-to-value, to sell their homes. But in many areas they have surging home prices on their side.
CoreLogic‘s preview of springtime housing focuses on the three types of participants who will shape the market’s outcome: existing homeowners looking to sell, investors and first-time homebuyers.
Many of the hardest-hit housing markets have had significant price improvements in 2012 that removed some of that insufficient equity, CoreLogic says in its latest MarketPulse update.
“With newly found sufficient equity, these owners may offer their homes for sale, adding additional supply to a tight market,” CoreLogic said. “In turn, they may become homebuyers, increasing demand this spring.”
Evening after converting the equity into a down payment, the seller-turned-buyer must still clear the credit qualification hurdle for purchasing another home. The primary factor at the moment is the individual credit score.
CoreLogic looked at creditworthiness, based on credit scores and payment sustainability (debt-to-income ratios), for loan originations. It found that debt-to-income ratios, while less constrained than at the height of the housing crisis, are currently within an “historically reasonable range (between 34 and 38 percent).”
Average credit scores for loans originated since 2009 are significantly higher than before the financial crisis.
Meanwhile, the investor is expected to continue driving demand in 2013.
Institutional investors contributed heavily to price growth in many markets in 2012 by providing demand for short sales and real estate owned (REO) properties.
“Though rising prices have cut into rental returns in many of the fastest growing markets, other markets still yield attractive returns,” CoreLogic said.
The third market participant, the first-time homebuyer, is also poised to return to the market. CoreLogic expects that more renters will take advantage of historically low interest rates and home prices that are still relatively low — compared to pre-crisis levels — to become homeowners.
CoreLogic: “As new renter-households are formed, rental prices are bid up, making the prospect of owning more attractive to existing renters. Sustained low interest rates add to the financial appeal for current renters to convert to homeownership.”

Leave a Reply

Your email address will not be published. Required fields are marked *