This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Tight Mortgage Credit Isn't the Real Problem

Stocks in this article: XLF XHB

NEW YORK ( TheStreet) -- The Obama administration is pushing banks to extend mortgages to more borrowers, arguing that credit standards have become overly tight in the wake of the crisis.

The Washington Post reported last week that officials are urging banks to use "subjective" judgment in making loans even as they adhere to new rules defining quality loans.

At a recent conference, Laurie Maggiano, director of policy for the Treasury's Homeownership Preservation Office, defended the push for looser credit standards, arguing that first time home buyers with lower incomes and limited credit history were locked out of the market. "Where are these folks supposed to live?" asked Maggiano, according to Housing Wire.

I suppose they will rent.

The Obama Administration's focus on loosening credit ignores the real problem -- incomes are not growing fast enough to keep pace with rising home prices.

A report from Zillow on Wednesday showed that record housing affordability is almost entirely due to low interest rates.

In the pre-bubble period from 1985 through 1999, when rates for a 30-year fixed mortgage ranged between 6 percent and 13 percent, Americans spent 19.9 % of their median monthly incomes, on average, on mortgage payments for a typical, median-priced home. At the end of the fourth quarter of 2012, with mortgage rates in the 3 to 4 % range, U.S. homeowners paid 12.6 % of their monthly income on mortgage payments, down 36.9 % from historic, pre-bubble norms, according to Zillow.

However, homes have become more expensive relative to incomes. "In the pre-bubble period, U.S. homebuyers spent 2.6 times their median annual income, on average, on the purchase price of a typical home. But through the end of 2012, buyers nationwide were spending three times their annual incomes, meaning homebuyers were buying homes that were 14.5 percent more expensive relative to their incomes than during the pre-bubble period," according to the report.

In San Jose, California, for instance, the percentage of monthly income dedicated to mortgage payments has dropped from 35% in the pre-bubble period to 29.5% in the fourth quarter of 2012. However, median home prices have shot up to 7 times median income in the region, from 4.6 times in the pre-bubble era.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs