Board of Governors of the Federal Reserve System

House prices are rising

Figure 1. Prices of Existing Homes

Series: FHFA, Core Logic, 20-city S&P/Case-Shiller, and Zillow indexes
Horizon: 2005-2013 (February and March)
Description: Data are monthly. Index peaks are normalized to 100.

The Zillow, FHFA, Core Logic, and 20-city S&P/Case-Shiller indexes all start the series in 2005 at close to 90. All four of the indexes increase over the course of the year; Zillow and FHFA end 2005 a bit below 100 and Core Logic and S&P/Case-Shiller end 2005 at about 100. All four indexes stay at about the same levels through 2006 before starting a pronounced decline in early 2007, decreasing steadily until 2009 when Zillow and FHFA are a bit above 80 and Core Logic and S&P/Case-Shiller are around 70. The four indexes stay at about these levels until starting to increase at the start of 2012. The upward trend continues as the FHFA index reaches a little less than 90 in February 2013, the Zillow index reaches about 80 in March 2013, and the Core Logic and S&P/Case-Shiller indexes reach about 75 by February 2013.

Construction is starting to pick up

Figure 2. Single-Family Starts and Adjusted Permits

Millions of units

Builders and homebuyers are more optimistic

Figure 3. Builders' Ratings of New Home Sales and Realtors Confidence Index

Homeowners are more optimistic about house prices

Figure 4. Home Price Expectations

Mortgage purchase applications are low

Figure 5. Purchase Mortgage Application Activity

Series: Index, March 16, 1990 = 100
Horizon: 2001-2013 (April)
Description: The index starts the series in 2001 at about 300. It gradually increases over the next few years before peaking in early 2005 at about 475. The index decreases to about 375 in mid-2006 and fluctuates around this level until early 2008 when it starts to decline steadily, reaching about 150 in mid-2010. The index stays around 200 through April 2013.

Purchase originations have fallen more for borrowers with lower credit scores

Figure 6. Purchase Mortgage Originations, by Credit Score

Series: Credit scores ranges of 621-680, 681-710, 711-740, 741-770, 771-800, and more than 800
Horizon: 2001-2013 (February)
Description: The number of mortgage originations with credit scores of 621-680, 681-710, and 711-740 follow similar paths, starting the series in 2001 at about 10,000. The number of originations for these scores increases to about 25,000 in early 2003 and fluctuate between about 20,000 and 30,000 through late 2007. In late 2007, they begin a steady decline, reaching about 5,000 in early 2009 and fluctuating between about 5,000 and 10,000 through February 2013.

The number of mortgage originations with credit scores of 741-770 and 771-800 are higher than the previously mentioned credit score ranges but follow a similar trajectory. The number of mortgage originations with credit scores of 741-770 and 771-800 start the series in 2001 at about 15,000, increasing steadily to reach about 37,000 by early 2003. They then fluctuate between about 23,000 and 33,000 through late 2007, when they start to decrease. The number of originations with a credit score of 741-770 reaches about 12,000 in mid-2008 and fluctuates between about 10,000 and 15,000 through February 2013. The number of originations with a credit score of 771-800 reaches about 15,000 in mid-2008 and fluctuates between about 17,000 and 23,000 through February 2013.

The number of originations with a credit score more than 800 is markedly lower than other credit score ranges. The number of originations with a credit score more than 800 starts the series in 2001 at about 2,000 and gradually increases to reach about 10,000 by mid-2005. It then fluctuates between about 7,000 and 10,000 through February 2013.

The credit score distribution for prime mortgages also shows this contraction

Figure 7. Credit Scores on New Prime Mortgages

Series: 90th percentile, median, and 10th percentile of FICO scores
Horizon: 2003-2013 (March)
Description: Data are monthly.

The 90th percentile of FICO scores on new prime mortgages starts the series in 2003 at about 790 and remains fairly steady throughout the series, gradually increasing to reach about 800 by March 2013. The median of FICO scores starts the series in 2003 at about 730 and fluctuates around this level through mid-2007 when it starts to increase, reaching nearly 770 in early 2009. The median of FICO scores fluctuates just below 770 through March 2013. The 10th percentile of FICO scores starts the series in 2003 at about 640, remaining steady with the exception of a slight dip to about 630 in mid-2007. The 10th percentile of FICO scores starts increasing in late 2007 to reach about 670 in mid-2008, dipping to about 650 in late 2009, increasing to about 680 in mid-2010 and then fluctuating around 670 through March 2013.

Mortgages insured or guaranteed by the FHA, VA, or RHS have filled in some of the gap

Figure 8. Share of Purchase Mortgages Guaranteed or Insured by the FHA, VA, or RHS

Percent

FHA loan originations have also contracted for borrowers with low credit scores

Figure 9. Credit Scores on New FHA Mortgages

Series: 90th percentile, median, and 10th percentile of FICO scores
Horizon: 2003-2013 (March)
Description: Data are monthly.

The 90th percentile of FICO scores on new FHA mortgages starts the series in 2003 at just below 750 and remains near this level before dropping slightly to about 725 in late 2007. The 90th percentile of FICO scores then increases to just above 750 in early 2008 and fluctuates around 775 through March 2013. The median of FICO scores starts the series in 2003 at about 650 and remains near this level before dropping slightly to about 625 in late 2007. The median of FICO scores then increases to a bit above 650 in early 2008 and fluctuates between about 675 and 700 through March 2013. The 10th percentile of FICO scores starts the series in 2003 at about 575 and remains near this level before dropping slightly to about 550 in late 2007. The 10th percentile of FICO scores then increases to about 600 in early 2008 and fluctuates between about 625 and 650 through March 2013.

Many lenders are not offering quotes on mortgages to borrowers with low credit scores

Figure 10. Lenders Offering Quotes on 30-Year Fixed-Rate Residential Mortgages

Series: Credit scores of 750, 680, and 620
Horizon: 2009-2013 (April 29)
Description: Data are weekly. Unit is percent.

The percent of lenders offering quotes to borrowers with a credit score of 750 starts the series in late 2009 at about 95. The percentage decreases to about 85 in early 2010 and stays around 90 through the end of the year. It then increases slightly to just below 100, where it remains through April 29, 2013.

The percent of lenders offering quotes to borrowers with a credit score of 680 starts the series in late 2009 at just above 70. The percentage decreases to about 65 in early 2010 and then starts increasing to reach about 85 in early 2011. It then increases slightly to just above 90, where it remains through April 29, 2013.

The percent of lenders offering quotes to borrowers with a credit score of 620 starts in mid-2010 at about 45. The percentage dips to about 35 later in 2010 and then stays just above 40 through mid-2011. It then increases through the rest of 2011, fluctuating between about 50 and 60 through April 29, 2013.

Lenders are less likely to approve a low-credit-score FHA loan than in 2006

Figure 11. Likelihood of Approving an Application for an FHA Home-Purchase Loan Relative to 2006

Percent of respondents

Approval rates for low-credit-score FHA mortgages have continued to decline

Figure 12. Likelihood of Approving an Application for an FHA Home-Purchase Loan Relative to Last Year

Percent of respondents

Capacity constraints are still a factor

Figure 13. Refinance Applications and Real Estate Credit Employees

Series: Refi applications index (March 16, 1990 = 100), Real estate credit employees (Thousands of employees)
Horizon: 2000-2013 (February)
Description: The refi applications index starts the series in 2000 at just above zero. The index increases to just over 2,000 in early 2001, jumps to about 4,500 in late 2001, dips back to about 1,800 in early 2002, and increases to nearly 6,000 by the end of 2002. The index starts 2003 a bit above 8,000 before dropping to just below 2,000 by the end of the year. It reaches a bit above 4,000 in early 2004 and then levels out some, at a bit below 2000, through 2007. The index then fluctuates between about 250 and 350 through February 2013.

The number of real estate credit employees starts the series in 2000 at about 300,000. The number of employees starts gradually increasing in early 2001, reaching about 450,000 by mid-2003. It fluctuates between about 450,000 and 500,000 through early 2007 when it starts a decline, reaching about 250,000 by the end of 2008. The number of employees then fluctuates between about 250,000 and 300,000 through February 2013.

Borrowers with high DTIs have less income, fewer assets, and more leverage

Figure 14. Selected Characteristics of Households, by DTI

Borrowers with FICO scores below 620 are a significant share of first-time homebuyers

Figure 15. Share of First-Time Mortgage Borrowers with Credit Scores below 620

Percent