On November 18, Ellie Mae released its latest Origination Insight Report, which showed credit scores are declining for the fifth straight month.
So the creditworthiness of homebuyers is on the decline. Let’s try to understand why, and what impact this has for today’s real estate agent — possibly during the negotiation phase of buying and selling homes.
Julián Castro, HUD’s secretary, made remarks during his speech to the Mortgage Bankers Association in October that indicated efforts being taken to stimulate the economy via home buying and the FHA (Federal Housing Administration) loan system.
Great. So if you have two almost identical offers, would you consider the one from the more creditworthy buyer? It will probably have a lower chance of being rejected.
Or does this mean that foreclosures will be increasing in 2016?
The latest Origination Insight Report doesn’t show a breakdown of credit scores between new and existing home sales, or even first-time homebuyers, but in a possible pending period of flattening home prices, declining creditworthiness is a concern. It could be that FICO standards are being redefined in today’s new economy.
RealtyTrac released a report on November 5 that showed profits are increasing in the home sale market. The average profit is just over $40,000 and is based on residency of just under seven years.
I’d love to see a correlation of FICO credit scores against the profitableness of the home sale, for both the buyer’s original home purchase and the seller’s next home purchase.
This all reminds me of an article that was recently published by Carolyn Ireland in The Globe and Mail, the leading Canadian business newspaper. The article references a study by the Retail Council of Ontario that alludes to viewpoints of the age 18-to-34 group that buys homes (most likely) from the 55-plus age group.
The millennial generation — most likely with a FICO credit score that hasn’t been built up yet — is trying to buy homes from existing long-term residents. Those long-term residents know they have “profit” accumulated in their asset; it’s a classic case of cash-poor buying from house-rich.
As a real estate agent, you’re the one trying to make this deal happen. Sinking credit scores and increasing profits are considerations in the closing of the sale.
