The Credit Block

In a Mostly Favorable Market, Homebuyers Limited by Low Credit

By Gretchen Wegrich

With the housing market showing steady improvement during the opening months of 2013, a recent report from CoreLogic revealed that the housing industry could be further strengthened by several factors, while homebuyers struggle to overcome major obstacles on the path to homeownership.

In today’s market, sellers must grapple with not owning sufficient equity in their homes to make a significant downpayment on a home in a housing market that favors the seller.  In addition, sellers need to have strong enough credit to qualify for a mortgage in today’s tight lending industry.

Many of the markets that were slammed by the collapse of the housing industry are seeing strong year-over-year improvement, allowing homeowners to build up sufficient equity to sell. With enough equity in their homes, homeowners are putting their homes on the market and enjoying the benefits of a tight housing inventory, reports CoreLogic, then entering the market as buyers once their home sells.

Yet another positive effect is that the growing equity is boosting trade-up buyer demand, fueling a healthy housing cycle.

Investor activity is also increasing in response to homeowners’ expanding equity. Investor activity is anticipated to continue propelling demand through 2013.

First-time home buyer activity is also predicted to grow, reported CoreLogic. While the recession caused a hiccup in new household formation as many people doubled-up on their living arrangements and young people moved back in with their parents, today’s household formation is again driving rental demand and elevating the cost of renting.

The current cycle of new household formation is pushing many first-time buyers away from rentals.

“As new renter-households are formed, rental prices are bid up, making the prospect of owning more attractive to existing renters,” wrote the author of the CoreLogic report, Mark Fleming.

During the spring homebuying season, Fleming expects more renters to take advantage of low interest rates and low home prices and make the move to become first-time homebuyers.

With the gradually improving economy buoyed by the housing sector, rising equity is removing a major obstacle to homeownership for many. However, creditworthiness remains a serious potential obstacle for many home buyers.

View the complete CoreLogic report.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.