Home affordability in US at record levels, S&P report finds, driven by rising use of federal home loan mortgage programs; rated home builders expected to report higher sales volumes, pricing gains in 2013
October 11, 2012
– According a report that Standard & Poor's Ratings Services recently published, home affordability is at record levels, in part, due to home buyers increased use of federal home loan mortgage programs. After surveying the U.S. homebuilders that we rate with mortgage finance subsidiaries, we believe those companies will post higher sales volumes and pricing gains in 2013, despite historically tight lending requirements for conventional residential mortgages.
We asked the homebuilders to provide data on the percentage of their home sales financed in-house, average FICO scores, loan-to-value ratios, and use of federal home loan programs in their origination portfolios over the past 18 months. "Overall, we found that federally guaranteed or insured mortgage loan products, with low down payment requirements, currently account for roughly 50% of our surveyed homebuilders' mortgage originations," said credit analyst, Susan Madison.
We expect federally insured or guaranteed home loan programs to remain a significant support for rated builders' home sales over the next year, particularly those that target entry-level buyers or lower cost geographic markets. However, in our view, the increased reliance on federal home loan mortgage products increases homebuilders' business risk profile to some degree. With a greater reliance on government backed financing, homebuilders' exposure to regulatory and policy shifts increases.
We published the full report, "Federal Loan Programs Support Sales For U.S. Homebuilders And Offset Tight Lending Standards," on Oct. 8, 2012.
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