The worrisome home construction numbers from February were partially offset by this week’s report on March building activity. The good news was muted however because the improvement was due to strong gains in multifamily building. The Census Bureau has added a new set of numbers to the report which may make interpreting trends a little easier.
The Urban Institute thinks lenders need to give more credit to renters. They explain why, and how, it could be done.
March home sale numbers will roll in next week and we will see how springy the Spring Market might be.
The new home construction picture brightened a bit in March after a truly dismal February. Permits and housing starts were both better than the experts had predicted, rising 2.5% and 1.9% respectively from their February levels. We say “brightened a bit” because the gains were mitigated by weakness in single-family building. Permits for single-family units were down 5.5% to an annual rate of 840,000 units, the smallest number since September, while single-family housing starts fell 3.7%. All the upside was on the multi-family side of the ledger.
The Census Bureau has added a year-to-date feature for its non-seasonally adjusted construction numbers. This could make it easier, for us non-statisticians at least, to see trends than by tracking the monthly ups and downs of seasonally adjusted annual numbers. Using the new feature, we can see that, as of the end of March, housing permits are running 6.3% ahead of the first three months in 2017, and housing starts are up 8.0%. The single-family numbers look a lot better too, up 5.3% for permits and 7.0% for starts.
Credit Where It’s Due
As if first-time homebuyers don’t face enough barriers to homeownership, they usually don’t get credit – quite literally – for being good tenants. Many landlords will report delinquent rent and evictions to the credit bureaus, but few do the same for their tenants who never miss a payment. A stellar performance rarely makes it into a credit score.
The Urban Institute (UI) just completed a study showing that timely rent payments may be among the best predictors of a reliable homeowner. Since good records on rent payments don’t exist, UI’s analysts used mortgage payments as a substitute, tracking thousands of Freddie Mac and Fannie Mae borrowers for two years and counting their missed payments. They then looked to see how many of those same borrowers became seriously delinquent over the next three years. Even controlling for other risk factors like low FICO scores or high loan to value (LTV) ratios, the two-year payment history was eerily predictive. For example, borrower with scores under 700, and an LTV between 80 and 95% and no missed payments in the first two years – the probability of a serious delinquency was 1.4%. With one missed payment it was 10.27% and with three missed payments it jumped to 60%.
UI then used income and housing expense information to make the comparison between mortgage and rent payments a solid one.
The study’s authors recommend that lenders begin to consider rent history – it can be documented through bank statements – to give renters the credit they deserve.
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