Consumers have apparently learned a lesson from the housing crisis and are using credit more judiciously. FICO, the credit score people, say there is a new record high average score for the nation and scores have increased especially fast over the last few years.
One thing that may not be increasing quite so fast are home prices. Another index, the third in two weeks, notes a significant deceleration in appreciation. Prices however are not going down.
There are no balloons or confetti involved, but Americans deserve congratulations anyway. They have set a record for average FICO scores. The new high, 704, is up from an average of 686 in 2009. Kenneth Harney, writing for the Washington Post’s Writers Group said that scores had been improving slowly since the housing crash, but jumped 5 points over the last two years, one of the fastest increases in FICO history.
FICO scores, and not every potential borrower has one, range from 300 to 850 and are based, not only on how well borrowers pay their obligations, but also the length of their credit history, how many and what type of loan accounts they have, and how much of their available credit is being used. Harney quotes FICO executive Ethan Dornhelm, who says, Americans are “making more judicious use of credit.” They’re using less than the maximum amount of credit available to them, paying their monthly mortgages on time, and showing fewer glaring negatives on their credit reports.
Another reason for the improvement is a decline in the numbers of consumers with truly awful scores. The share registering between 300 and 499 has dropped from 7.3% in 2009 to 4.2%. At the same time, one in five consumers is now a super-scorer--with an 800 or better in their file. An improved FICO means a borrower has a better chance of getting approved for a mortgage and will probably get a better rate, although 704 isn’t what the mortgage industry considers “golden.” With a 750 reading you might have lenders knocking on your door--and probably a pick of the best deals available.
Piling up Proof
There is more confirmation of a slowdown in home price gains, this time from CoreLogic. Their Home Price Index for August rose 0.1% compared to July and is up 5.5% year-over-year. These, the company says, are the smallest gains in two years.
Still, prices are still moving up almost everywhere, and some locations are still posting big increases; Nevada was up an impressive 13.0% and seven other states posted increases of 7.0% or better, including California.
An August study by CoreLogic found that the ongoing appreciation, even if moderating, is still causing problems on the supply side. Many sellers are reluctant to put their houses on the market, holding out for an even better sales price so as to have more money to put down on the next house.
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