Even if they managed to dodge the housing bubble and the bust that followed, many of today's first-time home shoppers are finding themselves in a similar scenario as home buyers in the years before the real estate meltdown. Like then, property prices are appreciating at a considerable clip; and investors are chasing profits on this growth. Contrary to the pre-crisis period, however, it is not so easy to line up home financing. One Sacramento couple, Adele and Josue Montoya, had to submit multiple documents to show that they could afford a house just to pre-qualify for a loan.
New lending rules also guard against the worst lending abuses of the housing bubble, although critics say the rules still are not strict enough. "We've created this false sense that we've made mortgages low risk," says Edward Pinto, resident fellow at the American Enterprise Institute. "But as time goes on and the push for looser lending occurs...the same thing could happen again." The tight underwriting standards have eased up slightly; the average FICO score for a closed home loan was 734 in August, down from 748 for all of 2012, according to data from Ellie Mae.
New safeguards include a rule that, starting in January, requires home loans to meet new federal qualified mortgage standards; otherwise, the lenders could face greater liability from borrower lawsuits. The U.S. tax code still encourages homeownership through its mortgage interest deduction, says Harvard economics professor Edward Glaeser, and the government backs more home loans than ever.