No doubt about it, when you rack up your second-best year in business, it is certainly a cause for celebration. But when it comes right after your best year ever, it can be also be a cause for concern, as MassHousing is finding out.
The state’s affordable housing banker, the Massachusetts Housing Finance Agency backed $766 million in affordable mortgages for working- and middle-class families across the state. It was the second-best year in the quasi-public housing agency’s nearly 50-year history.
“It was a terrific year for us,” said Thomas Gleason, chief executive of MassHousing, said of the numbers piled up during the fiscal year that ended June 30. “Our homeowner lending has really led the way.”
But it follows a record-breaking 2013, when MassHousing made a phenomenal $1.2 billion in low-cost mortgages available through a network of 150 community banks and lenders across the state.
The decline isn’t due to any drop in demand for MassHousing’s affordable mortgages. With housing costs in Massachusetts some of highest in the country, that’s stronger than ever. Rather, many of the families who make up the backbone of the state’s workforce face a triple-whammy of rising prices, dwindling listings and credit standards that are still crazy tight.
“There is much less product for people to buy,” Gleason said. “There are fewer homes for sale, and the homes that are for sale are priced higher than they were six months ago.”
It’s not exactly breaking news that there is a housing shortage in Massachusetts – but the competition now appears to be getting tougher the farther you go down the price scale.
Sales of homes across the state priced below the $1 million mark fell 5 percent during the first seven months of year, according to Wellesley-based Pinnacle Residential Properties. By contrast, sales of homes above $1 million are soaring, with a 30 percent jump in the sale of mansions above $3 million, according to the firm’s widely-read Pinnacle Report.
And the families who rely on MassHousing mortgages – with average household income of $75,470 – are right in the middle of this housing squeeze.
MassHousing’s sweet spot are loans in the $200,000 to $400,000 range, with an average purchase price of $237,576. A big attraction is their low cost – 3 percent down and no private mortgage insurance.
The vast majority of the loans backed by the housing authority go to buyers in the state’s Gateway Cities, places like Lawrence and Lowell, Springfield, Worcester and Holyoke.
Low Inventory, Higher Prices
The shortage of listings on the market, in turn, are helping drive up prices, putting further pressure on families. The median price of a single-family home edged up 1.7 percent in July, to $355,000. It was the 22nd straight month of price increases for the state’s housing market, notes The Warren Group, publisher of Banker & Tradesman.
Now price increases in and of themselves aren’t necessarily bad, MassHousing’s Gleason noted. After all, resurgent values have helped revive the market and push buyers, who had been sitting on the fence, to start looking again. But a return to the runaway home prices of the mid-2000s would be a major setback, he warned. MassHousing’s mortgage portfolio plunged in those years, as buyers struggled to find anything in their price range, and were barely able to afford the cramped homes they could buy.
“We don’t want to go back to the hyperinflation we had seven or eight years ago,” he said.
But it’s not just rising prices and dwindling listings that are making it harder for working- and middle-class families to find a home.
Banks have yet to come down from the super-tight credit standards they put into place after the housing market collapse and the Great Recession.
“In every real estate cycle, that pendulum swings,” Gleason said. “We are in the too-tight mode right now.”
The average credit score of mortgage borrowers is now a fairly high 735, compared to the somewhat more flexible 660 it was a decade ago.
Gleason would like to see banks use more flexibility – and just simple common sense – and give a shot to borrowers with somewhat lower scores, say in the 650 range.
“We think there is a bigger homebuyer market out there than is being reflected in the stats,” he said.
In fact, maybe some of today’s uptight bankers can learn a lesson or two from MassHousing’s job-loss insurance program. A well-reasoned gamble on the resilience of the average home buyer, it has paid off handsomely over the past decade. Despite a recession and the collapse of the housing market, just 17 percent of the more than 800 borrowers who have had to draw on their policies have lost their homes.
Imagine that, freed from the fear of imminent foreclosure, homeowners were able to get back on their feet, find new jobs and get back on track. The vast majority of borrowers aren’t potential dead beats – and shouldn’t be treated as such.
“Instead of worrying losing your home, you can focus on getting reemployed,” Gleason noted.
“Common sense is what lenders used 40 years ago to make loans,” he said. “We need to get back to that.”
Email: sbvanvoorhis@hotmail.com
