Home Affordability and Unemployment Rates Drop as FICO Scores Rise
Despite the pressure home price appreciation has put on affordability, the labor market continues to be very strong, as the unemployment rate declined again in September to 3.7%, and consumer credit scores have reached a new high according to a report released This Week in Real Estate by FICO. Below are a few highlights from the first week of October that influence our business:
FICO Scores Hit Record High
Lesson learned? Whether they saw their credit decimated by the housing crisis and the Great Recession or merely watched loan standards tightened beyond their ability to qualify, Americans seem to have taken to heart the importance of their credit scores. The result, FICO says, is that consumer credit scores have reached a new high, an average of 704 points. The 704 point average score, on scale that runs from 300 to 850, is a substantial improvement from the average of 686 in 2009. A lot of the improvement, 5 points, has been added in the last two years, one of the fastest two-year run-ups in FICO history. A score of 704 is considered good, meaning a consumer is a fairly safe bet for performing on a loan as agreed, and usually gets that borrower a fairly good interest rates and other terms. The best deals are usually reserved for those with scores of 750 or better. However, while FICO scores for most categories of borrowers are rising, the averages for people taking out mortgages are sliding, down from 745 in the years after the crash to about 733. This, of course, is not a reflection on borrowers but rather an indication that mortgage lenders are relaxing their standards, accepting slightly lower scores in their underwriting. There are a lot of factors that help account for the overall higher scores. First, fewer people have truly awful ones. Those with scores under 500 now constitute 4.2 percent of the total, down from 7.3 percent in 2009 and the share with scores from 500 to 549 has dropped from 8.7 percent to 6.8 percent. On the other end of the spectrum, 22 percent of those with a FICO number are considered “super-scorers,” with a score over 800. Forty-two percent have scores between 750 and 850.
U.S. Home Affordability Drops to Lowest Level in 10 Years
ATTOM Data Solutions released its Q3 2018 U.S. Home Affordability Report on Thursday, which shows that the U.S. home prices in the third quarter were at the least affordable level since Q3 2008 – a 10-year low. The report calculates an affordability index based on percentage of income needed to buy a median-priced home relative to historic averages, with an index above 100 indicating median home prices are more affordable than the historic average, and an index below 100 indicating median home prices are less affordable than the historic average. Nationwide, the Q3 2018 home affordability index of 92 was down from an index of 95 in the previous quarter and an index of 102 in Q3 2017 to the lowest level since Q3 2008, when the index was 87. Among 440 U.S. counties analyzed in the report, 344 (78 percent) posted a Q3 2018 affordability index below 100, meaning homes were less affordable than the long-term affordability averages for the county — the highest percentage of counties below historic affordability averages since Q3 2008.
Unemployment Falls to 3.7% in September
The labor market continues to be very strong as total employment increased by 134,000 and the unemployment rate declined by 0.2 percentage point to 3.7% in September. Job gains have averaged 208,000 a month in 2018, faster than the first nine months’ averages of 170,000 in 2017 and 206,000 in 2016. In September, the number of unemployed persons decreased by 270,000 while the number of employed persons increased by 420,000. As a result, the number of individuals in the labor force increased by 150,000. The labor force participation rate remained at 62.7% in September. Monthly employment data released by the BLS Establishment Survey indicates that the number of residential construction jobs rose by 4,400 in September, after a 12,000 increase in August. Residential construction employment now stands at 2.84 million in September, broken down as 799,000 builders and 2 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction is 6,717 a month. Over the last 12 months, home builders and remodelers have added 139,600 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 853,000 positions.