Tighter Lending to Affect Housing Market Through 2008

Federal Reserve Chairman Ben S. Bernanke says that although the tightening of subprime mortgage standards will affect the housing industry through 2008, it won't have a broader impact on the ecomony overall.

According to Bernanke, "We are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets." Bernanke's comments appear to confirm the consensus of policy makers that the downturn in housing is not likely to cause consumers to cut overall spending.

So what is a subprime mortgage, anyways? Subprime mortgages are generally issued at rates at least 2 or 3 percent above prime rates. Borrowers typically have poor or limited credit histories or high debt to income ratios. According to Nernanke, about 14 percent of all first-lien mortgages were subprime loans last year.

According to Greenspan, who retired from the Fed last year, the prime market is doing reasonably well. He says that "Some people are holding off on purchasing homes. Even so, we are getting a gradual rise in the prime market.''

We're definitely seeing some of this slowdown in the Santa Clarita area, with buyers taking a step back after the frantic market we saw locally in the last few years. However, we are still seeing multiple offer situations on occassion, so the market is far from "dead" here.