As 2018 is still fresh, home prices strikingly resemble the highs of the 2006 housing bubble. However, this time around, no one should fear an inevitable collapse.
The 2008 Great Recession came in part from a housing market with a shoddy foundation. The lending standards from a decade ago were much looser than they are today. The low FICO scores in 2006 clearly represents this. The median FICO score in 2006 was 700, while the median FICO score in 2017 was 734. This is a 4.8% increase in the average FICO score—arguably representing a 4% increase in financial stability across the United States.
Looking at the bottom 10% of home borrowers reveals the real growth of the American financial situation. In 2006, the median FICO score for the bottom tier of home borrowers was 602; whereas, in 2017, the median score for that same tier was 649. This is a 7.8% national increase in only 10 years.
One of the major contributing factors to this increase was the installation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act requires that loan originators provide verified documentation that proves a borrower can repay their loan. “Lending standards are critical to the health of the market,” said a chief economist from a well-known website. “Unlike today, the boom’s under-regulated lending environment allowed borrowing beyond repayable amounts and atypical mortgage products.”
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