Although the recent trend of rising long-term borrowing rates may mean higher mortgage rates for consumers in the coming months, the greatest obstacles to housing market recovery are job creation and availability of credit, according to a NATIONAL ASSOCIATION OF REALTORS® analysis.

“Modest changes in mortgage rates are less important to a housing market recovery than the number of people who are able to obtain mortgages,” said NAR Chief Economist Lawrence Yun. 

NAR has been urging the mortgage lending industry to reassess and amend its policies so more qualified home buyers can become home owners.

“Currently, the overly tight underwriting standards are holding back the pace of housing market recovery,” said Yun. “In particular, creditworthy small business owners and those who want to purchase investor properties have encountered extreme difficulties in obtaining a mortgage. In contrast, all indications are that recently originated mortgages with Fannie Mae, Freddie Mac, and the Federal Housing Administration have solid loan performance, implying that credit is only going to the most well-qualified borrowers.  Additional creditworthy borrowers who are willing to stay well within budget and meet reasonable underwriting criteria should be able to obtain a loan to help speed the housing and economic recovery.”

Jobs needed to fuel housing recovery

To qualify for a loan, most buyers also must be gainfully employed. As Congress reconvenes this week and considers an extension of the Bush tax cuts, its decision could influence job creation.

If Congress extends the Bush tax cuts for those earning less than $250,000 but increases taxes for higher earners, the likely outcome would be1.5 million net new jobs in 2011, Yun said.

Other NAR economic predictions:

Mortgage rates will rise to 5.4% by the end of 2011 from current 4.2% average rate provided the inflation rate stays manageable at near 2%.

Total home sales, both existing and new combined, will rise to 5.5 million in 2011 from 5.1 million in 2010.
If the Consumer Price Index inflation rate reaches 3%, then mortgage rates could rise to 6% by the end of 2011, cutting home sales to 5.2 million.

“If the Bush tax cuts were extended for everyone across the board, an additional 400,000 additional jobs could be created in 2011, with home sales rising by an additional 60,000 to 80,000,” said Yun. “Of course, there are many factors that could influence job creation, and we also need to be mindful of the very high current budget deficits.”