National Housing Market Outlook

Homebuyers Have Never Been More Creditworthy

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Alex Thomas photo

Danielle Nguyen

Alex Thomas

June 28, 2024

Key takeaways

  • The median FICO score for homebuyers using conventional mortgages has reached a record high of 768, according to Optimal Blue.
  • As resale inventory rises in pockets of Texas, Florida, and Arizona, expect creditworthiness measures to normalize as sellers and builders reach deeper into their prospective buyer lists.

High-quality buyers dominate today’s market.

The median FICO score for homebuyers using purchase loans hit a record high of 768 in May, as reported by Optimal Blue. This reflects a broader trend of improved financial health among homebuyers.

Factors driving higher homebuyer FICO scores

  • Long-term factors: Over the past decade, improving credit scores have been supported by strong economic growth, rigorous lending standards, and programs designed to help homeowners avoid delinquency. The average FICO score for the typical consumer is ~720, up from ~700 pre-pandemic and ~685 during the depths of the Global Financial Crisis.
  • Short-term factors: Elevated mortgage rates and rising home values have priced out all but the most creditworthy buyers from both the new and resale markets.

Widespread increase in credit scores

Data from Optimal Blue shows that nearly every state has seen a significant increase in purchase loan locks by borrowers with Very Good or Exceptional credit scores (740+), comparing June 2022 to June 2024.

There are more creditworthy buyers than homes for sale.

Despite affordability challenges, there are more creditworthy buyers than available homes. Mortgage rates above 7% have priced out millions of households, yet the lock-in effect continues to limit the number of homes for sale. Although unsold new home inventory is high (levels not seen since the mid-2000s), it is still outnumbered by highly qualified buyers in most markets. Buyers with high FICO scores tend to have the necessary income or home equity to purchase in today’s market, pushing the median FICO score for loan locks higher.

Builders benefit from high-quality buyer traffic.

Builders in most markets continue to see high-quality traffic (serious, well-qualified buyers) coming through their doors, despite slowing due to affordability challenges. Incentives like flex cash and rate buydowns help builders stay competitive, especially where resale inventory remains low and prices keep climbing.

In our most recent Homebuilder Survey, a Wilmington, NC, builder noted, “Mortgage rates are slowing sales. Traffic is high quality but slower.” Several builders highlighted the strength in buyers’ credit profiles in their most recent earnings calls, despite rising rates and worsening affordability. Most large public builders reported that their buyers had average FICO scores above 740.

Monitor homebuyer FICO score trends in regions with rising resale inventory.

Inventory remains well below pre-pandemic levels nationally. However, some markets in Texas, Florida, and Arizona are nearing or exceeding 2019 levels of inventory. In these areas, buyers with average credit scores may re-enter the market, especially where home prices start to flatten or decline (such as in Austin).

Homebuilders are starting to see qualification issues, as Lennar expressed in their 1Q24 earnings call (March 2024):

“We’ve started to see early evidence of debt delinquencies showing up and derailing some mortgage applications. When you look at denials in particular, more of the denials are having a higher percentage relating to debt to total income.”

Keep an eye out for normalizing FICO scores in markets with rising resale supply. We track more than 400 leading economic and housing market indicators every month in our Research, which inform our thesis and forecasts for the next several years. Our research team can help you unlock new insights to better navigate changing market conditions. Our Consulting team applies this knowledge to specific property and strategy decisions.

IN PARTNERSHIP WITH OPTIMAL BLUE

Optimal Blue is a leading comprehensive capital markets platform for the mortgage industry.

Optimal Blue effectively bridges the primary and secondary mortgage markets to deliver the industry’s end-to-end capital markets platform. The company helps lenders of all sizes and scopes operate profitably and efficiently so they can fulfill the momentous role of helping American borrowers achieve the dream of homeownership, regardless of market dynamics.

Through innovative technology, a network of interconnectivity, rich data insights, and expertise gathered over more than 20 years, Optimal Blue is an experienced partner that allows lenders to optimize their advantage from pricing accuracy to margin protection, and every step in between. To learn more, visit OptimalBlue.com.

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About The Author

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Danielle Nguyen
Vice President of Research
Danielle manages, implements, and analyzes the housing market with a specific focus on for-sale and for-rent research. She is a research content creator who produces high-quality, insightful, and forward-looking housing research and a trusted resource (connector) for clients and those interested in JBREC’s research.
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Alex Thomas
Senior Research Analyst, Macro
Alex assists our research team in tracking macro-level economic and housing trends and data. He also helps cover the fix-and-flip space.

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