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Lending standards continue to slide

Mortgage financing standards continue to ease in order for lenders to stay competitive. According to an article in the Wall Street Journal [1] the lending risk has been rising along with the rapid escalation in prices.

What is interesting to note, is that standards are easing for investors as well. The NAR reported 23% of all home sales were by investors [1] in March 2005 while First American tracked 9.86% for the first 4 months of 2005. The First American figures are likely to be low because they don’t include second homes. The spread between these two figures suggests that the secondary home market is significant.

Easier access to financing, keeps the churn going. However, the danger is that the combination of leverage and easy access to funds, combined with rapid price escalation, adds potential volatility to the market.

Live by the sword [financing],
Die by the sword [financing].