San Francisco’s deflating home market doesn’t necessarily reflect the whole nation, but it isn’t surprising. Easy money and excessively supportive government policy during the pandemic fueled a surge in housing prices nationwide. The withdrawal of cheap credit will doubtless cause pain, though where and how is hard to predict.
Credit scores of home buyers have generally improved since the 2000 bubble years thanks in part to changes in FICO’s calculations that reduced penalties for unpaid medical debt. A decade of historically low interest rates also made it easier for buyers to finance debt.
Yet perhaps the biggest credit boost came from Obama-era income-based student-loan repayment plans, which capped monthly payments at 10% of discretionary income. Many student borrowers consequently aren’t paying down their debt, but it isn’t counted against them when they attempt to buy homes. While credit scores are improving, it isn’t clear borrowers have become more credit-worthy.