4 minEconomy
Tight Mortgage Standards Lock Out Buyers With Good Credit as Home Sales Hit 31-Year Low
A new Pew study finds that post-crisis lending rules now require near-perfect credit, shutting out millions of otherwise qualified buyers as existing home sales fall for a third straight month.
Mortgage lending standards have become so strict that many Americans with solid but not flawless credit are being shut out of the housing market, according to a study from the Pew Charitable Trusts. The finding comes as existing home sales fell for a third consecutive month and are on pace for their weakest year since 1995.
The study, authored by Adam Staveski of Pew's housing policy initiative, found that lending rules adopted after the 2008 financial crisis have made it harder for many creditworthy borrowers to qualify for a mortgage. While those rules helped curb the abusive practices of the pre-crisis boom, they now require what Staveski called a «pristine» credit history.
The impact is most visible among borrowers with credit scores between 600 and 699. From 2005 to 2024, the share of mortgage originations going to that group fell by 13.3 percentage points to 22.3%. Over the same period, the share going to borrowers with scores of 700 or higher jumped by 24.9 percentage points.
«Although borrowers now take on more debt as a share of their income than ever before, they must have a pristine credit history to be approved for a loan,» Staveski said. He noted that credit scores inherently reward long credit histories and financial cushions, creating a tight correlation between scores and age, income, and wealth.
That dynamic disproportionately affects young adults entering the housing market, lower-income families, rural communities, and Black and Hispanic households, according to the study. Some of these borrowers may not be financially ready for a mortgage, Staveski acknowledged, but others are excluded because of thin or nontraditional credit histories or because federal credit standards are historically high.
The tighter standards have made the mortgage market safer. Default rates are at historic lows, with just 4% to 5% of delinquent borrowers now defaulting, down from 55% in the early 2000s, helped by loss-mitigation tools such as forbearance, loan modifications, and payment deferrals.
But the trade-off is a frozen market. The benchmark 30-year fixed mortgage rate rose to 6.76% this week from 6.71% a week earlier, according to Freddie Mac. That is up from 6.35% a year ago and the highest level since June 2025.
Existing home sales fell 2% last month from July to a seasonally adjusted annual rate of 3.98 million units, the National Association of Realtors reported. Sales were down 1.2% from a year earlier.
Thomas Ryan, senior North America economist at Capital Economics, said mortgage rates will almost certainly climb above 7% as the 10-year Treasury yield reaches its highest level since 2023. He said his firm's projection that existing sales would average 4.1 million this year now looks «slightly optimistic,» with transactions more likely to average closer to 4 million, which would be the weakest annual pace since 1995.
The combination of elevated borrowing costs, limited supply, and high home prices has kept the market frozen since the pandemic-era boom ended. The Pew study adds another factor to that list: a lending environment that Staveski said has made the mortgage market safer but also harder for qualified individuals to achieve homeownership.
