Starting July 1, 2022, the three major credit bureaus will no longer include about 70% of medical debt collections on credit reports.
This is a huge amount of debt that is being taken off the factors that determine credit score. You can read the full article at CNN
How does this change real estate?
There's more fuel for the fire!
So how does less medical collections on credit reports change things in real estate? More people will qualify for larger mortgages. If the amount of outstanding debt is removed by the credit bureau and past collections are deleted, the ratio of debt to income for most people will improve. Which means people will qualify for a home loan easier or qualify for a larger home loan.
Why is this a big deal? The cost of purchasing a home has increased by nearly 35% in the last year. People can't qualify for homes, which is reducing the number of buyers in the market place. House prices have continued to rise due to a shortage of housing.
However, new homes are being built. Which will increase inventory. So, the federal government has pressured the credit bureaus into changing the underwriting score to increase the number of potential borrowers available for upcoming inventory. By increasing the number of borrowers/buyers, the housing market will continue to increase or at least not decline in the next few years.
Why is the government keen on keeping house prices artificially inflated? It's about bubbles. If supply outruns demand, the housing prices will fall. Which will cool one of the main drivers of the US economy. Given that the Fed will be cooling the economy some by raising interest rates, the government needs to keep the price of houses propped up to avoid a double whammy.
And what does that translate to the buyer? The buyer is paying an artificially inflated price for a home. Which isn't a problem, as long as the buyer makes the payments for the next 5 to 10 years. If homeowners stumble, and foreclosures ramp up, then we will see the bubble pop.
So are we set up for a 2008 cliff again? Maybe, but not for a few more years. All of those loans that are generated for the suddenly new and improved credit scores are FHA, VA type loans. Which are backed by the US Government (Fannie Mae/Freddie Mac). What is interesting is that the Federal Reserve is likely to taper it's buying of government backed mortgages this year and into the future. Which will push those loans back to retail investors. And that's where we could have a repeat of 2008. It won't happen overnight, but the pendulum swings in every market.