Last year, the U.S. housing market tilted heavily toward high-end homes. A report from the National Association of Home Builders showed that the average sale price of a new property reached $318,000—up from $248,000 in 2009.
There were several factors driving this shift. Credit standards remained tight after the recession and, with real estate prices depressed, the market was dominated by investors who were able to pay in cash and rent out their newly acquired properties. Now, there are signs that things may be changing.
D.R. Horton, the largest U.S. home builder, has announced that it is starting a new business that will focus solely on building houses in the $120,000 to $150,000 range, which will be "the next segment of the market to recover," according to CEO Donald Tomnitz. These homes will reportedly be made available without any options or upgrades. The new Express Homes brand will initially focus on Texas, Florida and Georgia.
Stephen East, senior managing director of research firm ISI Group, told CNBC that he views this as "the right move," because "the first-time-buyer segment is getting access to more credit, which will lead to more demand for this low-entry level product."
Economic conditions may be improving, but that doesn't mean lenders can afford to pay any less attention to credit risk. Regardless of the size of a loan, it is essential for lenders to take precautions aimed at ensuring that the borrower will be able to make timely payments and meet their financial obligations. Using quality loan management software can help financial institutions ensure that their bottom line is being protected any time they extend credit to a new borrower or an established customer.