WASHINGTON, DC — The U.S. housing market has stayed stuck since the pandemic-era boom faded, with higher borrowing costs, scarce supply, and still-elevated home prices all putting pressure on would-be buyers. A new Pew Charitable Trusts study says another force is also shaping the slowdown: much tighter mortgage lending standards than in the years before the financial crisis.
Those standards helped clean up a market once marked by loose underwriting and so-called liar loans, but they also raised the bar for borrowers trying to qualify today. Pew’s housing policy team says the result is a system that is safer for lenders and investors, yet harder for many households that could otherwise manage a mortgage payment.
Postcrisis rules reduced defaults but narrowed the borrower pool
Pew principal associate Adam Staveski said the postcrisis changes lowered delinquencies and defaults, but they also made it more difficult for many Americans to get approved. In the study, he pointed to the tradeoff at the center of the modern mortgage market: stronger protections after the Great Financial Crisis, but less room for marginal borrowers.
The study says that tradeoff shows up in the numbers. Just 4% to 5% of delinquent borrowers now default, down sharply from 55% in the early 2000s. Pew also credits loss-mitigation tools such as forbearance, loan modifications, and payment deferrals for helping keep more borrowers from losing their homes after trouble starts.
That improvement, however, came with a tighter approval process that screens out more applicants up front. Pew argues that the system now requires a stronger credit profile than many families can build quickly, even when their incomes could support a loan.
Borrowers with 600 to 699 credit scores have lost ground
The pressure has been felt most clearly among Americans with credit scores in the 600 to 699 range, a group that Pew says often still has the money to carry a mortgage. Yet lending to those borrowers has fallen sharply over time, making the middle of the credit spectrum much less important in today’s mortgage market.
From 2005 to 2024, the share of mortgage originations going to borrowers with credit scores between 600 and 699 fell by 13.3 percentage points to 22.3%, according to the study. Over the same period, the share going to borrowers with scores of 700 or higher rose by 24.9 percentage points. Pew says that shift shows how approvals have moved toward borrowers with stronger, longer, and more established credit histories.
Credit scores favor older and wealthier households, Pew says
Staveski said credit scores naturally reward people who have had more time to build long credit histories and larger financial cushions. Because of that, scores are closely tied to age, income, and wealth, which means the lending environment can tilt against younger adults and households with less accumulated savings.
Pew says the effect is especially tough for young adults entering the housing market, lower-income families, rural communities, and Black and Hispanic households. Staveski added that some prospective borrowers may not be ready for a mortgage, but others are excluded because they have thin or nontraditional credit files or because federal credit standards are historically high.
In Pew’s view, the system is safer than it was before the crash, but that safety has a cost. The study argues that some qualified buyers are being pushed out even when they could handle the monthly payment.
Mortgage rates climbed back to their highest level since June 2025
The broader housing market has not offered much relief. Freddie Mac said Thursday that the average rate on a 30-year fixed mortgage rose to 6.76% from 6.71% the prior week. That was also above 6.35% a year earlier and marked the highest level since June 2025.
Higher borrowing costs are one reason home shoppers remain cautious, and the latest move does not suggest an immediate easing. With prices still elevated and inventory limited, the jump in rates adds another hurdle for buyers who are already facing stricter underwriting standards.
Existing home sales fell again as economists expect a weaker year
Sales of existing homes also weakened in the latest reading. The National Association of Realtors said Thursday that sales fell 2% in August from July to a seasonally adjusted annual rate of 3.98 million units. That was the third straight monthly decline and also 1.2% below the same month a year earlier.
Thomas Ryan, senior North America economist at Capital Economics, said mortgage rates will almost certainly move above 7% as the 10-year Treasury yield reaches its highest point since 2023. He said that would leave housing activity weaker than many forecasters expected.
Ryan added that Capital Economics now thinks existing-home sales will average closer to 4 million this year, rather than 4.1 million. If that happens, it would be the weakest annual performance since 1995.
More on what homes, rents and new builds are doing near you, on RHS Commoner.
