I’ve said for a long time that once home prices start increasing mortgage money would magically appear.

The firm Capital Economics, a company I’m not familiar with, expects the housing crisis to end this year, in part because of loosening credit, according to dsnews.com.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

And don’t forget that prices are determined by how much money is chasing how many goods, so as lending standards start to return to earth, more money will go towards home purchases and that will in turn strengthen home prices. (“Strengthen” may not mean that home prices increase, it could also mean that the decline in home prices slows or stops.)

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