OREANDA-NEWS. The housing recovery had been long delayed and has so far been relatively healthy, but irregular and more moderate than typical, according to Fitch Ratings. Challenges remain, including restrictive credit qualification standards and narrowing affordability.

Various housing and related statistics bottomed in early to mid-2009. Since then, for a time, the on-and-off, then on-again nature of the federal housing credit spurred, or at least pulled forward, primarily entry-level buyer housing demand.

With the US economy moving from recession to expansion in third-quarter 2009, plus very attractive housing affordability and government incentives, housing was jump-started. However, faltering consumer confidence, among other issues, had largely restrained the recovery. New home sales and single-family starts retested the bottom during the summer of 2010 and in February 2011.

During second-half 2013, the sharp rise in home prices and interest rates and the government impasse over the budget and debt ceiling led many prospective homebuyers to take a careful stance in the shorter term. Consumer caution and poor weather from early in the year restrained the gain in housing metrics in 2014. The growth in starts, especially single-family, was more robust in 2015.

During its early and intermediate stages, the housing recovery has been and may continue to appear saw-toothed due to a number of factors. Loan modifications sometimes fail, while the sometimes erratic economy produces additional new foreclosures and indecisive buyers. Realized demand is restrained by an irregular supply of homes and buyers adjusting to higher home prices and irregular spikes in interest rates.

Poor quality job creation, tight Fannie Mae/Freddie Mac loan standards (debt/income ratios, payment histories of revolving debt and borrowers who have gone through foreclosure) and strict Federal Housing Administration (FHA) loan standards (high minimum credit scores for certain new borrowers and, until recently, hefty upfront cash requirements) were notable impediments in the middle stages of the upcycle. However, some loosening of qualifications for Fannie Mae/Freddie Mac and FHA loans were put in place during 2015 and 2016.

President Obama's initiatives to keep people in their homes through mortgage refinancing and modification gained some traction during the past four years but clearly did not perform at their potential.

Lenders have been relatively slow or reluctant to cooperate with the federal agencies. In any case, data suggest that even after modifications, including a reduction in the principal amount owed, a sizable minority of homeowners default again. However, the expansion and enhancement of the Home Affordable Refinance Program and extension of the Home Affordable Modification Program led to broader loan modifications, and may further delay or prevent some foreclosures.

We believe this year looks to be another year of expansion for housing. If mortgage rates should rise sharply from current levels or credit terms tighten further, then Fitch's housing forecast for 2016 could turn more pessimistic. Of course, should the economy experience another recession, the housing downturn would resume.

In addition, although housing inventories seem to be relatively slim, an economy slipping into recession could inflame issues, such as negative buyer psychology and home price erosion relatively quickly, which can lead to a falloff in demand and bloated inventories.