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CBO: Credit Will Get Worse Before it Gets Better

While concerns about a weakening economy in 2013 may loom over the country, the Congressional Budget Office (CBO) reports recent findings on the housing market, including loan standards and qualifications. The message: it will likely get worse before it gets better.  

The CBO reports an increase in real residential investment for the second quarter of 2012 that is 10.7% higher than investments in the same quarter last year. House prices also saw an increase since last year and are 2.2% higher than they were in 2011. Housing market progress could be suppressed by concerns about a weakening economy in the next fiscal year though, according to the CBO. 

By the end of fiscal year 2012 (Sept. 30), total federal budget defect will remain above $1 trillion for the fourth year in a row, but is down from the $1.2 trillion defect reported in March.

The CBO does, however, see fiscal tightening and the continuation of historically low interest rates in the forecast. Between 2014 and 2017 the CBO projects interest rates will be restored to typical levels of 3.4% on 3-month Treasury bills and 4.6% on 10-year Treasurey notes by 2017.  

Loan qualification standards and terms will most likely also remain tight, and credit conditions are expected to stagnate due to banks remaining concerned about the weaker economy projected for 2013. 

Although unemployment has seen a 1.7% decrease since 2010, it is projected to reach 9.1% by the end of 2013 due to sharp deficit reduction before it begins a steady decrease through 2020. 

Additionally, inflation for 2012 remains at less than 2%. 

Read the CBO report here

Written by Erin Hegarty

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