Tighter lending standards in the subprime mortgage market – together with the possibility that the wellpublicized problems in this market may dissuade potentially eligible borrowers from applying – will serve to restrain housing demand, although the magnitude of these effects is difficult to quantify.
Subprime and near-prime mortgage originations rose sharply in 2004 and 2005 and likely accounted for a large share of the increase in the number of home sales over that period. However, originations of nonprime mortgages to purchase homes appear to have peaked in late 2005 and declined substantially since then, and by more (even in absolute terms) than prime mortgage originations.