Under current economic conditions, the risk of defaults on mortgages currently being originated is only 20 percent higher than the average of similar loans originated in the 1990s and much less than in 2006-2008 period.

Solely to the local and national economic environment, residential mortgage default risks for all vintages have been revised lower this quarter, and as a result, lenders can comfortably loosen credit for newly originated loans, according to University Financial Associates, LLC (UFA), which publishes the UFA Default Risk Index. All recent vintages have been revised lower by almost 10 index points as a result of UFA’s more sanguine house price forecast.

“The worst is clearly over so that mortgage lenders can comfortably loosen credit for newly originated loans,” said Dennis Capozza, who is the Dale Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan, and a founding principal of UFA. “Important factors in the more favorable outlook include low mortgage rates, the Federal Reserve’s loose monetary policy, and lower house prices now at or below fundamental values in many locations.”

Dr. Capozza said the continuing trend to more favorable conditions is encouraging lenders to be more aggressive, resulting in more financing being available for mortgage markets. He said the environment for mortgage investment is the best he has seen since before the housing crash in 2006.

The UFA Default Risk Index measures the risk of default on newly originated prime and nonprime mortgages. UFA’s analysis is based on a “constant-quality” loan, that is, a loan with the same borrower, loan and collateral characteristics. The Index reflects only the changes in current and expected future economic conditions, which are much less favorable currently than in prior years.

My real estate agent, Bea Meriwether, is one of those real estate people who thrived in the days when the business was all about personality and people skills, like selling houses face-to-face and negotiating like a poker star. She still bakes chocolate chip cookies just to scent the air at open houses and carries an extra hanky for teary sellers saying good-bye to the family home.

Bea has little use for the new Internet world that has transformed her business. She’d rather blab than blog and viral marketing makes her queasy. She calls the big real estate sites “Neverland” because they attract thousands of rubberneckers who fantasize over houses they could never afford. Bea prefers her reality anywhere but on a video screen, thank you very much, which is why her vanity plates say “B-REAL-T.”

So one day last month she ran into an old family friend, Wayne Parsons. She’d nudged him for years to sell his creaky old Cape Cod and downsize into a super modern condo or town house. But with the housing depression and living in Mirage Mills, known as the Chernobyl of American real estate, he decided to wait until the nation’s housing economy came to its senses.

We were still taking bets on how long that was going to take when, amazingly, prices in Mirage Mills actually rose two percent for the first time in memory. Bea was on the phone to her friend in a flash, eager to land a listing before the next price report came out and corrected the mistake. By golly if she didn’t convince him to sell. He probably realized that the way things are, he’d better take his two percent and run.

Now Wayne was as old as dirt but he loved the Internet and everything about it. He insisted Bea spend thousands to make his place look marvelous online. Bea held her nose, but she did it. She’d recoup the costs and a lot more when her commission came through at closing. Bea convinced the Parson family to take a week at the beach while they got the house ready to sell. The stager kicked the guy out of his own house so that they could hide his clutter, hit the public rooms with a coat of paint and fill them with furnishings that Bea carried around in the back of her SUV. A landscaper scalped 20 years off the trees and bushes. They even hired young models for the photo and video shoots to give the place some pizazz. The idea was to remove the Parson presence and make the house look like anybody could live there, and they were quite successful. Bea decided to surprise the Parsons by getting the listing up before they got home.

The house wasn’t on the multiple listing service two days before Wayne called from the beach.

“I don’t know how to say this,” he began, “Are you sitting down? “So today I was on my laptop searching for a new home. I typed in everything I wanted, number of rooms, zip code, price range, style. It took me to this beautiful home. It was perfect. Beautiful photos and even a video. Big and comfortable. Character. Well-kept grounds and freshly painted rooms with lovely furnishings. Even the people in the photos looked like they loved living there. I even felt a little sad that they had to sell and move away.”

Bea had a feeling she wasn’t going to like what he was going to say next.

“Then I looked at the address on the listing. It was MY house. The rooms looked so nice I had to look at the long shot outside, but even the bushes looked different. I searched on ten different sites. Each one, I swear, took me to the same house. I think the technology god is telling me something.”

“Believe me Wayne. Technology is godless.”

He ignored her. “So I realized the technology god is telling me not to sell. We already live in the perfect home for us and we could never be as happy anywhere else. Bea, thank you so much for helping me to realize this. It’s been truly an epiphany.”

Bea hung up and screamed out the back door of her real estate office.

Echo boomers and a moderate level of immigration will add 1.18 million new households a year through 2020, building demand for both rental and ownership housing, according to the Harvard Joint Center for Housing Studies.

Household growth over the next 20 years could potentially spur new home demand to an even greater extent than the Baby Boomers in the 1970s. “The good news for housing production is that this new generation already outnumbers that of the baby boomers at the same ages. With even a modest

lift from immigration, the echo-boom generation will grow even larger as its members move into the prime household formation years,” reported the Joint Center’s annual State of the Nation’s Housing report.

Declining households were a significant contributor to the fall off in first-time buyers at the end of the last decade.  Just 600,000 to 800,000 net new households were formed each year between 2007 and 2011, the lowest levels since the 1940s. If annual growth had instead remained in the 1.2-1.3 million range averaged over the four previous years, there would have been at least 1.8 million-and possibly up to 2.8 million-additional US households in 2011.

However, even the pending decline in the Baby Boomer population won’t be enough to offset the combination of echo boomers and immigrants.  Over the longer term, trends in population growth and immigration should balance out any short-run fluctuations in household headship rates, the report said. At 84.7 million strong in 2010, the echo-boom generation is already larger than the baby-boom generation at similar ages and is likely to grow even larger as new immigrants arrive. The oldest of the echo boomers, who turned 25 in 2010, are only now beginning to form their own households. This large cohort will be the primary driver of new household formations over the next two decades. Meanwhile, the baby boomers will continue to push up the number of senior households for years to come as they replace the much smaller pre-boom generation in the older age groups. While the boomers will eventually release a large number of housing units onto the market, this process will not be a significant issue for another 20 years.

Even with the new household growth, homeownership will to continue to decline in the short term, largely due to the backlog of foreclosures.  . The number of loans in the foreclosure process remains high despite an 8.5 percent decline from the 2.1 million peak in 2010. More promisingly, though, the number of loans 90 or more days past due fell almost steadily from 2.3 million at the end of 2009 to 1.3 million in the first quarter of 2012.