Mortgages Are More Likely to Be Approved When It’s Sunny, Research Finds

If it’s true that it’s always sunny in Philadelphia, that might be a good place to try to get a loan.  A recent paper published by the Cleveland Fed found a strong link between sentiment influenced by weather and mortgage approvals.

As might be expected, positive sentiment, which emerges in sunnier weather, leads to higher credit approvals, while rainy-day moods result in tighter credit conditions.  Using the database of the National Oceanic and Atmospheric Administration, the researchers analyzed data in more than 2,000 U.S. counties from 1998 to 2010

Sunny sentiment boosts approvals for credit applications by 0.80% while approvals drop by 1.41% on overcast days.  Those sound like small amounts, but as the researchers point out, such shifts can have “significant” effects.

“A rough estimate of the extra credit approved on one perfectly sunny day relative to one fully overcast day is about $150 million nationwide or $91,000 per county-day,” they wrote.  Lenders are walking on sunshine even more in situations in which they use more discretion.  “Sentiment has a stronger effect on the approvals of applications by low-income and medium-income households, which require more judgment,” the paper notes. “In contrast, the effect of sentiment disappears when the decision is clear-cut and when pre-approvals are common – namely, for high-quality applications from households earning over $100,000 per year.”

That also means the weather has a stronger impact on smaller firms, in which credit decisions are less automated and more personal. “In contrast, the sentiment effect drops by up to one half  for large, national firms where managerial decisions are more standardized and where non-local influence is more likely.”

The researchers also found that the sunny-side-up borrowers aren’t as diligent with their obligations.  “The evidence shows that loans approved on sunny days experience significantly higher defaults,” the researchers note.