20% Down Payment Becoming a Rare Sight

[SeanO]

Caught the following headline today. Most of the inventory I have personally sold in the last 2 years has been purchased by subprime borrowers with 100% financing. Clearly from the article below this is a wider trend. It will be interesting to see if lenders can continue to service these buyers in the face of rising foreclosure rates. If not, the removal of nearly 40% of buyers from the market could have significant repercussions.

20% Down Payment Becoming a Rare Sight
Fewer buyers are making down payments on their purchase of a new home, and even fewer are forking over the 20-percent sum that was once the norm, according to a new study by the California Association of REALTORS®.

Nationwide, nearly 30 percent of buyers and 45 percent of first-time buyers nationwide no longer make down payments, the study said.

In California, the trend is less pronounced. While 41 percent of home buyers there put nothing down, a solid 20 percent finance every dollar of their home purchase, up from 4.5 percent in 2000.

Buyers blame rising home prices, which make raising even a 10 percent down payment a challenge for many people.

"How many people are going to scrape together $40,000 in a reasonable amount of time? asks Doug Self, a recent home buyer from Sacramento, Calif. “That's three years of socking away a grand a month and not having anything go wrong. That's just not realistic.”

http://www.realtor.org/rmodaily.nsf/...2?OpenDocument

[Jim Nickerson]

Re: 20% Down Payment Becoming a Rare Sight

In California, the trend is less pronounced. While 41 percent of home buyers there put nothing down, a solid 20 percent finance every dollar of their home purchase, up from 4.5 percent in 2000.

http://www.realtor.org/rmodaily.nsf/...2?OpenDocument

Anyone, explain the difference in 41% putting nothing down vs. 20% financing every dollar. Are these not saying the same thing, but giving different percentages for doing the same thing?

[SeanO]

Re: 20% Down Payment Becoming a Rare Sight

Anyone, explain the difference in 41% putting nothing down vs. 20% financing every dollar. Are these not saying the same thing, but giving different percentages for doing the same thing?

Jim, I saw that too. Looking at it again, I believe it should read: 41% of first-time buyers, and 20% of all buyers.

[DemonD]

Re: 20% Down Payment Becoming a Rare Sight

SeanO, I know this is off-topic, but I see a lot of RE talk on a lot of blogs and a lot of information everywhere. I'm wondering where you see RE in 2009 (and by all means talk about california I know that's where your business is but that's fine because that's where I live). For example in another post recently you said.

Now that can only happen a couple of ways. Rents can double or prices can drop by 50%. If you think prices are going to drop by 50% then get out of the pool and rent for sure. If you think we are likely to have poom like inflation then the next couple of years (ka?) might not be a bad time to find a place to own and lock in an interest rate while they are still low. Just be sure that if you buy, you can afford it... reasonable payments, 20% down, etc.

I have become quite an RE bear myself probably reading thehousingbubbleblog.com way too much, but I'm wondering where your data and analysis sees this going.

-still saving up for my own 20%.

[SeanO]

Re: 20% Down Payment Becoming a Rare Sight

...I'm wondering where you see RE in 2009...

Now that truly is the million dollar question... unless you're a major subprime lender in which case it may be a billion dollar question!

Most of my friends and colleagues don't seem to think it will get much worse, and that this may be a buying opportunity. In fact most NorCal agents I've spoken with recently have said they've seen a marked increase in buyer activity recently.

Personally I think it is still too early to call a bottom. I think a recession is possible, I expect more bad news from lenders as they work through loans that never should have been made, and I think there will be fewer qualified buyers as lenders tighten standards impacting overall demand.

Now the government may do some "magic" (at taxpayer expense) to address those issues... stimulate the economy, lender bailouts, and we are already seeing government backed loans stepping in to fill the void being left by lender tightening.

So perhaps the combination of more bad news and government intervention leave nominal prices near flat in 2009 barring any black swans.

[grapejelly]

Re: 20% Down Payment Becoming a Rare Sight

1. It isn't a buying opportunity. Wait 2 years. Sellers haven't capitulated yet in most areas. Plain and simple they are trying to get 2005 prices today (at least they are in my area.)

2. Forget all the other subprime hype. The plain fact is that low or no down payment loans are likely to go south, regardless of resets/teasers/credit scores etc. etc. The market is falling and when it falls in earnest, homeowners wonder why they are paying above market for their homes when they can simply walk away and pay a lot less?

To paraphrase, it's the downpayment, stupid

[lurker]

Re: 20% Down Payment Becoming a Rare Sight

Perhaps the real estate bust will not wipe much of prices in the less bubbly areas, but to me CA RE looks like a very very dangerous buy at present.

In CA it's not just the subprimes who used exotic financing, but a very large proportion of primes. There are several more years of ARM resets to come before we can declare that the danger is over.

As for government riding to the rescue so far it's all hot air. The feds don't have the money to rescue the debtors. The Federal Reserve is also leaving it rather late if it intends to ride to the rescue with interest rate cuts that would allow refinancing into new ARMs.

If the market is picking up in northern CA then these buyers will be the first wave of bottom pickers who will get their financial heads handed to them when the market resumes its downward move.

RE downturns take 10 years to play out. Buying on the way down is fine if you can put 20% down and finance on a 15 yr fixed. If not you can't afford the house and could be wiped out.

[DemonD]

Re: 20% Down Payment Becoming a Rare Sight

Slightly off-topic:

Looks like our esteemed itulip contributor has made it into a small part of the mainstream media:

http://www.thedesertsun.com/apps/pbc...SS04/704010302

Highlight:

Foreclosure Radar, a foreclosure listings and software company, tracks actual foreclosure auctions of property. It noted 4,171 foreclosure sales valued at $1.64 billion for distressed properties sold at auction in February across California.

In January, the state posted 3,592 foreclosures valued at $1.51 billion, part of a trend that Foreclosure Radar CEO Sean O said is alarming.

To quote the HBB'ers: A billion here, a billion there, eventually it adds up to real money!