Posted 1/17/2006 11:29 PM Updated 1/18/2006 3:48 AM 43% of first-time home buyers put no money down By Noelle Knox, USA TODAY WASHINGTON â As housing prices soared last year, an eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans, according to a study released Tuesday by the National Association of Realtors. The trend is potentially ominous. The real estate market is cooling in some areas, and rates on adjustable-rate loans are creeping up. As a result, some no-money-down buyers could owe more than their homes are worth. The median first-time home buyer scraped together a down payment of only 2% on a $150,000 home in 2005, the NAR found. Already, home prices in many areas are declining, and the "For Sale" signs are hanging in front yards longer. There's now at least a 50% risk that prices will decline within two years in 11 major metro areas, including San Diego; Boston; Long Island, N.Y.; Los Angeles; and San Francisco, according to PMI Mortgage Insurance's latest U.S. Market Risk Index. "In a number of areas, particularly on the coasts, they have a high risk of price declines in the next two years," says Mark Milner, chief risk officer of PMI. Red-hot home building, acquisitions, remodeling and refinancing in recent years helped drive the economy and raise fears of a real estate bubble. Dean Baker of the Center for Economic and Policy Research says that if housing prices fall at least 10%, it could be even more damaging than the collapse of the high-tech stock bubble in 2000. "If we do get a spike in mortgage rates, and a modest decline (in the housing market) turns into a rout, there's almost no bottom to that," Baker says. "That's a crash scenario." Baker and other economists are concerned that many lenders have pushed a series of creative but potentially dangerous loans to help more Americans afford a home. The traditional 30-year loan with a fixed rate remains the most popular way of financing, according to the Mortgage Bankers Association. But about one-third of homeowners take out riskier loans, such as interest-only or flat-minimum-payment mortgages. "These non-traditional loans transfer risk to the borrower," Milner says. NAR President Thomas Stevens says he isn't worried that nearly half of first-time home buyers put no money down, but adds, "If the number was higher than that, I'd be concerned." Who are entry-level buyers? Survey of home buyers reveals: Median age: 32 Median household income: $57,200 Median down payment: 2%* Purchased with no money down: 43% Source: National Association of Realtors, 2005 Profile of Home Buyers and Sellers
Nothing like a zero risk investment. Goes up great. Drops like a stone.... walk away. What could be better....... Written with a healthy dose of sarcasm!!!!
These quotes are just too much, LOL. "Only" 43% bought homes that they really couldn't afford. No biggie. All these real estate guys remind me of Elaine Chow, when she use to spin the employment numbers for Bush. She was a master at it. I wonder how they'll spin it when people start mailing in their keys after defaulting....
These #'s are insane. I'm in the process of looking for a new house and i'm going to put up at least 40% and i still can't believe how much my mortgage and downside risk will be. Long Island Real estate, LOL.
Don't make the mistake of extrapolating lack of affordability from those statistics. Most first time buyers are purchasing lower end homes. Cheaper homes have decidedly less downside to lenders. Hence the no down payment. With the new BK law it's not as if a 60k a year wage earner is going to be able to "walk away" from a 25% hit on his 180k mortgage. Often the mortgage payment or out of pocket cost (ex interest deduction) is less than their previous rent payment.
Serving in the military offers the benefit of G.I. Home loans that make possible $0 down and a decrease in rate. This may slightly skew the statistics.
mortage company advertising on radio all weekend here. "500 down buys a new home. 60 day delay for first payment so you can take your next rent payment and buy a new home."
Is this true? I always thought (at least in most states) that 1st mortgages for a principal residence were non-recourse and that the house was putable w/o having to declare bankruptcy?
In most states, a home mortgage is full recourse. Florida is one exception. Commercial loans are often non-recourse, but require a down payment as potentially high as 50%.