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john p · Joined: 10 Mar 2006 Posts: 1820

Three years ago it was easy for most to get a place with a 5% down payment for say the median price was $375k ok? That amount is $18,750

Today, they want 10% down payment for say the median is $300k. That amount is $30,000.

If you add $8k to $18,750 you get something in around $26,750 which when supplemented brings that first time home buyer closer to the 10% down payment right away.

If you think it doesnt' have an impact consider how much of an impact raising a 5% down payment requirement to a 10% down payment is. That is another $11,250. That takes almost 2 years to save at a $500 a month savings rate. I don't know, stimulating by shaving 16 months out of that seems substantial to me.

Keep in mind that what we're talking about isn't an asset people just go out and buy with cash, it is just a small fraction that they put into play to get the transaction going. Of course, they ought to make more people put more on the line on both sides, the homeowner and the banks, but the exit strategy be better done with microeconomic affordablity analysis.

admin · Posted: Wed Sep 30, 2009 4:34 pm GMT Post subject:

john p · Joined: 10 Mar 2006 Posts: 1820

Another point to consider is the outlook for 2010.

How about Outlook?

If people think that 2008 and 2009 were mulligans and we're coming back next year, they might not panic and put their place for sale if what they still have squirreled away is enough for the last few weeks of winter.

I think some are still beating the drum beat of doom and gloom or being overly optimistic for self serving purposes, while others point to double digit unemployment and the fundamental flaws that are still present in the economy. The big thing now I read is whether it is going to be a "V" shaped recovery or a "W" shaped recovery. (one or two dips). If you're a first time buyer you want another drop ("W") and if you're a seller you want a "V". Right now, it is about filtering out the spin and getting good data.

When I say look at "microeconomics", what I'm saying is to expect the floor to come out may come more from micro issues than macro issues. For example, EMC affects the housing stock in Hopkinton big time, or Putnam in Andover. Big layoffs impact certain towns and of course it would be a macro issue that would hurt a Putnam so keeping an eye on both is still important.

john p · Joined: 10 Mar 2006 Posts: 1820

GenXer:

You must have thought that Monty Python analogy was cool? I was hoping someone like you would have gotten a good laugh out of that one...

Renting in Mass · Posted: Wed Sep 30, 2009 5:10 pm GMT Post subject:

The Calculate Risk link includes this: "The NAR estimates the tax credit resulted in 350 thousand additional purchases."

That certainly suggests that the 8k credit was enough to sway FTHB. Who knows how they calculated that though. I feel dirty citing NAR data Wink

$8K is 2.54% of the most recent SFH median, which is 72.56% of an FHA down payment. That's huge.

Exactly. $8k is peanuts if you've got a down payment in savings, but if you don't, the fact that it gets you must of the way to a 3.5% down payment is a big deal.

And don't forget the power of conventional wisdom. "Buy now to take advantage of the tax credit" is the new "you're throwing your money away on rent."

Renting in Mass · Posted: Wed Sep 30, 2009 5:11 pm GMT Post subject:

Today, they want 10% down payment

No, they want a 3.5% down payment.

john p · Joined: 10 Mar 2006 Posts: 1820

Wow, really? I got the 10% figure from a friend who works in one of the big banks downtown. 3.5%, wow...

Renting in Mass · Posted: Wed Sep 30, 2009 5:40 pm GMT Post subject:

Yup, the banks tightened down payment requirements, but not the FHA. Actually, that's not true, they went from 3% to 3.5%.

john p · Joined: 10 Mar 2006 Posts: 1820

Talk to me like I"m an idiot (I know it's a stretch Wink

)

What is the basis to determine whether you're an FHA Loan or just a private deal mortgage?

Renting in Mass · Posted: Wed Sep 30, 2009 5:44 pm GMT Post subject:

I don't think the 3.5% FHA loans have much in the way of restrictions beyond being a first-time buyer. So if you don't have 10% or more for a down payment, you go with FHA.

Renting in Mass · Posted: Wed Sep 30, 2009 5:54 pm GMT Post subject:

Just did some looking. You don't need to be a first time buyer.

Here's a site that talks about the loan requirements:

http://www.bargaineering.com/articles/fha-mortgage-loan-requirements-guide.html

And here's a fun article about the bad financial shape the FHA is in:

http://www.realestateconsulting.com/Newsletters.aspx?quicklaunch=true&newsletter=Strategic/strategic200909

Apparently the FHA share of the mortgage market has gone from 2% in 2005 to 25% today. What could go wrong?

balor123 · Joined: 08 Mar 2008 Posts: 1204

Then there's refininacing - the bubble the Fed meant to create that wouldn't bring down the economy (just redistribute wealth to the real estate and finance sectors).