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To me it seems as though requiring 20% down will keep a lot of people from buying a home. A lot of people are capable of paying for their mortgage, but find it very difficult to come up with 20% without having to move in with the parents in order to save up.
lauramc,
I like the rule, but only as it applies locally here in San Diego where I think folks are aware of how relatively expensive housing is here vs incomes.
The reason I like it is, that its back to normal, the way it was 10-15 years ago.
Because of the recent anomaly that happened with creative financing and how that impacted values, market psychology and ability to obtain credit, this new (old) rule needs to set precedent again in the long run to stabilize the buyer psychology. There are still the quetsions lingering about 0% down and stuff like that which is just terrible IMHO.
What I think folks need to realize is that you cant mix a traditional method of financing a house (30 year mortgage) with non conventional lending methods. It just creates a false sense of value on the homes and can have a dramatic impact in their values.
Once folks start realizing this is the way it will be, they will be forced to conform over time. Its ok, they will live. I dont see mass suicides happening because people are actually going to need to prove that they are worthy of obtaining credit in line with their finances. In other words, daddy is coming home and what daddy says, goes. lol
Will it bring down values? Maybe a little bit, but I see values rather staying flat for a while, until the 20% becomes a norm, everyone is working and sun sets and rises with or without a house.
This obviously discounts folks that fit outside the wheelhouse of buyers. Those with tons of liquidity or cash to make their purchases.
I thnik where mnay now days error is thinking owning a home is just being able to pay the mortgage.The 20% rules is actaully to safe guard the general public as it makes people have some skin in the game and not just think if the worse happens they can just walk away. If you can't save 20% down then you likely are too much of a risk on that home.
Maybe we should be building smaller homes.....like in the old days.
2000 sq. ft. instead of 4-5000 sq. ft. homes.
Nowadays, I think people are guilty of buying "too much house", period.
Annie,
I totally agree with this. I think there is so much inventory of 4-5k sq ft McMansions that they will last for quite a while. There will always be a market for those kinds of houses I think especially where you may tend to stay indoors more.
The new wave I see is back to the old style (1500-2k sqft) or making more urban areas denser but smarter. Energy efficiency, recycled materials etc. It will make McMansions look like dinosaurs and wonder why they were ever built in the first place especially when folks really start seeing the benefits in their pocket books every month.
Last edited by shmoov_groovzsd; 06-27-2011 at 11:19 AM..
I posted something similar in another subforum in a discussion about the QRM rules.
I would much rather pay a larger down payment, but an overall lower price for the home. Home prices will drop to reflect the drop in demand, just as they increased exponentially when available credit expanded in the early 2000's. Home prices falling wouldn't be a bad thing, it would finally make homes affordable once again. Instead of shutting people out, it would include many people for whom housing prices have gotten out of reach. Easy access to credit has inflated home prices and pushed the lower to middle income borrowers to stretch as far as possible in their budget to be able to afford the monthly payment. The way to make homes affordable is not through credit, but real drops in prices. In the end we haven’t helped these lower to middle income borrowers, we’ve trapped them under a mountain of debt, but pretended that we helped them because we made it easier to sign a piece of paper. Affordable mortgages and affordable housing are not the same thing.
I don’t disagree that home values falling wouldn’t be hard on a lot of borrowers, but the real pain started when we loosened the standards for mortgages and pretended like an increase in home prices was universally good, regardless of whether or not it reflected increases in median income. The prices falling is inevitable when you’ve combined every trick in the book to get people into a home, low down payments, low interest, mortgage interest deductions, tax credits, etc without a real increase in income. In my eyes it’s just how long you want to prolong the inevitable. The idea of not letting housing prices fall through whatever intervention necessary is really just saying that those with housing wealth want to keep their wealth by building it on the backs of the up and coming borrower.
In the end I think the market should set its own rules without government mandates and the government should just exit the market altogether so I fundamentally disagree with the QRM rules, but we live in a market where the government still backs loans at 3.5% up to 729k, and the fed meanwhile is keeping interest rates artificially low extending easy money to the banks. In a truly free market I don’t think the banks would even consider less than 20%, or if they did as during the housing boom, they would be allowed to fail. But we don’t live in that world.
Actually I'm all for 20% down. Fine with me overall although I do think the market will take a hit if we go this way. I don't know all the rules but my worry is that they'll want 20% down and really high credit scores. Together that's even tougher.
I have no idea if I'm like anyone else but I had some hard times -- however not even once was I late on rent or utilities. (Just to be clear I wasn't late on anything else either but I know some people use debt management companies to work on paying down debt and such which lowers credit score). The BIG thing here is I am renting WELL within my means. I rent at 20% of my monthly gross. No more.
I actually think this is perhaps the MOST important thing. I had a lender tell me I was qualified to borrow up to $300K. The monthly payment is about 30-35% (depends on taxes and PMI) of my gross. He was SHOCKED when I told him no way! I don't care what you SAY I am qualified for. I'm not spending more than I can comfortably afford. I specifically want to know if something were to happen that I could get a regular type job and pay my basic bills.
That is the problem I see with so many - it is not always how much skin you got in the game....because in the end if you cannot pay the high monthly mortgage it doesn't matter - you're gonna have to walk or let it go.
So I say it should be a combo - higher down payment AND less house cost overall. Stop figuring that everyone wants to fork out 30-35% in a mortgage. That leaves no cushion at all. Some (maybe many IDK but here in CA there are a lot of foreclosures) people are fine with higher levels...but many aren't. Keep the cost low, down payment high, interest rate reasonable. Cost low means (like you note above) forget the 4000 sq ft. I laugh like crazy on those HGTV shows where you have a couple looking at a place that is 1600-2000 sq ft and saying stuff like "it's small". What??? There are TWO of you people.....you could live in 1/2 that space very comfortably!
For me - once I get the last thing of my ex's off my credit (come on 2013!!) my score will be high 700's (it's 654 now). I will save another $20K minimum (already have $35K) and will buy something no more than $200K. And I'll do a 15 year if I can -- esp. if I can spend less than 150K overall. a 15 year would be ideal. That's affordable and accounts for capacity to save and live and have savings if something happens.
That is the problem I see with so many - it is not always how much skin you got in the game....because in the end if you cannot pay the high monthly mortgage it doesn't matter - you're gonna have to walk or let it go.
So I say it should be a combo - higher down payment AND less house cost overall. Stop figuring that everyone wants to fork out 30-35% in a mortgage. That leaves no cushion at all.
I agree (in your case) and I don't (for all).
People, incomes and HABITS are different. Some might have a very stable income to rely on for years to come. Some might have hardly any other expenses beyond housing (walking everywhere, growing own food in gardens, no kids, etc.) Some, even with 6-figures incomes, spend like crazy on luxuries, vacations, etc. and have no savings or no back-up plan. Or, having to move on short notice because of the job that provides such nice income.
The thing is, for those with smaller incomes, aiming for less then 30% might simply mean that there is NO housing they can buy in that range, period.
Should they keep renting? Some, perhaps. While for others, it might be biggest waste of time and money - those that can save no matter what income, have a "cushion" for anything going wrong, and generally responsible and ready to settle. For them, renting forever with no return is a forever dent in the budget, plus the instability that comes with it.
I don't see what's the use to wait 10 years or more until their income get higher.... for some, with certain jobs, that time will never come! Yet, they very well could be homeowners and be better off in general.
... home prices are down anywhere
between 10-40% from their peak ...
I'd like to point out that it was NOT having to put 20% down that drove prices to their "peak."
Had there been "skin in the game" all that period when prices "boomed"
then prices would have only experienced a normal fluctuation and no
one who put 20% down would be under water right now.
There would also not be any incentive to strategically default.
There would not have been a boom and there would not have been a bust.
Doesn't matter if it's 5-10-or 20% dwn. New rules won't and can't fix a corrupt banking and insurance industry.
Jail time will be the only thing that does that. This will never happen....
So, to the housing market. It's over. It must collapse even further in order to get a system that can be built on a new foundation.
It is the collapse of our country that we are witnessing, brought about by corruption and greed. A Ponzi scheme of global scale.
The powers at be are preparing for social unrest, and third world nation status of the USA.
This is not hyperbole. It is reality. A slow collapse of the American dream. Brought to you by Global banking citizens. Not American Patriots.
Home values will continue to plummet, they are a horrible investment.
Invest in food, energy, and local business.
This country hasn't seen anything yet. Again not hyperbole. Wake up.
I agree!
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