Good News and Bad News in the Housing Market
The good news: 43% of first-time home buyers put no money down.
The bad news: 43% of first-time home buyers put no money down, and the median down payment is 2% on a $150,000 home:
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.”
I agree that there’s a risk, but I don’t think it’s as big as portrayed in the article. But the possibility of trouble is why it’s good news that the Fed appears close to being done with the rate-hiking, and that mortgage rates have stayed stubbornly low. Nevertheless, there is valid reason to be worried about certain markets, especially those where the runup in prices has been steep in the past year.
I live in Michigan and tried unsuccessfully last year to sell my home. Michigan has an unemployment rate of 6.7%, higher than the national average of 4.9%. We have lost thousands of industrial jobs, many to Mexico. We are the only state that has not recovered from the slump after 9-11 and still remain at a net job loss. In fact, our unemployment rate is expected to continue to rise to as much as 7.4% by 2007. Despite some who are trying to report positively on our housing market, I see no hope for Michigan without jobs.
Comment by Lisa M — January 19, 2006 @ 4:15 am
for most people taking out a 30 year mortgage at 5% interest is a significant savings of money and it makes sense to maximize it. the 10 or 20% customary downpayment on a 150k house is a nice chunk of change that again, for most folks, would be better off spent paying down debt, or invested, although it will probably be just spent.
Comment by dave — January 19, 2006 @ 8:45 am
#1, I’m in OH which hasn’t done that well, but MI is definitely worse off. I don’t know what you do without a change in leadership and mindset in Lansing.
I think Granholm is in over her head, and Devos, the GOP fave at the moment, is unimpressive for too many reasons to go over here. And cleaning up the voting corruption in Detroit is necessary, or the rest of the state, which is mostly sane, will keep on getting unfairly drowned out. I wish I had some ideas for up there. I think it will take a very courageous clear-headed lib turned conservative with credibility to lead the state through this — don’t know who that is.
Comment by mmatters — January 19, 2006 @ 11:03 am