Great article in this week’s TIME Magazine, slim as it is, showing the difference in the 10% and 20% down payment model. Subscription required online, page 17 if you want to skim while at the check-out line.
As you may know, the Feds (Dodd-Frank) want to increase home buyer’s “skin in the game”, requiring higher down payment percentages. Time charts how long it would take certain professions to save up for 10% down versus 20% down. A lawyer would take about 7 years to save up for a 20% down payment, whereas they could buy a home in about 4 years if they only put down 10%. Someone like a residential construction worker — what do they earn? $48,000ish? — would probably never end up owning a home unless he saved for 20 years for 20% down, whereas he could get a home in 12 years at only 10% down. Let’s look at teachers: 15 years to save up for that 20% down payment, 9 for 10% down. Time figured average home prices. The article also says consumer advocates and banks BOTH agree banks would raise rates to cover costs, and borrowers would basically be spending decades saving up enough money to qualify for a mortgage. Also, while they are saving that money, they would not be spending. My point: requiring 20% down is a disaster for our already ailing economy. My bigger point: I understand zero percent down and way easy money was bad and got us in this mess (thank you, Mr. Frank, thank you, Wall Street) but going to 20% is way too severe and would maim the real estate market. And the economy.
When I mentioned this story to Robbie Briggs yesterday, he had a good point: homeowners might resort to owner financing. But you might keep this in mind when you are listening to the candidates’ BS in the next few months: ask them — what would you do to get the housing market back on track?