"Nothing Down" Makes a Comeback: So Much For Increased Lending Standards

  While I never trust statistics from the National Association of Realtors, I do enjoy reading their realtor surveys. One important question from the June survey was "If the buyer obtained a loan, what percent was the down payment?" Here are the results:

Buyer did not make a down payment                  14%

Buyer made a down payment of 1% to 2%           3%

Buyer made a down payment of 3% to 6%          38%

Buyer made a down payment of 7% to 10%          9%

Buyer made a down payment of 11% to 20%       21%

Buyer made a down payment of 21% to 99%       16%


   That's right :14% of home buyers purchased a home without a down payment (and you thought banks had raised their lending standards). More importantly, 55% of home buyers put less than 7% down. The reason there is a large number in the 3-6% area is because FHA usually requires a 3% down payment. You would have thought that banks and mortgage lenders would have learned by now that it is important for home buyers to put up at least 10% down. This way they have some skin in the game and are less likely to default on a loan. Evidently, financial institutions have learned nothing from the whole real estate market collapse and subsequent financial crisis. I tried to confirm these results from a realtor I know in the Chatsworth, California area, and was told that it is possible to  purchase a home without a down payment, but you have to have good credit. In my opinion, these kind of stats how  vulnerable the US housing market is to any further decline in home prices. How many home buyers in the no down payment category are willing to endure negative equity? My guess is not many, and the same can be said for people in the 3-6% category. Talk about weak hands! These people will simply walk away and contribute to the bloated housing inventory.

Black Swan Insights    

"Nothing Down" Makes a Comeback: So Much For Increased Lending Standards