Leverage is
a key
concept in
real estate
- buying a
lot with a
little, but
among recent
home buyers
it has
reached
extraordinary
levels. New
survey
research
using a
representative
sample of
purchasers
found that
at least
among
first-time
buyers,
downpayments
have
withered to
the point of
virtually
disappearing.
The
National
Association
of Realtors
polled 7,548
consumers
who bought
homes
between
mid-2005 and
mid-2006.
Forty-five
percent of
first-time
buyers
financed 100
percent of
the
transaction
- they made
no
downpayments
whatsoever.
Another 20
percent put
down 5
percent or
less and 30
percent
invested 10
percent or
less.
Among
first-time
purchasers
in the
South, the
median
downpayment
was zero. In
the West it
was 1
percent, the
Midwest 2
percent and
in the
Northeast, 4
percent.
Among repeat
purchasers,
the median
downpayment
in the South
was 13
percent, in
the Midwest
15 percent,
the West 18
percent, and
in the
Northeast,
22 percent.
The
reason for
the high
leverage,
according to
researchers,
is that home
prices in
many areas
during the
boom years
soared far
beyond
consumers'
income
growth and
other
financial
resources.
The only way
many buyers
could afford
a new house
was to take
out a big
loan with a
minimal
downpayment.
Also
contributing
to the
minimum-down
trend:
Innovations
in the
mortgage
market that
allow small
or zero
downpayment
programs for
qualified
buyers,
including
popular
"piggyback"
plans that
combine
first and
second liens
up to 100
percent.
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The
financing
research is
part of
NAR's 2006
"Profile of
Home Buyers
and
Sellers."
Other
notable
findings
from the
study:
More
than one of
five
first-time
buyers
received
help with
their
downpayments
- minimal
though they
were - from
relatives or
friends.
Seventy-three
percent
tapped into
their
savings
accounts to
put together
the cash,
and 4
percent took
money from
their IRAs.
Fifty-two
percent of
all buyers
view their
home as a
better
investment
than stocks,
and another
29 percent
say a home
is about as
good an
investment
as stocks.
The
demographics
of home
buyers are
shifting
rapidly. In
1995, 70
percent of
all
purchasers
were married
couples. In
2006, just
61 percent
were
married. In
1995, 14
percent of
buyers were
single
females. In
2006, they
represented
22 percent
of the
market.
Single
males, by
comparison,
were just 6
percent of
the market
in 1995 and
in 2006.
Foreign-born
buyers are
becoming an
increasingly
important
component of
the housing
market. In
the
Northeast,
more than
one of every
seven
purchasers
(15 percent)
were
foreign-born
in 2006. In
the West, 13
percent were
foreign
born, 10
percent in
the South
and 6
percent in
the Midwest.
First-time
buyers
decreased as
a percentage
of the total
market in
2006,
falling to a
36 percent
share. That
is down from
40 percent
in 2005, and
is the
lowest share
since 1995,
when
first-timers
accounted
for 42
percent of
all sales.
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