Home buyers survey finds that more than 21% took out zero-down mortgages last year

[n2doc]

Home buyers going deeper into debt
Realtors' survey finds that more than 21% took out zero-down mortgages last year
Marni Leff Kottle, Chronicle Staff Writer
Wednesday, February 7, 2007

There could be trouble ahead in California's housing market as buyers are going deeper into debt while sellers are seeing less profit, according to a survey.

More than 21 percent of buyers last year took out zero-down-payment mortgages, soaring from just 4.5 percent in 2000, according to the California Association of Realtors, the industry's trade group.

The findings suggest that buyers are taking on more debt at a time when the market both statewide and in the Bay Area is slowing. The number of homes sold in the Bay Area dropped 19 percent last year compared with 2005 and the median home price rose just 2.9 percent to $736,820 after years of record gains.

"Buyers are really straining," said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. "The prices have really become unaffordable in a traditional sense and the only way some people are able to buy is to become more heavily indebted and put less down. That's a scary sign."

Homeowners are no longer as concerned about paying off their mortgage as previous generations, making zero-down loans more appealing, said Jack Williams, president of the California Association of Mortgage Brokers.

"They're trying to leverage their money the best way that they can," Williams said. "Whether they put 10 percent in a home or zero percent, the fact is that nobody wants to lose their home."

The report, issued Tuesday, confirmed concerns among some economists that homes have become less affordable in California in part because salaries haven't climbed nearly as fast as home prices.

"People are buying above their income level, financing with debt and hoping," Levy said. "They lucked out before. This means that any price downturn is going to put a much greater number of people under water."

Even buyers who offer cash up front are offering less. Levy pointed to the decline in the size of down payments found in the report as a sign that buyers are pushed to their limits. The median down payment fell 8.8 percent to $73,000 last year from $80,000 in 2005, even as median home prices rose, at least modestly, in many parts of the state.

more:

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/07/HOUSING.TMP

[ixion]

1. "People are buying above their income level"

uh, well considering wages in this country are stagnant, at best, how the hell are you supposed to buy a (decent) house at your income level?

Not everyone makes 400K per year. :eyes:

[InkAddict]

Shame on most of the posters to this thread...

Granted, there are indeed many who have grabbed onto the phoney brass ring of the mortgage game as it stands right now, and deserve to fall for wanting something for nothing, but come on, have some sympathy for those few who have struggled without success to keep their well-planned and down-paymented, modest homes, paid down successfully 20/30 years, in less to no-bubbled States, in the face of GOP fascist policies that have decimated the ability of whole communities (think MI, OH, LA, MS, NC, SC) to maintain those homes; policies that brought foreclosures due to basic deregulation, bankers' greed, and costly (understatement) military adventures instead of policies that strengthend the ability of families to hold onto stable employment that allowed a mortgage payment at all, policies that did NOTHING to stop the escalation of healthcare costs and/or the American dependence on foreign oil, affordable education programs and dumbed-down underfunded public education.

If those no-down, usurious ARM, balloon payment mortgage plans were not allowed to exist just because they were instrinsically dangerous, then foolish buyers wouldn't be able to exercise their foolishness so readily and their greedy lenders, lobbyists, lawyers, and institutional/corporate pigs wouldn't have had so much feed in the BFEE's trough of lies, CHEW ON THAT CUD INSTEAD!

[InkAddict]

12. Shame on most of the posters to this thread...

Oops...doubled posted. Guess I got carried away.

[Burma Jones]

2. Oh, Nevermind

I forgot where I was........

[acmejack]

3. You are special!

Perhaps you can conduct classes for the rest of us since you are obviously all together and so prepared to lecture.

[vi5]

8. Hahaha....

I read your original post and didn't think it was at all that bad. It was the truth. Unfortunately that doesn't always sit so well around here.

[Burma Jones]

9. Thank You, we started very small........

and were patient

[vi5]

10. Same here....

Even when it came time to buy our first house we opted for something very small and well below what we could have afforded at the time. This allowed us to save more for a few additional years and then get a larger hourse without having to struggle. As you said, all it requires is patience.

That being said I know people who do the no down payment mortgages or all interest loan simply because even though they've been patient, have limited income and no prospects and do want to have a house for their family. I don't begrudge anyone this. I'm more referring to the people who don't want to save before they have a house and then want to have a house sooner than they need one and then pay the consequences in this way.

[vi5]

4. I know so many people who did this...

They are now getting screwed royally. But they were so hung up on the dream of getting a house that they would do anything to get it. Rather than living in a modest apartment for a few years, getting even a small down payment to put towards it, they wanted it now and would not wait. I wish I could feel sympathy for them for doing this but it's hard since the reason they were in this situation top begin with was not from hardship or lack of good jobs or any of it. They were in this situation because for many years they just wanted to live hand to mouth and squandered away any potential savings from their good salaries for immediate gratification lifestyle stuff. Which is fine since that is every american's choice and option. But when it leads them down this road it's hard to muster up much sympathy.

Edited to clarify that when I say they lived hand to mouth, not because that was their means but because they chose to spend every penny of their substantial disposable income every single month.

[sendero]

5. From my observations...

.. the scenario you describe is the most common one. Folks can't wait, they roll the dice, and there are winners and losers.

Problem is, their mismanagement affects the entire marketplace, along with the speculators. Kinda karmic in a way, but destructive also.

[lectrobyte]

6. Not only that, I see guys that are two or three years out of college

here in the boomtown, and their "starter" houses are 3500 sq ft $400K McMansions (for comparison, a 1500 sq ft 3 BR 2 BA in nice location is around $150K).

[seriousstan]

11. Colleges are institutes of higher teaching....not learning.

Even the most foolish may graduate.

[seriousstan]

7. Fools and their money, I have no sympathy.

[twilight_sailing]

13. Recipe for disaster

"People are buying above their income level, financing with debt and hoping"

[n2doc]

14. People still think it is 1970, or 1990 or 2001...

They think we are going to see a repeat of the price explosions in the real estate market. So if one thinks this way it makes sense to borrow as much as you can and buy the most expensive house that you can. But if house prices stagnate, go down or just appreciate at a modest 2-3% a year, these people are playing russian roulette.

Ican't read the future either. If I look at housing prices in California and the east coast, I think that there is just no way for prices to go up. Frankly I don't know how people afford the house prices now. But then I thought that in Seattle and Californai in 1992, and in retrospect those were great times to buy. If you wanted to sell now.

I do know the interest rate driver that ran the last oom is over and won't be repeated. We went from 8 percent to 5 percent (or 3-4 forf ARM's) and now we are at 6% so no similar big drop is possible. I don't know what else could be used to drive the next bubble. At a certain point somebody gets paid. And somebody Pays.

[twilight_sailing]

15. Good post.