Housing demand driven by down payment requirements

It is always interesting to this blogger, whose degree in economics predates the birth of many of our real estate clients, when current economic research and theory confirms what could well be considered to be simple common sense.  Take for example an interesting read, at least to the economic nerds among us; The Sensitivity of Housing Demand to Financing Conditions (Federal Reserve Bank of New York Staff Reports by Andreas Fuster and Basit Zafar).  As opposed to a more traditional cost of ownership model which measures total cost of borrowing, taxes, insurance, maintenance versus housing demand this study focuses on  the impact that required down payment amount, mortgage rates and available wealth has on one’s willingness to pay (or WTP as coined by the authors) for housing.  At the risk of grossly over simplifying this serious work the authors findings, based on extensive survey data, suggests that a change in the down payment requirement has a significantly greater impact on WTP than does a change in mortgage interest rate especially among buyers especially those with little wealth i.e. cash. Furthermore survey respondents indicated that if suddenly faced with a significant influx of wealth, such as an inheritance, their WTP would increase on average by 10%, although not necessarily by an amount equal to the inheritance,  more so in the case of current renters than current homeowners.  The authors conclude that the manipulation of LTV caps and he associated availability of credit or lack thereof have a significant impact on the price of housing. This study dates back to November of last year but serves to explain how the more recent move by Freddie Mac and Fannie Mae to allow for 97% loan to value conventional financing versus the previous 95% maximum will hopefully  provide a stimulus to first time home buyers beyond what even continuing low interest rates can do. Remember whether buying or selling, moving up or downsizing, Lincoln or Omaha, the Vaccaros; Paul & Susan, stand ready to assist you, your family, friends and co-workers. Call or email us today! Lincoln (402)817-0355 , Omaha (402)577-0820, info@WeSellNebraska.com (Paul & Susan Vaccaro – CBSHome Real Estate 15950 W Dodge Road, Suite 200, Omaha, NE 68118 – Woods Bros Realty 3737 S 27th Street, Lincoln, NE 68502.

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