patrick.net

On the QRM, it's all politics. There will always be unintended consequences. Do you think representatives are more beholden to the masses of roustabout, self-entitled, wannabe home"owners", or to the few of us who still have well-paying jobs, manage our finances responsibly, and are actually able to put more than 3% down?

It's a numbers game, and the Democrats are increasingly siding with the NAR on this issue in districts where the WalMart shoppers would be denied their God-given right to a clown-car mortgage for bank usury and landlordery. In many ways, the shrinking few of us who can actually put down 20% but can't afford to outright pay cash for a primary dwelling are a metonym for the evaporating professional middle class.

Congress passing this would lower the price of intro-priced houses. So, this is a risk if you are thinking about buying a lower priced house.

Just guessing, but I figure on a $200K house, the price drop would be $30K. There is a 10% chance that this goes through, so the expected loss is $3K.

Concress critters response:
http://www.washingtonpost.com/business/economy/senators-say-down-payment-requirement-not-their-intent-for-housing-finance-law/2011/04/11/AFzPU1MD_story.html

if you're coming in with 20% down anyway I dont think it can hurt to wait and see.

Of course in the meantime there could be a surge of buyers coming in to get in under the wire.
Part of the reason prices are depressed right now is lack of urgency on the part of buyers.
People aren't buying because they think waiting will get them a better deal.
impending rate increase could push some of these people off the sidelines.

This is one of the reasons I am holding off on buying. I believe that mortgage standards are going to be getting tighter and that home prices are going to be brought down further because of that, especially in areas like San Diego, where I live. Typical buyers here still stretch as much as they can and their buying power would be hurt more than most expect by higher interest rates and down payment requirements.

I'd rather wait and put more money down later on a higher interest loan with a lower total borrowed amount than jump in now for 3.5% down and 5x income financed. Most people don't see that although the payments might be simliar the first option offers much more power in paying of the loan faster.

buy if:

1. income can support the mortgage payments, taxes, insurance, maintenance, etc
2. total cost of ownership is close to comparable rent
3. you plan to live there at least 10 years; which means you like the house you're going to buy and it meets all your primary needs(eg. acceptable location, enough space for your family, acceptable schools and safety)

i would add another item for those that are value-conscious like me.

4. decide up front what you think is a) cheap, and b) fair price for the home you're looking for.
this has nothing to do with current list/sale prices.
it's what -YOU- think would be a cheap price and a fair price.

the reason for doing this, is if home values drop below your own cheap and fair prices,
you should feel that you're still getting a good deal or a fair deal.

markets become irrational both ways and if prices overshoot the bottom, then you shouldn't worry about it.

It really depends on how this plays out. Democrats do have a tendency to sell out and lower requirements so that someone on minimum wage can get a liar loan. Works out great for Goldman Sachs this way.

New requirements don't seem that strict. As long as you are not going into crazy debt you should be ok.

"I should save my 20% until the market demands it and crowds out many other buyers. There should be an abundance of supply (houses) but only a trickle of “Qualified” demand (qualified buyers)."

-This is the exact strategy I have adopted.

This is spot-on as well:
Shawn says

I’d rather wait and put more money down later on a higher interest loan with a lower total borrowed amount than jump in now for 3.5% down and 5x income financed. Most people don’t see that although the payments might be simliar the first option offers much more power in paying of the loan faster.

YesYNot says

Just guessing, but I figure on a $200K house, the price drop would be $30K.

I realize this is just a guess but would you mind sharing your thoughts on why you think 15% is a good estimate? Thanks.

I should have qualified that. In the area that I am looking, prices are looking OK for rental properties. If prices dropped 30K, they look even better for buying a place to rent out. If house prices go down due to higher pmi or higher effective interest rates for buyers without the 20%, then there will be lots of demand for rentals. Again, it's just a guess, but by my calculations in this area, it would be kind of a no-brainer investment. That should put a floor on any price drops due to down payment requirements. In other areas, that may not be the case.

Makes sense. Thanks for the response YYN. I guess I am also trying to evaluate whether another stiff economic downturn (the 'R' word) in the near future would push rental vacancies back up... and push rent prices down.