The downpayment dilemma

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Bloviation Alert: This post will contain the blogger’s opinions and analysis.

The tightening of lending standards is making it more difficult to get 100% financing -- and impossible if you have a low FICO score or can’t document your income. When lenders start talking about 10% downpayments, some of you probably start nodding your heads in agreement -- ‘Yes, that’s reasonable.’ It may be reasonable, but in this state it is not possible for many potential buyers.

The median down payment for first-time homebuyers in California was $10,000 last year -- which translates to about 2% down on a $450,000 home, the median price for first-time buyers; 40% of first-time buyers put nothing down. ‘Well,’ you may say, ‘they need to start living on a budget and saving their money.’ Again, that’s reasonable, but it’s probably not going to happen. Nothing in recent American economic history indicates that it will happen. We are not a nation of savers. You may think that is wrong, or foolish, or unsustainable, but it is fact.

Is it likely to change? Will Americans now suddenly see the light and start saving? We doubt it. We think it is more likely the financial industry will invent new ways of borrowing. Imagine all the forces that want Americans to keep on spending, starting with corporate America -- including its many close friends in Congress, the White House, and every state legislature in America. Add the credit industry, the automotive industry, the real estate industry, the banking industry, and the greatest advertising and marketing machine the world has ever known, which spends every waking minute convincing Americans there are new products we need and can afford.

Now, then -- who’s making the case for saving? Anybody? ... Anybody? ... Bueller?

Now, your take? Your thoughts? Insights?