90% is the new 100% financing

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Good morning, John Parker Wilson. Nice name, nice drive. A number of you wrote to question our logic when we wrote yesterday that we believe financing, not price, is the main factor holding down home sales. One of our favorite-named commenters, ‘150 multiple choice questions,’ asked, ‘You sure you should be running a real estate blog?’

Well, no, we’re not sure. Life is full of uncertainty. But that is beside the point. We believe a meaningful percentage of buyers are still making decisions based on initial monthly payments; for them, lack of financing options -- relative to a year ago -- is keeping them out of the market.

Take a look at today’s LATimes story about tighening loan rules -- it profiles a couple who bought a Placentia condo with zero down two years ago, and is now shopping for a single-family home and wants to go zero down again: ‘they are holding out for a 100% mortgage on a home in the $550,000-to-$650,000 range.’

How important is the zero-down financing to this couple?

‘Even if they found the perfect house next week ... they would pass on it if they could not get a 100% loan.’

Now, what’s going on in the market? Zero-down financing is harder and harder to come by: ‘...

many lenders have backed away from 100% financing; when it is still offered, the terms are much more restrictive. ‘’I like to tell people that 90[%] is the new 100,’ said Barry Kaye, a Beverly Hills-based mortgage industry consultant.’

This is a case where financing, not price, is keeping a buyer out of the market. Now, I know some of you are anxious to comment about how foolish this couple is; that’s not the point. The point is, in 2005 and 2006, low initial monthly payments, and low downpayments drove a lot of buying decisions. There are still buyers using the same logic -- what’s the lowest monthly payment I can get away with? -- but the financing has changed.

Comments? Thoughts? Insights? Email story tips to lalandblog@yahoo.com.
Photo Credit: Reuters