43% of first-time home buyers put no money down
By Noelle Knox, USA TODAY
WASHINGTON — As housing prices soared last year, an eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans, according to a study released Tuesday by the National Association of Realtors.
The trend is potentially ominous. The real estate market is cooling in some areas, and rates on adjustable-rate loans are creeping up. As a result, some no-money-down buyers could owe more than their homes are worth.
Who are entry-level buyers?
Survey of home buyers reveals:
Median age: 32
Median household income: $57,200
Median down payment: 2%*
Purchased with no money down: 43%
* — on home costing $150,000
Source: National Association of Realtors, 2005 Profile of Home Buyers and Sellers
The median first-time home buyer scraped together a down payment of only 2% on a $150,000 home in 2005, the NAR found.
Already, home prices in many areas are declining, and the "For Sale" signs are hanging in front yards longer. There's now at least a 50% risk that prices will decline within two years in 11 major metro areas, including San Diego; Boston; Long Island, N.Y.; Los Angeles; and San Francisco, according to PMI Mortgage Insurance's latest U.S. Market Risk Index.
"In a number of areas, particularly on the coasts, they have a high risk of price declines in the next two years," says Mark Milner, chief risk officer of PMI.
Red-hot home building, acquisitions, remodeling and refinancing in recent years helped drive the economy and raise fears of a real estate bubble. Dean Baker of the Center for Economic and Policy Research says that if housing prices fall at least 10%, it could be even more damaging than the collapse of the high-tech stock bubble in 2000.
"If we do get a spike in mortgage rates, and a modest decline (in the housing market) turns into a rout, there's almost no bottom to that," Baker says. "That's a crash scenario."
Baker and other economists are concerned that many lenders have pushed a series of creative but potentially dangerous loans to help more Americans afford a home. The traditional 30-year loan with a fixed rate remains the most popular way of financing, according to the Mortgage Bankers Association. But about one-third of homeowners take out riskier loans, such as interest-only or flat-minimum-payment mortgages.
"These non-traditional loans transfer risk to the borrower," Milner says.
NAR President Thomas Stevens says he isn't worried that nearly half of first-time home buyers put no money down, but adds, "If the number was higher than that, I'd be concerned."
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