4 ms·

Isn't the down payment delta pretty significant? Having to save 160k instead of 40k for a 20% down payment significantly delays the point at which a millennial

by jfim 4y ago

Isn't the down payment delta pretty significant? Having to save 160k instead of 40k for a 20% down payment significantly delays the point at which a millennial household could start accruing home equity, feel confident about starting a family, etc.

ceejayoz 4y ago
First-time homebuyers can get a FHA loan, which allow a 3% downpayment.
- wbsss4412 4y ago
  Allow for a 3% down payment, but add in a requirement for PMI until you’ve hit a sufficient amount of equity, raising the cost of the front end of the loan.
arcticbull 4y ago
Yes, it does mean folks can generally only buy a home later than they would have before - but that's not what we're measuring. We're measuring how well off they are. Over this period, the 1970s to present, equities have way outperformed real estate. So folks rented, and saved in the equity markets instead until they could make their down payments - without diminishing their quality of life. In a very real way, the 'starter home' became a 60/40 equity/bond portfolio plus a rental unit. Between that and FHA as a peer comment pointed out, folks could actually be quite a bit better off today in spite of the bigger sticker - and yes, in spite of PMI (generally only 0.5% to 1%) which can be waived once you reach 20% LTV. (2.5% + 1%) is still way - way - lower than the 18% rates we saw in the 80s. That's why I said housing deserves its own post, rather than letting it get lumped into with the chart crimes. Owning is not always better than renting (although it can be). The biggest driver of the delta between owning and renting is actually the opportunity cost associated with not investing the down payment into the equity markets. The point at which folks buy has shifted older, yes. That isn't always a bad thing. A higher down payment is still your own capital. You get it back when you sell.
- medvezhenok 4y ago
  There are a lot of other benefits of buying with high interest rates - namely that the U.S. 30-year mortgage allows you to refinance if rates drop. So that 18% headline rate quickly became ~10% or less after refinancing a few years down the road (not to mention paying for houses with depreciating dollars because of the 70s inflation). You don't get the same optionality if you buy with interest rates at an all time low. Housing affordability is actually at an all-time low right now, close to 1982 levels, after the interest rate rise. https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor https://www.atlantafed.org/center-for-housing-and-policy/dat...
  - deleted 4y ago
    [deleted]

by jfim 4y ago

ceejayoz 4y ago

First-time homebuyers can get a FHA loan, which allow a 3% downpayment.

wbsss4412 4y ago
Allow for a 3% down payment, but add in a requirement for PMI until you’ve hit a sufficient amount of equity, raising the cost of the front end of the loan.

arcticbull 4y ago

Yes, it does mean folks can generally only buy a home later than they would have before - but that's not what we're measuring. We're measuring how well off they are. Over this period, the 1970s to present, equities have way outperformed real estate. So folks rented, and saved in the equity markets instead until they could make their down payments - without diminishing their quality of life. In a very real way, the 'starter home' became a 60/40 equity/bond portfolio plus a rental unit. Between that and FHA as a peer comment pointed out, folks could actually be quite a bit better off today in spite of the bigger sticker - and yes, in spite of PMI (generally only 0.5% to 1%) which can be waived once you reach 20% LTV. (2.5% + 1%) is still way - way - lower than the 18% rates we saw in the 80s. That's why I said housing deserves its own post, rather than letting it get lumped into with the chart crimes. Owning is not always better than renting (although it can be). The biggest driver of the delta between owning and renting is actually the opportunity cost associated with not investing the down payment into the equity markets. The point at which folks buy has shifted older, yes. That isn't always a bad thing. A higher down payment is still your own capital. You get it back when you sell.

medvezhenok 4y ago
There are a lot of other benefits of buying with high interest rates - namely that the U.S. 30-year mortgage allows you to refinance if rates drop. So that 18% headline rate quickly became ~10% or less after refinancing a few years down the road (not to mention paying for houses with depreciating dollars because of the 70s inflation). You don't get the same optionality if you buy with interest rates at an all time low. Housing affordability is actually at an all-time low right now, close to 1982 levels, after the interest rate rise. https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor https://www.atlantafed.org/center-for-housing-and-policy/dat...
- deleted 4y ago
  [deleted]