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Re: 20% down... You're completely and totally right. It's 100% the prudent financial move. However there is a bit of a problem with market forces in this regar

Re: 20% down... You're completely and totally right. It's 100% the prudent financial move. However there is a bit of a problem with market forces in this regard. No (or little) money down mortgages have become almost the norm. The average homeowner puts significantly less than 20% down. This inflates home prices for several reasons: 1) People can buy more expensive homes on less money, allowing land owners to increase prices 2) Mortgage rates/plans are now structured to cover for the higher risk quotient (even if you do the usual 20% down you're still paying for the idiot who bought a million dollar home with nothing down) 3) Potential first time owners are forced to buy less for their money, further inflating that specific market which has huge ripple effects into the more mature sectors (first time home owners are far more likely to sell their current home and now there is additional financial pressure to make a profit, etc. etc.) 4) People, wisely or unwisely, exploit these new conditions to "play" the real estate game 5) The market becomes less sane the larger/more expensive the home, as the higher prices (even normally) encourage people to put less down And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked. There's a lot of economic intertwining here with QE, general interest rates, and the economy at large so I'm not going to profess to know what's really going on here, but the housing market is very close to "utterly f*@#ed" for the middle class with no foreseeable recovery. And that's not even getting into the pandora's box of how the new exploding rental market is also skewing the market heavily. Quick thought experiment: How many people that are buying at 100k do you think have 20k in the bank? Now how many of those do you think have 20k to drop on a down payment? Now look at what 100k gets you in a modern metro area and cry yourself to sleep.

tinbad 11y ago
> And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked. Having gone through a 'bidding war' twice purchasing my last two homes, I can say this not really the case as in the market dynamics you describe the appraisers can't keep up with market value and usually therefor those contingencies are waived as a prerequisite by sellers. This means the buyer needs to come up with cash for whatever difference between sale and banks appraisal price. This in turn results in deals falling through because people didn't have enough liquidity so now the seller requires proof of liquidity and actually prefer offers with bigger % down payment, even if the actual offer is lower. For the same reason all cash offers often get accepted over higher mortgage backed offers, just because there's less risk for the seller of the deal falling through. But yeah, to your last point, buying a house in any hot market sucks and comes with lots of challenges, the first of which is overcoming the absurd prices.

tinbad 11y ago

> And guess what... all of this just makes it harder to put 20% down on a home, further exacerbating the cycle. Especially when you're in a bidding war and someone is willing to outbid you because they're putting less money down (which is a terrible financial move, but one that happens all too frequently). Bidding wars are low key one of the biggest reasons people go into housing debt, they get caught up in a specific house and aren't willing to walk away regardless of how the finances have changed since they first looked. Having gone through a 'bidding war' twice purchasing my last two homes, I can say this not really the case as in the market dynamics you describe the appraisers can't keep up with market value and usually therefor those contingencies are waived as a prerequisite by sellers. This means the buyer needs to come up with cash for whatever difference between sale and banks appraisal price. This in turn results in deals falling through because people didn't have enough liquidity so now the seller requires proof of liquidity and actually prefer offers with bigger % down payment, even if the actual offer is lower. For the same reason all cash offers often get accepted over higher mortgage backed offers, just because there's less risk for the seller of the deal falling through. But yeah, to your last point, buying a house in any hot market sucks and comes with lots of challenges, the first of which is overcoming the absurd prices.