Many homebuyers are being more creative, taking more risks in getting into the housing market. According to SMR Research 38.1% of home buyers put less than 5% of the purchase price down, up from 30.6% in 2000. [USA Today] Piggy back financing, obtaining a line of credit simultaneously with the house purchase to put 20% down to avoid PMI insurance, has also been rising. SMR says 48.2% of buyers used piggy backs up from 19.9% in 2001.

Americans now shoulder record levels of housing debt — more than 8 percent of homeowners spend at least half their income on their mortgage. [Washington Post]

So What?

Well, as more people increase their borrowing risk, foreclosure rates rise. published a list, by state, of foreclosure inventory available for sale in August. [Valuation Review: Pd. Sub.] There was a 3% increase from 90,611 units in 93,440.

Sample media foreclosure coverage from around the country:

Texas Up 6.6% from July to August 2005 [San Antonio Bus Journal]

Massachusetts Up 29% from August to August 2004 [RISMedia]

Georgia Up 4.4% from June to July 2005 []

See previous post: PMI Gets You In The House: Now Get Rid Of It

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One Response to “Housing : Placing Bigger Bets By Placing Less Down”

  1. John Philip Mason says:

    The cost of housing has outpaced increases in income for some time now. Especially for entry level buyers, who typically are younger and/or at the lower end of the pay scale. When appraising a home for refinancing, the question I love to pose to homeowners is; would you be able to purchase your home at current prices? Many who have owned their homes more than five years say they might not, given a 20% down payment and monthly mortgage payments required at current price levels. This has forced more and more buyers to put less money down, but it has to alter their day-to-day lifestyles in terms of discretionary income/expenses (AKA consumer spending). It makes me wonder if real estate values need to drop to align with income levels (as most believe the reverse cannot happen anytime soon). Or, have we transitioned into some new kind of economy where home ownership requires much larger mortgages, in exchange for little or no money down? And, is it possible for two of the strongest pillars of our economy, the housing market and consumer spending, to continue their paralleled and unending spiral upwards? Or will they collapse like the dot-com bust and reveal there is no “new economy”? Everybody’s talking, but nobody really knows, so keep your day job friend.