Tags: housing | down payment | mortgages | subprime

Potential Trouble in Housing: Low Down-Payment Mortgages Climbing

By    |   Tuesday, 23 June 2015 06:00 AM

With the S&P/Case-Shiller 20-city home price index rising 5 percent in the 12 months through March and new home sales soaring 6.8 percent in May from April, everything is rosy in the housing market, right?

Not so fast, my friend.

"Many low-down-payment borrowers — including first-time home buyers — are returning to the market, boosting housing but raising concern among skeptics who worry about the risk of such mortgages," writes Joe Light of The Wall Street Journal.

Sluggish wage growth and rising fees for loans with small down payments had pushed buyers away. But now jobs are more plentiful, and wages are rising a bit. In addition, fees have dropped for mortgages backed by the Federal Housing Administration.

So more potential homeowners are willing to take the plunge.

In the first quarter, 51 percent of home buyers with a non-jumbo mortgage forked over a down payment of 10 percent or less on a home, compared with 48 percent a year earlier, according to RealtyTrac.

Elsewhere on the housing front, housing starts posted their best back-to-back readings in April and May since late 2007 — a 1.04-million annualized rate in May and a 1.17-million rate in April.

But that isn't enough to make a believer out of former Federal Reserve Chairman Alan Greenspan. He notes that the pace for new construction of both homes and commercial properties hasn't returned to the lofty levels that prevailed before the 2008 financial crisis.

"We haven't come out of the bottom," Greenspan told CNNMoney. "We are in the position now of secular stagnation" for real estate.

Before the 2007-09 Great Recession construction of homes and buildings expected to last for 20-plus years accounted for 8 percent of GDP. Now it's only 4 percent, Greenspan notes.

And that's bad news for the overall economy, because real estate construction played a key role in each of the 10 rebounds from recession since World War II, Greenspan explained.

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In the first quarter, 51 percent of home buyers with a non-jumbo mortgage forked over a down payment of 10 percent or less on a home, compared with 48 percent a year earlier, according to RealtyTrac.
housing, down payment, mortgages, subprime
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2015-00-23
Tuesday, 23 June 2015 06:00 AM
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