The Upside of High Down Payments

Lending standards continue to tighten; indications are that the default downpayment threshold will soon rise to 20%. If that had been the requirement for the past 12 months, it would have killed 40% of the home sales completed in that period. Lenders are responding to market conditions. Home sellers can too….be becoming lenders, of sorts. “By Owner” selling affords homeowners a wide berth for crafting terms of sale that meet their needs and those of buyers.

Seller financing is on the rise; last year 56% more houseswere sold via seller financing than the year before. That still accounts for only 1.5% of all home sales, so there is plenty of room for alternative financing to grow. Of course, seller financing requires a firm grip on market trends and home pricing dynamics, which are outlined in our Pricing Guide.

Got a good home pricing story? Enter our “Is Your Price Right?” contest and win a $1,000 home improvement gift card for telling us all about it.

If  you are buying a house, you can quickly find by-owner listings with seller financing options by opening up the Advanced Search function at www.ForSaleByOwner.com and clicking the “lease to own” option. 

That will pull out the properties whose owners are open to creative solutions  for both of you.

Riveting Read: Your Mortgage

Last time we bought a house, the gal who ran the closing laughed when, bored, we started reading the actual mortgage paperwork. Footnotes and all. "Nobody reads that stuff," she chuckled.

They're reading it now.

The New York Times just published online a story about how would-be condo buyers are wiggling out of their contracts courtesy of shoddy paperwork. These buyers put good money down on contracts at the height of the boom. The expected market value of those now-completed units has dropped below the purchase price.

But a contract's a contract, right? Not so fast. Crafty lawyers are combing through the documents and running the due diligence. Sloppy doesn't pay: the lawyers are winning case in court when developers failed to fill in little details like the legal description of a unit.

Of course, the developers are howling. A few rebels can unravel the entire financial structure of the sell-through: if enough buyers renege, the building might fall below the minimum for Fannie and Freddie financing. Not to mention that the developers' profits go down the drain along with the sale.

Cloud to the Silver Lining

Are low interest rates for refinancing the rare silver lining in the housing market? Not when you have to bring cash to the closing.

Freddie Mac reported this summer that cash-in refinancing have hit an all-time high. Fully 22 percent of refinancing homeowners had to put cash in to close the deal. So, let’s get this straight: these are folks who are responsible homeowners, who likely aren’t getting any kind of foreclosure mitigation help, yet, who are underwater…and pouring cash into their money pits.

Meanwhile, cash out refi’s are at an all time-low – 27%. That, of course, is because there is practically no cash to take out.

Freddie Mac drolly reports that the net effect of these two trends is that more household net worth is locked up in home equity – the most in ten years.

That may seem like a stabilizing factor. Hey, at least these folks are reaffirming their commitments to their neighborhoods and their houses.

But the more re-invested they are in their houses, they less likely they are to move. Investors and wholesale buyers will claim a growing share of sales, which means that their bulk-rate discounts will frame housing values even more. And, of course, the more invested homeowners are in their houses, the less likely they are to move – for jobs, school or personal reasons. Individually, forgoing economic opportunity is your own business. Collectively, it will slow the housing recovery.

One reason why house prices declined last year

The National Association of Realtors is a fount of statistics.

Here is one that hasn't gotten much play: last year, 25% of homed sold in all-cash deals.

Probably many of those were investor purchases -- there are many deep-pocketed investor groups buying foreclosed houses in bulk. But investor or individual, cash deals typically command a healthy discount because they can close quickly and minus the complications of lenders and their pesky requirements.

Why do we care? Because once investors have had their fill of foreclosures, their infusion of cash will slow...that means that a higher proportion of sales will be to buyers who are getting mortgages...and that means that prices will firm up.

Fewer cash discounts = higher median prices.

It's impossible to isolate this factor, but it should play into the overall stabilization of the market - once stabilization takes hold.