This time, its not about the rates….
February 11th, 2009 | categories: Coconut Grove Real Estate Market Conditions
So interest rates are at all time lows and people should be beating down the door to buy your house, right? Wrong. Maybe for the first time in history, buying a home is not about the interest rates. Right now the question buyers must ask is whether or not they have enough money for the down payment.
I just had a meeting with James Venney and he informed me that yesterday the down payment requirement rose from 25% to 30% for Jumbo Loans (any loan amount over $417,000). In recent times (during the real estate boom), there was a very low down payment requirement or even none at all. Down payments were a non-issue.
Check out the below charts which show the trend lines for mortgage rates between the end of 2002 through 2008. Then take a look at the Sold and Pending numbers for homes in zip code 33133 during the same time period.
You will see that in the second quarter of 2004 when interest rates dropped, home sales rose. And as would be expected, in the second quarter of 2005 when interest rates rose, home sales dropped.
The fascinating thing is to take a look at the second half of 2007 when interest rates began to drop again, we saw home sales continue to fall in 33133. And fall, and fall. In the beginning of January/February of 2008 when we saw more low rates, the number of sales still fell.
Why has basic economics failed us? I believe that its all about the down payment. Buyers aren’t so concerned right now with whether interest rates have risen or fallen 1-2%, but they ARE concerned about how much cash they need to put into their home. With the average price of a home in Coconut Grove around $1,000,000 – buyers here looking in that price range are now required to put down $300,000 for a Jumbo Loan.
Due to the unique nature of home buyers here in South Florida and our high home prices we might not see a turnaround in home sales until the down payment requirements fall.
Click here to read other Coconut Grove Real Estate News.
Subscribe to my blog and receive The Real Estate Coconut posts directly to your inbox.
Hi Riley,
As usual, you’ve provided helpful information. As a potential buyer, I’d like to add that in the past homes in poor condition and lacking in basics (square footage, decent closets, garage parking, etc.) may have elicited bidding wars, but now who can be bothered to do a gut job and fight for building permits? For my husband and me it’s not about the loan requirements, it’s about the value of the property. As you so clearly pointed out in the Battersea relisting, the sellers who are hanging on to what they could have gotten way back when will be hanging on, from all indicators, a long time. Bidding wars may return one day, but I think everyone has had a wake-up call that granite countertops aren’t what it’s all about when you know any house bought in this market may not be quickly resold for years–if ever.
Linda Pollack
Mardi Gras Carnival of Real Estate in Sacramento…
Welcome to the February 16th 2009 edition of the Carnival of Real Estate.
Sacramento Real Estate Voice has the honor of hosting and serving as Queen of the Carnival of Real Estate (CORE) #129 where bloggers from around the world submit their best entr…