Mortgage market changes would mean fewer homebuyers in the future
March 17, 2011
By Steve Brown/The Dallas Morning News

In the Frank Capra classic It’s a Wonderful Life , Jimmy Stewart makes a plea for the working man’s family to buy a home.

“Doesn’t it make them better citizens?” Stewart’s character argues for the ability to finance a home purchase.

That’s been the notion in America for decades. And it’s supposed to be the reason the U.S. government has for so long supported home mortgages.

And it may soon change.

Runaway lending put thousands of Americans in housing they couldn’t afford and helped wreck the economy.

Now the recession and job losses are causing homeownership to evaporate for many.

The prospect of major changes in home finance could mean a bigger chunk of Americans are locked out of the housing market in the future.

That’s not only bad news for would-be homebuyers, but also for current owners who may have a harder time unloading their property.

Washington politicians are debating the future of federal-backed mortgage giants Fannie Mae and Freddie Mac.

Regardless of how you feel about the operation of the quasi-government mortgage firms, there’s no denying they have, along with the Federal Housing Administration, made homeownership cheaper and easier to obtain for millions of Americans.

Shut them down and do away with the government support, and the cost and ease of financing a home purchase will tighten.

There are predictions that the bread and butter 30-year home loan will become extinct, replaced by shorter-term mortgages.

And some analysts are predicting that 15 percent to 20 percent down payments could become the norm.

If that happens, don’t be surprised to see that as many as a third of potential homebuyers are shut out of the market.

The size of future housing demand could fall significantly.

Just look at the math. To buy a $200,000 house with 20 percent down and a 15-year loan, you will pay (at current interest rates) $40,000 upfront and about $1,180 a month.

With a 95 percent, 30-year loan, the down payment is $10,000 and the monthly cost is roughly $990.

Obviously, many more families can qualify for the longer-term, low down payment mortgage.

If you hope to sell your house to buy a new one or relocate, anything that increases the buyer pool is going to be good news.

Take away thousands and thousands of potential buyers, and not only will it take longer to sell your home, but you can count on the price being lower.

That’s the last thing the housing market needs right now, next month or next year.

Courtesy The Dallas Morning News
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