I would agree that it is best to have a down payment when purchasing the house. As stated, the REASON home prices will be lower is because a large chunk of the buyer pool, (particularly first time home buyers) are simply unable to qualify, even if they have good credit scores and good income.
However, right now, you can still get 100% financing if you have good credit and can show documentation for your income. However, 100% financing is gone for subprime loans.
I also think people would value their homes much more if they had to work hard saving for years to come up with the down payment. It will give people a sense of acomplishment and they will cherish their homes much more than if they could simply buy it with 100% financing real quick.
Part of the problem we are seeing with the massive foreclosures is that with 100% financing, people don’t have to do anything to prepare for such a large under-taking. They take it for granted, don’t think about wether or not they can actually afford it and assume that appreciation will bail them out if they get into trouble.
Also, if people have to put at least 5% of their own money, they will be less inclined to simply “walk away” if they start to fall behind. They will feel that they have worked too hard to get this far and they don’t want to lose their own money, so they will have a greater incentive to hold on, work 3 jobs in necessary, rent out a room to a friend, whatever it takes. That will ultimately lead to fewer foreclosures and much better credit quality. That will keep home prices stable.
You will see massive fallout this year from ARM resets, people will be unable to re-finance due to the new guidelines, people will be unable to find qualified buyers becuase of the new guidelines, but overall, things will improve once prices become affordable.
