The housing market is roaring in many parts of the United States as new buyers pour in from the sidelines. After the 2008 crisis we can be assured these buyers are finally making intelligent buying decisions with strong down payments, right?
The chart below shows that unfortunately, nothing has changed. 2 out of every 3 home buyers are purchasing a home with 0-6% down today.
This means if home prices fall by 6% after a purchase two thirds of new buyers will be underwater. It's actually more troublesome than that because it costs at least 4-6% in Realtor/selling costs in order to move. This means buyers are instantly underwater the day they sign on the American dream. Let's hope interest rates stay low forever, the economy never enters recession and the speculative juices continue to roar for decades to come.