With home prices at their lowest in a decade and mortgage rates at historic lows, one would thing buying a home now would be significantly cheaper than it was five years ago. Not so, says a new study.
Nick Timiraos digs into the findings of the study [PDF], authored by Andrew Davidson and Alexander Levin of mortgage consulting firm Andrew Davidson & Co, which looks at the full financing package associated with buying a home, and finds that, "the total cost of homeownership, as a share of a borrower's income, is the same today as it was during the height of the housing mania."
Timiraos describes the reason: "borrowers have to put more money down to get a loan, and the exotic lending products that allowed borrowers to make low initial payments have gone away. That means while the absolute monthly payments are lower, the all-in costs of homeownership haven't become more favorable."
"The erosion of down-payment requirements from 2000 to 2006 reduced borrower costs by around 15%, according to Messrs. Davidson and Levin, while tighter down-payment standards since 2006 have raised borrower costs by 22%. That more than offsets the benefit of a drop in interest rates from around 6% to less than 4%."
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