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Is 20 percent down fair in high priced Greater Boston?

Posted by Scott Van Voorhis June 28, 2011 07:47 AM

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No way, contends the Massachusetts Association of Realtors, which wades into the down payment debate this morning with a provocative press statement.

In its monthly report on housing sales, MAR takes aim at a move in Washington that would in effect require most homeowners to put 20 percent down when buying a home.

That would mean a down payment of roughly $60,000 on a $300,075 home - the median price for a house in Massachusetts in May, our local Realtor group notes.

Of course, that looks like a bargain compared to what would-be Boston area home buyers might have to shell out. Given the metro market's median sale price of $417,000, we are talking a cool $80,000.

All sounds so reasonable, does it not? Yet I have some big problems with this argument, which would snuff out a potentially helpful reform to our severely messed up housing market.

For starters, 20 percent down worked reasonably well for decades, right into the 1980s.

Yes, it was an imposing barrier, and one that likely kept many unprepared buyers out of the market. But lifting the barrier is one of a number of complex factors, including the loosening of lending standards, that led to the dramatic escalation of housing prices over the past quarter century or so.

Back in 1980, when 20 percent down was king, the median sale price in the state was $95,800, according to the U.S. Census Bureau, which adjusted sales numbers to 2000 dollars. Not perfect, but it gets the point across.

Second, while this may sound counterintuitive, it may actually not be a bad thing to increase the cost of ownership - on the front end that is - here in the Boston area.

This is a tricky and extremely expensive market that can chew up and spit out homeowners who are not financially prepared to make the jump from renting.

A minimal down payment may seem like a prerequisite to being able to buy a home for many middle income couples here in Greater Boston, but too often it is instead a ticket to an overpriced, undersized house in need of major renovations.

If 20 percent down would encourage more buyers to save up for a home on the next rung of the ladder - modest but well maintained and ready to live in for the next twenty or thirty years - so much the better.

Oh, before I forget, here are the latest housing numbers.

Single-family sales fell nearly 17 percent across the state, down to 3,250 in May compared to May 2010. Condo sales plunged 20.8 percent year-over-year this May, to 1,295, according to MAR.

Home prices edged up half a percent, to $300,375, compared to May 2010, while the median condo sale price for the month weighed in at $281,000, up 7.3 percent from a year earlier.


This blog is not written or edited by Boston.com or the Boston Globe.
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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