Earlier this year, the Federal Reserve Bank of New York released a report of the importance of down payment requirements and wealth on the housing market and home buying. Say what? Of course high down payments and not a lot of wealth will depress home buying! Who needs a report to verify that?

1. What Can Get Home Buyers Off the Fence?
Earlier this year, the Federal Reserve Bank of New York released a report of the importance of
down payment requirements and wealth on the housing market and home buying. Say what? Of
course high down payments and not a lot of wealth will depress home buying! Who needs a
report to verify that?
And, on the other side, it would seem totally logical that low down payments and increased
wealth would spur home buying; ya think! But, in fairness there is some good data as to the

2. influence of housing wealth, non-home wealth, interest rates and down payments on a potential
buyer’s willingness to pay for a home.
From the report:
“Underthe user-costmodel,a marketequilibrium of housing rentsand prices is determined by down
paymentsize,individualfuturediscountrates,theafter-tax mortgageinterestrate(netof the mortgage
interest deduction),propertytaxes,maintenancecosts,insuranceand futuregrowth in rents. Calibrating
this modelallows a rangeof estimatesthatmeasureimpactsin housing demand given marketorpolicy
changesthatalter financing circumstancesand requirements.
In contrast,theauthors’approach usesdata fromtheFederalReserveBankof New York’sSurvey of
ConsumerExpectationsto measurehomebuyers’willingnessto pay fora homeunderdifferentdown
payment,mortgageinterestrate,and non-housing wealth scenarios.”
To get that intoplain-people language,theymeasuredthe difference inwillingnesstopayfora home as
relatedtointerestrate changes,downpaymentchanges,andwealthnotrelatedtohousing. Let’ssee
whattheyfound:
 Interest Rates: Other studies use a cost model approach that places a lot of weight on all
of the costs involved in a home purchase, and weights interest rates highly. However, in
this study, it was found that a rise or fall of 200 basis points in interest rate would only
impact willingness to pay by around 5%.
 Down Payments: Lowering the down payment on the other hand is a different story.
Buyers on the lower end of wealth levels show that there is a 40% increase in willingness
to pay if the down payment is lowered from 20% to 5%.
 Non-housing Wealth: Increasing non-housing wealth by $100,000 resulted in a 10%
increase in willingness to pay, not a huge jump. However, in lower income younger age
groups, the influence was four times that.
So, pretty much we see that interest rates aren’t quite as important as previously thought, and if
buyers, particularly younger low income buyers, get a windfall, they would likely be buying a
home. The most influential factor is the down payment, leading government analysts to favor
more avenues to reduce down payment requirements, particularly for lower income buyers.
What Does This Mean for Investors?
It looks like more of the same when it comes to rising rental demand, higher occupancy rates and
higher rents. A number of factors in the economy and the lives of particularly younger first time
buyers, will need to come together if we’re going to see a surge in buying. Keep putting those
rental properties into service.