The original thought behind examining the size of down payments was to get a feel for the buyers’ intentions – figuring that if they put down a healthy chunk of change, that they probably planned to live there long-term.
But it also helps illustrate who is buying – people with substantial funds available.
Here are the down-payment stats for the Carmel Valley, Del Mar, Solana Beach, and RSF detached sales for June – where the average price was $1,391,764, at an average of $415/sf:
| Amt of Down Pmt | Number of Sales |
| 0-19% | 6 |
| 20% | 14 |
| 25% | 7 |
| 30-50% | 10 |
| 51%+ | 5 |
| Cash | 6 |
Short sales: 5
Bank-owned sales: 2
Number sold for less than the sellers paid: 18 (37.5%)
Sold before MLS input: 2
So far this month, 44% of the buyers are using at least 30% down payments on very expensive properties. Yes, the lenders are demanding bigger down payments, but the fact that people have the dough, and are willing to invest it in spite of the headlines, is a healthy sign.
It helps identify the competition for the top-quality properties too – where you will likely be bidding against people with ample horsepower. Strategize accordingly.
Healthy? When 37.5% of the home sellers sell for less then what they paid, that is not a healthy market.
What’s unhealthy for sellers is healthy for buyers. =)
We had a bubble, let’s not forget. The fact that people are selling today at post-bubble prices should be no surprise, and doesn’t say much one way or another about today’s market.
I think Jim’s post is pointing to the fact that some markets have more liquidity (i.e. down payment) than others. A lot of this money comes from selling one home to buy another (often bigger) one. Something people do in the best and worst markets.
Desmo,
Nearly 100% of car sellers sold their cars for less than what they paid. Does that mean that the car market is perpetually unhealthy?
Just wondering what asset classes those rules apply for.
Thanks in advance.
Chuck
Charles, excellent point, then I agree with you, that if you plan on buying a house just expect to lose money when you sell it.
Cars are a depreciating asset. By your comment, are you saying homes also are a depreciating asset? Because this would change the home ownership calculus on its head (though the bubble and crash has gone a long way to accomplishing this).
If you included the financing costs of purchase it’s possible even people with equity are selling for less than they paid, but nobody looks at it that way because the alternative is renting. We’d probably all be better off if we looked at housing from utility standpoint rather than an investment perspective, but we don’t. Hopefully the day will come when everybody doesn’t need to be so bullish or bearish on housing.
Love these stats. Always amazing how much cash is sloshing around. Interesting how those with money don’t really get talked about, it’s the broke people and pain etc that dominate mainstream reporting….
Actually, houses *are* a depreciating asset. As a landlord, you literally get to write off that depreciation. However, by doing proper yearly maintenance, you can maintain and even grow the value of your home. Simple addition and subtraction – your house has depreciated but you have repaired or even improved upon it. You’ve spent money to increase the value of your home – it’s not free.
Of course, there are some regions where houses grow in value due to the market, just as there are regions where they decrease in value due to the market alone. Schiller’s detailed analysis has shown this is largely zero sum – aside from the maintenance/age depreciation mentioned houses do not appreciate or depreciate in the long run when adjusted for inflation. People *do* build more expensive *new homes*, and there are sub-markets that buck the overall trend.
Any market correction is all about asset transfers from weak to strong hands. A high percentage of weak hands throwing in the towel and their assets transferring to low LTV owners is a good sign.
Lots of good comments here – about 15 years ago I read Robert T. Kiyosaki’s book, Rich Dad Poor Dad, and he said, “an asset is something that puts money into your pocket, a liability is something that takes money out of your pocket.” I never forgot that, as at the time I owned rental property that I was depreciating, which put money into my pocket. . .my primary residence always took money OUT of my pocket. Even when I sold in 2006 at a nice “profit”, my loan costs over 20 years, maintenance costs, taxes, etc. etc. probably ate up a lot of that “profit.” BUT – we needed a place to live (and still do), so I like someone’s comment about a nice car. . .everyone knows they depreciate, but millions of nice BMW’s MB’s, and SUV’s are sold every year because people need a car, and want something nice.
Home ownership has values other than “profit” – the ability to paint the walls pink if you want, to remodel to taste, and to not have a landlord looking over your shoulder and deciding when he/she wants you out.