To Buyers, Mortgage Rates May Be Overrated

Changes in down payment requirements have more impact over home purchasers' eagerness to purchase than changes in home loan rates, as per another study distributed by business analysts at the New York Federal Reserve.

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The Fed's study of buyers and renters found that the impact of interest rates may be overrated compared  to the even the smallest changes of interest rates. The study found that dropping the needed downpayment from 20 percent to 5 percent increases the willingness to purchase, by and large, by 15 percent among buyers and 40 percent among renters.

Then again, lowering the interest rate on a 30-year fixed rate home loan raised the willingness to buy a home by just 5 percent, all things considered. Buyers showed more influence by down payment changes even though the mortgage rate change could save them more money than the lower down payment.

"A key takeaway is that the impact of an change in down payment requirements on housing demand strongly depends on households financial situation," says financial specialists Andreas Fuster and Basit Zafar of the New York Federal Reserve. "Case in point, a loosening of down payment requirements will have little impact on the willingness to purchase for a new home of current owners with substantial equity, or of renters with substantial liquid savings. The results also imply that macroprudential measures such as a loan-to-value (LTV) cap may predominantly affect the lower end of the housing market, and that the effect on house prices will depend on the state of the economy and other asset markets,"