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Buying Home a Good Bet

October 06, 1985

I read with interest "Home Sales Likely to Stay Sluggish" (Times Board of Economists, Sept. 3). I don't know where the A. Gary Shilling is getting his impression that homes sales are sluggish, nothing could be further from the truth.

According to the National Assn. of Realtors, sales of existing homes nationally have increased an average of 21% a year over the past three years.

This is also confirmed by the California Assn. of Realtors data, which shows that existing home sales in California have increased about 22% a year during the same period.

With regard to Fannie Mae stiffening its requirements--requiring the buyer to pay no more than 25% of his income for mortgage payments instead of 28%--I say that this makes good business sense. The 25% yardstick was used for many years.

Working class people should not borrow to the hilt for housing. However, someone who earns $100,000 a year could easily put aside 30% for housing, since hopefully his other expenses aren't much higher than the average wage earner. The writer is incorrect in assuming that the tougher Fannie Mae requirements will affect the high-end properties. Lenders are flush with money and know that it makes good sense to make loans to borrowers purchasing expensive properties, as long as the borrower has a substantial and stable earnings history.

Also, with regard to lenders being extremely reluctant to write mortgages with less than a 10% down payment, I feel that in many cases this makes good sense.

If the borrower has not been able to save for a 10% down payment, there is a reasonable chance he will be unable to make payments in the future.

Also, in today's non-inflationary market the lender's chance of obtaining the property back through foreclosure is greatly enhanced with less than a 10% down payment.

I believe everyone from the first-time home buyer to the seasoned investor knows that, for the time being, the days of speculation and wild appreciation in the real estate market are gone, but compared to other places to put your money today, I can't think of anything better than a residence.


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