You’d think that the single most influential factor governing a potential St. Cloud home buyer’s decision on whether to buy now or hold off would be the ongoing bottom line—that is, the amount of an anticipated monthly mortgage payment. 

Maybe not. 

The New York Federal Reserve argues otherwise. Not just a little bit otherwise; “dramatically” otherwise.

To cut to the chase (and that’s a good idea, for reasons that we’ll get to later), what is more likely to impact that decision—especially for those who are currently renters—is the size of the down payment. It follows that St. Cloud home renters are more likely to be encouraged by any relaxation of down payment requirements than they are to be discouraged by a rise in mortgage interest rates (with the resulting increase in the monthly payment).

Upon reflection, the Fed’s finding isn’t so surprising. The slow-motion economic recovery and stall in wage growth has made it tougher than ever for the average St. Cloud home renter to scrape together a traditional 20% down payment. That would be why the FHA began to loosen down payment requirements (they started doing that in late 2013). 

The details of the NY Fed’s study—Survey of Consumer Expectations—involved asking respondents how they would react to different home-buying scenarios. They measured the resulting “WTP”: Willingness to Pay, and found out…well, they found out a number of complicated things that we can leave for the statisticians to figure out—but one that stands out is that for renters (and we could easily imagine many of our own St. Cloud home renters are among them), the amount of a proposed down payment is much more important than the interest rate. Everyone who has ever lived with an income that’s about equal to their expenditures understands why: rent money spent gets you nowhere, mortgage payments are different. They represent, in part, retained value. 

The reason that earlier we immediately cut to the chase was because the language in the study itself is part English, part FedSpeak (a language created by Fed spokespersons for the apparent purpose of foiling attempts to decipher meaning). For example:

“…since there is generally no exogenous variation in these variables that is independent of confounding factors (such as economic conditions or household characteristics), it is difficult to cleanly estimate these sensitivities empirically.”       

Thankfully, that study was accompanied by a summary. The upshot for us is that the current hard-to-predict mortgage interest rate ups and downs may not be as important a WTP influence (at least where the St. Cloud home renter population is concerned) as we might assume. What are always keys for swaying potential buyers are objective pricing, proper presentation, and energetic marketing. I can help with all of those—so call me!