Lenders Hike Down Payment Requirements
Burned by defaulting loans, at least some lenders are now adopting practices that stand to make things worse (“Zip Code ‘Redlining'”, Kenneth Harney; Washington Post 2/2/2008). To reduce risk, Countrywide Bank and others are now characterizing whole areas as either rising or declining, with shades therein. Where prices are deemed to be declining, the lenders are requiring beefed-up downpayments to provide an extra margin of security.
Unfortunately, tighter financing terms directly reduce demand, which pushes price down further.
Look for Congress and the Fed to address this, either by corralling the practice in its infancy, or, doing something to offset buyers’ diminished purchasing power (tax cuts, lower interest rates, etc.).