When I was working on my dissertation back in the 1980s, Systematic Differences in Interest Rates Across Select U.S. Cities, it drilled home to me how different financial terms, home prices and consumer expectations and behavior varied from market to market. It was then I coined the phrase “There Is No Such Thing As A National Real Estate Market,” which I call the TINSTAANREM clause. Once again that is proved true by a study in home purchase down payments.
LendingTree provides an online marketplace connecting consumers with an array of lenders and features an impressive set of tools helping borrowers make better decisions. They have just released a study that compares the average percentage down payment (and typical loan amount) by state for 30-year, fixed-rate conventional loans. The wide range may be surprising to many, varying from the lowest average of 11.9 percent in Mississippi to the greatest average of 20.5 percent in New Jersey. The national average down payment was 16.1 percent with a corresponding loan of $221,695 as of May 31, 2013.
So where are smallest percentage down payments?
And the largest down payments?
When comparing the least and the greatest down payments and loan amounts, a question that comes to mind is, “Are greater down payments associated with larger loans?” The answer is yes, based on the Pearson Product Moment Correlation Coefficient, which when calculated is 0.784386. Two regressions were then calculated. The first simply used the down payment percentage as the dependent variable with the corresponding average loan amount in that state as the independent variable. Just knowing the average loan amount by state explains 60.7 percent of all the variability from state-to-state in down payment amounts.
The second regression was essentially the same as the first, but instead of using just the loan amount as the independent variable, since residual analysis indicated a non-linear relationship between the down payment and loan amount, a quadratic term was used. In the Model, Down Payment = Function (Loan Amount and Loan Amount Squared). This regression analysis had an adjusted R Square of 0.6283, and was as follows:
To read the entire state ranking list from the LendingTree study click: http://marketing.lendingtree.com/pr/Average%20Down%20Payment%20May%20Data%202013.pdf
Typical home purchase down payments vary significantly by state, but there is a strong, positive relationship between the loan amount and corresponding down payment.
And don’t forget the TINSTAANREM clause.