A new study by the New York Federal Reserve states that changes in down payment requirements have considerable more influence over home buyers’ willingness to purchase than changes in interest rates. For example, lowering a down payment from 20 percent to 5 percent, increases the willingness to buy – or ability, in many cases – by as much as 15 percent among buyers and an even greater 40 percent among renters. Conversely, lowering the rates on a 30-year fixed-rate loan increased the willingness to purchase a home by only 5 percent.
On the other hand, lower down payment requirements has little effect among buyers who already have a home with substantial equity or with renters who have substantial savings. In this case, lower interest rates are key, as this is what will save these groups more money.