Blog posted On September 06, 2024
According to Redfin, home buyers are now putting down an average of $67,000, which marks a nearly 15% increase compared to a year ago. This put the typical home buyer’s down payment at a whopping 18.6% of the purchase price, the highest level in over ten years. With this recent surge, prospective homeowners, realtors, and lenders alike are all wondering what this means for the future. And how can we still succeed in the home buying market despite record highs?
Let’s break it down…
Redfin reported record-breaking highs in June, which marked the “12th consecutive month that the median down payment rose year over year.” Home prices have been increasing — to a lesser degree — in tandem with down payments, rising to 4% in June. With these ongoing affordability issues, alternative loan types, such as HELOCs and FHA Loans, have become more popular. One positive to note is that home buyers’ median monthly incomes have risen to record-high levels as well. Averaging $8,000 monthly, there was a 3% and 9% increase, quarterly and annually respectively.
Why are down payments increasing?
We can attribute the surge in down payment costs to several factors: higher home prices, elevated mortgage rates, and an increase in home equity. Realtor.com puts much of this blame on the pandemic, citing that it put pressure on down payments because of the intense bidding wars and limited inventory at the time; many buyers offered sellers a larger down payment due to the cutthroat competition. The expected down payment costs hiked drastically as a result of that low-rate period. Redfin’s Senior Economist, Sheharyar Bokhari, offered a few explanations:
“The percentage of all-cash sales generally follows the same trend as the rise and fall of mortgage rates. When rates are down, the percentage of all-cash sales is down too, and the opposite is true when rates go up,” says Bokhari. “That means we may start to see all-cash purchases level off a little now that mortgage rates have started to come down from recent highs.”
Reasons to buy with down payments on the rise
With these industry increases, you can still turn the tides in your favor. Down payment assistance programs exist across the country for qualifying home buyers. As a prospective homeowner, you’ll want to take advantage of low-no down payment programs. There are many DPA loans and grants available that are state and city specific. Your loan officer can help you research your options and find the best fit tailored to your needs. Between recent low-trending rates and various down payment plans, you have countless options to help cut down on the costs of homeownership.
If you want to learn about more down payment programs or see a personalized mortgage scenario, we’re here to help!
Source: Redfin, National Mortgage Professional, Realtor.com
