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Homebuyers Face Record Down Payments Amid Rising Prices

Key Takeaways

Recent data indicates that the median down payment for home purchases reached an unprecedented $29,900 last year. This figure represents a 33% increase compared to previous figures. As home prices continue to climb, buyers are contributing larger upfront payments in an effort to minimize borrowing costs.

Current trends show that homebuyers are grappling with significantly increased down payments alongside soaring home prices.

In 2024, the median down payment hit a record high, showing a more than $2,000 increase year-over-year, now standing at $29,900. This trend is largely influenced by elevated mortgage rates, prompting many to opt for larger initial payments to avoid higher borrowing costs, according to analysis from Realtor.com.

Danielle Hale, Chief Economist at Realtor.com, highlighted that home sales are increasingly concentrated in the higher-end market, resulting in larger down payments from affluent buyers. Meanwhile, entry-level buyers are finding it more challenging to participate in the housing market.

When examined quarterly, statistics revealed that the second quarter recorded the highest median down payment levels observed to date.

The increase in down payments correlates directly with the broader rise in housing prices.

Moreover, the report indicates that buyers contributed an average of 14.4% of the home purchase price as a down payment last year, the highest proportion seen in over a decade. Prior to the pandemic, down payment amounts were typically much lower relative to home prices.

Down Payments Not Likely to Fall Until Mortgage Rates Do

With home prices reaching all-time highs and mortgage interest rates remaining elevated, prospective buyers are looking for ways to reduce costs.

A significant factor in the increased down payments is that buyers with available funds are opting to pay more upfront to mitigate borrowing expenses.

According to Hale, it is improbable that down payments will decline significantly as long as borrowing costs remain elevated. Currently, the average rate for a 30-year fixed mortgage sits at approximately 6.6%, a level that has remained stable since early March, as reported by Freddie Mac.

Looking ahead, Hale notes, “If mortgage rates decrease, we are likely to see a broader range of buyers with varying budgets entering the market, which may lessen the motivation to reduce home loan amounts. However, if the inventory of homes for sale fails to meet the surge in buyer demand, we may witness an uptick in down payment amounts due to increased competition.”

Source
www.investopedia.com