The third quarter saw an 11.3% year-over-year increase in the US median down payment to $30,434, the largest amount since Realtor.com began collecting data in 2013. During the same period, the average down payment percentage—which was also the highest in the previous ten years—reached 14.71% of the purchase price.
According to the trend, purchasers in the current housing market are motivated and able to make sizable contributions. They are using their resources, cash or equity, to their advantage to outperform rivals who do not have the same access.
“Those who can participate in this intriguing market are probably higher earners,” said Hannah Jones, a Realtor.com economic research analyst, in an interview with Yahoo Finance. “Also because inventory is so tight and mortgage rates are so high, it’s creating a more competitive environment where people are more likely to put more down as a means of competition because there’s such limited inventory on the market.”
According to data from Realtor.com, the typical down payment amount increased by 118% over the previous four years, from $13,937 in the third quarter of 2019 before the epidemic started to roughly $30,500 in the third quarter.
The spike in property prices during the epidemic can be partially blamed for the increase. In the third quarter of 2019, the median home price in the United States rose by almost 40% to $373,253, up from $266,861 during the same time in 2018.
As a percentage of the typical home price, the deposit amount increased as well. Since 2013, the average yearly down payment percentage has been 11.39%; however, following the implementation of COVID, that percentage increased to 12.75% and reached 14.71% in the third quarter, indicating that buyers are assuming greater equity at the outset of their homeownership.
“When buyers get in multiple bids scenarios, it becomes a safer bet for sellers to pick a buyer who is able to put more down because it’s an insurance policy about [the buyers’] financial strength,” Jones explained.
In addition, given the high mortgage rates of today, purchasers also like to lower their monthly payment; a bigger down payment can help with that.
For example, a buyer of a $300,000 house with a 10% down payment will pay approximately $1,900 per month for a 30-year mortgage at 7.57%. In the same case, the monthly cost would be $1,800 if a 15% down payment was made.
“The fact that purchasers are attempting to restrict the amount of interest on their
Those who can afford to buy a home in the current market are not your typical buyers. Most of them are higher-income households, repeat buyers with carryover equity, or those with access to sizable down payments.
“Buyers who are participating perhaps have a lot of money, they can put more down from a previous home sale,” Jones stated. “Otherwise they are not so worried about the budget side of the equation.”
Jones described it as “almost like a biassed sample.”
The National Association of Realtors’ 2022 Profile of Homebuyers and Sellers shows that first-time buyers paid down 6% of the purchase price on average, while repeat buyers contributed 17% on average.
The same study also demonstrates that the likelihood of successfully acquiring a home purchase increases with income. Successful homebuyers make up 42% of households with an income of $100,000 or more, 27% of households with an income of $50,000 to $99,999, and 19% of households with an income of less than $50,000.
Getting money from family or other loved ones is another way that some younger homeowners are gaining an advantage. 78% of Gen Z and 54% of millennial homeowners reported receiving financial aid for a down payment, according to a recent LendingTree research.
The cost of housing is just too high right now, according to LendingTree senior economist and report author Jacob Channel, who spoke with Yahoo Finance. “And because of that there’s more incentive for people to say to a parent or somebody like that, ‘I’d really like to buy a house but it’s so prohibitively expensive, I need some help.'”
First-time buyers with limited funds and a smaller down payment are losing ground to these buyers. In August, the percentage of first-time purchasers fell from 30% to 29%. This is only 3 percentage points more than the tracking from November 2022, which was 26%, the lowest since NAR data collection started.
“We are not witnessing the reduced portion of the down payment since those purchasers