According to Realtor.com, the median down payment rose across the board during the third quarter. This is counterintuitive. The median down payment increased across the board in the third quarter, according to Realtor.com.
In the pandemic, buyers competed in multiple-bid situations by using down payments. Over the last year, down payments have continued to rise despite a decrease in buyer demand and a moderated home price. Realtor.com explains that consumer savings patterns and the competitiveness of the housing market can explain why down payments have been increasing during a time of stagnation for home prices.
Hannah Jones, in a report by Realtor.com, wrote that “Home shoppers faced a limited for-sale stock as homeowners chose to stay put instead of listing their homes for sales amid high mortgage rates.” “Fewer houses meant more competition for buyers which led to increased down payments as purchasers used their pandemic savings to win multiple bid scenarios.”
The higher mortgage rates are also a factor in the increased down payment. Rates well above 7% allow buyers to reduce the size of a high-rate loan by paying more at the time they purchase.
In the third quarter of 2018, down payments hit a new high, with an average down payment of 14.7% and a median amount down payment of $30,000. Since 2020, the average down payment for primary residences was 11%. Realtor.com states that the increase in down payment amounts is “especially important” since the median home sale price has increased by 25.4% between the third quarters of 2020 and 2023.
The median downpayment of $30,000 means that buyers in the third quarter paid 78.2% higher than the first-quarter 2020 median downpayment of $17,000.
In the third quarter, down payments increased in every state except four. Utah, Texas (40 bp), Arizona (30 bp), and Idaho (10 bp) were the only states that reported a decrease in down payment percentage from year to year. The down payments were still high in all states, but Texas had a lower rate of down payments (12.2%) compared to the national average (14.7%).
According to Realtor.com, the highest percentage increase in down payment was in Washington, D.C. This was followed by Alaska, Montana. Connecticut and Rhode Island. According to Realtor.com, the presence of high earners in Washington, D.C., Montana, Connecticut, Rhode Island, and Connecticut partially explains why down payments are higher than average. The median down payment in Connecticut increased by 54.7% over the past year to $47.300. Rhode Island, Nebraska, Alaska, and Virginia all saw a larger dollar increase in their down payment amounts than the third quarter of 2022. Alaska had an increase in down payments but still fell below the national average (12.2%).
According to Realtor.com, the largest decrease in down payment size was seen in Southern and Western states. This is due to decreased sales amounts. According to Realtor.com, the biggest reductions in down payments were seen by states located in the South and West, including Utah, Texas, Oklahoma, and Arizona.
The three markets with the highest growth in down payments were Portland-South a data-cms-ai=”2″ href=”https://www.builderonline.com/local-housing-data/portland-south-portland-biddeford-me”>Portland/a>, Maine; New Haven-Milford, Connecticut; and Bridgeport-Stamford-Norwalk, a data-cms-a The top three markets for down payment growth were Portland-South Portland, Maine; New Haven-Milford, Connecticut; and Bridgeport-Stamford-Norwalk, Connecticut.
In contrast, metros located in the West, South, and even some early boomtowns saw their down payments decline in the third quarter. In the third quarter, the top five metros in terms of down payments were El Paso, Texas; San Antonio-New Braunfels, Texas; Ogden/Clearfield, Utah; riverside-san Bernardino, Ontario, California; and Charleston, South Carolina. The down payment as a percentage of the purchase price fell by 1.1-1.8 percentage points in these markets.
The fourth quarter saw the highest down payments in coastal metro areas. San Jose in California, San Francisco in California, Oxnard, Thousand Oaks, Ventura, and Los Angeles are four of the five metropolitan areas with the highest percent down payment. In the third quarter, down payments averaged 23.3%. Realtor.com reports that coastal markets tend to have residents with higher incomes and more money to pay for a down payment.
The down payment for second homes and investment properties is more than twice as much as the down payment for primary residences. Investment properties averaged down costs of 28,2% in the third quarter, which is 1.4 percentage points more than the third quarter of 2022. In the third quarter, second home down payments averaged 28.3%. This is 1.7 percentage points higher than the previous quarter in 2022.
Housing Market Report
The housing market continues to be affected by affordability shocks, especially existing home sales. Mortgage rates were near 8% in October, and the monthly payment for many major markets in January 2022 was 60% more than it was in October.
We have seen that this low resell stock has pushed people to the new home market. Wolf explained that the resale stock is not just limited but also aging and costly. “New homes are usually more expensive than existing ones.” The price gap has been narrowing.”
Despite the dynamic supporting the new home market, builders share the impacts of “seasonality plus” in the field. Tim Sullivan, a chief advisory officer at Zonda, said that builders surveyed were often referring to “scarce land,” “expensive and unsupplied,” “challenging costs environment,” “price-sensitive,” “cautious,” and “slowing (and] competitive.”
According to Sullivan’s research, builders are still enthusiastic about land purchase, but it is becoming increasingly expensive. Zonda surveyed 43 percent of builders who said they were pursuing land acquisition “at full speed,” while 53 percent are moving cautiously. As land demand increases, so do prices. According to 40% of builders surveyed, land prices have increased.
Sullivan stated that affordability is becoming a greater concern for home builders. Consumer confidence, affordability of new homes, and economic uncertainty are all ranked as the top three concerns for home builders. In October, 71% said that they had not raised prices, and an additional 13% had lowered the base price.
He noted that “flex dollars, money for closing costs and mortgage rate buydowns [have been effective incentives].” The builders target the sweet spot for buydowns, which is between mid-5 and mid-6.