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By Giulia Carbonaro
Senior Reporter
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The typical homebuyer’s down payment fell for the first time in five months in December, dropping 1.5 percent compared to a year earlier, according to a new Redfin report.
The reason, researchers believe, is that Americans are increasingly seeking more affordable homes that would help them cope with still-elevated mortgage rates and growing economic uncertainty.
And sellers cannot afford to be picky and wait for buyers willing to offer larger down payments.
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What’s Happening in the U.S. Housing Market
The years following the start of the COVID-19 pandemic have been tumultuous for the U.S. housing market. Historically low borrowing costs between 2020 and 2022 combined with the rise of remote work to unleash a home-buying frenzy across the country, which unfortunately clashed with a nationwide lack of inventory.
Home prices quickly rose all across the nation, and when mortgage rates doubled as a result of the Federal Reserve’s aggressive rate-hiking campaign to combat the rise of inflation, demand took a hit.
Over the past year, higher housing costs have contributed to shrinking demand across the U.S., leaving hundreds of thousands of homes on the market, unsold. While home prices are still rising at the national level, the current gap between sellers and buyers is helping the latter negotiate better deals, especially in parts of the country where inventory levels are higher.
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What Lower Down Payments Tell Us About What’s Going On
Redfin’s data showing a drop in the average down payment in December was based on an analysis of county records across 38 of the most populous U.S. metropolitan areas.
Its study found that the typical homebuyer’s down payment fell to $64,000 in December, as Americans decided to spend less upfront for their purchase of a home. That meant they paid about 15.2 percent of the purchase price, down from 16.7 percent a year earlier.
In the same month, however, the median home sale of a typical U.S. home rose by a modest 0.5 percent. And yet, buyers could afford to put down a smaller amount of money ahead of closing the deal, because they are gaining more power over sellers.
“Down payments may be falling in part because Americans are seeking out more affordable homes due to high prices, elevated mortgage rates and economic uncertainty,” said Redfin principal economist Sheharyar Bokhari in a statement included in the report.
“Sellers typically prefer buyers who make large down payments because it signals financial stability, but sellers don’t have much say in today’s market,” he added. “Buyers hold the negotiating power because there are more homes for sale than people who want to buy them.”
Not by coincidence, the biggest decline in the median down payment was reported in Orlando, Florida, down 23.9 percent year-over-year, as Florida is one of the two states, together with Texas, which has built the most new inventory since the pandemic.
The highest down payment was in three California cities, including San Francisco, at $400,310, San Jose, at $360,000, and Anaheim, at $270,800. It was lowest in Virginia Beach, Virginia, at $8,700, Cleveland at $25,025, and Cincinnati $25,143.
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