Down payment for buying a home has jumped to an all-time high, driven by factors like high home prices and mortgage rates, according to a report by real estate brokerage Redfin.
Redfin said the spike in down payment was being influenced by current market conditions where “higher-priced, turnkey homes” located in desirable neighborhoods are likely to get sold. Turnkey homes are fully renovated properties that an investor can buy and rent out immediately.
The median price of a U.S. home was also at a “record” high of $442,525. With elevated home prices and mortgage rates, buyers need to put down more money in down payment.
“Investors are still coming in with all-cash offers on homes that need to be renovated. Traditional buyers are putting up large down payments to try and lower their mortgage payment,” said Annie Foushee, a Redfin agent in Denver.
“These buyers will often utilize the help of family members to put down more than they could on their own.”
The down payment a typical homebuyer made in June was 18.6 percent of the home price, the highest level in more than a decade. Almost three in five buyers paid more than 10 percent of the property price as a down payment in June.
More than 30 percent of home purchases in June were made all-cash, up from last year. Redfin Senior Economist Sheharyar Bokhari pointed out that 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.”
“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.”
Housing Affordability
Higher down payment is one of the factors contributing to the affordability crisis in the housing sector.Monthly payments now eat up more than a quarter of an individual’s income. To simply qualify for the home, the person needs to have an income of $110,544, up from $57,888.
A key factor making home loans expensive is mortgage rates, which have jumped from 3.01 percent to seven percent during this period.
“Rates are expected to continue their decline, and while potential homebuyers are watching closely, a rebound in purchase activity remains elusive until we see further declines.”
Even when rates come down, high home prices could continue to be the norm, keeping housing costs elevated.