Homebuyers in the United States are paying the lowest down payments in nearly two years amid a decreased demand for properties.
The median down payment for a home financed by a mortgage was $42,375 as of January 2023, equivalent to 10% of the purchase price, according to a Wednesday analysis from Redfin. The figure marks a decline from the 13.6% share of the purchase price recorded in January 2022 and the lockdown-era peak of 17.5% in May 2022.
“One silver lining of high mortgage rates and economic turmoil is that they’ve slowed competition,” Redfin Senior Economist Sheharyar Bokhari said in a statement. “That means buyers are often able to purchase a home without facing a bidding war and don’t need to fork over a huge portion of their savings for a down payment to grab sellers’ attention. Today’s buyers are also able to save money in other ways: Nearly half of sellers are offering concessions, like helping pay for a mortgage-rate buydown or covering closing costs, to attract buyers.”
Home prices and median down payments had soared over the past three years as competition for properties accelerated. Lockdown mandates caused low labor force participation and supply chain bottlenecks, worsening the chronic trend of decreased construction levels for residential real estate. The overall housing market witnessed a shortage of 3.8 million properties as of 2019, according to data from the government-backed mortgage company Fannie Mae, while the National Association of Realtors estimates that homebuilders should have constructed between 5.5 million and 6.8 million more houses over the past two decades to match current demand.
Down payments have fallen 35% from their recent peak but remain 30% higher than levels witnessed before the lockdown-induced recession. Other causes for the lower down payments are high shelter costs and overall inflationary pressures, which have depleted the savings buyers are able to allocate for a down payment, as well as a decline in home prices caused by the higher mortgage rates.
Down payments have decreased 33% in Sacramento, California, over the past year, as well as 28% in Atlanta, Georgia, and 23% in Orlando, Florida. The only markets which saw higher down payment percentages were Newark, New Jersey, and San Francisco, California.
Elevated mortgage rates, caused by actions from the Federal Reserve meant to combat inflation, recently produced the first year-over-year decline in median home prices since February 2012 even as properties become less affordable. Median home sale prices increased from $322,600 in the second quarter of 2020 to $467,700 in the fourth quarter of 2022, according to data from the Department of Housing and Urban Development.
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Apartment rental markets are meanwhile seeing decreases in typical unit sizes, indicating a reversal from the desire for larger properties that corresponded with government lockdowns as families spent more time in their homes and breadwinners relied more on remote work. The average size of new apartments was 887 square feet in 2022, constituting a 3% drop since the previous year and continuing a decline of 54 square feet over the past decade, according to a recent report from RentCafe. Average rental prices have increased 26% from $1,568 in December 2019 to $1,981 in December 2022, according to data from Zillow.