Faced with higher mortgage rates and rising home prices, homebuyers made larger down payments in February, with the median down payment rising to $55,640, up 24.1% from $44,850 in February 2023, according to Redfin.
That’s the largest annual increase in percentage terms since April 2022, the firm says.
The typical homebuyer’s down payment in February was equal to 15% of the purchase price, up from 10% a year earlier, the firm’s analysis reveals.
“Homebuyers are doing whatever they can to pull together a large down payment in order to lower their monthly payments moving forward,” says Rachel Riva, a Redfin real estate agent in Miami. “The smallest down payment I’ve seen recently is 25 percent. I had one client who put down 40 percent.”
Home prices increased 6.6% year over year in February, which is part of the reason down payments increased; a higher home price naturally leads to a higher down payment because the down payment is a percentage of the home price.
But elevated housing costs – from both high prices and high mortgage rates – are also incentivizing buyers to take out larger down payments.
As the report notes, most first-time home buyers can’t afford a big down payment. Thus they are at a disadvantage in today’s market. That’s because they don’t have equity from the sale of a previous home to bolster their down payments, and are often competing against all-cash offers, which sellers tend to favor.
Many all-cash offers come from investors, who were buying up more than one-quarter of the country’s low-priced homes as of the end of last year. Overall, though, investors are purchasing far fewer homes than they were during the pandemic housing boom.
“High mortgage rates are widening the wealth gap between people of different races, generations and income levels,” says Chen Zhao, economics research lead at Redfin. “They’ve added fuel to the fire lit by surging home prices during the pandemic, creating a reality where in many places, wealthy Americans are the only ones who can afford to buy homes. Meanwhile, people who are priced out of homeownership are missing out on a major wealth building opportunity, which could have financial implications for their children and even their children’s children.”
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