If you’ve been following along at all, you know that the housing market has been experiencing a significant shift over the past few months. Buyers are now able to make lower down payments thanks to inflation and high home prices.
According to a recent report from Redfin, the typical US home buyer’s down payment fell 10% year-over-year in January, reaching a median of $42,375, which is the lowest level in nearly two years. While this news may come as a relief to those who were previously priced out of the market, it’s important to understand why down payments are falling and what it means for buyers.
It should also be noted that you DON’T ALWAYS NEED TO PUT 20% down on a home. If you’re new around here, you know we have a team of experts who know about many of the down-payment assistance programs and can help you get into a home.
One reason for the drop in down payments is the slower housing market and decreased competition. Unlike in the hyper-competitive market of 2021 and 2022, buyers no longer need a large down payment to prove their stability and stand out from the crowd. This has opened up opportunities for buyers to use FHA and VA loans, which require smaller down payments but may result in higher monthly mortgage payments.
Another reason for falling down payments is high housing costs and inflation, which have hit home buyers’ pockets hard. Some buyers may be putting more cash toward a mortgage rate buy-down instead of their down payment, which can result in a lower interest rate but less money to put toward the home up front. However, it’s important to note that lower home prices do not necessarily equate to lower down payments, as home prices remain high in some areas despite falling slightly from their peak.
Despite the challenges of the current market, there are some silver linings for buyers.
One positive development is that high mortgage rates and have slowed competition, meaning buyers may be able to purchase a home without facing a bidding war or needing to make a large down payment just to get the seller’s attention.
Additionally, cash purchases have hit a nine-year high, with nearly one-third of US home purchases paid for in cash in January. This trend is particularly prevalent among affluent buyers who want to avoid high mortgage rates. As always, cash is king.
Overall, the current state of the housing market presents both challenges and opportunities for buyers. While lower down payments may make it easier for some buyers to enter the market, it’s important to carefully consider the implications of taking out a smaller loan.
Buyers should also explore all available options, including down payment assistance programs, FHA and VA loans, and cash purchases, to find the best fit for their financial situation and housing needs.
With some research and strategic planning, it’s still possible for buyers to achieve their dream of owning a home in today’s market. If you want to know more, I’d love to set up a consultation call with you to talk about your situation and see how our team can help you reach your home ownership goals.