The current state of the housing market has put home buyers, especially first time and low income buyers, on edge. With home prices and mortgage rates at record breaking highs, larger down payments have become a common expectation in home sales, leaving first time and low income buyers stuck.
A new study from Realtor.com shows where buyers are putting the most and least down on their home purchases, by examining home sales through September in the 300 largest metropolitan areas using mortgage data from Optimal Blue. The report found that for single-family home sales, the average down payment jumped to a high of more than 14% of the purchase price this year, up from just above 11% in 2019.
- Large down payments are the norm for areas that have become holiday getaways, second-home havens, and retirement destinations, historically running at well above 20% for years.Those down payments have also grown, however, averaging above 26% since June this year.
- Down payments are the least affordable in The Villages, Florida at 30.2%, where the median home price is $375,000.
- This metro is followed by Coeur d’Alene, Idaho at 27.9%; Santa Barbara, California at 26.4%, Barnstable, Massachusetts at 26%; Salisbury, Maryland and Maui, Hawaii tied at 24%.
- Down payments are lowest in historically cheaper cities: all of the top 10 metros with the lowest down payments had median prices below $300,000. These places are clustered in the South and Southeast, where home prices are lower than the rest of the nation.
- Less expensive metros were also found across the Rust Belt, where industry-driven population booms were followed by busts as residents left these communities when the jobs disappeared.
- The most affordable down payment is available in Fayetteville, North Carolina at 4.3%, where the median home price is $239,900.
- Second comes Monroe, Louisiana at 4.7%, followed by Topeka, Kansas at 7.1%; Hattiesburg, Mississippi at 7.3% and Mobile, Alabama at 7.6%.
- Federally backed loan assistance programs play a big role in metros with the lowest down payments, including Veterans Affairs and U.S. Department of Agriculture loans, where buyers can put down as little as 0%, and Federal Housing Administration loans, where buyers can put down as little as 3.5%.
The report stated that “Even in these lower-priced markets, down payments have been on the rise lately, thanks to a surge in demand for housing nationwide colliding with an epic housing shortage. Buyers are eager to make their offers stand out just about everywhere.”
“The trend is most pronounced in the Rust Belt metros on the list. In Johnstown, Springfield, and Saginaw, all where homes are still very affordable, the average down payment has gone from around 4% to above 8% more recently,” said the author of the report. “For a place like Saginaw, where home prices also increased in the past few years, the two trends combined mean the dollar amount of the average down payment went from below $10,000 to around $15,000.”
For the full report, click here.