Exploring Ways for Buyers to Increase Down Payments
According to Danielle Hale, chief economist at Realtor.com, the housing market is gradually shifting towards a more balanced state between buyers and sellers as inventory levels recover. However, down payments have reached an all-time high in 2024, primarily due to the dominance of higher-end home sales. This trend has led to larger down payments from financially secure, high-earning buyers, while entry-level and lower-income buyers find it challenging to participate.
Buyers have been able to afford larger down payments by tapping into accumulated savings and home equity. The pandemic saw a significant increase in the personal savings rate, reaching over 30% of disposable income, providing many households with the financial cushion needed to bolster down payments.
Existing homeowners have also capitalized on near-record equity levels when moving to larger properties. In 2024, the median down payment doubled compared to 2019, with the average percentage of the purchase price paid upfront increasing by over 3 points.
The market’s focus on higher-priced homes has further pushed up down payments. Sales of properties priced above $750,000 saw a 7.4% growth in 2024, while transactions below that threshold declined by 9.3%.
Although modest down payments, commonly used by first-time buyers or those with government-backed loans, saw an increase, they remained below the peaks seen in 2022. The 30th percentile down payment in Q4 of 2024 was $8,200, marking a 6.5% year-over-year increase but still lower than the peak of $10,300 in the second quarter of 2022.
Looking ahead, Hale suggests that as mortgage rates decrease, a more diverse range of buyers with varying budgets may enter the market, potentially reducing the pressure to minimize their home loans. However, if the supply of homes for sale fails to keep up with the growing demand from buyers, down payments could rise once again due to heightened competition.
Industry analysts anticipate that the trend of elevated down payments will continue into 2025, driven by persistently high mortgage rates and limited availability of starter homes.