As Interest Rates Skyrocket, Buyers Are Reducing Their Down Payments
Fast-rising home prices and fierce competition caused a number of buyers to up their down payments throughout the pandemic, but as the housing market cools, buyers can no longer afford hefty upfront costs on already pricey home purchases, Redfin reports. The average down payment fell to $62,500 in July, up 13.6% from a year earlier, but a gradual deceleration from a peak high of $66,000 in May and June.
The typical buyer’s down payment in July was equal to roughly 15.2% of the total purchase price, but as housing costs reach new highs in a market correction, nine-year high down payments are no longer affordable for the majority of prospective buyers.
The dip is partly because the housing market is cooling amid high mortgage rates, inflation, stumbling stocks and widespread economic uncertainty. Higher monthly mortgage payments and the rising cost of other goods and services cut into buyers’ budgets, making it harder to come up with huge down payments. A slower housing market also means less competition for homes, which means buyers don’t necessarily need to offer large down payments to win a home.
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