Redfin Reports Homebuyers’ Down Payments Doubled During the Pandemic

(NASDAQ: RDFN) — The typical U.S. homebuyer who took out a mortgage in July made a $62,500 down payment, up 13.6% from a year earlier and almost twice the median $32,917 down payment in July 2019, before the pandemic. That’s according to a new report from Redfin (www.redfin.com), the technology-powered real estate brokerage. The combination of increased down payments and monthly mortgage payments near all-time highs made it more difficult for prospective buyers to afford homes.

But down payments have declined slightly in recent months after peaking at $66,000 in May and June. 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.

The typical buyer’s down payment in July was equal to 15.2% of the purchase price, essentially unchanged from 15% a year earlier but up from 10% before the pandemic. The typical down-payment percentage hit a nine-year high in May, reaching 18% of a home’s purchase price, before the housing market cooled considerably during the late spring and early summer. Roughly six in 10 (58.7%) buyers who used a mortgage had a 10%-plus down payment, up slightly from 57.5% a year earlier and up from the 50% range before the pandemic.

The amount of money homebuyers are putting into down payments—and the percentage they’re putting down—has skyrocketed over the last two years amid the pandemic-driven homebuying boom. Remote work and record-low mortgage rates drove scores of Americans to buy homes during the pandemic, and soaring demand pushed up prices and competition to all-time highs. Although prices are falling from their peak, they’re still near record highs.

Higher home prices are one factor in higher down payments. A 10% down payment, for example, is equal to $40,000 on a $400,000 home and $45,000 on a $450,000 home. Competition is another major factor, with buyers increasing their down-payment dollar amounts and percentages to attract sellers’ attention and communicate that they have plentiful finances to close the deal. If a home receives 10 offers, a common scenario over the last two years before the market slowed, prospective buyers may up their down payment to stand out from the competition.