The median down payment increased across the board in the third quarter, somewhat counterintuitive, according to Realtor.com. While down payment amounts typically increase as home sale prices increase, the increase in down payments in the third quarter came during a period when home prices were steadying.
During the pandemic period, down payments soared as home prices grew and buyers used down payments to compete in multiple-bid situations. Down payments have remained elevated over the past year, despite home price moderation and decreasing buyer demand. Realtor.com says consumer savings trends and housing market competitiveness can help explain the trend of rising down payment amounts during a period of stagnation in home price appreciation.
“Home shoppers faced limited for-sale inventory as homeowners opted to stay put rather than list their homes for sale amid elevated mortgage rates,” Hannah Jones wrote in a report for Realtor.com “Fewer homes meant more buyer competition, which led to higher down payments as buyers utilized their pandemic-era savings to win multiple-bid scenarios.”
Elevated mortgage rates have also played a role in higher down payments. With rates well above 7%, buyers can minimize the size of their high-rate mortgage loan by putting more money down at the time of purchase.
In the third quarter, down payments reached a new peak, with an average 14.7% down payment and a median down payment amount of $30,000. Down payment amounts have trended upward since 2020, when buyers were paying an average 11% down payment on primary residences. Realtor.com says the down payment size increase is “especially significant” because the median sale price for homes has increased 25.4% from the third quarter of 2020 to the third quarter of 2023.
The $30,000 median down payment means buyers in the third quarter paid 78.2% more than in the first quarter of 2020, when the median down payment was $17,000.
At the state-level, the typical down payment increased as a percent of purchase price in all but four states in the third quarter. Utah (80-basis-point decline), Texas (40-bp decline), Arizona (30-bp decline), and Idaho (10-bp decline) were the lone states to report a decline in down payment percentage on a year-over-year basis. However, down payments remained elevated in each state, with only Texas having a down payment percentage (12.2%) below the national average of 14.7%.
The increase in payment as a percent of price increased the most (3.1 percentage points) in Washington, D.C., followed by Alaska, Montana, Connecticut, and Rhode Island. The presence of high-earners in Washington, D.C., Montana, Connecticut, and Rhode Island partially explains the higher-than-typical down payments, according to Realtor.com. In Connecticut, the dollar amount of the median down payment increased 54.7% year over year to $47,300. Rhode Island, Nebraska, Alaska, and Virginia also recorded larger dollar increases in down payment amounts compared with the third quarter of 2022. Alaska, while experiencing an increase, still had a down payment percentage (12.2%) below the national average.
The typical down payment amount decreased in 11 states, due to decreasing sale amounts. Southern and Western states saw the largest decrease in down payment size, according to Realtor.com, led by Utah, Texas, Oklahoma, Arizona, and North Dakota.
Regionally, affordable metros in the Northeast saw the largest down payment growth on a year-over-year basis, as buyers were able to both make more competitive offers and limit the amount of loan they had to pay interest on by making a larger down payment on a relatively affordable home. The top three markets for down payment growth were Portland-South Portland, Maine; New Haven-Milford, Connecticut; and Bridgeport-Stamford-Norwalk, Connecticut.
Conversely, metros in the West and South, including several early pandemic boomtowns, saw declining down payments in the third quarter. The top five metros by down payment decline in the third quarter were El Paso, Texas; San Antonio-New Braunfels, Texas; Ogden-Clearfield, Utah; Riverside-San Bernardino-Ontario, California; and Charleston, South Carolina, metros. These markets saw down payments as a share of purchase price decline by 1.1 to 1.8 percentage points.
Metro areas in expensive coastal markets are where buyers made the largest down payment in the fourth quarter. California’s San Jose, San Francisco, Oxnard-Thousand Oaks-Ventura, and Los Angeles were four of the five metros with the largest percent down payment. The markets averaged a 23.3% down payment in the third quarter. Realtor.com says the coastal markets are likely to be home to wealthier, high-earning residents who have the funds to put more down on a home.
Down payments for investment properties and second homes more than doubled down payments for primary residents. On average, investment properties saw down payments of 28.2% in the third quarter, 1.4 percentage points higher than the third quarter of 2022. Second home down payments were typically 28.3% in the third quarter, 1.7 percentage points higher than the second quarter of 2022.
