Mortgage News April 3, 2023
A report released by Redfin on Wednesday revealed that the typical homebuyer’s down payment in January 2023 was down 10% year-over-year. Redfin collected data from county records in 40 of the most populous metropolitan areas, finding that the median down payment amount posted at an annual decrease for the third consecutive month. The typical down payment recorded in January was $42,375, the smallest in nearly two years. The report showed that the median down payment percentage nationwide also dropped year-over-year from 13.6% to 10% of the total purchase price of the property. San Francisco had the highest down payment percentage of 25%, followed by 10 other metros, including Anaheim, California; San Jose, California; and New York, where the typical homebuyer put down a 20% down payment.
The decline in the amount and percentage of down payments by buyers has been attributed by Redfin to several factors such as the sluggish housing market, reduced home prices, and increased housing expenses caused by higher mortgage rates. Unlike in 2021 and early 2022, where bidding wars were common, most offers on homes written by Redfin agents in January did not involve such competition. This less competitive market has made it unnecessary for buyers to provide large down payments to demonstrate their financial stability or stand out in a crowded field. As a result, there has been a rise in the use of FHA and VA loans by buyers. FHA loan usage, for instance, increased to 16% of mortgaged home sales in January, compared to 13.3% a year earlier, while VA loan usage grew to 7.5% from 6.1% the prior year.
Higher mortgage rates are leading homebuyers to allocate more of their monthly budget to housing payments and reducing the amount they have for down payments, according to a report by Redfin. The report also notes a rise in cash purchases, with 32.1% of home purchases being paid for in cash, up from 29.7% in January 2022. The slowing housing market and lower home prices are also contributing to this trend. Redfin suggests buyers are holding on to cash in uncertain economic times, while cash offers help avoid high mortgage rates. All-cash purchases were most common in West Palm Beach, at 52.5%.
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