How Buyers are Affording Larger Down Payments in Today’s Housing Market
With the housing market slowly shifting towards more balance between buyers and sellers, down payments continue to reach new heights. According to Danielle Hale, chief economist at Realtor.com, “Today’s home sales are skewed toward higher-end homes, resulting in larger down payments from financially prepared, high-earning buyers.”
Buyers have been able to afford these larger payments by tapping into accumulated savings and home equity. During the pandemic, the personal savings rate soared to over 30% of disposable income, providing many households with the reserves needed to bolster their down payments.
Existing homeowners have also taken advantage of near-record equity when trading up, leading to a significant increase in median down payments compared to previous years. The market’s shift towards pricier properties has further inflated down payments, with sales of homes priced above $750,000 seeing a notable increase in 2024.
Although modest down payments have also increased, especially among first-time buyers or those with government-backed loans, they remain below previous peaks. The 30th percentile down payment in Q4 2024 was $8,200, up 6.5% year-over-year but down from a peak in 2022.
Looking ahead, Hale predicts that as mortgage rates ease, a more diverse set of buyers will enter the market, potentially softening the incentive to minimize their home loan. However, if for-sale inventory fails to keep up with increased buyer demand, down payments could once again climb due to heightened competition.
Analysts expect the trend of elevated down payments to persist in 2025, driven by high mortgage rates and limited starter-home supply.