Buyers’ down payments rise as US home prices rise

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LOS ANGELES – Even with mortgage rates near historic lows, rising home prices are putting more pressure on buyers to make a larger down payment.

In the April-June quarter, the median down payment on a single-family home in the United States was $ 13,955, an increase of 15.3% from the previous year, according to the Tracker of the Attom Data Solutions industry. In the first three months of 2020, it climbed 29% compared to the same period in 2019.

This trend follows a steady rise in home prices in the United States this year. In August, they were up 5.2% from the previous year.

Rising home prices are pushing the boundaries of affordability for many Americans who are already struggling to save for a down payment.

“Home values ​​are growing about twice as fast as typical incomes, said Chris Glynn, senior economist at Zillow. “There is this discrepancy between home values ​​and the wages and income that buyers have to follow.”

This divergence shows no signs of abating, given the combination of an extremely low housing stock in the market and fierce competition as more millennials look to switch from renting to owning.

Demand for housing has been strong this year, despite a brief slowdown at the start of the pandemic. Sales of previously occupied U.S. homes jumped 9.4% in September to a seasonally adjusted annual rate of 6.54 million, according to the National Association of Realtors.

This rate of sale was the highest since February 2006, the peak of the last real estate bubble, and left only 2.7 months of housing available on the market, a record level.

Low home inventory helped push the median selling price up to $ 311,800, up 15% from the previous year, according to NAR.

A closely watched measure of home values, the S&P CoreLogic Case-Shiller Home Price Index in 20 cities, also recorded a rise in house prices. In August, its most recent snapshot available, prices climbed 5.2%, following a 4.1% increase in July.

Ultra-low mortgage rates have been a key driver for the housing market. The average rate on a 30-year fixed-rate mortgage was 2.81% last week, little change from the historic low of 2.80% the week before. The rate was on average 3.78% a year ago.

While low mortgage rates have made monthly mortgage payments more affordable, they don’t change the fact that most down payments are indexed to a certain percentage of a home’s selling price. Thus, higher prices result in larger down payments.

“The second side of this coin is that getting into the position where you have a down payment for a house to start has continued to get more difficult,” Glynn said.

The amount a buyer chooses to put on a home can vary widely, depending on their mortgage. Some government guaranteed home loans require as little as 3% down payment, while homebuyers who wish to avoid paying private mortgage insurance premiums will put in at least 20%.

The average U.S. median down payment has fluctuated between 10.6% and 11.8% since 2014, according to Realtor.com data from 35% of mortgage transactions nationwide.

A recent analysis from Zillow highlights how expensive it can be to save for a 20% down payment on a home these days. The real estate and data listing company found that it would take nearly eight months for a U.S. household with a median annual income of $ 83,675 to save the $ 51,981 needed for a 20% down payment on a 259 home. $ 906. This real estate price is based on the average of the middle third of the housing market.

Apply the same calculation in San Francisco, with a median house price of $ 1.11 million, and it would take 17.1 months to arrive at the down payment of $ 222,733 on a median income of $ 156,373. In contrast, homebuyers in Cleveland have a more manageable hurdle, needing just over five months of the median income of $ 78,731 to raise the $ 33,387 down payment on a $ 166,936 home.

Housing market trends point to rising house prices and therefore a longer path to save for a down payment. Home prices must fall or incomes must rise sharply to ease the financial pressure on buyers.

In terms of house prices, at least, that doesn’t seem likely. Zillow expects the price of a typical US home to rise 7% over the next 12 months.

“What that means is an additional $ 3,600 for a down payment for the middle American home,” Glynn said. “That means you need to save an additional $ 300 per month over the next year just to keep pace.”

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