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52 | M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION Potential Buyers Increasing Down Payments to Secure Homes Homebuyers' down payments doubled during the pandemic, and despite September revealing a slight decline from their peak in June, competition and increasing home prices continue to make it difficult for prospective buyers to afford homes. A ccording to a new report from Redfin, the typical U.S. homebuyer who took out a mort- gage in July made a whopping $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. The combination of increased down payments and monthly mortgage payments near- ing all-time highs made it more difficult for prospective buyers to afford homes. The combination of skyrock- eting home prices and intense competition prompted many buy- ers to up their down payments during the pandemic. However, as the housing market cools amid high mortgage rates and economic uncertainty—and buyers can no longer afford as much as they used to—down payments are fall- ing from their peak. However, down payments have declined slightly in recent months after peaking at $66,000 in May and June. The slip is partly because the housing market is cooling amid high mortgage rates, inflation, stumbling stocks, and widespread economic uncer- tainty. 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 pay- ments. 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, es- sentially 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—or 58.7%—of buyers who used a mortgage had a more than 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 home- buyers are putting into down payments—and the percent- age 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 pay- ments. 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. "Homebuyers don't need to make enormous down pay- ments anymore because they're much less likely to encounter bidding wars now that so many Americans have bowed out of the market," Redfin Senior Economist Sheharyar Bokhari said. "And many buyers can no longer afford to put down 15% or 20% of the purchase prices. Between higher mortgage rates creating higher monthly housing payments and inflation pushing up the prices of everything from food to fuel, buy- ers need to set aside more money for everyday expenses. That, along with the slumping stock market, is cutting into down-payment budgets. While down payments will likely remain elevated above pre-pandemic levels, they'll prob- ably fall a bit in the short term." Down-Payment Dollar Amounts Have Increased Most in Nashville Three of the five metros where down payments increased most in July from a year earlier are in New York or New Jersey. The typical down payment was $64,250 in Nashville, Tennessee, in July, up nearly 40% from a year earlier—the big- gest increase of the metros in Redfin's analysis. It's followed by Newark, New Jersey ($90,000, up 36.4% year over year); New York City ($197,875, up 34.8%); New Brunswick, New Jersey ($90,000, up 34.3%); and Charlotte, North Carolina ($48,200, up 32.6%). Down payments fell from 2021 or stayed the same in seven of the 40 metros in Redfin's analysis, mostly in California. The typical down payment was $55,000 in Riverside, California, down 15.4% year over year—the biggest decline of the metros in the analysis. Next comes San Francisco, where the typical down payment of $364,000 was down 7.8% year over year. It's followed by Oakland ($208,775, down 7.7% year over year); Warren, Michigan ($25,500, down 7.3%); Detroit, Michigan ($14,250, down 5.2%); and Seattle, Washington ($157,500, down 2.4%). The typical down pay- ment in San Jose, California, was $330,000, unchanged from a year earlier. Down payments likely fell from a year earlier or stayed the same in expensive places like San Francisco and Seattle because they are cooling quicker than other U.S. housing mar- kets, with sale prices starting to decline in the Bay Area. Denver Has Seen the Biggest Uptick in Down-Payment Percentages In percentage terms, down pay- ments increased most in Denver. The typical Denver homebuyer made a 20% down payment in July, up from 15% a year earlier. It's followed by Baltimore, where the typical buyer put 8.4% down, up from 5% a year earlier. Charlotte, North Carolina (13%, up from 10.1%); Nashville, Tennessee (15%, up from 12.1%); and Newark, New Jersey (20%, up almost 18%), round out the top five. Down-payment percentages declined year over year in five of the metros in the analysis. The median down payment percent- age dropped to 10% from 15% in Riverside, California. Next comes Detroit, Michigan, where the median down payment percent- age dropped to 5% from about 7% a year earlier. It also declined in Las Vegas, San Jose, California, and Milwaukee.