Even if prices rise, the decline in home buyers will be reduced for the first time in two years.
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Typical home buyer down payments have been reduced by 1% year-on-year, according to a new report from redfin (Nasdaq:rdfn). This is the first annual decline in almost two years.
Currently, the median down payment is $62,428, or 15% of the total home value. That percentage has not decreased significantly – a year ago it was 15.1%, but there is a dollar amount.
The last time the dollar amount fell was in the summer of 2023, according to the report. At the time, home sales prices were reduced and payments were reduced. Currently, home prices have risen 1.4% year-on-year in April.
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So, what keeps down payments along with home prices? We found that there are many factors to play.
First of all, the way people pay for their homes is changing. According to Redfin, nearly a third of buyers are paying in cash, meaning they are not making a down payment. People who buy homes on mortgages seem to be buying cheaper assets, which explains a lower down payment.
Interest rates remained around 7%, and as economic uncertainty persists, Redfin has found future buyers to be more sensitive to costs. Mortgage home buyers seem to be more likely to maintain additional cash in their bank accounts rather than splurge on more expensive properties.
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Additionally, Redfin said the number of buyers used to buy homes using the Federal Housing Administration and Veterans Affairs has increased last year. Mortgage sales using FHA loans increased by 1.1% year-on-year, with people using VA loans at the highest level since 2020. These funding options need to lower down payments.
Finally, as the entire housing market cools down and sellers start to outperform buyers, Redfin says many homeowners are willing to negotiate with buyers. These negotiations include accepting lower payments to win sales.