With home prices soaring out of reach and rates hot, Americans are doing whatever they can to lower their monthly payments, according to a series of new reports from Redfin.
The typical monthly housing payment hit a record high of $2,721 in the four weeks ending March 24, up 10% YOY.
A combination of prices and rates is keeping homeownership unaffordable for the average family, which earns $30,000 less per year than necessary to comfortably purchase a house.
First-time buyers have it even worse thanks to boiling competition for low-priced homes. To afford a starter home, they need to earn almost twice as much as before the pandemic.
With these pressures on Americans’ wallets, buyers are looking for other ways to keep their expenses to a minimum. One solution: a big down payment. The median down payment for U.S. homebuyers was $55,640 in February, up 24.1% from $44,850 at the same time last year.
High prices push down payments up because they are calculated by a percentage of the home’s total price. But Redfin says it’s also a tactic to decrease monthly payments.
“Homebuyers are doing whatever they can to pull together a large down payment in order to lower their monthly payments moving forward,” Rachel Riva, a Redfin real estate agent in Miami, said. “The smallest down payment I’ve seen recently is 25%. I had one client who put down 40%.”
Young buyers in particular are focusing on upfront money to make their homeownership dreams come true. More than a third of Gen Z and Millennial buyers are planning to use a cash infusion from family for their down payment.
Though most buyers still plan to save from their paychecks or work a second job to save for a downpayment – the most common ways by far – the number of young people who plan to use family money has doubled in five years.
“Nepo-homebuyers have a growing advantage over first-generation homebuyers. Because housing costs have soared so much, many young adults with family money get help from Mom and Dad even when they have jobs and earn a perfectly respectable income,” said Redfin Chief Economist Daryl Fairweather.
“The bigger problem is that young Americans who don’t have family money are often shut out of homeownership. Many of them earn a perfectly good income, too, but they aren’t able to afford a home because they’re at a generational disadvantage; they don’t have a pot of family money to dip into.”
This is especially true for buyers of color who have experienced racial discrimination in housing for generations, missing out on wealth-building opportunities. Young white buyers’ parents are more likely to have equity built up or cash to spare.
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