US Housing Market Cools As Down Payments Shrink

Newsweek

5 hours ago

Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources.
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The typical down payment made by American homebuyers fell by roughly 1 percent year-over-year in April, according to a new report by Redfin. It was the first decline in nearly two years, since June 2023.
How Much Do Americans Spend on Down Payments?
The typical U.S. homebuyer currently puts 15 percent down, a little less than they used to last year, when they put down 15.1 percent. The typical down payment is $62,468, down by 0.8 percent compared to April 2024.
Down payments—a sum that buyers pay up front when purchasing a property—are among the many housing costs that have increased across the U.S. over the past five years, together with home prices, mortgages, home insurance premiums and property taxes.
While the typical down payment used to be around 10 percent before the pandemic, the median down payment has been around 15 percent for the last four years, with the exception of early 2023, when it dipped into the 10 percent range again.
Single-family homes are surrounded by canyons in the neighborhood of University City on March 7, 2025, in San Diego, California.
Single-family homes are surrounded by canyons in the neighborhood of University City on March 7, 2025, in San Diego, California.At the time, down payments were falling because home prices were also sliding down as part of a brief cooldown that followed years of overheating across the U.S. market during the pandemic homebuying frenzy. This was the last time that U.S. home prices posted a year-over-year decline.
But home prices are not down now. In fact, the median sale price of a typical U.S. home rose by 1.4 percent in April compared to a year earlier, according to Redfin.
Why Are Down Payments Falling?
Home prices are not falling yet, but the dizzying pace of their growth has slowed down significantly over the past few months compared to previous years. While in April prices were up 1.4 percent year-over-year, during that same time in 2024 they were up roughly 4 percent year-over-year.
This is likely contributing to pushing down payments lower, but there are also other factors to consider. According to Redfin, down payments are falling because some homebuyers are not making a down payment at all: nearly one-third (30.7 percent) of buyers are paying all cash.
Additionally, the real estate brokerage said, a slightly increasing share of buyers is using Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, which require lower down payments. Roughly one of every seven (15.3 percent) mortgaged sales used FHA loans in April, up from 14.2 percent a year earlier, while 7.2 percent used VA loans, up from 6.4 percent a year earlier.
FHA loans, which are insured by the U.S. government, offer low-to-moderate-income borrowers loans that require a 3.5 percent down payment. VA loans, also backed by the federal government, are aimed at helping veterans, service members and their surviving spouses buying homes with little to no down payments.
It is also likely that people buying homes with a mortgage bought cheaper homes, reducing down payments in dollar terms, Redfin said. This is possibly happening because buyers, bogged down by rising housing costs, are concerned about affordability, especially as economic uncertainty is growing in the country.
"The buyers who are moving forward today are being very careful with their finances because with housing costs near record highs, they're typically spending a big portion of their paycheck to buy a home. I'm seeing an uptick in first-time buyers looking for starter homes," said Fernanda Kriese, a Redfin Premier agent in Las Vegas, in a press release.
"Combine that with concerns about layoffs and a potential recession, and people are doing things like cross-comparing mortgage origination fees, shopping around for lenders, and looking into down-payment assistance."
Where Are the Highest and Lowest Down Payments in the Country?
Down payments in April—the latest month for which data are available—were highest in three California metropolitan areas, namely San Francisco, Anaheim and San Jose, where homebuyers put down 25 percent of the property's purchase price.
Down payments were lowest in Virginia Beach, Virginia (1.8 percent), Detroit, Michigan (5 percent), and Jacksonville, Florida (5.4 percent). Jacksonville also reported one of the biggest declines in the country, together with two other Florida cities, Orlando (where buyers put down 10 percent of the price) and Tampa (7 percent).