U.S. homebuyers must pay 27 percent more for downpayment
Remote work and low mortgage rates have prompted scores of Americans to buy homes during the pandemic, and this has resulted in a severe housing shortage that's fueling record-high prices and cutthroat competition.
The median down payment on a home during the last six months was $40,987, up from $32,261 during the same period a year earlier. That's an increase of 27%, or nearly $9,000. The typical homebuyer made a down payment equal to 15.9% of the sale price, compared with 15.3% a year earlier. Down payments have mostly increased because housing prices have jumped.
"The surge in home prices actually hasn't resulted in higher monthly mortgage payments for most buyers because it has been offset by low mortgage rates, but it has driven up down-payment costs," said Redfin Chief Economist Daryl Fairweather. "This is likely putting homeownership out of reach for many cash-strapped first-time buyers who can't afford to put an additional $9,000 down."
In addition to spending more on down payments, homebuyers have been boosting their bids. During the last six months, 1 in 3 buyers (34.4%) paid more than the seller's original asking price, up from 1 in 5 buyers (21.2%) a year earlier.
Over the last six months, 17.6% of successful offers submitted by Redfin agents waived the appraisal contingency, up from just 6.1% during the same period a year earlier. The share of successful offers waiving the inspection contingency jumped to 13.2% from 7.3%, and the portion waiving the financing contingency increased to 13.2% from 10.1%.
With more than half of home offers encountering bidding wars these days, buyers are finding that they need to sweeten their offers and get creative in order to win. Waiving these contingencies is a strategy buyers use to make their offers more competitive by assuring the seller that the deal will close without unforeseen headaches.
More than half (53%) of home sales in the last six months were paid for using conventional loans, or loans that are provided by private lenders and not backed by the federal government. That's up from 49.7% a year earlier. The portion of sales financed with jumbo loans, which are regularly used for purchases of higher-end homes, increased to 6% from 5.5%. Slightly more than a quarter (25.9%) of home purchases were paid for exclusively in cash, little changed from before the pandemic.
Meanwhile, the share of sales financed with Federal Housing Administration (FHA) loans fell to 9.9% from 12%, and the share of sales financed with Veterans Affairs (VA) loans dropped to 4.4% from 5.3%. FHA loans are backed by the U.S. government and are frequently used by first-time homebuyers and Americans who don't qualify for conventional loans due to lower credit scores. VA loans are used by military service members and veterans, and allow recipients to finance 100% of a home's cost without a big down payment.
Homebuyers toured 14 homes on average during the last six months, up from 13 homes a year earlier. From start to finish, the homebuying process took a median of 96 days, compared with 91 days during the same period the prior year. It's taking longer to find homes in part because there's an intensifying housing shortage that's causing many house hunters to get outbid repeatedly. ■