One of the biggest barriers to homeownership for first-time buyers is affordability — specifically down payments and closing costs. Of course, the high mortgage rates and housing prices that have dominated the past few years have also proven challenging for buyers. There may be some relief in the months ahead.
The recent average 30-year fixed-rate mortgage peaked at 7.8% in October 2023. While that marked a twenty-three-year high and created a challenging landscape for the current housing market, it is far less concerning than the historic high of 18.6% in October 1981.
The housing market tends to correct itself over time, and buyers may also see a reduction in down payment pricing in the months ahead.
Related: The surprising reason mortgage rates are up despite interest rate cuts
Realtor.com released its Q3 Down Payment Trends Report, and the data shows that down payments are falling from their historic peak in Q2 2024. However, they remain higher than in previous years.
Down payments are closely tied to housing prices and monthly mortgages, indicating that they typically rise with mortgage rates and consumer demand and fall when those factors also decrease.
Down payments fall but remain historically high overall
Although down payments typically peak during Q3, there was a decline from Q2 to Q3 this year.
The average down payment fell to $30,300 this quarter, down from $32,700 last quarter. The average home sale price and downpayment amount both peaked in June 2024, during the height of the summer real estate cycle.
The increased prices, demand, and competitive housing market pushed buyers to put more money down to secure a home. Although these compounding factors have begun to ease, down payments remain high — the Q3 2024 average down was the fourth highest on record.
More on homebuying:
- Is there a housing bubble on the horizon?
- Cash is king: High mortgage rates are changing home-buying trends
- Dave Ramsey explains how your mortgage is key to early retirement
Consumers have been relying on personal savings to supplement larger down payments. Personal savings rates hover around 4.8% of income, up from 2% in mid-2022.
Although the September interest rate cut is expected to lower mortgage rates and housing prices, many note that it is too early to determine if lower down payments foreshadow a larger trend in sales and housing market behavior.
Experts predict that home buyers will see a notable difference in housing prices and mortgage rates in 2025 after several more anticipated interest rate cuts from the Federal Reserve.
States with the biggest changes in down payments
Although the average down payment in the US dropped in Q3 2024, each state and metro area faces different housing trends.
The Northeast remains a competitive and expensive market, as all states with the highest down payment growth are located in New England and the Northeast. Maine, Rhode Island, Connecticut, Vermont and New Jersey saw an increase in down payments of almost 2%.
Related: Dave Ramsey explains how your mortgage is key to early retirement
This indicates that these markets still see strong buyer demand, especially for those seeking suburban alternatives outside Boston and New York City. Rhode Island saw down payments skyrocket, rising from $45,300 to $60,400 in just three months.
Florida, Texas, Wyoming, the District of Columbia, and South Dakota have seen the biggest down payment decreases. While some of these states have less competitive housing markets, the District of Columbia, Florida, and Texas have historically been hot housing markets.
Florida's down payments dropped 24% to $27,000 between Q3 2023 and Q3 2024, and Texas saw a similar decline of 23.2%. District of Columbia down payments remain staggeringly high at $81,300, but they decreased by over $17,000 year over year.
This indicates that climate risk and safety concerns may drive down consumer demand in previously very competitive markets such as Florida and Texas.
Related: Veteran fund manager sees world of pain coming for stocks
