Housing Market Trends: Understanding Down Payments in 2024

The housing market is gradually shifting towards a more balanced dynamic between buyers and sellers, although down payments continue to reach unprecedented levels. According to Danielle Hale, chief economist at Realtor.com, potential homeowners are primarily entering the market with substantial financial backing.

Current Down Payment Landscape

As of 2024, the median down payment has noticeably increased compared to previous years, with buyers often making larger contributions to their home purchases. This surge is attributed to a market trend where sales are heavily skewed towards higher-end homes, necessitating larger financial commitments from well-prepared, higher-earning individuals. Conversely, many entry-level and lower-earning buyers are finding it more challenging to compete.

How Buyers Are Affording Larger Down Payments

To manage these higher costs, prospective homeowners are utilizing various financial strategies, which include:

• Accessing accumulated savings that surged during the pandemic, where the personal savings rate soared beyond 30% of disposable income — significantly up from the pre-pandemic average of 6.5%.
• Leveraging home equity, especially existing homeowners who are trading up. In fact, the median down payment for 2024 has more than doubled since 2019.

Market Trends Influencing Payments

The increase in down payments is also a reflection of the changing housing market. Notably, homes priced above $750,000 have seen a 7.4% increase in sales, highlighting a growing preference for more expensive properties. In contrast, transactions for homes below this price range have dropped by 9.3%.

First-time buyers and individuals relying on government-backed loans are still increasing their modest down payments; however, these figures have not yet returned to the peak levels seen in 2022. As of the fourth quarter of 2024, the down payment for homes at the 30th percentile reached $8,200, reflecting a 6.5% year-over-year increase but a decrease from a peak of $10,300 in mid-2022.

Future Outlook for Down Payments

With mortgage rates beginning to ease, experts anticipate that a broader range of buyers with varying budgets may enter the market. Hale notes that while the incentive to minimize mortgages may lessen, competition could drive down payments up again if housing inventory fails to meet the anticipated rise in demand.

Analysts predict the trend of high down payments may continue well into 2025, primarily driven by prolonged high mortgage rates and ongoing shortages of starter homes.