Home down payments jump as buyers face rising prices

Down payment amounts increased by their fastest pace in months to end 2024 as buyers tried to keep up with rising prices, but recent housing trends should lead to moderation, according to a Redfin report. 

The typical home buyer's down payment came out to $63,188 in December, rising 7.5% on an annual basis, the real estate brokerage said. The jump represents an approximate surge of $4,000. 

The ongoing rise in home prices continued to pressure aspiring buyers into raising their down payment amounts, with the total now equal to 16.3% of the purchase price. A year earlier, a typical down payment amounted to only 15% of the cost of the home. 

While increasing at a slower pace than earlier this decade, home prices still continued to grow to record levels throughout 2024. The average came in 3.9% higher year over year in December, according to the most recent Corelogic Case-Shiller House Price Index.

Redfin's own year-end analysis found the median U.S. home-sale price rising to roughly $428,000 in December, representing a larger annual hike of 6.3%.

At the same time, mortgage rates lingering near 7% also led buyers to raise their down payments to try to lower monthly payments owed, Redfin said. 

The rapid acceleration in housing costs this decade increased the focus on programs and community banking resources to help buyers come up with competitive down payment amounts. Housing trends in some markets tracked by Redfin, though, point to improving conditions for buyers, such as price reductions and listing volume, that might ease the need to provide more upfront cash in a winning offer.  

"While a larger down payment can lower monthly mortgage payments and help strengthen an offer in a bidding war, bigger isn't always better," said Redfin senior economist Sheharyar Bokhari in a press release.

"House hunters don't necessarily need to break the bank for a huge down payment if it makes more financial sense to save some money for things like future home renovations or other investments," he added. 

Down payments as a share of total home price grew quickly at the beginning of the Covid-19 pandemic, surging from close to 10% to 15% in 2021, before slowing in recent years. 

Redfin's findings come from its county-level analysis of 40 of the largest U.S. markets. The cities where buyers doled out the largest percentage in down payment cash relative to total cost were all located in California, which has some of the most expensive communities in the country. San Francisco topped the list at 26.4% of purchase price, followed by Anaheim and San Jose, where consumers shelled out a quarter of the sale price in their down payment. 

On the other end of the scale, Virginia Beach, Virginia; Detroit and Baltimore saw the smallest typical down payment shares at 3%, 6.5% and 8.5% of the purchase price in winning bids. 

Meanwhile, the frequency of all-cash offers diminished after reaching a high point in 2023 when mortgage rates peaked and buyers sought to avoid high monthly payments. Homes purchased entirely with cash are not included in Redfin's down payment calculations. 

In December 30.6% of buyers made their purchase with an all-cash offer, down from 33.8% a year earlier. The share increased throughout the final few months of 2024, however, climbing from a September low of 28.6% in a brief period when interest rates steadily declined. 

A subdued market for real estate investors also contributed to the contraction. The September all-cash percentage was the lowest in three years.