As The Market Declines, the Typical Down Payment Has been Reduced By 10%
New data from Redfin real estate brokerage shows that the typical down payment made by homebuyers in the U.S. decreased to $42,375 in January, which marks a 10% year-over-year decline and is the lowest level seen in almost two years. While the median down payment has decreased by 35% since its peak in June, it remains over 30% higher than pre-pandemic levels.
According to Redfin, there are several reasons why down payments are decreasing: a slower housing market and reduced competition, high housing costs and inflation, and lower home prices.
Rising Rates Crush Vacation Home Purchases
According to Redfin, demand for vacation homes in the U.S. has dropped by over 50% from pre-pandemic levels, with mortgage-rate locks for second homes falling by 52% in March, compared to a 13% decline for primary residences. Redfin attributes the drop in demand to various factors, including elevated mortgage rates, still-high home prices, a scarcity of new listings, persistent inflation, and workers returning to the office. Additionally, it notes that many potential buyers have already purchased vacation homes during the pandemic homebuying boom—those who have yet to may be priced out due to increased loan fees and higher prices.
Another Home Price Prediction
Based on Veros Real Estate Solutions’ first quarter VeroFORECAST, US home prices are expected to remain flat for the next 12 months, slightly improving from the previous quarter’s 0.5% annual depreciation forecast. Eric Fox, Chief Economist at Veros, said that supply remains low. Many buyers are reluctant to part with their current mortgage interest rates, which is helping to prevent a cataclysmic decline in house prices.
Home Purchase Sentiment
The Fannie Mae Home Purchase Sentiment Index increased slightly in March to 61.3 but remained slightly above its record low set late last year. The index is down 11.9 points year over year. Four of the index’s six components increased monthly, most notably those associated with home-selling conditions and consumers’ sense of job security. However, many consumers believe it’s the wrong time to buy a home, with high prices being their primary concern. Consumers also expressed apprehension about the direction of home prices.
Mortgage Rate Locks Jump
According to Black Knight’s monthly Originations Market Monitor, rate lock dollar volumes in March rose by 43% monthly, driven by falling interest rates, more robust purchase market performance, and seasonal tailwinds. Purchase locks increased by 44% in the month, cash-out refinances rose by 31%, and rate/term locks grew by 36%. FHA lock volume captured additional market share, accounting for 20% of the March pipeline.
Fed’s Rate Hike Led to a 0.1% Rise in March’s Inflation
Inflation in the U.S. economy cooled down in March due to the Federal Reserve’s interest rate increases. The consumer price index rose 0.1% for the month and 5% from a year ago, lower than the estimates. The core CPI, excluding food and energy, increased 0.4% and 5.6% annually, both as expected.
The U.S. consumer price index rose by 0.1% in March, below expectations, and 5% year over year, which was also slightly lower than expected. The slower-than-expected rise was driven by a 3.5% drop in energy costs, an unchanged food index, and a smaller-than-expected gain of 0.6% in shelter costs. The core CPI, which excludes food and energy, rose 0.4% for the month and 5.6% annually, as expected. Egg prices fell by 10.9% during the month, while food at home dropped 0.3%, the first decline since September 2020.
Due to inflation concerns, the Federal Reserve has raised its benchmark interest rate nine times in the past year or so, the fastest pace since the early 1980s. Initially dismissing inflation as temporary, the central bank has since played catch-up in its efforts to address rising prices. The labor market has been a critical area of focus, as labor shortages contributed to higher wages and expenses, although the situation has recently improved.
Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.
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