Down payments are plunging in 10 places, giving homebuyers another affordability win

• Buyers are putting forth less money up-front since the US housing market has cooled.
• The trajectory of mortgage rates may help determine what happens to down payments.
• Here are 10 places where down payments have fallen fastest in the last 12 months.

Down payments are down across the nation, which is another modest victory for homebuyers.

The median value paid up-front for a US house fell to $30,300 in the third quarter, $2,400 lower than the record-high rate of $32,700 in the prior quarter, according to a recent report from Realtor.com. That figure was roughly 9% of the total cost for a median home, up from a stable level of 5% for most of the past decade or so. This doesn't include second homes.

Expensive properties skewed the average down payment in the third quarter to around $85,400 or 14.5% of the total price, said Hannah Jones, the Realtor.com economic researcher who wrote the report. Buyers had paid 14.9% of the average sale price off the bat from April through June.

These slight declines suggest that the US housing market is cooling off. Smaller down payments are a sign of a less competitive market, Jones noted, since buyers don't need to blow away sellers with a massive sum of money up-front.

However, down payments remain historically high, and it's unclear whether they'll fall further or are just ticking lower in what's usually a quieter time of the year for home transactions.

"It is too soon to tell if this is the beginning of a downward down payment trend or just a slight shift in the seasonal pattern due to the year's housing market conditions," Jones wrote.

Borrowing costs, savings rates sway down payments

Any analysis of down payments that doesn't mention mortgage rates would be incomplete.

The 30-year fixed mortgage rate hit a two-decade high of 7.8% last October and has steadily fallen for most of the last 12 months. Borrowing costs have slipped from around 7% early in the third quarter to 6.4%, anticipating and responding to the Federal Reserve's extra-large rate cut.

Lower rates mean that buyers don't feel as much pressure to cough up as much money up-front. Down payments may stay subdued, so long as the interest-rate easing cycle has steam.

"This progress is expected to continue into 2025, which could mean further easing in down payments if home shoppers hold out for even lower mortgage rates that consumers widely expect to see," Jones wrote, though it "could have the opposite effect if buyer competition were to pick up once again as falling mortgage rates improve home purchase affordability."

Buyers aren't getting into bidding wars like they were in 2021 because of the rise in home listings. More inventory means that competition, and down payments, are being kept at bay.

"Inventory is growing such that an uptick in demand has not led to an increase in competition so far," Jones wrote.

But there's a less rosy explanation for lower down payments: buyers can't afford to pay more.

The personal savings rate in the US was 4.8% in August, according to Realtor.com, which was up from the inflation-stretched low of 2% in June 2022. However, it was well below both the typical pre-pandemic rate of 6.5% and even the 5.5% mark from the start of 2024.

"A lower savings rate over the past two years suggests that buyers would have a harder time saving for a large down payment," Jones wrote.

Still, down payments are roughly twice as large as they were before the pandemic, Jones noted.

"The nest egg built up during the pandemic has not been fully depleted, thus there is still excess personal savings, likely fueling both overall consumption and home down payment growth," Jones wrote.

10 places where down payments are lower

Naturally, down payment amounts vary significantly across regions, states, and cities.

Richly priced real-estate markets, especially those in the Northeast, have experienced higher down payments while less expensive cities in the South have seen the opposite effect.

"Pandemic-era hot spots like Texas, Florida, and Montana have seen significant softening over the past year as waning demand and climbing inventory affect home prices and reduce competition," Jones wrote.

Homebuyers searching for properties where they don't need to pay an arm and a leg up-front should look no further. In this report, Realtor.com listed states — plus Washington, DC — where down payments fell the most on a year-over-year basis in the third quarter.

Below are those 10 places, along with the median down payments in third quarters of 2024 and 2023, the drop in down payments on a percentage basis and dollar basis, and a comparison with the US median down payment.