Down payments on houses are getting cheaper. It might not last

Down payments on a home fell in the third quarter of this year thanks to lower demand and higher inventory. While that’s promising news for prospective homebuyers, it may not last.

In the third quarter, the average down payment as a share of the purchase price was 14.5%, and the median down payment was $30,300, according to Realtor.com (NWSA+0.04%) data released Tuesday. That is down from record highs of 14.9% and $32,700 in the second quarter and is a year-over-year decline.

This comes as declining mortgage rates have helped drive some renewed activity in the housing sector, loosening up inventory and giving buyers more options. Falling mortgage rates, while a relief for those looking to buy a home, can have unintended negative effects on the market. One of those: pushing up prices.

“It is too early to tell if this is the beginning of a lasting downward trend in down payments,” said Hannah Jones, senior economic research analyst at Realtor.com. “While down payments have started to trend lower with lower demand, they remain historically high.”

“Easing mortgage rates may bring more buyers back into the market, potentially increasing competition — and down payments — once again if for-sale inventory fails to keep pace with demand,” she said.

Housing inventory grew last month as sellers became less reluctant to make moves with the 30-year fixed mortgage falling to close to 6% in September.

There were 34% more homes for sale on a typical day in September compared with the same period in 2023, according to earlier data from Realtor.com. That’s was driven in large part by increased listing activity, with 11.6% more homes newly listed on the market compared with last year — a three-year high and a turnaround from August declines.

While mortgage rates are still expected to end 2024 at around 6%, the 30-year fixed rate has popped back up to the mid-6% range in October following the Federal Reserve’s highly anticipated interest rate cut.

High interest rates paired with low affordability have made the market increasingly unappealing, both to prospective buyers and existing homeowners, many of whom have felt locked in to their pandemic-era rates. Home prices climbed 4% from last year in September, selling for a median price of just over $428,000.

Experts have warned that the housing market still faces a slow recovery given the lagging nature of long mortgage contracts and sticky home prices, even as interest rate cuts and increased activity promise a resurgence for the sector.