Housing Prices on the Rise, Yet Homebuyers Can Offset the Impact with a Modest Down Payment
The soaring housing costs, as indicated by the latest data from the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, have raised concerns among prospective homebuyers. In September 2023, home prices experienced a staggering 3.9% year-over-year increase, a significant jump from the 2.5% annual rise observed in August. This sharp uptick in prices has left many wondering if the dream of owning a home is slipping further out of reach.
Traditionally, when home sales decline, which has been the case recently due to the high mortgage rate environment, analysts expect home prices to follow suit and decrease. However, the current real estate market presents a unique challenge. The housing supply is also at a historic low. Many homeowners who secured low mortgage rates are choosing to stay put, reducing the number of available homes for sale. This scarcity of housing inventory has driven up prices, leaving potential buyers with limited options, often at premium rates.
Given this challenging scenario, prospective homebuyers may wonder if there are any strategies to make homeownership more attainable. CNBC Select offers some valuable advice to navigate the current housing market:
1. Consider a Smaller Down Payment: One common misconception is that you must make a substantial 20% down payment to purchase a home. In reality, the typical down payment for first-time homebuyers is around 8%, as reported by the National Association of Realtors’ 2023 Profile of Home Buyers and Sellers. Some mortgage lenders even offer options for minimal down payments, as low as 3%.
For instance, Chase’s DreaMaker℠ loan and Ally Bank’s HomeReady loan permit homebuyers to put down just 3% of the home’s purchase price. To put this into perspective, with the average U.S. home sales price standing at $513,400 (as of Q3 2023), a 20% down payment would require $102,680, whereas a 3% down payment would only amount to $15,402.
This approach can help homebuyers reduce the immediate financial burden of a high-priced property and make homeownership more accessible, especially in a market where prices continue to rise.
By considering smaller down payment options, prospective buyers can adapt to the current housing market dynamics, mitigate the impact of soaring home prices, and take steps towards achieving their homeownership dreams.