WASHINGTON (8/18/14)--Hamstrung by student debt and competition from real estate investment firms that have gobbled up affordable homes, first-time homebuyers now face yet another obstacle to breaking into the housing market: Forking over larger down payments.
The median down payment on the most affordable properties climbed to $9,840 in 2013, compared with $6,037 in 2007, according to data from Redfin Corp. (Bloomberg.com Aug. 14).
Further, median down payments for the cheapest homes in 2013 were 7.5% of the sales price, compared with 3.1% of the sales price in 2006.
"The numbers tell the story of why we have millions of potential homeowners who are renters or living with their parents," Susan Wachter, finance professor at the University of Pennsylvania, told Bloomberg.com. "What has changed is the ability to become an owner. And that's changed through a down payment that's more than doubled."
Another factor contributing to the rise in down payments is that the Federal Housing Administration has raised its mortgage-insurance premiums, stopping potential homebuyers from considering government-backed loans to finance their home purchases, according to Bloomberg.com.
Additionally, as large investors have grabbed up cheaper properties at a fast clip since the recession with the hope of flipping them or renting them, the inventory of homes from which first homebuyers can pick has dwindled, leaving more first-time buyers on the sidelines.
"If higher down payments persist, we will have a millennial generation that's missing in action in homeownership," Wachter told Bloomberg.com.