First time home buyers in the United States face the prospect of having to pay thousands more towards down payment on a home as prices are projected to keep rising in 2018, as per a new report.
Nationally, the median home will be worth $6,275 more a year from now, according to the latest Zillow report and that means that the average buyer will need to save an additional $105 a month or $1,260 over the next year for the typical 20% needed as a deposit.
However, in hot coastal markets like San Jose, home values are expected to rise as much as $35,934 by this time next year, the highest annual dollar increase of the metros analysed by the real estate firm.
That means that a buyer in 2018 will then need $7,188 more for a down payment on the median home than they would today. For those saving on a monthly basis for a future home purchase, that means putting away an additional $599 a month just to keep up with home value appreciation, let alone whatever else is needed for the down payment itself.
People thinking of buying properties in Seattle, San Diego and Riverside in California can also expect to spend thousands of dollars more on down payments for the median home a year from now.
It is well documented that saving for a down payment is one of the biggest hurdles to home ownership in the United States. Some 59% of all first time buyers today put less than 20% down on their home purchase.
However, a small down payment comes with its own risks. The report says that buyers with larger down payments are more likely to get their offer accepted, averaging just 1.9 total offers before having the offer on their house accepted compared to 2.4 for buyers with lower down payments.
Sky high rents and rising home prices are putting first time buyers in a bit of a catch-22 situation, according to Svenja Gudell, Zillow chief economist. ‘Buying now with a low down payment can be riskier, and the offer may not be considered as competitive by the seller,’ she said.
‘However, a renter who saves for another year to reach a larger down payment may find that the home they want today is outside their budget a year from now. For those considering buying in the next year, getting into the market today may make more financial sense than they think,’ she added.