High Mortgage Rates Drive Down Florida Down Payments as Sellers Flood Market

In the first quarter of this year, the Palm Bay-Melbourne-Titusville area saw the median down payment on a home plummet nearly 41%, roughly $12,000, compared to the same period last year. Similarly, Ocala, a north-central city, experienced a more than 51% fall, amounting to close to $9,000 less in down payments, while the Naples-Marco Island area saw a 14.5% decline, translating to nearly $11,500 less.

Overall, Florida saw a 3% decrease in down payments year-over-year as homeowners rushed to sell amid soaring borrowing costs and market fluctuations.

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Economic Pressures and Market Dynamics

Florida’s housing market, once buoyed by an influx of out-of-state buyers during the pandemic, is now contending with elevated mortgage rates that have surpassed the 7% mark. The increase in borrowing costs has made financing new home purchases considerably more expensive, according to the report, contributing to a decline in down payment amounts.

With higher rates, potential buyers are less able to meet previous down payment norms, affecting market dynamics across the state.

Those higher mortgage rates have led to a cooling in buyer enthusiasm, indicated by the reduced down payments. The competitive market environment, characterized by abundant listings and fewer buyers, has compelled sellers to adjust their expectations and accept lower down payments to close deals.

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However, the decline in down payments is not uniform across all regions.

While Florida cities like Palm Bay, Ocala, and Naples have seen notable declines, other regions in the country, particularly in states like California, are experiencing different trends. For instance, California markets like Oxnard-Thousand Oaks-Ventura have seen buyers put down as much as 24.5% of the purchase price, reflecting the high cost of homes and the substantial incomes of buyers in those areas.

Down payments for second homes and investment properties typically require even larger percentages, Realtor.com noted, around 27.9% and 27.3% respectively, compared to primary residences.

The trend of high down payments — despite the overall decrease in some areas — stems from a combination of pandemic-era savings and the motivation provided by high mortgage rates which encourage buyers to make larger down payments, thereby reducing their loan amount and the total interest paid over the loan's life span.

In the first quarter of this year, down payments decreased compared to the third quarter of 2023, both as a percentage of the purchase price and as a dollar amount. However, down payments increased year-over-year from the third quarter of 2023 to the first quarter of 2024, which suggests that down payments may continue to climb and could reach a new peak later this year, according to the report.

With rising borrowing costs deterring potential homebuyers from entering the market, those who remain are likely to be financially better prepared and capable of making larger down payments, Realtor.com noted.

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