Toy houses on top of stacks of coins.

Down payments, cash offers rise in response to interest rates 

Despite a less competitive market for buyers, cash remains king — not to win bidding wars, but to avoid inflated financing costs.

March 29, 2024
4 minutes

Key points:

  • Buyers are bringing more cash to the table to keep their monthly mortgage payment within budget.
  • But that means more first-time buyers are locked out of the market, exacerbating the wealth gap.
  • Las Vegas saw the biggest increase in down payments compared to a year ago, jumping nearly 61%.

Median down payments in February were up more than 24% compared to a year ago, while the proportion of all-cash offers soared to a near-record high, according to a new report from Redfin.

Buyers' reliance on up-front cash is more evidence that elevated interest rates are increasingly squeezing first-time homebuyers and, for some, putting the dream of homeownership out of reach.

"High mortgage rates are widening the wealth gap between people of different races, generations and income levels," said Redfin Economics Research Lead Chen Zhao.

"They've added fuel to the fire lit by surging home prices during the pandemic, creating a reality where in many places, wealthy Americans are the only ones who can afford to buy homes."

The effects of locking people out of homeownership — and limiting their ability to grow wealth — will reverberate for generations, Zhao said.

Median down payment exceeds $55k

With mortgage rates hovering near 7%, more successful buyers are finding ways to put more cash up front to help keep monthly payments sustainable, according to the report.

"The smallest down payment I've seen recently is 25%," said Miami Redfin agent Rachel Riva. "I had one client who put down 40%."

Nationwide, February's median down payment of $55,640 was up 24.1% from last year's $44,850, according to the report, which is based on an analysis of county records across 40 of the most populous metropolitan areas.

Part of the total dollar increase can be explained by rising home prices. But even as a percent of purchase, typical down payments rose from 10% in February 2023 to 15% this year.

Buyers seem to be coping with higher interest rates by borrowing less, not by betting on their ability to refinance when and if rates fall. And since home prices aren't going down, the only way to do that is with a bigger down payment.

A buyer who purchases a median-priced U.S. home at $374,500 with 15% down would have a monthly payment of $2,836 at today's 6.79% mortgage rate. If the buyer put only 10% down, the payment would be $2,968 — $132 more.

Paid in full: All-cash offers near record high

Buyers with the means to avoid financing altogether rose to a near-record proportion, the report noted.

More than a third (34.5%) of U.S. home purchases in February were made with all cash, up from 33.4% a year earlier. That's just shy of the 34.8% decade-high hit in November, and isn't far below the record high of 38% in 2013. (Redfin defines an all-cash purchase as a home purchase with no mortgage loan information on the deed.)

Investors are behind many of those all-cash offers, according to the Redfin analysis. At the end of last year, investors were snatching up more than a quarter of the country's low-priced homes.

More than half the home purchases in Jacksonville, Florida (54.4%) were all-cash. On the other end, San Jose, California, reported just 18% of purchases were all-cash.

Overall, however, investor purchases have dropped significantly from the heights reached during the pandemic.

Regional differences in down payments

Las Vegas saw the biggest increase in down payments among the metros surveyed, jumping a whopping 60.9% year over year, according to the report.

San Diego (49.8%), Charlotte (47.4%), Virginia Beach (45%) and Newark (32.2%) rounded out the top five metros with the biggest increases.

Two metros saw down payment amounts fall: Milwaukee (down 13.9%) and Pittsburgh (down 0.4%).

In San Francisco, the median down payment as a percentage of the purchase price was 25%, the highest in the report.

In contrast, Virginia Beach's median down payment was just 1.8% of the purchase price, likely because of the high concentrations of veterans who can access mortgages with little or no down payment.

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