Bigger Down Payments Block Young Home Buyers

The challenges facing prospective buyers of the least expensive homes in the U.S. are mounting. Already beset by stagnant wages, student debt, and competition from speculators who have been snapping up listings, Americans looking to purchase moderately priced houses must now provide more cash upfront. The median down payment for the cheapest 25 percent of properties sold in 2013 was $9,480, compared with $6,037 in 2007, according to data from 25 of the largest metro areas compiled by brokerage firm Redfin.

Banks’ reluctance to lend is frustrating first-time buyers even as interest rates remain near historic lows. Young adults, who would typically be making initial forays into real estate, are among those most affected, weakening the foundations of the housing market and limiting its contribution to economic growth. “The numbers tell the story of why we have millions of potential homeowners who are renters or living with their parents,” says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “What has changed is the ability to become an owner. And that’s changed through a down payment that’s more than doubled.” The median down payment for the cheapest 25 percent of homes was 7.5 percent of the sale price last year, up from a low of 3.1 percent in 2006. The average was 4.2 percent from 2001 through 2007.