According to data released by Zillow on Thursday, it is becoming more difficult for first-time home buyers to break into the housing market. According to Zillow’s analysis, there is no better time than the present for potential home buyers to start saving for a down payment, as home values in every major metropolitan area in the United States are expected to rise over the year.
What this means for the average person looking to buy a home is that a 20 percent down payment will cost thousands of dollars more by 2018. According to Zillow, homes will increase by a median value of around $6,000, which translates to potential buyers needing to save roughly $100 extra per month. In hotter markets, Zillow calculates that number will go as high as roughly $36,000, which puts an even greater monthly burden on the buyer, as he or she will need to spend about $7,000 more on the down payment, which translates to needing to save approximately $600 more per month.
The increasing cost of homes provides a less-than-ideal situation for potential buyers. One of the routes most commonly used by buyers, especially in today’s age of rising home prices, is putting a down payment of less than 20 percent on a home. According to the Zillow, 59 percent of first-time buyers go down this route. However, that method is not without its risks. Zillow release also found that the lower a buyer goes on a down payment when making an offer, the less likely the buyer is to win. For buyers making a smaller offer on the down payment, the buyer is likely to have to make 2.4 offers before winning while buyers who make larger down payments will make 1.9 deals before they win.
Making a lower down payment is a risky proposition for buyers looking to break into the housing market, but it is the more economical choice. A buyer might get rejected a few times before winning an offer on a lower down payment, but that same buyer might decide to save more money on the down payment for a year, only to find that the price of his or her desired home has moved out of their budget a year later.
To read the full analysis and view Zillow's affordability calculator, click here.