SEATTLE — There's more bad news for potential homeowners.
A new Zillow analysis reveals that if you want to comfortably afford a typical U.S. home, the average person needs to put down nearly $127,750 as a down payment. That is for a typical home valued at around $360,000.
To put it into perspective, mortgage rates hovered just above 4% in 2018, and home values were about half of what they are today. Buying a home required less money and was deemed affordable by industry standards.
The change underscores the impact of a pandemic-driven market along with the state of the economy.
In order for a home to be considered "affordable", the mortgage payment has to be 30% or less of one's income.
This current situation has left both buyers and sellers hesitant, leading to fewer houses on the market and fierce competition.
"Down payments have always been important, but even more so today," stated Skylar Olsen, chief economist at Zillow. "Saving enough is a tall task without outside help — a gift from family or perhaps a stock windfall. To make the finances work, some folks are making a big move across the country, co-buying or buying a home with an extra room to rent out."
For a household earning the median income, accumulating the $127,750 needed for a down payment could take years. This may explain why 43% of last year's buyers relied on financial gifts from family or friends, the highest share in recent years, according to Zillow.
There are some bright spots. In Pittsburgh, for instance, a median-income household can afford a typical home with no down payment. In Minneapolis, a down payment assistance program helps people fill in the gaps.
On the flip side, potential homeowners in San Jose, California, would need to put down more than $1.3 million to afford a home.
According to Zillow, in St. Louis, the typical home value is a little more than $253,000 with a little more than $10,000 or 4% down. In Kansas City, Missouri, the typical home value was a little more than $307,000 with a down payment of roughly 25%. And, in Chicago, the typical home value is more than $321,000 with a down payment of close to $96,000.
As homebuyers face more challenges, Zillow says there is a greater need for down payment assistance programs.