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39% of Home Buyers Can’t Afford 5% Down Payment

By: Paul Centopani
June 6, 2023 – 6 min read
Declining affordability

If you follow the housing market, you know the last few years became a thunderdome for home
Fierce competition and low for-sale inventory led to surging prices. As conditions strained
affordability, a declining share of borrowers could save enough for a down payment compared to
before the pandemic.
In 2022, nearly two in five potential borrowers couldn’t make a 5% down payment, according to
The Mortgage Reports. We dug into why affordability cratered so quickly and how you can find
a loan for down payments of any size.
Verify your home buying eligibility. Start here (Jun 8th, 2023)

In this article (Skip to…)
 Fewer borrowers can put down 5%
 Pandemic’s impact on housing costs
 Housing market by the numbers
 Home loans if you can’t pay 5% down
 Advice for home buyers

Fewer borrowers can put down 5%
Proprietary survey data from TheMortgageReports.com showed 39% of potential home buyers
could not make a down payment of at least 5% in 2022. However, that share stood at 33% in

The last few years brought record-setting home price growth, spurred by an extreme supply-
demand imbalance and remote work shifting where people lived and bought houses. Add in
decades-high inflation and increasing mortgage rates of the past 12 months, and it cumulatively
made saving for larger down payments harder to achieve.
Check your home loan options. Start here (Jun 8th, 2023)

“Economic uncertainty and the Federal Reserve’s monetary easing in response to the pandemic
drove mortgage rates down to historic lows, which boosted consumer house-buying power,” said
Ksenia Potapov, economist at First American.
“Between February and December 2020, home buyers gained an estimated $50,500 in
purchasing power, outweighing the effect of higher home prices. As mortgage rates began to rise,
purchasing power contracted and affordability declined by 78% between January 2021 and
December 2022,” she continued.
Fortunately, the old standby of needing at least 20% down is mostly a relic of the past. Today’s
borrowers — particularly first-time home buyers — come with a different set of expectations,
have more loan types available to better suit their needs and programs to help them with down
The pandemic’s impact on housing costs
The Covid-19 pandemic caused a major shift in home buying dynamics and conditions, with the
ripple effects still felt today.
Work-from-home employment removed the need to live in proximity to the office. With
businesses physically shut down, people left densely packed city centers in droves for areas
offering larger properties with more space and better prices. This flurry of buyers overwhelmed
markets and exacerbated the already shallow pool of available homes for sale.
Verify your home buying eligibility. Start here (Jun 8th, 2023)

“The Federal Reserve, in an attempt to keep the economy afloat against fears of a severe
COVID-caused recession, kept the Fed Funds rates low and poured billions of dollars into
mortgage-backed securities as part of its quantitative easing,” said Rick Sharga, CEO at CJ
Patrick Company. “This led to historically low mortgage rates, which further stimulated demand
at a time when the inventory of homes for sale dipped to record lows.”
The significant influx of demand juxtaposed with a dearth of for-sale listings caused bidding
wars and resulted in skyrocketing property values. Homeowners rejoiced as their equity grew at

breakneck speeds while prospective buyers toiled and pulled out all the stops to place winning
Nationally, home prices spiked 18% in December 2021 compared to December 2020, according
to the Federal Housing Finance Agency (FHFA). By comparison, that nearly tripled the top-end
growth rate of what’s considered a more normalized marketplace. Annual appreciation oscillated
between 4.89% and 6.8% from the first quarter of 2017 to the second quarter of 2020.
“Housing prices jumped during the pandemic as remote work and other situations affected where
and how Americans wanted to live,” said Eddie Seiler, Mortgage Bankers Association (MBA)
AVP of housing economics and Research Institute for Housing America executive director. “The
low interest rates acted to attenuate the high house price growth with respect to monthly

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