High mortgage rates are driving down down payments in Florida as sellers flood the market

During the first quarter of this year in the Palm Bay-Melbourne-Titusville area, the median down payment for a home was down nearly 41%, or about $12,000, compared to the same period last year. Similarly, Ocala, a north-central city, saw a decline of more than 51%, equating to almost $9,000 less in down payments, while the Naples-Marco Island area saw a decline of 14.5%, equating to almost $11,500 less.

Overall, down payments in Florida fell 3% year-over-year as homeowners rushed to sell amid rising borrowing costs and market volatility.

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Economic pressures and market dynamics

Florida’s housing market, once buoyed by an influx of out-of-state buyers during the pandemic, is now struggling with elevated mortgage rates that have topped the 7% mark. The report shows that the increase in external financing costs significantly increased the financing of new home purchases, which contributed to a decline in the amount of own contributions.

With higher rates, potential buyers have less ability to meet previous down payment standards, which affects market dynamics across the state.

Higher mortgage rates have led to cooler buyer enthusiasm, as evidenced by reduced down payments. A competitive market environment with a high volume of offers and fewer buyers has forced sellers to adjust their expectations and accept lower down payments to close deals.

Trends:

However, the decline in advances is not even across all regions.

While Florida cities like Palm Bay, Ocala and Naples have seen noticeable declines, other regions of the country, especially states like California, are seeing different trends. For example, in California markets such as Oxnard-Thousand Oaks-Ventura, buyers reduced their purchase price by as much as 24.5%, reflecting the high cost of homes and the significant incomes of buyers in these areas.

Down payments on second homes and investment properties typically require an even higher percentage, Realtor.com noted, around 27.9% and 27.3%, respectively, compared to primary residences.

The trend towards high down payments – despite an overall decline in some areas – is due to a combination of pandemic-era savings and the incentive provided by high mortgage rates, which encourage buyers to make larger down payments, thereby reducing the amount of the loan and the total interest paid over the life of loan duration.

In the first quarter of this year, down payments decreased compared to the third quarter of 2023, both as a percentage of the purchase price and in dollar amount. However, advances increased year-over-year from the third quarter of 2023 to the first quarter of 2024, according to the report, suggesting that advances may continue to increase and may reach a new peak later this year, according to the report.

Rising borrowing costs are discouraging potential homebuyers from entering the market, and those who remain will likely be better financially prepared and able to make larger down payments, Realtor.com noted.

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This article High Mortgage Rates Slashes Down Payments in Florida as Sellers Flood the Market originally appeared on Benzinga.com