Rising Home Prices Puts Strain on Buyers’ Savings

For homeowners, rising home prices means more home equity. For prospective home buyers, it means finding ways to save more money just to make a down payment.

Zillow Inc., Seattle, said saving money for a down payment is a “moving target” for many first-time buyers, especially in pricier coastal markets. And the longer they wait, the more they’ll have to save.

Zillow issued a forecast saying nationally, the median home could be worth $6,275 more a year from now. That would mean the average U.S. buyer would need to save an additional $105 a month, or $1,260 total over the next year, just to account for how much more a 20 percent down payment will cost a year from now.

But for hot coastal markets, that could mean more–a lot more. In San Jose, Calif., for example, home values are expected to rise as much as $35,934 by this time next year, the highest annual dollar increase of the metros analyzed. A buyer in 2018 would then need $7,188 more for a down payment on the median home than they would today. For those saving on a monthly basis for a future home purchase, that equates to putting away an additional $599 a month just to keep up with home value appreciation, let alone whatever else is needed for the down payment itself. Future home buyers in Seattle, San Diego and Riverside, Calif. can also expect to spend thousands of dollars more on down payments for the median home a year from now.

“Sky-high rents and rising home prices are putting first-time buyers in a bit of a catch-22,” said Zillow Chief Economist Svenja Gudell. “Buying now with a low down payment can be riskier, and the offer may not be considered as competitive by the seller. However, a renter who saves for another year to reach a larger down payment may find that the home they love today is outside their budget a year from now. For those considering buying in the next year, getting into the market today may make more financial sense than they think.”

Numerous reports note saving for a down payment is one of the biggest hurdles to homeownership. The Zillow 2017 Consumer Housing Trends Report said more than half (59 percent) of all first-time buyers today put less than 20 percent down on their home purchase.

“However, a small down payment does not come without risks,” the report said. “Buyers with larger down payments are more likely to get their offer accepted, averaging just 1.9 total offers before winning their house compared to 2.4 for buyers with lower down payments. When time is money, a low down payment can be costly.”