After a record-breaking rise in house prices during the COVID-19 pandemic, the real estate market appears to have fully cooled down.
Mortgage rates doubled over the course of 2022 as the US Federal Reserve hiked interest rates to fight inflation. Higher borrowing costs, combined with soaring home prices and the impact of inflation on household finances, have overwhelmed many potential buyers. Today’s market is a far cry from the frenzy of competition and aggressive offers that buyers experienced in 2020 and 2021. Homes stay on the market longer and sellers are more willing to accept concessions or lower their price.
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While the market has become less competitive today, many potential buyers have stopped looking due to cost constraints. Mortgage application activity has declined significantly in recent months, returning to more typical historical levels. In the first quarter of 2020, prospective buyers submitted 1.26 million conventional compliant mortgage applications and just over 660,000 were approved. Both numbers roughly doubled by the peak of activity in the first quarter of 2021 before starting to decline. The market slowdown accelerated in 2022, and in the second quarter of last year, both applications and approvals were back below pre-pandemic levels.
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Amid this rapid rise and fall in mortgage applications and approvals, applicants’ mortgage qualifications also changed. Before the pandemic, the median combined loan-to-value ratio for US mortgages was about 75%, meaning the typical buyer pays 25% for a home. That number fell below 70% by early 2021 and stayed there until rebounding to 75% in the second quarter of 2022. A similar trend was evident in the debt-to-income ratio: after falling to a low of 34% in 2021, the median debt-to-income ratio for a mortgage applicant returned to the highest level since 2019 after mortgage rates rose early last year started.
These numbers suggest shoppers were using more of their own cash and personal savings to fund purchases during the pandemic. Filled with cash from increased household savings and government stimulus payments, many buyers had greater funds available to raise money for a home — and they often had to raise more to compete. As these trends have reversed, buyers are having to borrow more to finance home purchases.
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Larger deposits were becoming more common in some parts of the country than others when comparing pre-pandemic numbers to 2021. Many of the hottest markets in the US during the pandemic, including Mountain West states such as Idaho, Montana and Utah, saw the largest increases in down payment amounts (relative to home prices). These locations often attracted buyers from expensive locations like Washington and California, who often had more money to spend.
The fast-growing western states are also home to some of the cities that have seen the largest percentage increases in deposits during the pandemic. In locations like Phoenix, Salt Lake City, Tucson and Las Vegas, the average mortgage down payment increased by at least 40%.
The data used in this analysis comes from the Federal Audit Council for Financial Institutions. To identify the locations with the largest increases in down payments during COVID, Construction Coverage researchers calculated the percentage change in median down payments from 2019 to 2021. Only traditional home loans approved in 2019 and 2021 were included in this analysis. In the event of a tie, the location with the greater total change in mean deposit was ranked higher.
Here is a summary of the data for Pennsylvania:
- Percent Change in Median Deposit (2019-2021): +0.0%
- Total change in median deposit (2019-2021): +$0
- Average deposit (2021): $40,000
- Average deposit (2019): $40,000
For reference, here are the stats for the entire United States:
- Percent Change in Median Deposit (2019-2021): +20.0%
- Total change in median deposit (2019-2021): $10,000
- Average deposit (2021): $60,000
- Average deposit (2019): $50,000
For more information, detailed methodology and full results, see the original report on Construction Coverage’s website: https://constructioncoverage.com/research/cities-with-the-largest-rise-in-down-payments-during -Covid