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A report from Redfin showed that many homebuyers in 2021 so far, found that they must tour more homes, make larger down payments and waive more contingencies in order to beat out the competition in the housing market. According to the report, remote work and low mortgage rates accelerated homebuying during the pandemic. However, this has resulted in a severe housing shortage that's fueling record-high prices and cutthroat competition.
Redfin reports that the median down payment on a home during the last six months was $40,987, up from $32,261 during the same period a year earlier. This marks a 27% increase year-over-year, or nearly $9,000. The typical homebuyer made a down payment equal to 15.9% of the sale price, compared with 15.3% a year earlier, according to the report. The increase in down payments has mostly been attributed to the jump in housing prices.
"The surge in home prices actually hasn't resulted in higher monthly mortgage payments for most buyers because it has been offset by low mortgage rates, but it has driven up down-payment costs," said Redfin chief economist Daryl Fairweather. "This is likely putting homeownership out of reach for many cash-strapped first-time buyers who can't afford to put an additional $9,000 down."
The report also found that homebuyers have been boosting their bids. During the last six months, 1 in 3 buyers (34.4%) paid more than the seller's original asking price, up from 1 in 5 buyers (21.2%) a year earlier.
"It's extremely competitive out there. One of my buyers recently beat out 25 other bids by offering $120,000 over the $425,000 asking price on a three-bedroom single-family home," said Portland Redfin real estate agent Mark Peterson. "There was a competing offer for the same amount, but my client won by opting for a shortened inspection period, accepting the home `as-is' and agreeing to pay up to $20,000 extra in the event that the appraisal came in low."
Additionally, over the last six months, Redfin reported that 17.6% of successful offers submitted by its agents waived the appraisal contingency, up from just 6.1% during the same period a year earlier. The share of successful offers waiving the inspection contingency jumped to 13.2% from 7.3%, and the portion waiving the financing contingency increased to 13.2% from 10.1%.
With more than 50% of home offers encountering bidding wars, more buyers alter their offers by waiving contingencies in order to win. Waiving these contingencies is a strategy buyers use to make their offers more competitive by assuring the seller that the deal will close without unforeseen headaches, according to the report.
Redfin also reported that 53% of home sales in the last six months were paid for using conventional loans. That's a 49.7% increase from a year earlier. The portion of sales financed with jumbo loans, which are regularly used for purchases of higher-end homes, increased to 6% from 5.5%. Slightly more than a quarter (25.9%) of home purchases were paid for exclusively in cash, little changed from before the pandemic.
"Lenders have been tightening up requirements for borrowers during the pandemic because so many families are at risk of defaulting on their mortgage payments," said Fairweather. "This means that many lower-income Americans have been unable to qualify for the loans they need to become homeowners and start building home equity. But as lenders become more confident in the economic recovery, they will be more willing to offer loans to borrowers with less-than-immaculate credit."
Click here to read the full Redfin report.