New Opportunities in the Age of the Great Reshuffle

A new analysis by Zillow has found that despite the affordability hurdles faced by many first-time homebuyers, the “Great Reshuffling” (or migration of homeowners over the past year) in the housing market is providing opportunities for many to buy a home in a less-expensive city.

The study found that even with mortgage rates still near record lows, monthly payments can remain affordable even with a smaller down payment, as flexible work options are providing new homeownership opportunities.

"Without the equity from a previous home sale, first-time home buyers face more challenges in coming up with a down payment," said Zillow Economic Data Analyst Nicole Bachaud. "In a housing market where prices are rising at record rates, especially when compared to renter incomes, the ever-increasing sum of a 20% down payment can feel out of reach. The good news is that buyers who want to take advantage of today's low mortgage rates can do so without putting a full 20% down―most conventional mortgages allow as little as 3% to 5%. That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many."

Zillow found that if the average renter saved 10% of their income―an aggressive target given the average renter savings rate is 2.4%―it would take approximately six years and five months to save enough for a 20% down payment on today's typical starter home (approximately $148,500). That's a full year longer than it would have taken to save for a down payment on a starter home five years ago. And as prices rise at a record pace, it may take even longer for today's renters to save up for tomorrow's homes.

The new freedom for many to work remotely and live anywhere as part of the “Great Reshuffling” may also help many renters move into homeownership, as renters in high-cost areas can more easily save for a home in a less expensive locale. A typical San Francisco renter, if able to do their job remotely, could save enough for a 20% down payment on a starter home in Austin in about six years and eight months, and a similar home in Phoenix in five years and seven months. A similar renter in Boston could save enough for a 20% down payment on a starter home in Miami in half the time it would take for a local starter home―six and a half years, instead of 13 years. On the other hand, a typical renter in Austin hoping to make a move to San Francisco would need to save for 28 years and three months.

The study found that renters in California faced the biggest barriers to saving for down payments. San Francisco renters earn nearly twice as much money as the typical U.S. renter, yet home prices are so high, it would take 17 years and five months―11 years longer than the national average―to save enough to put 20% down on a local starter home. It would take even longer in Los Angeles and San Diego. Among the top 50 metro areas, renters in Birmingham, Alabama; Memphis, Tennessee; and Detroit could save for a down payment the fastest.

Because of differences in incomes and the lingering impacts of historical inequities, it is more difficult for Black and Latinx renters to come up with a down payment on their first home. Zillow found that it would take six years and one month for a white renter earning the median income, and four and a half years for an Asian American renter earning the median income to save for a 20% down payment on a starter home, compared to nine years and seven months for a Black renter, and seven years and eight months for a Latinx renter.

Black and Latinx home buyers are more likely than white home buyers to say they saved at least part of their down payment themselves―which could be a possible consequence of the racial wealth gap, as Black and Latinx buyers are often less able to rely on family to help out financially. Along with structural barriers such as less access to credit and higher rates of mortgage application denials, a contributing factor to the racial homeownership gap.

Click here for more on Zillow’s latest study on down payment affordability.