According to a new report from Redfin, all-cash home purchases grew to 33.4% of all purchase transactions nationwide in April, hovering near the highest market share for cash transactions in nearly a decade.
The recent peak was set in February, when all-cash purchases rose to a nine-year high of 33.5%. And April’s all-cash share was up from 30.7% in the same month last year.
Cash purchases are comprising larger market shares of late due to the higher mortgage rate environment, which is dissuading would-be buyers who require mortgages but having less of an effect on consumers with the ability to pay entirely in cash. Consider that while total home sales were down 41% year over year in April, the all-cash sales decline during the same time frame was only 35%.
Redfin noted that high rates still have an impact on cash buyers as well, since these affluent households may decide that their money could be better used in investments that benefit from high rates, like bonds, as opposed to buying real estate. But the impact isn’t nearly as acute as it is on mortgage borrowers.
“A homebuyer who can afford to pay in all cash is weighing two potential paths,” said Sheharyar Bokhari, Redfin’s senior economist. “They can use cash to pay for the home and avoid high monthly interest payments, or take out a loan and pay a high mortgage rate. In that case, they could use the money that would have gone toward an all-cash purchase to invest in other assets that offer bigger returns, which could partly cancel out their high mortgage rate.
“Buyers who can’t afford to pay in all cash also have two potential — but different — paths,” he added. “They can avoid a high mortgage rate by dropping out of the housing market altogether, or they can take on a high rate. That discrepancy is the reason the all-cash share is near a decade high even though all-cash purchases have dropped: Affluent buyers have the choice to pay cash instead of dropping out of the market.”
Another reason for the gain in all-cash purchase share is competition among homebuyers. The simplicity of a seller taking an all-cash offer is often a big factor in winning a bidding war for a property. And with high mortgage rates keeping many potential sellers locked into their current homes and holding down inventory, competition is on the uptick.
Notably, bidding wars were the main reason for the surge in all-cash purchases during the COVID-19 pandemic homebuying boom. Ironically, that was because low mortgage rates were spurring competition by enticing more people into the buyer pool.
Among the 40 U.S. metro areas evaluated by Redfin in its report, Cleveland had the largest share of April home sales using all cash at 65.7%, followed by West Palm Beach, Florida, at 53.6%, and Baltimore at 52.9%. A trio of pricey West Coast metros where it’s harder to buy with cash — San Jose, Seattle and Oakland — had the smallest all-cash shares. They were the only three in Redfin’s study with cash shares below 20%.
