Just 24% of homes sold so far in 2020 were bought with all cash, according to a new report from Redfin.
That’s down from 25.3% in 2019 and the smallest share of all-cash since 2007, when 22.4% of homes sold were bought without a mortgage loan. Since 2001, all-cash purchases hit a trough in 2006, when just 20.7% of homes were bought with cash, but peaked in 2013, when 34% of homes were bought without mortgages. Since, their share has generally decreased, hovering between 25% and 28% in the last five years before dropping in 2020.
Redfin attributes the decline of all-cash transactions to the historically low mortgage rate environment, relegating cash purchases as incentives in a hyper-competitive market.
“With interest payments lower than ever before, many homebuyers would prefer taking out a home loan and putting their cash somewhere else, like the stock market, emergency savings accounts or home renovations,” said Redfin chief economist Daryl Fairweather. “Many of the buyers who are using all cash this year are probably trying to beat out other offers in a situation with multiple offers.”
Interestingly, Long Island’s Nassau County had the highest share of all-cash purchases among major metro markets at 48.9%. Peggy Papazaharias, a Redfin agent in the area, said that it’s due in large part to the exodus from New York City, with emigrants from the urban core being aggressive to lock down land in a less dense area.
“Buyers are flocking to Nassau County from Manhattan and Queens this year, as the pandemic and remote work drives them away from the city and toward a more suburban area with spacious homes and backyards,” she said. “A lot of buyers are paying cash because they want to beat out the competition, move quickly and get into their new house and new lifestyle as soon as possible. Nassau County is the closest suburban-feeling area to Manhattan, so it’s a desirable location for remote workers and people who will eventually have to commute into the city one or two days a week.”
Outbound residents of the entire state contributed to high all-cash shares in the next six cities, all in Florida: North Port (41.0%), West Palm Beach (40.3%), Cape Coral (39.8%), Fort Lauderdale (33.4%), Miami (30.8%) and Tampa (30.1%).
“Cash purchases in Florida are mostly from people who are relocating here from other states to purchase a second home or a retirement property,” said Wendy Peterson, a Redfin agent out of Tampa. “With the pandemic, even more people are moving to Florida because they’re able to work remotely. A lot of the incomers are from New York and other high-tax northeastern states, and they’re using cash from selling their former homes to purchase something in Florida.”
On the other side of the spectrum are Oakland (with just 13.1% of homes bought with cash), Virginia Beach (13.8%), San Diego (15.1%), Denver (15.2%) and Portland, Oregon (15.6%), the cities with the smallest shares of all-cash purchases.
For some of those cities, the particularly low all-cash share is easily explained by home prices: Oakland sits within the incredibly pricey Bay Area, and median home prices in San Diego, Denver and Portland all far exceed the nation’s median home price.
Virginia Beach, where the typical home actually sold for below the national median, is an outlier, but its presence on the list is simple: loans from the Department of Veteran Affairs (VA). VA loans don’t require downpayments, and many buyers in Virginia Beach, which has a large military presence, take advantage of them, making all-cash purchases more infrequent.