LOS ANGELES – Homebuyers who can afford to bypass the highest mortgage rates in two decades are increasingly forgoing financing and paying all cash.
Homes purchased entirely with cash, which means there was no reference to a mortgage on the deed, accounted for 34.1% of all sales in September. That's up from 29.5% a year earlier and the highest share in nearly a decade, according to a Redfin analysis of home sales in 40 of the nation's most populous metropolitan areas.
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Still, sharply higher home loan borrowing costs, a dearth of homes for sale and rising home prices have dampened home sales overall, which has helped give a boost to all-cash transactions’ portion of all home sales.
Even as their share of all sales increased, the number of all-cash transactions in September fell 11% from a year earlier, Redfin found. In contrast, home sales overall fell 23% in the same period.
“Were it not for these cash buyers, I think the housing market would be in even worse position than is now,” said Daryl Fairweather, Redfin’s chief economist.
Even homebuyers who use financing are electing to make bigger down payments in order to reduce the size of their mortgage.
The typical U.S. homebuyer put down 16.1% of the purchase price in September, the highest percentage in nearly a year and a half, Redfin said.
The last time all-cash transactions made up a bigger portion of all home sales was February 2014, when the share was 34.3%. Back then, the housing market was still on the mend following the late-2000s housing crash that led to millions of foreclosures. Corporate homebuyers and other real estate investors saw an opportunity to snap up discounted homes and they favored paying in cash.
Today, the forces driving up the share of all-cash home purchases are very different. The housing market is once again in a protracted sales slump, but there isn't a glut of homes — much less discounted or foreclosed properties —- available to entice a crush of bargain-hunting, cash-paying real estate investors.
The inventory of previously occupied homes for sale nationally is near historic lows, which has kept prices ticking higher despite the market downturn. That means buyers who can pay all cash have a competitive edge over those who are relying on financing.
And then there's mortgage rates. The average rate on a 30-year home loan has been above 7% since August, hovering at times just below 8%, according to mortgage buyer Freddie Mac. That's roughly double what it was in February 2014, and a stark increase from just two years ago, when rates on the 30-year mortgage averaged around 3%.
Cash is also king when it comes to the luxury home market, which Redfin defines as properties with a market value within the top 5% of a given metropolitan area. All-cash transactions accounted for 43% of all homes in that category that were purchased in the third quarter, up from 35% a year earlier, Redfin said.