Buying a home hasn’t been easy for the past few years. Besides increasing interest rates, a decrease in purchasing power, and a housing shortage, cash buyers have also put a squeeze on some would-be buyers.
Nearly a third of U.S. home purchases were made with cash in April, a nine-year high, according to data from Redfin that looked at the 40 biggest metropolitan areas in the U.S. That’s in line with data from February, which saw cash purchases reach 33.5% and continuing a trend that started during the pandemic.
The share of homes being bought with cash is at levels not seen since 2014, when the housing market rebounded from the Great Recession. But the housing market today looks very different. So what’s driving this drive of cash buyers?
Rising Interest Rates
The main reason cash buyers are making up a bigger portion of real estate is that mortgage rates have increased thanks to rising inflation.
While rates slid down slightly in June, they remain elevated compared to the same time last year. The 30-year weekly average at the end of June was 6.67%, near a 15-year high. That’s made borrowing costs more expensive and sidelined many buyers who need a mortgage.
Buyers have two choices: pay with cash and avoid monthly payments or take out a loan with high interest rates. Buyers who can’t pay in cash have to either drop out of the market or pay the higher rates, Redfin Senior Economist Sheharyar Bokhari explained.
“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,” he said.
The rise in rates has even made home buying slightly less attractive for all-cash buyers, as they can instead invest in assets that are more attractive when interest rates rise, like bonds. In fact, home sales were down 41% from a year earlier, compared to a decline of 35% for all-cash sales.
Lack of…