Mortgage News June 15, 2023
According to a recent report by Redfin, cash purchases accounted for approximately 33.4% of U.S. home acquisitions in April, marking an increase from 30.7% in the previous year and representing the highest proportion in nine years.
All-cash transactions are becoming more prominent in the real estate market, primarily due to higher mortgage rates dissuading buyers who rely on mortgage loans. In April, home sales in the metropolitan areas covered by Redfin’s analysis (which included the 40 most populous U.S. metros) experienced a 41% decrease compared to the previous year. In contrast, all-cash sales declined by 35%.
Many potential homebuyers, particularly those requiring a mortgage, are being deterred by the current high mortgage rates, which are at their highest point in 15 years. However, it’s important to note that these elevated rates can also dissuade all-cash buyers who may find more lucrative investment opportunities, such as bonds, that benefit from high interest rates.
According to Sheharyar Bokhari, a Senior Economist at Redfin, homebuyers who have the financial capacity to make an all-cash purchase must consider two potential options. They can choose to utilize their cash reserves to buy the property outright, avoiding the burden of high monthly interest payments. Alternatively, they can opt for a loan but face the challenge of a higher mortgage rate. In this scenario, they might decide to allocate the funds they would have used for an all-cash purchase towards alternative assets that offer greater returns. This strategy could partially offset the impact of the elevated mortgage rate they would have to contend with.
The increase in all-cash sales can be partially attributed to competition among homebuyers, albeit a less significant factor. Limited housing inventory in certain metropolitan areas is fueling intense competition, compelling buyers to resort to all-cash offers in order to secure a home successfully.
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