Frustrated by mortgage rates above 6%, a growing share of first-time homebuyers are opting to pay for their homes in cash to avoid high borrowing costs.
In October this year, 32% of homes sold in the United States were paid for with all cash, according to a new report from real-estate brokerage firm Redfin RDFN. That’s up from 29.9% a year ago, and is the highest share since 2014, the company said.
Redfin began tracking this data in 2011. All-cash purchases were defined as ones where there is no mortgage loan information on the deed.
“Today’s affluent homebuyers are motivated to pay in cash because the surge in mortgage rates makes them want to avoid loans — and the high monthly interest payments that come with them — altogether,” Chen Zhao, economics research lead at Redfin, said in a statement.
The average rate on the 30-year mortgage was 6.34%, according to the Mortgage Bankers Association.
Where all-cash transactions rose
All-cash home purchases rose the most this October, as compared to the previous year, in the following areas:
- Riverside, Calif., where 38% of home sales in October 2022 were paid in cash
- Cleveland, Ohio, where 47% of home sales were paid in cash
- Cincinnati, Ohio, where 44% of home sales were paid for in cash
- Montgomery County, Pa., where 31% of home sales were paid for in cash
- Philadelphia, Pa., where 37% of home sales were paid for in cash
All-cash transactions were most common in Florida this October. Cities where all-cash sales dominated include Jacksonville (where nearly half of all sales were in cash), followed by West Palm Beach.
Why people use all cash
Part of the reason why all-cash sales are more common in Florida is due to the presence of many affluent buyers, Redfin noted.
Cities where all-cash transactions were few and far in between include San Jose, Oakland, and Seattle, where properties are pricey.
In a separate report also published on Wednesday, the National Association of Realtors estimated that all-cash sales of existing homes accounted for 26% of transactions in November, the same as October and up from 24% in November 2021.
Prior to the pandemic, all-cash transactions were generally around the 20% range.
“Individual investors or second-home buyers, who make up many cash sales, purchased 14% of homes in November, down from 16% in October and 15% in November 2021,” the NAR report said.
Meanwhile, as Redfin’s report suggested, more first-time buyers are turning to cash, trying to avoid interest rates that are double of where they were last year.
A year ago, the 30-year fixed rate mortgage was averaging at 3.27%, according to data from the Mortgage Bankers Association.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
Source: finance.yahoo.com