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.
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“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 firstname.lastname@example.org