According to Redfin, in October, one-third of home purchases were all-cash. That puts the sale of all-cash homes at the highest level seen since 2014.
An estimated 31.9% of home purchases throughout the country were paid for with cash in October, up almost 30% from the previous year.
All-cash purchases started going up at the start of 2021 after reaching a record low in April 2020 (20.1%). Redfin’s report notes that the factors leading buyers to pay in cash differ in the slowing market than during the frenzied pandemic buying market.
Redfin’s researchers say that affluent buyers in the current market want to pay in cash because mortgage rates are surging, so they are hoping to avoid loans and the interest payments coming with them. Mortgage rates have dipped recently but are still above 6%.
During the housing boom of the pandemic, buyers were paying cash because there was enormous competition among buyers, and all-cash offers were a good bargaining tool when a buyer could afford them.
The Redfin analysis found that purchases with all cash increased in 29 out of 39 markets from October 2021 to October 2022.
Riverside, California, saw them increase the most. They went up from 19.2% of purchases to 38%.
Cleveland followed, which saw an increase from 32% to 47%.
In Florida, all-cash purchases were most common in October. For example, almost 50% of the homes purchased in Jacksonville were bought with cash.
The West coast markets saw the lowest shares of all-cash buys, especially in the Bay Area. In San Jose, only 14.3% of homebuying transactions were cash; in Oakland, 16.5% were all cash.
Redfin analysis from July of 2022 found that the cities where cash purchases are most common include:
- Nassau County, NY
- West Palm Beach, FL
- Jacksonville, FL
- Milwaukee, WI
- Fort Lauderdale, FL
- Orlando, FL
- Atlanta, GA
- Cleveland, OH
- Charlotte, NC
- Tampa, FL
The same Redfin report found there’s an uptick in FHA loans. Around one in seven mortgaged home sales used an FHA loan, the most significant share in almost two years.
Conventional loans are still the most common route for buyers, but FHA loans allow buyers to make a lower down payment. They’ve gotten increasingly popular because of the slowdown in competition to buy homes. During the pandemic, they were less common because sellers often received competing offers and chose ones with the strongest financing.
When there’s a cash offer, the process of buying and selling can be a little different compared to the involvement of a mortgage.
The process is usually faster since there’s no application process that would otherwise include documentation and underwriting. The buyer usually won’t need an appraisal but has to figure out the title policy and insurance and provide proof of funds. With all-cash offers, it’s possible to close in as few as two weeks, whereas average mortgage loans can take 40 days or more.
There are usually fewer contingencies with cash sales since the buyer doesn’t need the financing contingency. They’re less likely to need a sales contingency for another home, but cash buyers may prefer to keep an inspection contingency.
Appraisals are usually mandated by lenders, so a buyer might not have to worry about this unless they want to, and the closing process is more straightforward when it just involves cash. The closing costs are lower without lending fees, and the paperwork is reduced.
Of course, to make an all-cash offer feasible, you need to have a considerable amount of money and realize that you’re tying up your wealth in an all-liquid asset. You also can’t use tax deductions related to your mortgage.