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Mortgage Rates Drive All-Cash Purchases to Nine-Year High

One in three U.S. home buyers chose not to finance in April

With high mortgage rates deterring unnecessary borrowing, a whopping one-third of U.S. home buyers are buying homes in cash, the highest share in close to a decade, according to a report Wednesday from Redfin.

In April, 33.4% of buyers across the country dipped into their cash reserves, up from 30.7% from a year ago and the highest level since 2014.

With interest rates at a 15-year high, it’s no surprise that cash purchases are now accounting for a larger share of deals, with buyers who would rely on mortgages shunning the market far more than their cash-spending counterparts.

Case in point, across the 40 most populous U.S. metros the report analyzed, overall home sales were down 41% year over year in April, while all-cash sales logged a smaller 35% decline.

The 30-year fixed-rate stood at 6.79% as of Wednesday, close to November’s high of just over 7%, according to lending giant Freddie Mac.

“A home buyer who can afford to pay in all cash is weighing two potential paths,” Redfin senior economist Sheharyar Bokhari said in the report. “They can use cash to pay for the home and avoid high monthly interest payments, or take out a loan and pay a high mortgage rate. In that case, they could use the money that would have gone toward an all-cash purchase to invest in other assets that offer bigger returns, which could partly cancel out their high mortgage rate.”

Of course cash buyers can still be deterred by high interest rates and may decide that their money is better spent on investments that benefit from higher returns, the report said.

Meanwhile, buyers who can’t afford to pay in all cash “also have two potential—but different—paths,” Bokhari said. “They can avoid a high mortgage rate by dropping out of the housing market altogether, or they can take on a high rate. 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.”

A smaller “but still noteworthy reason” for the increase in all-cash sales is competition among home buyers, the report said. A chronic lack of homes for sale in certain areas is motivating some shoppers to make an all-cash offer to beat out the other potential buyers.


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