Jun 15, 2023
Despite Americans increasingly racking up debt thanks to stubbornly high inflation, some of them have managed to scrounge up the dough to buy their homes outright this year.
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One-third of home purchases were made in cash in April — up from 30.7% a year ago and comparable with February’s level — which is the highest it’s been in nine years, according to real estate brokerage Redfin.
There’s an obvious impetus for the rise, of course. Mortgage rates are roughly double what they were just two years ago, and some buyers would rather fork over the funds now than deal with pricey monthly payments for the next 30 years.
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All-cash buying is at a near decade high
Mortgage rates have been fluctuating between the 6% to 7% range, propelled by high demand and low inventory.
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High rates coupled with high prices have deterred plenty of prospective buyers from entering the market — overall home sales plunged 41% from last April in the metros included in this analysis.
That’s not to say all-cash buyers haven’t been affected by higher mortgage rates, however. All-cash sales were also down 35% compared to last year.
“A home buyer who can afford to pay in all cash is weighing two potential paths,” Redfin senior economist Sheharyar Bokhari says 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.”
Bokhari explains buyers can put the funds from an all-cash purchase into investing in other assets that offer bigger returns instead, “which could partly cancel out their high mortgage rate.”
On the other hand, buyers who can’t afford to pay in all cash may either make do with higher rates or completely back out of the housing market.
“That discrepancy is the reason the all-cash share is near a decade high even though all-cash purchases have dropped,” says Bokhari. “Affluent buyers have the choice to pay cash instead of dropping out of the market.”
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Competition in certain markets may also be boosting the rise in all-cash sales, with buyers upping the ante in order to snag their dream home.
How to compete against all-cash offers
If you’re willing to take on high mortgage rates and do battle with buyers who are willing to pay in all cash, here’s how to stay in the game.
First, get a mortgage pre-approval before making an offer. This shows sellers and real estate agents that you’re a reliable buyer that can actually afford a home purchase.
You could also sweeten the pot for sellers by increasing your offer, or waiving certain contingencies, like financing and sale contingencies. Don’t skip a home inspection, though — or you might miss damages and issues that could affect the value of the home.
Have your earnest money or “good faith” deposit ready. These funds get held in escrow and if you suddenly back out of the deal without reason, the seller receives the funds. This shows buyers you’re committed to the sale.
And lastly, make sure you find the right agent — someone who’ll know what’s currently working in what neighborhoods, along with the tactics that lead to winning bids in your market.
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Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.
