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Published: Jun 07, 2023 4 min read
Photo-Illustration of a small house on top of a tall stack of dollar bills
Money; Getty Images

As mortgage rates tick upwards again and competition heats up, the share of homebuyers paying all cash has risen to its highest level in nearly a decade.

What the data says

A new report from Redfin finds that 33.4% of buyers paid cash for their homes in April, meaning that they did not borrow money to buy the house, compared with 30.7% during the same month last year. April’s reading is comparable with the 33.5% reading in February — the highest share of all-cash purchases in nine years.

The real estate brokerage analyzed data from the 40 largest cities in the United States from 2011 through April 2023. It considered a home purchase to be “all cash” if there was no mortgage information on the deed for the property.

Why it matters

Redfin’s analysis attributes the uptick to the recent spike in mortgage rates. Rates are lower than their peak of more than 7% last year, but at 6.79% they’re still very high compared to before the pandemic.

With borrowing costs so high, homebuyers who plan to finance their purchases with a mortgage are being forced to sit on the sidelines, giving all-cash buyers an advantage at a time when housing inventory is extremely low. Redfin points to that lack of supply as another reason for the growing share of all-cash purchases: With fewer homes on the market, cash buyers are able to increase their offers to outbid the competition while buyers who need a mortgage often lack that flexibility.

It's easier for cash buyers to offer a higher price because they don't need pre-approval from a lender, and sellers tend to prefer cash buyers because they come with more certainty. There's less risk the sale will fall through, and the closing process tends to be faster.

It’s no wonder

High rates are deterring buyers: Nearly two thirds of Americans are putting off buying a home until rates come down, according to recent data from BMO’s Real Financial Progress Index.

On the other hand...

Cash buyers aren’t totally insulated from high rates.

In a blog post, Redfin senior economist Sheharyar Bokhari pointed out that they have two options: They can pay all cash and avoid monthly payments, or they can take out a mortgage anyway — despite the high monthly payments — and direct the money they would have spent on the house towards other investments like bonds.

With interest rates high, those investments “could partly cancel out their high mortgage rate,” Bokhari said.

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