The share of all-cash home purchases is on the rise and reached its highest level in nearly a decade. Just over one-third of home purchases in September were made in cash, up from 29.5% a year earlier, according to a new report from Redfin.
All-cash purchases are being supported by elevated mortgage rates in the current housing market. With rates hovering around 7.5%, purchasing a home in cash and avoiding interest altogether is an attractive option for those with the sufficient funds. Additionally, affluent Americans who can afford to pay cash are more apt to buy homes in more expensive housing markets, while other would-be buyers are sidelined due to high home prices and mortgage rates.
The all-cash trend was noted by several public home builders during their recent earnings calls. All-cash purchases represented 25% of all home purchases during the fiscal quarter for Toll Brothers, while Taylor Morrison and PulteGroup noted the likelihood of older buyers in the active-adult category to purchase with cash.
The “majority” of 55-plus Taylor Morrison buyers paid with cash at a rate that was three times higher than younger buyers in the third quarter. At PulteGroup, the share of cash buyers for the home builder’s active-adult Del Webb brand was 47% in the third quarter, up from 33% as recently as two years ago.
High mortgage rates are “exacerbating” the inequality between those who own homes and those who do not, according to Redfin senior economist Sheharyar Bokhari. High rates are deterring purchases from home buyers who take out mortgages: Overall home sales are down 24% year over year in metros analyzed by Redfin, compared with an 11% decline for all-cash sales.
“Home prices are roughly 40% higher now than before the pandemic home buying boom, and soaring mortgage rates have made the divide even bigger by adding more to monthly payments,” says Bokhari.
“Affluent Americans are the only ones who can avoid the sting of high mortgage rates; plus, they’re spending less on housing and keeping more money in the bank because they’re avoiding interest payments. Meanwhile, those who are sidelined by high prices and rates not only can’t afford a home now, but they’re not building wealth through homeownership for the future.”
Redfin says the last time all-cash purchases represented this large a share of home purchases was 2014, when affluent buyers and corporate investors who could afford to pay cash were leading the housing market recovery from the subprime mortgage crisis.
Higher rates are also contributing to non-cash buyers putting more money down upfront to soften monthly payments, according to Redfin. The typical home buyer’s down payment was equal to 16.1% of the purchase price in September, up from 15% a year earlier and the highest down-payment percentage since June 2022. The median down payment was $60,980 in September, up approximately 15% from a year earlier.
Another emerging trend in the market is that Federal Housing Administration (FHA) loans are becoming more common. Just over 15% of mortgage home sales used an FHA loan in September, up from 14% a year earlier but down from a three-year high of 16.2% in April.
FHA loans are now more common than during the pandemic buying boom, when sellers typically received multiple offers and chose one with a higher down payment. In the current market, Redfin says buyers are more likely to get FHA offers accepted because sellers typically have fewer offers.
VA loans accounted for 6.3% of mortgaged home sales in September, on par with last year’s share.
