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All-Cash Home Purchases Reach Highest Level In Nearly A Decade

One-third of U.S. home purchases were made in cash in April of 2023, the highest share in nine years, according to a Redfin real estate brokerage. All-cash purchases are making up a bigger portion of the homebuying pie for one major reason: Elevated mortgage rates are deterring homebuyers who take out mortgages more than they’re deterring all-cash buyers. Overall home sales were down 41% from a year earlier in April in the metros included in Redfin’s analysis, which comprised 40 of the most populous U.S. metros.  Mortgage rates are near their highest level in 15 years, sidelining many would-be homebuyers—especially those who need to take out a mortgage. But high rates can also deter all-cash buyers because they may decide their money is better spent on investments that benefit from high rates, like bonds.

“A homebuyer who can afford to pay in all cash is weighing two potential paths,” said Redfin Sr Economist Sheharyar Bokhari. “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.”

“Buyers who can’t afford to pay in all cash also have two potential—but different—paths,” Bokhari continued. “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.”

Competition among homebuyers is a smaller but still noteworthy reason for the uptick in all-cash sales. A lack of homes for sale is prompting competition in some metro areas, motivating buyers to make all-cash offers to win homes. (BUSINESS WIRE)

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