Cash buyers comprised over one-third of home purchases in April: report

07 June 2023

In the hope of taming inflation, the U.S. Federal Reserve has carried out a series of interest rate hikes. This means that that certificates of deposit and fixed annuities are paying savers more, but it also means higher interest payments on mortgages.

According to a report released by real estate firm Redfin on June 7, cash-only payments accounted for 33.4 percent of U.S. home purchases in April — the highest rate since 2014.

Redfin reports, "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."

Americans who can afford a cash-only home purchase, of course, are likely to be more affluent.

Redfin Senior Economist Sheharyar Bokhari notes, "A homebuyer who can afford to pay in all cash is weighing two potential paths. 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."

Bokhari added, "Buyers who can't afford to pay in all cash also have two potential — but different — paths. 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."

Find Redfin's full report at this link.

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