Discouraged by mortgage rates that surpass 6%, first-time buyers of residential properties increasingly prefer to pay in cash to avoid high expenditures.
The latest report by the Redfin brokerage shows that this October, 32% of homes sold in the USA were paid for in cash. According to the company’s data, this is 29.9% more than last year and the highest since 2014.
Redfin started monitoring this trend more than a decade ago. Cash purchases are understood as transactions with no documented mortgage loans.
Wealthy buyers of residential properties pay in cash now because higher mortgage rates force them to avoid loans and hefty monthly payments they entail, says Chen Zhao, Senior Manager – Economics at Redfin. The average rate on a 30-year mortgage is currently 6.34%.
This October, the number of residences purchased for cash grew the most in the following locations compared to October 2021:
- Riverside, California: 38% of properties paid for in cash
- Cleveland, Ohio: 47% of properties paid for in cash
- Cincinnati, Ohio: 44% of properties paid for in cash
- Montgomery, Pennsylvania: 31% of properties paid for in cash
- Philadelphia, Pennsylvania: 37% of properties paid for in cash
Cash transactions were the most prevalent in Florida. The cities where such sales were the most popular include Jacksonville (with over 50% of all sales made in cash) and West Palm Beach. According to Redfin experts, a part of the reason why cash transactions are so common in Florida is the great number of wealthy investors.
The National Association of Realtors identified in a separate report that cash accounted for 26% of residential property sales in November, as well as in October, compared to 24% in November 2021. Before the COVID-19 pandemic, the share of cash transactions rarely exceeded 20%.
Private investors or buyers of existing homes, who accounted for the majority of cash transactions, purchased 14% of properties in November compared to 16% in October and 15% in November 2021, the report of the National Association of Realtors says.
Meanwhile, according to the Redfin report, an increasing number of new buyers use cash in an attempt to avoid the interest rates that have doubled since last year.
In 2021, a fixed-rate 30-year mortgage was available at 3.27% on average.