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Cash is the way one-third of home purchases across the United States are made, the highest level in nearly a decade.
A report released Wednesday by Redfin found that 33.4 percent of home purchases were made in cash during April 2023 — up from 30.7 percent a year earlier and the highest level seen in nine years.
The increase is attributed to buyers who can afford to circumnavigate 15-year high mortgage rates by buying homes in cash. The rise in mortgage rates has slowed home sales considerably, with April 2023 seeing 41 percent less sales than the same time last year, according to Redfin.
For homebuyers who are able, the decision to purchase houses in cash is ultimately one between paying in cash and avoiding high-interest fees, or taking out a loan and using leftover cash that would have gone toward a down payment and investing it in other areas instead, a Redfin economist said.
“A homebuyer who can afford to pay in all cash is weighing two potential paths,” Redfin Senior Economist Sheharyar Bokhari said in the report. “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 cannot afford to pay in cash are faced with two options, Bokhari said.
“Buyers who can’t afford to pay in all cash also have two potential — but different — paths,” he said. “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.”
One other factor motivating buyers to pay cash is competition over the small number of homes on the market, due to many would-be homesellers remaining unwilling to list their homes and give up their lower mortgage rates.
Buyers in markets with more competition may feel motivated to make cash offers to better their chances of having an offer accepted, according to the report.
