One-Third Of Homebuyers Now Paying In All-Cash Deals

Now, here is some news that will not sit well with our mortgage banking friends: new data from Redfin (NASDAQ:RDFN) has determined one-third (33.4%) of U.S. home purchases in April were all-cash transactions, up 30.7% one year earlier and the highest share in nine years.

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

Redfin’s data showed the typical homebuyer’s down payment in April was $52,500, down 18% from the previous year and the second-biggest drop since pandemic-induced chaos of May 2020. Down payments have been falling on a year-over-year basis since November. Also, the typical home sold for 4% less in April than a year earlier.

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

And speaking of affluence, only 6.1% of mortgaged home sales used a jumbo loan in April, down from 10.6% a year earlier but up from the decade-low of 4.3% hit in January. The mix of elevated mortgage rates and the crisis in banking have made these products less attractive to both borrowers and lenders.