An increasing share of home buyers are paying all cash as mortgage rates remain elevated, and that is deepening housing inequality, according to a new report.
An analysis by real-estate brokerage Redfin
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found that roughly one in three home buyers in the U.S., or 34.1%, were paying all cash in September. That is the highest share since 2014.
The company looked at county-level data across 40 of the most populous metropolitan areas, going back to 2011. An all-cash purchase is defined as one where there’s no mortgage-loan information on the deed.
One key reason buyers were opting to go with all cash was to avoid taking on a home loan with a high mortgage rate. In addition, people who buy in periods when the housing market is more expensive tend to be more affluent — and hence more likely to be able to pay cash — than those who buy during periods when affordability is closer to normal levels.
Even though rates dropped sharply over the last week, the 30-year mortgage is still averaging at a rate of 7.61%.
“High mortgage rates are exacerbating inequality between people who own homes and people who don’t,” Sheharyar Bokhari, a senior economist at Redfin, said in a statement.
With home prices higher than before the pandemic home-buying boom, as well as rates firmly above 7%, “affluent Americans are the only ones who can avoid the sting of high mortgage rates,” Bokhari said. “Plus, they’re spending less on housing and keeping more money in the bank because they’re avoiding interest payments.”
And on the flip side, “those who are sidelined by high prices and rates not only can’t afford a home now, but they’re not building wealth through homeownership for the future,” he added.
The share of homes purchased with cash isn’t as high as what the market saw during the pandemic, however. Redfin’s data show that the share of all-cash sales was down 11% from a year ago, primarily due to how slow the market is today because of lower inventory.
Regular buyers who can’t afford to finance all-cash deals are still putting down more money to bring down high borrowing costs. Redfin found that the typical home buyer put down 16.1% in September, the highest percentage since June 2022. That’s a median down payment of $61,000.
The metropolitan areas where all-cash purchases were most common include Cleveland, where nearly half of buyers (49.2%) were paying cash, followed by West Palm Beach, Fla. (49%), and Jacksonville, Fla. (46.2%).
All-cash deals were least common in expensive real-estate markets such as Oakland, Calif. (18%), San Jose, Calif. (18.2%), and Seattle, Wash. (20.3%).
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