Homebuyers paying with cash purchased more than a third of homes sold in April — the highest share in nearly a decade, according to a new report from real estate brokerage Redfin.
The share of cash purchases has risen alongside mortgage rates that have pushed up monthly payments outside of the budgets of many prospective buyers.
Buyers who can pay in cash might choose either to avoid added monthly costs of a mortgage altogether or take on the mortgage and reinvest their cash in assets with greater returns, Redfin Senior Economist Sheharyar Bokhari said.
And buyers without the cash reserves to float the purchase have two options.
“They can avoid a high mortgage rate by dropping out of the housing market altogether, or they can take on a high rate,” Bokhari said.
“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,” he added.
Redfin’s report also found a sharp decline in the amount of money buyers are putting toward a down payment. The typical U.S. homebuyer’s down payment was $52,500 in April, down 18 percent from a year ago — making it the biggest drop since the onset of the pandemic.
The median down payment in April equaled 13.1 percent of a home’s purchase price.
Mortgage rates have varied widely over the past year while the Federal Reserve has fought inflation by raising interest rates. These rate increases have drastically cooled the once red-hot housing market.
After moderating through the first quarter of the year, the benchmark 30-year fixed rate is trending back toward 7 percent following data showing a resilient economy, according to Freddie Mac.
Last week, the average 30-year rate climbed to 6.79 percent, which could further weaken demand.
“Mortgage rates jumped this week, as a buoyant economy has prompted the market to price-in the likelihood of another Federal Reserve rate hike,” Freddie Mac Chief Economist Sam Khater said in a statement.
“Although there has been a steady flow of purchase demand around rates in the low to mid six percent range, that demand is likely to weaken as rates approach seven percent,” he concluded.