Nearly one-third (31.4 percent) of home purchases in July were paid for with all cash, according to a Redfin report. That’s near the eight-year high reached in February and up from 27.5 percent a year earlier.
The share of all-cash purchases jumped in early 2021 and has remained elevated since then. All-cash purchases are prevalent with today’s affluent buyers largely because mortgage rates have doubled from a year ago, reaching 6 percent in mid-September. Buyers who don’t use loans avoid high interest payments.
All-cash purchases jumped in popularity last year because they allowed buyers to stand out among fierce competition. Bidding-war rates reached record highs in early 2021 due to sub-3 percent mortgage rates and remote work driving homebuyer demand.
Three of the five metro areas with the highest share of all-cash purchases are in Florida, partly because the state is home to a lot of affluent buyers. But Long Island, N.Y., which includes the Hamptons, is home to the highest share of cash buyers, with two-thirds (66.5 percent) of home purchases made in cash in July. Next come West Palm Beach, Fla. (56.4 percent), Jacksonville, Fla. (45.5 percent), Milwaukee (45.3 percent) and Fort Lauderdale, Fla. (43.3 percent).
A trio of expensive West Coast markets have the lowest share of all-cash purchases: Oakland, Calif. (15.1 percent), San Jose, Calif. (16 percent) and Seattle (16.7 percent). Washington, D.C., (17.5 percent) and Pittsburgh (17.8 percent) round out the bottom five.
More than eight in 10 (81.3 percent) of home sales that used a mortgage in July took out a conventional loan, down slightly from 81.9 percent a year earlier and down from the record high of 83.8 percent set in April.
Roughly 12 percent of home sales that used a mortgage in July took out a Federal Housing Administration (FHA) loan, flat from a year earlier but up from the all-time low of 10.4 percent in the spring. And 6.8 percent used a Veterans Affairs (VA) loan, up slightly from 6.2 percent a year earlier and from the record low of 5.4 percent in spring 2021.
“The spike in interest rates is pricing some buyers out of the market, but it’s also helping some buyers get into the market because there’s less competition,” Tampa Redfin agent Eric Auciello said in a release. “A lot of buyers who were repeatedly outbid earlier this year are having their offers accepted, including those using FHA loans, those with smaller down payments and ones that include inspection and financing contingencies. In 2021, hardly any buyers used FHA loans. The story is completely different now, as low down payments are no longer an automatic deal breaker for sellers.”
FHA loans are still much less prevalent than they were pre-pandemic; about 17 percent of mortgaged purchases used them in 2019. That’s partly because even though the market has cooled and FHA buyers are less likely to face competition, homes are still quite expensive. The typical home sold in July cost about 8 percent more than a year earlier. That means a lot of the people who would use an FHA loan are priced out of the market.
VA purchases are about as popular as before the pandemic. Roughly 7 percent of mortgaged purchases used them in 2019.