One-third (33.4 percent) of U.S. home purchases were made in cash in April, up from 30.7 percent a year earlier and the highest share in nine years, according to a new report from Redfin.
That’s comparable with February’s 33.5 percent share.
All-cash purchases are making up a bigger portion of the homebuying pie for one major reason: elevated mortgage rates are deterring homebuyers who take out mortgages more than they’re deterring all-cash buyers, Redfin experts stated.
Overall, home sales were down 41 percent from a year earlier in April in the metros included in Redfin’s analysis, which comprised 40 of the most populous U.S. metros. That’s compared with a 35 percent decline for all-cash sales.
Mortgage rates are near their highest level in 15 years, sidelining many would-be homebuyers—especially those who need to take out a mortgage. But high rates can also deter all-cash buyers because they may decide their money is better spent on investments that benefit from high rates, like bonds, according to Redfin.
“A homebuyer who can afford to pay in all cash is weighing two potential paths,” said Redfin Senior Economist Sheharyar Bokhari in a release. “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 can’t afford to pay in all cash also have two potential — but different — paths. 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.”
Redfin said the typical U.S. homebuyer’s down payment was $52,500 in April, down 18 percent from a year earlier. That’s the second-biggest drop since May 2020, when the housing market ground to a halt at the start of the pandemic (the biggest was a 22 percent drop in March 2023). Down payments have been falling on a year-over-year basis since November.
In percentage terms, the median down payment was equal to 13.1 percent of the purchase price, down from 16.5 percent a year earlier.
Even though the inventory shortage is causing more competition for homes than one might expect given today’s relatively tepid demand, the bidding-war rate is much lower than it was a year ago. Forty-six percent of home offers written by Redfin agents faced competition in April, down from roughly 59 percent a year earlier. Less competition means fewer buyers need to offer a big down payment to prove their financial stability and stand out from the crowd. It also means FHA loans, which require lower down payments, are becoming more prevalent.
The typical U.S. home sold for 4 percent less in April than a year earlier, and the drop is much bigger in some metro areas. Lower home prices mean lower dollar down payments.
Roughly one in six (16.4 percent) U.S. mortgaged home sales used an FHA loan in April, the highest share since February 2020, just before the pandemic began. That’s up from 10.4 percent a year earlier; representing the largest year-over-year gain on record.
Just under 7 percent of mortgaged home sales used a VA loan, down from an eight-year high of 8 percent in February but up from 5.9 percent a year earlier, according to Redfin.