Around one-third of homebuyers paid cash in July, avoiding mortgages with costly interest rates.
- To avoid record high mortgage rates, more homebuyers are paying cash, a phenomenon that could become a regular occurrence.
- In July, one-third of homebuyers chose to pay in cash. Though that number is lower than earlier this year, it’s still higher than last year and pre-pandemic years, according to Redfin.
- Long Island, New York, and Florida are some of the most prevalent places where cash purchases take place due to a large number of affluent residents.
Why it’s news
Wealthy buyers are able to pay cash in order to avoid high mortgage rates, but there are a few other factors driving the cash phenomenon.
A shortage of available housing means that there are still competitive bidding wars. Paying cash sets a buyer apart from other bidders.
Remote work options are becoming increasingly popular, allowing workers in high cost of living areas to move to more affordable locations.
Even with 6% mortgage rates, investors are still purchasing homes to use as rentals. A good part of investors pay for these rental homes in cash.
Changes in housing regulations have also driven buyers to consider the all-cash option. The Biden administration has made moves to make first-time home buying less difficult. By encouraging loans to first-time home buyers, second-home buyers are sometimes struggling to get approval on a loan.
Housing regulators raised fees on second-home loans in April, raising them 1.125% to 3.875%, depending on the loan to value ratio.
The rate increases encouraged some buyers to seek alternative forms of financing or pay cash for their second house.