Cash Is Not The Only Way To Buy A Home

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Many home buyers today use cash to purchase a piece of residential real estate. However in recent years the trend for all cash payments is on the decline. Since 2014 all-cash home buyers have trended down because of the less competitive current housing market and lower mortgage rates.

In June of this year, 16% of home buyers paid all cash compared to the 23% reported in February of this year. The National Association of Realtors reported most home buyers are purchasing by taking out a mortgage. The Mortgage Bankers Association reported that home loan applications are 9.5% higher than this time last year.

Bidding wars are starting to be a thing of the past. Redfin reported seeing just 12% of purchase offers in competitive bids in 2019 wherein 2018 51.7% of purchase offers were in a bidding war. When bidding wars were the rage, people would pull out cash to purchase homes enticing sellers over other offers they might have on the table.

Investors have also started too cool off in the housing market. The National Association of Realtors concluded that investor purchases have declined to 11.1% from 11.3% within the past year. Investors are not as inclined to purchase homes because many believe that the prices have peaked. According to CoreLogic the average home price has risen 55.2% in the past six years. Not only that but prices are 12.6% above their pre-housing crash peak.

“Investors naturally have become more cautious,” says Lawrence Yun, chief economist of the National Association of Realtors.

The stock market has also played a roll in all-cash deals. The big sell-off in stocks might have scared many all-cash home buyers. In the past, a drop in share values has been a catalyst for a coming recession.

Mortgage rates have plummeted making it a great time to apply for a loan. Home loans have become much more affordable. Freddie Mac reported that the 30-year fixed mortgage rate is down to 3.75% where this same exact time last year it was a 4.54%.

“Making a cash purchase means the buyer is exposed dollar for dollar to any decline in home prices,” says Ian Shepherdson, chief economist of Pantheon Macroeconomics.

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