Paying Cash For Your New Home Is Latest Trend To Edge Out Competitors
According to the National Association of Realtors, the share of all-cash sales to existing home sales surged to 25% in April 2021 as non-first time buyers paid all cash to increase the competitiveness of their offers. This was a strategy to edge out first-time homebuyers, and the tactic paid off. The NAR claims this is a significant increase, from the 15% share one year ago and the 20% share in 2019.
Despite low mortgage rates, there is an unprecedented number of cash buyers, they add. There could be several reasons for this in such a tumultuous market. Those who already owned homes, were not in need of a new mortgage and sitting on years-long pent up cash could simply be jumping on a hot market to escape populated areas. Entering the market early with cash could have also present a selling opportunity later on in the year as prices surged.
The data shows that these aren’t just vacation homes that are being grabbed up in cash, either. The NAR data highlights that the share of cash buyers among primary residence buyers has also significantly increased. In April of both 2018 and 2019, 12% of primary residence buyers made all-cash purchases, but the share has increased to 15% as of April 2021.
The share of cash in general has increased, as well. Overall, homebuyers have been putting down higher down payments in order to compete. The NAR added that among homebuyers who obtained a mortgage, 50% put down less than 20%. In prior years, this figure was closer to 55-60%.
The type of home is also affecting the level of competitiveness and percentage of cash buyers. CNBC reports that cash purchases have increased on the very low end (homes up to $100,000) and on the very high end (homes 1 million and up), whereas the middle market priced homes have either remained flat or slightly decreased by level of cash purchase.
While the share of cash purchasers is varied and might not suggest improved cash balances, it shows unrelenting demand for a housing market that is still very much so on the rise. The competitiveness is so great that startups like Ribbon and Reali have popped up in order to help homeowners make an all-cash bid. The companies manage and compare different offers and help both agents and buyers land offers by backing cash offers when mortgage companies fall through, allowing them to edge out the competition.
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Last updated: July 21, 2021