Cash payments are on the rise in the U.S. real estate market—but why? How is the higher rate of cash buying affecting the real estate market? And what does this mean for home sellers?
Let’s explore why cash payments are becoming more popular, who is most likely to make a cash offer on your home, and why now is a great time to sell your home for cash.
For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.
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1 in 3 Homebuyers Are Cash Buyers
A full third of homebuyers are ready to pay cash, the highest percentage in a decade. 33.4% of home purchases in April were all-cash transactions, according to a study by Redfin. This is the highest percentage since 2014, indicating a significant trend in homebuying.
The share of cash buyers is expected to fluctuate in response to market conditions. When it’s easy to acquire a mortgage with a low interest rate, more buyers will be willing to take on the monthly payments. When competition is high, all-cash offers start flying to stand out from the crowd and win. The recent changes in home price trends, market inventory trends, and mortgage interest rates has created a perfect storm to make buying for cash the most attractive option for many.
What’s important to note, though, is that the high percentage of cash buyers doesn’t equate to more cash buyers. Overall home sales aross the nation were down 41%, and all-cash sales experienced a 35% decline. The homebuyers that are out there are more likely to pay cash, but there are fewer of them total.
Why Is the Percentage of Cash Buyers So High?
While cash buyer percentage has been high the past few years, the reason for it has changed. In 2020, the percentage of cash buyers hit a record low, but then spiked a year later as 2021 saw skyrocketing demand and runaway bidding wars. 2022 saw the Federal Reserve increasing increasing rates in an effort to wrangle inflation, leading to average interest rates higher than six and even seven percent in 2023.
Where previously cash offers were driven by high competition, now they’re driven by a desire to avoid high interest rates. Buyers who must rely on a loan if they want to purchase a house are choosing to wait, while those with the means to put down a cash offer are less deterred.
That isn’t to say that competition is no longer a factor. With interest rates so high, homeowners who currently have a low rate locked in are reluctant to sell their homes and take on a new rate. This puts a squeeze on inventory, and recent underbuilding isn’t helping.
In the competitive environment this creates, cash buyers have the competitive advantage over financing-backed buyers in multiple-offer situations, as they can often avoid the need for loan approvals and associated delays. This quick, convenient sale process is one of the benefits of selling to a cash buyer.
Which Buyers Are Most Likely to Make a Cash Offer?
One thing’s for sure: it’s not first-time homebuyers.
Cash buying naturally demands access to large amounts of ready cash, and one of the best ways for repeat buyers to acquire it is from the proceeds of selling a home with lots of equity. As equity takes time to build, one of the primary demographics for cash buyers is generally older, affluent homeowners, especially those who are downsizing to a smaller and less expensive home and flush with sales proceeds.
However, these buyers with ready cash may still opt for financing when purchasing a home. Why? Because they also have the option to invest those funds elsewhere, potentially scoring a better return. As such, even wealthy homebuyers may be deterred by high interest rates.
Another type of buyer always ready to pay cash is the cash investor. From iBuyers to house flippers to direct cash house buyers like Cash is King, these buyers make their living by having cash funds readily available to spend on homes. You can quickly and easily get a fair price for your home and have your new cash in hand when you need it.
Why Now is a Good Time to Sell Your Home for Cash
Should you accept a cash offer? Given the low number of homebuyers using financing and the overall decline in home sales, now could be a good time to consider selling your home for cash. Cash payments offer several advantages that can be beneficial to sellers:
- No need to compete for buyers deterred by interest rates
- Save money on repairs, marketing, commissions and more
- Cash in on your home equity sooner
If you’re planning to re-enter the market as a buyer after selling your home, the more money you can save and the fewer delays you have to deal with during the sale, the better. A convenient, hassle-free home sale to a cash buyer offering a fair price could be your ticket to everything you need.
Consider Selling Your Home to a Cash Buyer
Cash payments have become a more popular way to purchase a home, with the percentage of cash buyers reaching a decade high. And yet, overall home sales are lower than you might expect. If you haven’t thought about selling your home for cash before, now is an ideal time to look into the benefits, such as getting a guaranteed offer in uncertain economic times, working on your timeline, and overall having a less stressful home selling experience.
For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.
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