More homebuyers are paying cash and avoiding taking out mortgages, in what could be a longer-term structural change for the real estate market.
What's happening: About a third of all homebuyers in July paid cash.
- That's down slightly from a peak earlier this year but still much higher than both pre-pandemic times and all of the 2021 buying frenzy, according to a Redfin analysis of county records across 41 of the biggest metro areas.
The big picture: There are a few reasons cash buyers make up a larger share of the market, Redfin deputy chief economist Taylor Marr tells Axios.
- Competition: The competitive housing market favors cash buyers who are more likely to win in a bidding war for a home over mortgage borrowers.
- Remote work arbitrage: In the remote work landscape, well-paid workers moved out of pricey areas to more affordable regions and they paid for homes with cash. This phenomenon has slowed but is still going on.
- Investors: There are more investors in the market now. And even as the homebuying market for individuals cools — with average 30-year mortgage rates now at more than 6% — investors continue to buy homes to rent out in a still-hot rental market. Three-quarters of investor purchases are made with cash, according to Redfin.
Meanwhile, more buyers are paying cash for second-home purchases because of moves the Biden administration has made to encourage more lending to first-time buyers. Lending to second homebuyers can often crowd out other borrowers.
- Back in April, housing regulators increased the fees on second-home loans fairly significantly with that aim in mind.
- The move pushed some vacation homebuyers to turn to cash or alternative financing, like tapping an existing home equity line of credit and using that cash to pay for another house.