- The share of buyers purchasing properties without a mortgage is up across the US.
- But that’s not because buyers are forgoing mortgages, said real-estate appraiser Jonathan Miller.
- Buyers who need a mortgage are waiting for rates to fall, causing the share of cash buyers to rise.
Cash deals are up in real-estate markets throughout the country, but that’s not because prospective homebuyers are shunning mortgages and deciding instead to buy houses without financing. It’s because those very buyers who rely on mortgages are choosing to take a back seat and wait until rates come down.
“When mortgage rates double overnight, or over a year, people that need to finance pull back a lot quicker than people who pay with cash,” Jonathan Miller, real-estate appraiser and founder of appraisal firm Miller Samuel, told Insider. “It disproportionately enlarges the share of cash buyers making it look like more cash buyers are coming into the market.”
Mortgage rates have been edging lower over the past month and a half, but experienced a small uptick this past week. For the week ending April 20, the current average 30-year fixed mortgage rate was 6.39%, just above the four-week average of 6.32%. Researchers at Fannie Mae predicted that 30-year fixed mortgage rates will trend down throughout 2023 and 2024.
Using data from Miller Samuel, Bloomberg reported that 57% of Manhattan home purchases in the first quarter were made in cash — or, to put it another way, without financing from a mortgage — up from 39% in early 2021 and 47.4% in early 2022. It marks an all-time high in Manhattan since the appraisal firm started tracking the figure nine years ago.
Real-estate markets from Orange County, California, to Miami Beach, Florida, are experiencing similar surges in cash purchases. In Orange County, Miller Samuel found that 44.3% of home purchases in the first quarter of 2023 were made in cash, compared with 43.7% in the same period the year before. In Miami Beach, 65.8% of home purchases were made in cash in the first quarter of 2023, compared with 63% the year before.
According to the Mortgage Bankers Association, the number of applications for conventional purchase mortgages, or the loan homebuyers secure in the homebuying process, was down 39.2% as of mid-April from the same time last year.
“During the pandemic-era boom, cash was important because inventory was so low that it enabled people to get to the front of the line,” Miller said. And while that remains a facet of the market because the number of homes for sale is still near historic lows, it does not tell the story of why there are so many cash buyers today.
“It’s the battle of attrition,” Miller said. “There were fewer cash buyers to leave the market than purchase mortgage buyers.”