BAM Key Detail:

  • A new Redfin report shows just over one-third (34.1%) of all U.S. home sales in September were all-cash purchases—up from 29.5% one year ago and hitting a nine-year high. 

According to a new Redfin report, homebuyers in September paid all cash in just over one-third (34.1%) of U.S. home sale transitions—up from 29.5% one year ago and the highest share in almost a decade. 

Redfin-All-cash-home-purchases-chart

Source: Redfin

The data in Redfin’s report is based on its analysis of country records for 40 of the most populous U.S. metro areas, dating back through 2011. 

National numbers in the report refer to those 40 metros. September 2023 is the most recent month for which this data is available. And an all-cash purchase is defined as one for which there is no mortgage loan information on the deed. 

Two reasons for the increase in all-cash purchases

There are two major reasons why more homebuyers made all-cash purchases in September:

  1. High mortgage rates made mortgage-free purchases more appealing.
  2. Homebuyers who can afford to pay in cash are more likely to buy homes in this market.

The weekly average 30-year fixed mortgage rate for September was 7.2% — a two-decade high. It rose even higher in October, driving monthly mortgage payments up about 20% compared to a year ago. Rates have settled down a bit from October highs, but they’re still more than twice early-pandemic levels. 

Rising mortgage rates are more of a deterrent for buyers in need of financing compared to all-cash buyers, who don’t have to worry about monthly mortgage payments

Overall, in September, home sales were down 23% year over year in the 40 metros Redfin analyzed—compared with an 11% annual drop for all-cash sales. 

That said, higher mortgage rates can also deter buyers who have the means to pay in cash because, when home prices are high and there’s a potential for price drops, these buyers can often get better returns by investing in something other than real estate. 

High mortgage rates are exacerbating inequality between people who own homes and people who don’t. Home prices are roughly 40% higher now than before the pandemic homebuying boom, and soaring mortgage rates have made the divide even bigger by adding more to monthly payments. Affluent Americans are the only ones who can avoid the sting of high mortgage rates; plus, they’re spending less on housing and keeping more money in the bank because they’re avoiding interest payments. Meanwhile, those who are sidelined by high prices and rates not only can’t afford a home now, but they’re not building wealth through homeownership for the future.

Sheharyar Bokhari

Redfin Senior Economist

In light of today’s mortgage rates and reduced buyer demand, next year’s homebuyers may get a slight break in housing affordability

The last time we had this high a share of all-cash home purchases was 2014, when affluent homebuyers and corporate investors led the housing market’s recovery from the subprime mortgage crisis. 

At the time, would-be first-time buyers were still reeling from the impact of the Great Recession. 

All-cash home purchases at the metro level

Drawing from the table in Redfin’s report, here are the 10 U.S. metros with the highest shares of all-cash home purchases and the 10 with the lowest. 

10 metros with the highest shares of all-cash home purchases:

  1. Cleveland, OH (49.2% of all home sales were all-cash purchases — up 7.4 ppts YOY)
  2. West Palm Beach, FL (49.0% — up 0.8 ppts year over year)
  3. Jacksonville, FL (46.2% — up 3.2 ppts year over year)
  4. Cincinnati, OH (45.6% — up 6.5 ppts year over year)
  5. Baltimore, MD (41.8% — 11.2 ppts year over year)
  6. Pittsburgh, PA (41.2% — up 13.3 ppts year over year)
  7. Philadelphia, PA (41.1% — up 6.7 ppts year over year)
  8. Atlanta, GA (41.0% — up 1.1 ppts year over year)
  9. Miami, FL (40.7% — up 2.0 ppts year over year)
  10. Riverside, CA (40.7% — up 6.0 ppts year over year)

10 metros with the lowest shares of all-cash home purchases:

  1. Oakland, CA (18.0% of all home sales were all-cash purchases — up 3.9 ppts YOY)
  2. San Jose, CA (18.2% — up 6.3 ppts year over year)
  3. Seattle, WA (20.3% — up 2.6 ppts year over year)
  4. Los Angeles, CA (22.7% — up 3.2 ppts year over year)
  5. Virginia Beach (23.4% — up 2.0 ppts year over year)
  6. Portland, OR (24.3% — down 0.3 ppts year over year)
  7. Providence, RI (24.6% — down 2.5 ppts year over year)
  8. San Diego, CA (24.9% — up 7.0 ppts year over year)
  9. San Francisco, CA (26.0% — up 5.2 ppts year over year)
  10. Sacramento, CA (26.0% — up 5.9 ppts year over year)

September buyers made bigger down payments in response to high mortgage rates

The typical down payment for U.S. homebuyers in September was 16.1% of the purchase price—up from 15% one year earlier and the highest percentage since June 2022. 

In dollar terms, the median down payment on a home purchase was $60—up about 15% from a year ago. 

High mortgage rates are the biggest factor behind the increase in down payments. Buyers are putting more down to reduce the principal amount; the smaller that amount, the less interest they pay—over time and month-by-month. 

Here’s an example: 

  • Buyer A purchases a median-priced U.S. home ($413,000) with a 16% down payment, resulting in monthly mortgage payments of $3,107 at a 7.76% mortgage rate. 
  • Buyer B purchases a home at the same price with a 10% down payment, resulting in monthly mortgage payments of $3,300—roughly $200 more than Buyer A.

In many cases, buyers making larger down payments are using equity from their previous home. The share of homes sold to first-time buyers in September declined because these buyers don’t have a previous home to sell, with equity they can use to buy the next one. 

3 metros with the highest down payment percentages

  1. San Francisco, CA (Average down payment percentage = 25.1% — up 0.1% YOY)
  2. Anaheim, CA (25.0% — up 5.0 ppts year over year)
  3. San Jose, CA (25.0% — up 5.0 ppts year over year)

3 metros with the lowest down payment percentages

  1. Virginia Beach, VA (Average down payment percentage = 3.0% — unchanged YOY)
  2. Detroit, MI (7.4% — up 2.4 ppts year over year)
  3. Philadelphia, PA (8.9% — up 3.3 ppts year over year)

Fourteen of the metros in Redfin’s study had an average down payment of 10.0%. Sixteen had average down payments of 20% or more. In only three of the 40 metros in Redfin’s analysis did the average homebuyer put down less than 10%. 

The share of home sales with FHA loans is higher than during the pandemic because sellers are getting fewer offers

Just over 15% of all mortgaged U.S. home sales in September used an FHA loan—up from 14% one year ago but down from the three-year peak of 16.3% reached in April. 

FHA loans were more common than they were during the pandemic home buying frenzy. About 12% of mortgages used FHA loans in late 2021. Sellers at that time received multiple offers and generally opted for those with higher down payments because they believed those offers were less likely to fall through. Recently, though, sellers have been getting fewer offers, so the share of successful buyers with FHA loans has gone up. 

Roughly one out of every 16 mortgaged home sales (6.3%) used a VA loan—down just slightly from 6.8% one year ago. The share of home purchases with VA loans doesn’t change much from year to year, though it did fluctuate more than usual during the pandemic.

Before the pandemic, it was common for roughly 7% of mortgaged home sales to involve VA loans. That share increased to 9% in spring 2020 when the market suddenly cooled with the onset of the pandemic, making it easier for buyers with lower down payments to have their offers accepted. 

The share dropped to 5.5% in spring 2021 as ramped-up buyer demand allowed sellers to be more selective. 

10 metros with the highest shares of home purchases with FHA loans:

  1. Riverside, CA (29.6% of home purchases involved an FHA loan — up 3.6 percentage points year over year)
  2. Providence, RI (25.0% — up 2.6 ppts year over year)
  3. Las Vegas, NV (22.9% — up 2.5 ppts year over year)
  4. Orlando, FL (21.5% — up 3.5 ppts year over year)
  5. Phoenix, AZ (20.8% — up 4.6 ppts year over year)
  6. Tampa, FL (20.7% — up 5.2 ppts year over year)
  7. Atlanta, GA (20.4% — up 2.7 ppts year over year)
  8. Detroit, MI (20.3% — down 6.5 ppts year over year)
  9. Nashville, TN (19.3% — up 9.0 ppts year over year)
  10. Baltimore, MD (18.6% — up 0.3 ppts year over year)

10 metros with the highest shares of home purchases with VA loans:

  1. Virginia Beach, VA (41.0% of home purchases involved VA loans — down 0.6 percentage points year over year)
  2. Jacksonville, FL (16.6% — down 2.3 ppts year over year)
  3. Washington, D.C. (15.2% — up 0.7 ppts year over year)
  4. San Diego, CA (12.0% — down 5.6 ppts year over year)
  5. Tampa, FL (9.8% — down 1.8 ppts year over year)
  6. Las Vegas, NV (9.7% — down 2.7 ppts year over year)
  7. Baltimore, MD (8.9% — down 1.5 ppts year over year)
  8. Atlanta, GA (7.5% — up 0.5 ppts year over year)
  9. Phoenix, AZ (7.2% — down 1.1 ppts year over year)
  10. Nashville, TN (6.7% — up 0.1 ppts year over year)
Redfin-FHA-and-VA-loans-chart

Source: Redfin

Both FHA and VA loans are insured by the federal government— 

  • FHA loans, for low-to-moderate income borrowers (popular with first-time buyers), have lower credit score and down payment requirements compared to conventional loans.
  • VA loans help veterans, service members, and their surviving spouses obtain financing with little to no down payment. 

Conventional mortgage loans are still the most widely-used type, accounting for 78.5% of all mortgaged home sales—down just a tick from 79.2% one year ago. 

Read the full report for more details.