BAM Key Details:
- According to a new Redfin report, 33.4% of buyers who purchased a home in April 2023 paid in all cash—up from 30.7% a year ago and just under February’s 33.5%.
- The share of buyers using FHA loans is at its highest since before the pandemic, while the typical down payment is down 18% from a year ago.
A new report from Redfin shows one-third or 33.4% of U.S. home purchases in April 2023 were made in all cash—up from 30.7% one year ago and just a hair under February’s 33.5% share, which was the highest in nine years.
Source: Redfin
All-cash home purchases are taking up a bigger share of total home purchases for one compelling reason: high mortgage rates create more of an obstacle for buyers needing mortgage loans than for those who can afford to pay in all cash.
For context, total home sales fell 41% year over year in April in the 40 most populous U.S. metros—compared with a 35% drop in all-cash sales.
Meanwhile, mortgage rates are hovering a little below their highest level in 15 years, keeping many would-be buyers on the sidelines—particularly those who would need to take out a mortgage loan—and discouraging sellers locked into low rates.
Those high rates could discourage all-cash buyers, too, with some choosing investments that benefit from higher interest rates, like bonds.
A homebuyer who can afford to pay in all cash is weighing two potential paths. They can use cash to pay for the home and avoid high monthly interest payments, or take out a loan and pay a high mortgage rate. In that case, they could use the money that would have gone toward an all-cash purchase to invest in other assets that offer bigger returns, which could partly cancel out their high mortgage rate.
Buyers who can’t afford to pay in all cash also have two potential—but different—paths. They can avoid a high mortgage rate by dropping out of the housing market altogether, or they can take on a high rate. That discrepancy is the reason the all-cash share is near a decade high even though all-cash purchases have dropped: Affluent buyers have the choice to pay cash instead of dropping out of the market.
Another reason for the uptick in all-cash sales is buyer competition for available homes—especially the more affordable options. Buyers who can afford to pay in cash may do so to win a bid on the home they want.
Down payments shrink by 18%—the second-biggest drop since May 2020
The typical down payment in April was $52,500—down 18% from a year ago and marking the second-biggest decline in almost three years.
Down payments have been sliding on an annual basis since November of last year.
Source: Redfin
More buyers used FHA loans in April—the highest share since before the pandemic
About one in six (16.4%) mortgaged home purchases in April involved an FHA loan—the highest share since February 2020, just prior to the start of the pandemic.
That figure is up from 10.4% in April 2022, marking the largest annual increase on record.
Just under 7% of total mortgaged home purchases used a VA loan—down from February’s eight-year high of 8% but up from 5.9% in April 2022.
Source: Redfin
Metro-level home purchase highlights
Based on Redfin’s data for 40 of the most populous U.S. metros, here are the home purchase highlights for April 2023:
- All cash purchases were most prevalent in Cleveland, OH; West Palm Beach, FL; and Baltimore, MD in April. They were least common in expensive West Coast metros, led by San Jose, CA; Seattle, WA; and Oakland, CA.
- All cash purchases increased year over year in April in 27 of the 40 metros in Redfin’s analysis, led by Cleveland, OH; Baltimore, MD; and Riverside, CA. They saw the biggest annual declines in Las Vegas, NV; Atlanta, GA; and Milwaukee, WI.
- Down payments and down payment percentages were at their highest in pricey California metros San Francisco, San Jose, and Anaheim—and lowest n Virginia Beach, VA; Detroit, MI; and Pittsburgh, PA.
- Down payment dollar amounts fell year over year in 33 metros, with the biggest annual drops in Las Vegas, NV; Phoenix, AZ; and Riverside, CA. The biggest annual increases were in Newark, NJ; Milwaukee, WI; and Montgomery County, FL.
- Down payment percentages fell year over year in 19 metros, rose in two, and remained unchanged in the rest. Year over year, percentages fell most in Las Vegas, NV; Providence, RI; and Phoenix, AZ—and rose most in San Jose and San Francisco, CA.
- FHA loans were most prevalent in Riverside, CA; Providence, RI, and Las Vegas, NV—and least so in San Jose, San Francisco, and Anaheim, CA.
- FHA loans increased year over year in all but one of the metros in Redfin’s analysis. The biggest annual increases were in Riverside, CA; Las Vegas, NV; and Phoenix, AZ. They declined in New York.
- VA loans were most commonly used in Virginia Beach, VA; San Diego, CA; and Washington, DC., all of which have a significant military presence. They were least prevalent in San Francisco, CA; New York, NY; and San Jose, CA.
- VA loan usage rose year over year in 33 of the metros in Redfin’s analysis, rising most in Denver, CO; Tampa, FL; and Las Vegas, NV. It fell most year over year in Baltimore, MD; Pittsburgh, PA; and New York, NY.
- Jumbo loans were most common in pricey Bay Area metros, led by San Jose, San Francisco, and Oakland. They’re least common in Warren, MI; Pittsburgh, PA; and Cleveland, OH—all relatively affordable metros.
- Jumbo loan use declined year over year in 37 of the 40 metros, with the biggest drops in San Francisco, CA; Seattle, WA; and Oakland, CA. Usage increased year over year in New Brunswick and NJ; Virginia Beach, VA. It stayed the same in Detroit.
Jumbo loans are those for which the loan amount is higher than the limit set by the federal government. In most states, these loans are used in cases where the loan amount exceeds $726,200, though some states set the limit higher.
Today’s higher mortgage rates have made jumbo loans less popular overall, with just 6.1% of all mortgaged home sales involving a jumbo loan—down from 10.6% one year ago but up from January’s 10-year low of 4.3%.
Rates hovering near 7% have pushed some buyers of high-end homes out of the market completely while others have shifted to lower price ranges.
This year’s bank failures have also made mortgage lenders more reluctant to take on jumbo loans given the higher potential losses that go with them.
Read the full report for more details.
Takeaways for real estate agents
The shares of all-cash home purchases and FHA loans are climbing across the U.S., while down payment dollar amounts and percentages are dropping.
Data like this—both national and metro-level—is why you need to be having daily conversations with multiple lenders in your area. Find out what they’re seeing at different price points so you can share with your buyers and sellers anything that could influence their decisions.
Another critical benefit to these conversations is finding out which lenders you can trust to provide each client the service they need.
