In today’s red-hot housing market, all-cash offers are becoming a common way to edge out competition from other buyers.
In fact, according to the National Association of Realtors Confidence Index Survey, all-cash sales made up 25% of all existing home sales in April 2021. That’s up from 20% at the beginning of the year and just over 15% at this time in 2020.
Who is making all-cash purchases?
The driving force behind this trend is the increasing share of non-first-time homebuyers paying cash. Just 25% of this group was making all-cash purchases at the beginning of 2021. By April, that number increased to 33.5%.
Meanwhile, the number of first-time buyers making all-cash purchases has hovered around 6% all year. That’s significantly lower than in May 2020 when nearly 15% were buying with all-cash.
Paying cash for vacation home sales is almost the norm now. Over 60% of vacation homes were purchased with all cash in April — a sharp rise from around 40% in 2020.
Surprisingly, the share of investors buying rental properties with cash has been relatively flat, and actually down nearly 10% from last year.
Why are all-cash home sales soaring when interest rates are so low?
Despite historically low interest rates, homebuyers are generally using more cash and less financing.
In many cases, it’s the only hope of getting an accepted offer.
With an average of four offers on every home according to the National Association of Realtors, sellers are prioritizing cash offers. Sales done in all cash can’t fall through because of a low appraised value, property deficiencies, or problems with the buyer’s loan qualification.
Buyers are putting more down as well, which makes their offer more attractive to sellers. Two years ago, 60% of buyers put less than 20% down. Now, only about half are making a sub-20% down payment.
Which areas see the most all-cash home sales?
Realtor.com compiled a list of metro areas that saw the largest increase in share of all-cash sales in January and February 2021.
|Metro area||Share all-cash sales in Jan. and Feb. 2021||% increase from 2020|
|El Paso, TX||15%||13%|
There are a number of reasons for these increases. Some, like Greenville, Kahului, and Bellingham, are retirement destinations attracting cash-laden Baby Boomers.
Other areas are just highly competitive, and buyers need all-cash offers to stand out. This is especially true in Torrington and Claremont.
On the opposite end of the spectrum, affordable mid-size metro areas like Reno, Racine, El Paso, and Canton are drawing in remote workers and investors from the more expensive metros nearby. For example, Reno tops the list because it’s become a destination for remote workers from California, who can easily buy a house with cash.
Finally, Clarksville seems to be a case of economic opportunity outpacing the housing market. Buyers with good paying jobs at Amazon and electric vehicle battery maker Microvast are competing over limited housing supply.
At the end of the day, cash is king
All-cash offers are on the rise, and will likely increase their role for as long as the housing market stays hot.
Even if you can’t write an all-cash offer, putting as much down as possible can make your offer more attractive.