Since October 2022, the share of buyers purchasing their home without a mortgage has been more than one-quarter of the market. The share is collected monthly in the REALTORS® Confidence Index and includes buyers who purchased primary homes, investors, and vacation buyers.
These all-cash home buyers are happily avoiding the higher mortgage interest rates, which touched 7% in the Fall of 2022 before trending down to the current level of 6.28% as of this writing. While the Spring of 2022 saw a similar share of all cash home buyers, one needs to look back to 2014 before seeing similar shares. In 2014, the mortgage interest rates were in the low 4% range. In the months before the COVID-19 pandemic, the percentage of all-cash buyers hovered in the teens. While mortgage rates may be one component, they do not tell the whole story. So what happened, and who is paying all cash for homes?
One factor at play is the multiple bid scenarios that took place throughout the COVID-19 pandemic. Home buyers placed competitive offers on homes while inventory grew increasingly difficult to find. In March 2022, sellers received an average of 5.5 offers. Today, the average is 2.7 offers. As buyers wanted to find the perfect property before interest rates rose, they were willing to offer all cash to sellers so their offer was not contingent on financing. Additionally, buyers migrated to more affordable locations in low-density areas, allowing them to purchase a home with all cash if they had housing equity from their past property. Thus, the typical homeowner who had owned their home for a decade had more than $200,000 in housing equity to make a trade.
When looking at the buyers who are able to pay all cash, it tells a bleaker story and a story of those who hold the cards in the housing market and those who do not. The largest share of home buyers today are Baby Boomers. Among Older Baby Boomers aged 68 to 76, more than half paid all cash for their recent home purchase. Among the Silent Generation (make up just 4% of recent buyers), 53% paid all cash for their home. The next question may be, well, wouldn’t seniors always pay all cash for their homes? The data shows us that this is not necessarily the case. Before last year, about one-third of Older Boomers paid for their home without a mortgage, and among the Silent Generation, the share never surpassed 48% in the historical data. Older buyers have significantly more housing equity, helping them make housing trades without needing a mortgage today.
Indeed, the share of all-cash buyers has jumped for all generations. Among Younger Baby Boomers aged 58 to 67, the share purchasing without a mortgage made a one-year jump from 22% to 32%. Even among Gen X buyers aged 43 to 57, the share of all-cash buyers jumped from 8% to 15%. For Younger and Older Millennial buyers, it is still uncommon for them to pay all cash for a home purchase. Still, one may imagine those who made significant moves into more affordable locations such as “Zoom Towns” doing just that.
A surprising trend emerges when examining the share of all-cash buyers by household composition. Single women buyers are the most likely buyer to purchase their home with all cash. These women may be widowed or divorced and have housing equity to make these trades—twenty-eight percent purchased without a mortgage. For married couples, the share stands at 27% of buyers.
By race, 23% of White/Caucasian buyers could make their home purchase as an all-cash buyer. In comparison, among Black/African American buyers, only 15% purchased as all-cash buyers. Notably, 49% of Black/African-American buyers are first-time buyers compared to 24% of White/Caucasian.
buyers. Only 8% of both Asian/Pacific Islander buyers and Hispanic/Latino buyers paid all cash for their recent purchase. Both have higher shares of first-time buyers who would need more housing equity to help them make a housing trade.
Clearly, the ability to purchase a home without a mortgage is significantly harder without housing equity to assist. Moving outside their current residence is not an option for many buyers, as career choices and family ties may have them settled in one area. This can be discouraging for first-time buyers trying to enter a market alongside all-cash buyers. This is especially true as multiple bids have resumed in some localized areas of the country. As buyers navigate this market with those flush with cash and those struggling even to save, having experts by their side—REALTORS® and mortgage brokers—is essential. More housing inventory could improve housing affordability for all buyers moving forward.