Home buyers are facing a new challenge in finding mid-priced houses to purchase: Cash buyers who swoop in and snatch up all the properties.
According to a report in The Wall Street Journal, while mortgage lending is finally rebounding after the housing crash of a few years ago, cash deals are still at higher than normal levels – even with the prices of homes heading into record territory.
Citing ATTOM Data Solutions, the report said that 28.8 percent of all U.S. homes purchased this year were cash transactions, which is down from more than 40 percent at the peak during 2011 and 2012. This is also higher than the 20 percent of all cash deals that were common in the early 2000s. In 2016, all cash deals stood at 28.6 percent of all U.S. home sales.
According to the report, cash deals are more attractive to sellers because the transaction is quick and the seller doesn’t have to worry about the buyer securing a mortgage. In many cases, sellers will even choose all-cash deals over higher offers. Still, economists don’t understand the strategy of tying up so much money when interest rates on mortgages are close to all-time lows.
“First-time buyers drive the market, and if they are blocked out of the market, then we are not building that next generation of homeowners,” said Nela Richardson, chief economist at Redfin.
The all-cash buyers span many categories, including investors, wealthy people who live outside the U.S., baby boomers looking to downsize and people moving from expensive markets to cheaper housing areas. The cash sales are even happening in quieter markets away from both coasts, as middle-class people sell their pricey homes and move to more affordable locations. The paper noted that in Boise, more than 20 percent of the homes that sold for less than $250,000 were cash deals, up from 15 percent last year.