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All cash purchases on the rise in 2023, here’s why

All cash purchases on the rise in 2023, here's why
by Brad Cartier, posted in Newsletter

All-cash purchases are on the rise, according to recent data from the National Association of Home Builders (NAHB). David Logan reports that cash purchases made up 11.2% of all new home sales in Q4 2022, the largest share seen since 1990. 

All cash offers on the rise

Source: NAHB (February 2023)

Although cash sales make up a small portion of new home sales, they constitute a larger share of existing home sales. According to estimates from the National Association of Realtors, 28% of existing home transactions were all-cash sales in December 2022, up from 26.0% in November 2022 and 23.0% in December 2021.

Similar data was found in recent reporting in the Washington Post. According to an analysis of Redfin data by Emmanuel Martinez, Kevin Schaul, and Hamza Shaban, in 2022 a third of U.S. homes were bought in cash, an 8% increase over 2021, and the highest it’s been since 2014 when the market was rebounding from the Great Recession.

All cash offers rise

Source: FRED (February 2023)

According to the authors, “Early in the pandemic, home buyers seeking more space desperately outbid one another in the frenzied housing market. Now all-cash offers continue, even as the housing market has cooled, as a way to sidestep rising interest rates.”

Late last year, Redfin commented on the increase in all-cash buyers, with Dana Anderson noting that affluent buyers are more motivated than ever to buy in all cash given the increase in interest rates. When rates were at record lows, debt leverage made more sense because it was so cheap. Now, that calculus has changed. Redfin’s analysis showed that all-cash purchases were most prominent in the state of Florida and the least common in the San Francisco Bay Area.

Rates closing in on 7% again

Interest rates are back on the rise again, with the 30-year fixed rate jumping from 6.09% in early February to now 6.32%, according to Freddie Mac. “Mortgage rates moved up for the second consecutive week. The economy is showing signs of resilience, mainly due to consumer spending, and rates are increasing. Overall housing costs are also increasing and therefore impacting inflation, which continues to persist.”

Interest rates rising slowly

Source: Freddie Mac (February 2023)

As such, the Mortgage Bankers Association (MBA) reported that last week new home mortgage applications dropped 3.5% year over year but are still 42% higher than in December 2022.

Flávia Furlan Nunes of HousingWire reports on rising rates, noting that rates have risen due to strong job data, retail sales that beat expectations, and rising homebuilder confidence for the first time in a while. “Economists believe that mortgage rates may rise to the 7% level soon amid the stronger-than-expected U.S. economic performance, adding more affordability challenges to the housing market.”

Home buyers are expected to possibly retreat back to the sidelines as rates continue to push higher, with positive economic data keeping inflation expectations elevated. Redfin Economics Research Lead Chen Zhao comments on this dynamic:

“Inflation is cooling too slowly–and the job market and retail sales are too strong–for the Fed to ease up on interest-rate hikes, which means mortgage rates are unlikely to fall much in the next few months. That doesn’t erase the progress we’ve made and it doesn’t mean rates will soar past 7%. But it is a reminder that the housing-market recovery will remain touch-and-go until we see inflation and the overall economy improve for a longer duration.” 

January rents

Zillow reported that nationally observed average rent fell by only $1 between December and January, highlighting the ongoing upward pressure on rental prices. Asking rent at the national level now sits at $1,970, 6.9% higher year over year, but still 0.8% below the September 2022 peak of $1,987. That said, we are still seeing rapid rent growth in some markets.

Rents up and down

Source: Zillow (February 2023)

“The steepest monthly declines in rent were observed this January in Salt Lake City (-1.0%), Jacksonville (-0.8%), New Orleans (-0.6%), Seattle (-0.6%), and San Diego (-0.5%). This continues a trend of mostly Western cities, plus New Orleans, having the largest rent drops this winter. The drop in Jacksonville is notable, after its rents were among the fastest growing earlier in the year.”

Despite this, national rents are showing strong signs of deceleration, according to new data from Redfin. They found that the median asking rent rose 2.4% year over year to $1,942 in January. This was the smallest increase since May 2021. The largest decreases were seen in:

  • Phoenix (-6.7%)
  • Oklahoma City (-6.3%) 
  • New Orleans (-5.2%) 
  • Minneapolis (-5.1%) 
  • Houston (-4.9%) 

And the largest increases were seen in:

  • Raleigh, NC (22.5%) 
  • Cleveland (17.5%) 
  • Indianapolis (14.9%) 
  • Charlotte, NC (14.2%) 
  • Nashville, TN (9.8%) 

Supply of multifamily is increasing, according to New rental supply will be hitting the market soon, putting downward pressure on national rental prices.

Multifamily starts rise

Source: (February 2023)

“The shift to multi-family continued to come into focus in January’s data. The number of multifamily units under construction reached a historical high of 932,000 units in January. This was the fourth month in a row to set a new historical record for multifamily units under construction. These units will shift to completions in the coming months, pushing ample new rental options into the market.”

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