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All-cash home purchases in the U.S. hit 31.4 percent of all transactions in July 2022, up from 27.5 percent the year before, and just shy of an eight-year high reached in February, according to data released Friday by Redfin.
Since the beginning of 2021, all-cash purchases have surged thanks to a pandemic-housing rush, reaching an apex in February when 32.1 percent of all transactions were made without financing, according to Redfin.
Among the wealthy, all-cash purchases have become the go-to method for buying a home as mortgage rates have continued to climb from pandemic lows up to 6 percent this week, the highest they’ve been since 2008. Using cash or home equity to finance a home purchase also afforded affluent buyers a leg up on the competition as bidding wars abounded during the second half of 2020 and 2021.
Likewise, investors have added to the cash-buying spree, Redfin noted, since about three-quarters of their purchases are in all-cash. During the fourth quarter of 2021, investors purchased a record share of homes in the U.S., and those purchases continue to be elevated above pre-pandemic levels.
Long Island in New York and the state of Florida, two locales where affluent buyers have flocked since the pandemic, have the highest concentration of all-cash purchases, according to Redfin.
In Nassau County, New York — the county adjacent to where the wealthy Hamptons enclave resides — 66.5 percent of home purchases were made in cash in July. After that, West Palm Beach, Florida (56.4 percent cash); Jacksonville, Florida (45.5 percent cash); Milwaukee, Wisconsin (45.3 percent cash); and Fort Lauderdale, Florida (43.3 percent cash), saw the next highest percentages of cash purchases.
Three pricey West Coast markets saw the smallest amount of cash purchases, likely because of their expensive housing markets.
Oakland, California, boasted just 15.1 percent of home purchases in cash; San Jose, California, shouldered 16 percent in cash; and Seattle clocked in at 16.7 percent of all home purchases in cash. Washington, D.C. (17.5 percent cash), and Pittsburgh, Pennsylvania (17.8 percent cash), followed with the least amount of cash purchases.
Despite all-cash purchases continuing to go strong, conventional loans still make up the vast majority of home purchases, with 81.3 percent of home purchases that used a mortgage in July having used a conventional loan, down modestly from 81.9 percent in July 2021.
About 12 percent of home purchases financed through a mortgage were FHA loans in July 2022, equal to the year before, but slightly up from an all-time low of 10.4 percent that hit in spring 2022. FHA loans are insured by the government and are targeted toward low- or moderate-income homebuyers who may not be able to make a very large downpayment and have lower credit scores. These loans require mortgage insurance.
Just 6.8 percent of mortgages were VA loans, up from 6.2 percent the previous year and up from a record low of 5.4 percent in spring 2021. VA loans, which are also insured by the government, are offered to veterans, service members and surviving spouses of service members, and allow these buyers to purchase a home with a very small or no down payment and no private mortgage insurance.
“The spike in interest rates is pricing some buyers out of the market, but it’s also helping some buyers get into the market because there’s less competition,” Tampa Redfin agent Eric Auciello said in a statement.
“A lot of buyers who were repeatedly outbid earlier this year are having their offers accepted, including those using FHA loans, those with smaller down payments and ones that include inspection and financing contingencies. In 2021, hardly any buyers used FHA loans. The story is completely different now, as low down payments are no longer an automatic deal-breaker for sellers.”
Still, many would-be FHA homebuyers are being priced out of the market now with home prices still elevated from the housing boom. The typical home sold in July 2022 cost approximately 8 percent more than in July 2021. Pre-pandemic, 17 percent of mortgaged home purchases were FHA loans, well above July’s 12 percent.
Correction: An earlier version of this story incorrectly stated that the Hamptons are located in Nassau County. They are located in Suffolk County, which is adjacent to Nassau County.