Housing Market

All-cash transactions gain traction amid high mortgage rates: Redfin

"High mortgage rates are exacerbating inequality between people who own homes and people who don’t,” a Redfin economist said.

In September, all-cash purchases represented one-third of the U.S. home purchases, compared to 29.5% a year ago, according to a Redfin report. It’s the highest share of all-cash transactions recorded since 2014.

Cleveland posted the highest share of all-cash purchases in September, reaching 49.2% of all transactions. West Palm Beach and Jacksonville in Florida followed with 49% and 46.2%, respectively. Oakland, California, and San Jose, California, as well as Seattle posted the smallest share of all-cash transactions at 18%, 18.2% and 20.3%, respectively. 

For this analysis, Redfin analyzed county records across 40 U.S. metropolitan areas since 2011. Redfin classified purchases as all-cash when transactions had no mortgage loan information on the deed.

“High mortgage rates are exacerbating inequality between people who own homes and people who don’t,” Redfin Senior Economist Sheharyar Bokhari said. 

Affluent Americans (or investors) are the only ones who can bypass the sting of high mortgage rates by paying all cash. Home sales were down 23% year over year, but all-cash deals only fell 11%, according to Redfin’s analysis.

Meanwhile, buyers offer bigger down payments to lessen the cost of monthly payments

In September, buyers were typically putting down 16.1% of the median purchase price, amounting to $60,980, up 15% from a year earlier. That’s the highest down-payment percentage since June 2022. 

Geographically, metros in California such as San Francisco, San Jose and Anaheim, posted the highest down payment percentages. In those cities, the typical buyer put down 25% of the purchase price. Meanwhile, Virginia Beach, Virginia, Detroit and Philadelphia had the lowest down-payment percentages, with 3%, 7.4% and 8.9% respectively.

It is worth noting that some buyers are using equity from the sale of their previous home to make a relatively larger down payment on their new purchase. Meanwhile, first-time homebuyers are facing real affordability challenges.

FHA loan usage increases in September

As sellers field fewer offers, buyers with FHA loans may have greater luck to close on a home. In September, government-insured FHA loans represented a little over 15% of U.S. mortgaged home sales, up from 14% a year earlier but down from 16.3% in April 2023.

Meanwhile, military VA loans represented 6.3% of the total mortgaged home sales, down from 6.8% a year earlier. Conventional loans remain the most common type of mortgage, making up over 75% of all loans.

Overall, Riverside and Providence in Rhode Island, along with Las Vegas, saw the highest concentration of FHA loans. In cities with a notable military presence, VA loans have high usage. This included Virginia Beach, Virginia (41%), Jacksonville, Florida (16.6%) and Washington, D.C. (15.2%). Cities in California, including San Francisco, San Jose and Anaheim, posted the smallest share of FHA and VA loans usage.

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