Cash Is King in Realigning Housing Market

Nearly one-third (31.4%) of U.S. home purchases were paid for with all cash in July, according to a new report from real estate brokerage Redfin.

And while high mortgage rates have brought balance to the market, this move comes at a high price for both buyers and sellers.

“The rapid climb in months of supply shows how quickly sellers lost their grip on the market as mortgage rates shot up to 6%, making homes unaffordable to many buyers,” according to the report.

“Potential sellers are reluctant to list their homes in this environment, which is why inventory is falling. But it’s hard to say with conviction that buyers have a true upper hand, either.”

Sellers Starting to Lose Leverage

Michael Romer, managing partner of NYC real estate law firm Romer Debbas, tells GlobeSt.com, “Although it certainly varies market to market and there are outliers, sellers are starting to lose leverage.

“However, with housing supply shortages, drastic price cuts are not expected,” he said. “One has to look no further than the increase in cash buyers to realize that the interest rate hikes are impacting the lower to middle-income homebuyers (or prospective homebuyers) more than anyone else.

“Too many individuals and families are being priced out of the housing market. Mortgage rates are more than double what they were just one year ago. Every prospective homeowner has their breaking point and many have reached.”

Sellers Not Losing as Much Ground as Some Think

Kurt Carlton, president and co-founder of New Western, tells GlobeSt.com, “Rates may be rising, but sellers are not losing as much ground as you might think.

Carlton is seeing an average of 38 days on the market for August with only 2.6 months of supply.

“Even though demand continues to cool, houses are still selling relatively fast,” he said. “New listings have dropped double-digits as rates have risen. As long as the supply imbalance remains, it will continue to be a seller’s market – despite 14-year highs in mortgage rates.”

Carlton said in “welcome news” for traditional buyers, he expects cash offers from institutions and landlords to retreat as those entities generally later finance or securitize their assets.

“In most markets, the rapid increase in home values and rates has squeezed cash-flow prospects required for these investments to work,” Carlton said.

“As a result, experienced fix-and-flip investors with cash in hand have a unique opportunity to acquire properties with less competition. Aged and vacant homes, in particular, are ripe for renovation and bring needed inventory back into the market.”

Tampa, Philly Seeing Rise in All-Cash Buyers

Tampa-based Houwzer agent LaTonyia Roberson, tells GlobeSt.com that she’s seeing an influx of all-cash buyers in Central Florida.

“We have had an influx of cash buyers from the east coast and west coast where home values are significantly higher,” Roberson said.

“They sell and move here with lots of cash to buy a bigger home here, and outbid locals with loans. Many locals have even opted to pull out their entire 401(k)s to buy instead of getting loans to avoid the rising interest rates. Then we have the investor companies paying cash to buy homes that they rent out only, creating a very interesting Florida market.”

Philadelphia-based Houwzer agent Sommer Mateer said in her market, “sellers are still getting multiple offers and have the upper hand. There are lots of cash buyers because of the interest rates, and cash is dominant right now due to financed buyers not being able to come out of pocket in appraisal shortfalls with the higher interest rates.”

Buyers With More Power Than ‘Before Times’

Redfin deputy chief economist Taylor Marr said in prepared remarks that homebuyers have more power than they’ve had since the “before times.”

“Unfortunately, it’s increasingly hard for buyers to make use of their newfound power thanks to the affordability pressures of rising mortgage rates and a dearth of homes being listed for sale,” Marr said.

“A true buyers’ market would have more homes for sale than there are buyers, with a wide variety of homes for sale by style, price, and location so when buyers find homes that match their preferences, they face little competition and can offer under asking price with healthy inspection and financing contingencies in place.

“Today’s average buyer is paying less than the list price, but they continue to struggle to find a home that meets their criteria and budget.”