Key takeaways

  • All-cash real estate transactions are on the rise, representing 34.1 percent of U.S. home purchases in September 2023, according to Redfin data.
  • Most typical buyers, especially younger first-time homebuyers, can’t afford to pay in cash, putting them at a greater disadvantage.
  • Cash purchases remove much-needed inventory from an already depleted housing market.

For many Americans, owning a home is a major life goal. An overwhelming 74 percent of U.S. adults consider homeownership to be a part of the “American dream,” according to Bankrate’s Financial Security survey. But realizing that dream has become much more challenging recently. It’s not just today’s steep home prices and record-high mortgage rates that are pushing homeownership further out of reach. Lately, there has also been a proliferation of all-cash home purchases, which is making an already daunting market even trickier for hopeful buyers.

All-cash homebuyers don’t require a mortgage loan to make a home purchase, instead paying for the home in full, upfront. These types of transactions have skyrocketed to their highest levels in nearly a decade, according to a November 2023 study by Redfin. For buyers who don’t have such deep pockets, it’s yet another obstacle in an already difficult market.

The rise of all-cash home purchases

With record high mortgage rates continuing to be a dominant factor in the real estate market, the share of homes being purchased with all cash reached its highest level since 2014 in September, according to Redfin.

There are two reasons for that. One, many would-be buyers are being priced out of the market by the steep rates. Which leads to two: For wealthier individuals who have plenty of money on hand, it makes more sense to pay in full and avoid interest altogether. As a result, prospective buyers who cannot afford to make all-cash purchases are being pushed to the sidelines.

Deep-pocketed buyers that may have previously opted to finance the purchase when rates were ultra-low are now more likely to pay cash. — Greg McBride, Bankrate Chief Financial Analyst

“With the rise in mortgage rates, deep-pocketed buyers that may have previously opted to finance the purchase when rates were ultra-low are now more likely to pay cash,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “With mortgage rates at 7.5 percent or more, financing isn’t nearly as compelling as when rates were 2.5 percent.”

While the Redfin data shows that all-cash sales are actually down 11 percent from one year ago, that’s due to the unusually low volume of home sales in 2023. The overall housing market has slowed significantly, so 11 percent fewer cash sales is a much smaller drop than the 23 percent decline in all home sales.

Who is buying homes all-cash?

So who are these buyers who have so much cash lying around — and who are playing such an outsize role in the market? Largely older, repeat homebuyers, according to a report by Jessica Lautz, deputy chief economist and vice president of research for the National Association of Realtors (NAR).

NAR data shows that the largest portion of homebuyers in the real estate market today are Baby Boomers. And half of older Baby Boomers (aged 68 to 76) paid cash for a recent home purchase, while a third of younger Boomers did so as well. In addition, the Silent Generation makes up just 4 percent of recent buyers, but 53 percent of them also used all cash to purchase a home. Older buyers are less likely to be first-time homeowners, and they are more likely to be downsizing to a smaller, less expensive property. They also tend to have more equity in their current homes, which helps them afford their next home purchase without needing to finance it.

“Existing homeowners, who benefited from an incredible housing market over the course of the last 14 years and realized incredible gains in their home values, are now cashing in,” says Christopher Naghibi, executive vice president and COO for First Foundation Bank. “In some areas of the country, home prices increased in excess of 40 percent in just two years. These homeowners sold, paid down what debt they have and are now in a position to buy in today’s market in all-cash.”

The racial makeup of cash buyers, according to NAR, shows that white buyers are most likely to buy with cash at 23 percent. Black buyers make up a 15 percent share, while Asian/Pacific Islander and Hispanic/Latino buyers both clock in at 8 percent. Investors and real estate developers are also among those who are driving the all-cash buying market.

How all-cash purchases impact the housing market

It’s hardly a secret that the country is experiencing a housing shortage. There’s been a persistent lack of supply since at least the pandemic, and as of October 2023, available housing inventory was down by 5.7 percent from one year earlier, according to NAR data.

The growing number of all-cash buyers in such a tight market is making inventory even more scarce for those who need to finance their purchase. And all-cash buyers are far more appealing to sellers than a prospective buyer who must wait for financing approval from a lender. When homes are snatched up quickly by cash buyers, there are simply fewer options remaining for anyone else.

“The impact of all-cash purchases on the housing market is significant, as they tend to speed up the sale process, reduce the available inventory for buyers relying on financing and lead to increased property prices due to their appeal to sellers,” says Matt Dunbar, senior vice president  of the Southeast Region for Churchill Mortgage. In Bankrate’s Financial Security survey, 73 percent of aspiring homeowners cited affordability issues as the reason they do not currently own a home.

It’s become such an issue that a cottage industry has sprung up of companies that help people make all-cash offers when they wouldn’t ordinarily be able to afford to. These options, such as Flyhomes and Better, loan prospective buyers the cash to make all-cash offers.

“Companies that help potential buyers make all-cash offers are popping up all over the place trying to capture some of the approximately 70 percent of the market who are not buying in all cash now,” says Naghibi. “Some will help you buy a new home in all cash before you sell your old home, so you’re not making an offer contingent upon the sale of your previous property.”

32 percent of U.S. adults think they’ll never be able to afford to buy their dream home, according to Bankrate’s recent Housing Market Fact or Fiction survey.

Bottom line

All-cash homebuyers are growing in numbers and are having a dramatic impact on the housing market across the country. The phenomenon has made it even more challenging for first-time homebuyers to land a home, especially with mortgage interest rates so high and housing inventory in short supply. Those hoping to purchase a home without the resources to buy entirely with cash may want to wait out the market until interest rates or prices decline. You might also consider working with a company that can help you fund an all-cash offer.