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More Home Buyers Purchasing Property for Cash

By Allison Halliday | September 2, 2013

The stringency of mortgage lending standards combined with an increase in mortgage rates has made it difficult for many home buyers to get loans, and as a consequence all-cash deals are increasing. Data recently released by RealtyTrac shows that 40% of home sales in July were made without a loan. This compares with 35% in June, and 31% in July last year.

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According to the article in Inman.com, a recent Goldman Sachs Group report shows that more than half of all property sales during the last 18 months were all cash deals. This estimate was derived by home sales data from the National Association of Realtors, data from the Mortgage Bankers Association, the Lender Processing Services, and the Census Bureau.

Experts anticipate that the percentage of all-cash deals will continue to rise as mortgage rates steadily increase. Mortgage rates started increasing on 30 year fixed rate mortgages in May as before this time they had reached historic lows of approximately 3.5%.

However some home buyers simply prefer to pay cash as opposed to taking out a loan as it makes the deal less complicated, and easier and quicker to close. This is especially relevant in markets where there is high demand combined with low inventory levels, as sellers are now able to pick cash buyers as opposed to those in need a loan. It could also be that some people who need loans are no longer able to buy in the more high-priced markets.

Another factor is the increased number of investors who are still snapping up distressed properties to turn into rentals. Some experts think the introduction of stricter guidelines will make it even more difficult for home buyers to secure loans, meaning this trend could continue. In comparison analysts from Goldman Sachs think that purchase loan originations will reach more than $1 trillion by 2016, getting close to the $1.5 trillion last seen in 2005, before the housing market collapsed.

Allison Halliday is a Realty Biz News contributing writer. She handles International Real Estate and is a seasoned blogger.
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