Finance Monthly - May 2023

Challenges in the housing market, from short supply to higher borrowing costs and strong demand have priced-out would-be buyers, leaving way for more affluent investors to purchase cheaper property using all cash as the market shows signs of stabilizing after enduring a turbulent couple of months. Data provided by Redfin showed that roughly one-third (31.9%) of U.S. homebuyers paid for purchases in all cash in October 2022, an increase from 29.9% for the same recorded period a year before. This marked the highest point since 2014 when the housing market was recovering from the 2008 financial crisis. Although we see a higher number of buyers paying with cash, they still make up the minority of home purchases when looking at the bigger picture. Between July 2021 and June 2022, roughly 78% of homebuyers financed their purchases with either a private loan or Federalbacked loan efforts according to a report by the National Association of Realtors (NAR). A look at this growing trend sees it taking place all across the U.S., as the number of allcash buyers steadily grows, as high-income individuals, retirees, and foreign investors seek out an opportunity to take advantage of more affordable purchases outside of metropolitan areas. The good and the ugly Buying a house or owning a property is a pipeline dream many American adults share. Shaky economic conditions, which have led to soaring inflation and the Federal Reserve bumping up interest rates have now made it increasingly difficult for middle to low-income families to purchase a home. According to a 2022 NAR Profile Home Buyers and Home Sellers report, households earning between $75,000 to $100,00 can currently afford 51% of active housing inventory, a decline from 58% of the homes for sale in 2019. Affordability has dropped by 7% since the onset of the pandemic for households falling under this income bracket. Increasing mortgage rates have also made it harder for many would-be buyers, especially younger buyers, to purchase a home. Ongoing interest rate hikes have seen the fixed 30-year mortgage rate increase between 6% and 7% since the start of last year, marking a nearly fourdecade high. Another factor is that more established individuals and higher-income earners are pricing-out new buyers. Those holding bigger down payments or simply competing with higher asking prices are increasing the market competition and leaving new buyers overlooked. Those paying in all cash have also been a headwind for potential buyers. Existing homeowners are taking advantage of more affordable prices outside of booming real estate markets. It’s easier for individuals in places such as San Francisco - where the average home value is around $1,287,792 according to Zillow - to sell their property, and use the capital to purchase a more “For those paying in all cash, there’s still a tight line of disadvantages involved they should consider before making a cash offer on a new house.” Finance Monthly. Business & Economy 37

RkJQdWJsaXNoZXIy Mjk3Mzkz