Cash purchases at a seven-year high

Individual cash buyers are taking advantage of stock market profits and remote working, but they aren’t the only ones scooping up homes.

30% of U.S. single-family residences (SFRs) purchased in January through April 2021, were paid for with all cash.

This share increased from 25% over the same period a year earlier, and is the largest amount since 2014, when 31% of SFRs were purchased in cash, according to a Redfin analysis.

In California’s expensive metros, it’s more challenging to pay in cash because home prices are so high. Thus, while cash purchases are still increasing in California, its metros are at the bottom of the list. From January 2021 to April 2021, the share of cash buyers in California’s major metros was:

• 13% in San Jose;
• 13% in Oakland;
• 16% in Los Angeles;
• 16% in San Diego;
• 18% in Sacramento;
• 18% in San Francisco;
• 18% in Oxnard;
• 19% in Bakersfield;
• 20% in Anaheim, and
• 21% in Fresno.

These cash buyers aren’t just individual owner-occupant buyers; they’re big investors, syndicates, and limited liability companies (LLCs).

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Big-time investors versus individual cash buyers  

Big investors are turning to real estate as a safer, long-term investment in 2021 since the return earnings are more certain than investing in the stock market, and greater than investing in treasury securities. These absentee buyers are buying up homes and either renting them out or holding, intending to sell for a profit on market momentum alone. As if there wasn’t enough competition in the housing market, these investors are making it even more challenging for first-time homebuyers and others reliant on mortgage financing to participate.

Further, savvy individual investors were able to make a ton of money in stocks over the past year following the 2020 crash. These individuals are investing in the stock market as another source of income to make big-time investments like homebuying. Many buyers also began remote working following the 2020 crash and were able to sell their old house and relocate to less expensive areas, armed with cash from their home sale.

2016 data from the Federal Reserve show that a small share of American families (14%) are directly invested in individual stocks, while a majority (52%) have some market investment mostly from owning retirement accounts such as 401(k)s.

However, only about one-third of families in the lower half of the income scale have stock holdings of any kind. Households in the top 10% of the income scale have stock ownership rates above 90%. As a result, the wealthiest 10% of households control 84% of the total value of these stocks as of 2016.

The income disparity and its impacts on homeownership is evident.

With the current stagnant pace of incomes, one source of income just isn’t enough to buy a home anymore. It’s a necessity for low- and moderate-income earners to take on second jobs, borrow from wealthy relatives or get involved in stock market investing if they want to better themselves financially and compete for things like homebuying, especially against big investors.

As the pool of potential homebuyers shrinks, this also makes it challenging for real estate professionals. Here in California, where the homeownership rate is already the lowest rate in the nation, a lack of homebuyer diversity will hurt business in the long term.

firsttuesday forecasts the level of cash purchases will decline in the coming months as the foreclosure moratorium expires and 2021’s price increases sputter heading into 2022. When prices bottom in 2022-2023, cash purchases will pick up again alongside investor interest.

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Moratorium Watch 2021