Do you think 2021 will see a rise in all-cash buyers?

  • No. (70%, 40 Votes)
  • Yes. (30%, 17 Votes)

Total Voters: 57

2020 was a year of contradiction for the housing market, with faltering sales volume and rapidly rising prices, all despite historic job losses. But one thing was clear: most investors stayed clear of home purchases.

Nationwide, 24% of homes were purchased with cash in 2020, according to Redfin. This share peaked in 2013 at 34%, a period of time when speculators were driving the housing market.

Here in California, the share of homes purchased with all-cash in 2020 was well below average, at:

  • 20% in Riverside;
  • 18% in Los Angeles;
  • 17% in Sacramento;
  • 15% in San Diego; and
  • 13% in Oakland.

Cash sales plummeted in California due mostly to 2020’s record-low mortgage interest rates. This means that, even when homebuyers had access to cash, it made more sense for them to purchase their home using a mortgage with a sub-3% interest rate in order to invest their cash elsewhere.

Another reason for fewer cash sales is the absence of investors – particularly speculators – in 2020’s tumultuous housing market. With home prices at all-time highs and home sales volume slowing, it’s simply not a prudent time to invest in a home unless the homebuyer plans to live in it for a period of several years.

Speculators to come

While speculators are nowhere to be found going into 2021, they are lying in wait.

While home prices continued to jump in 2020, the future is less positive. That’s because 2020’s price increase was fueled by two factors that are certain to change in the coming months:

  • consistently rising buyer purchasing power, fueled by the interest rate decrease; and
  • a sharp decrease in multiple listing service (MLS) inventory, due mostly to decreased consumer confidence.

However, as interest rates will not go lower than their historic lows of early 2021, buyer purchasing power has plateaued and can only go down when interest rates eventually begin to rise, likely around 2023 at the earliest. Further, as 2020’s historic job losses linger and 90+ day mortgage delinquencies continue to rise, a wave of distressed sales is on the horizon, waiting only for the foreclosure moratorium to expire. When distressed sales do finally hit the market, the MLS inventory will rise and prices will drop.

Home prices are expected to begin to decrease in the second half of 2021 — though the exact timing will depend on future extensions of the foreclosure moratorium — and bottom in 2023. Once prices are at their bottom, watch for growing interference from real estate speculators and a corresponding jump in cash purchases.

To prepare for tomorrow’s investor-fueled market, agents can become familiar with investment strategies today, including transactions involving:

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