In January of this year, according to the National Association of Realtors, 32% of all home purchases made in the country were done so by buyers who were not using any financing. That is the highest that percentage has been since 2014. Among many prospective home buyers, the all cash buyer is a bogeyman– coming in and swooping up homes at lower prices, all because they can offer terms that a buyer using financing cannot offer. The truth presents a different picture, which I’ll get into in a moment. First, let’s examine what an all cash buyer actually looks like.
Per the NAR study cited above, the all cash buyer is more likely to be an investor– with the vast majority being mom and pop landlords– or a buyer purchasing a vacation home. Among those shopping for their primary residence, the portion of cash buyers was 19%.
In addition, they noted that cash buyers (who are purchasing their primary residence) were more likely to be moving longer distances than a financed buyer. 29% of them moved 500 miles or more, compared to 16% for financed buyers. The median number of miles moved by a cash buyer was 60, compared to 18 for a financed buyer. This makes sense when you think of people moving from a higher cost-of-living state to a lower one, and yes I am talking about people selling in California and buying in Oregon.
As for our part of the Portland metro, the percentage of cash buyers generally runs a tick lower than the national average. Last month it was 23%. Reasons: higher home prices than other markets, fewer institutional investors (which are essentially a non-factor here), and Portland isn’t really a vacation home kind of town. Although it should be, it’s lovely here.
The question of the day, right up there in the header, has to do with what advantages a cash buyer has, and how much competition they represent to your typical financed buyer trying to buy a house. The primary advantage that a cash buyer has is that they can offer more secure financing, since they’re not having to borrow it from anyone. They can also offer a quicker closing, since they don’t have to go through mortgage underwriting (and anyone who has been through that can speak to how much of a headache it is). In return, it’s common for cash buyers to get a discount since they’re making the process easier for sellers. How much though?
Over the past twelve months, cash buyers paid on average 2.58% under list price. Financed buyers paid .71% under list. Let’s round some numbers to make it simple and say that cash buyers paid about 2% less than financed buyers.
Here’s where it gets stickier. The average price of a cash-purchased home over the same twelve month period was $732k, compared to $659k for a financed home. That’s an 11% difference, which is pretty significant. Where the Wall Street backed institutional investors do operate– think Atlanta, Jacksonville, etc.– more of the average-priced homes are being bought in cash and turned into rentals. Here, higher-priced homes are over-represented in the cash column. Of the homes that sold for over $1 million, 37% of them were purchased with cash. At $2 million or more, it’s 51%. Must be nice.
So even though the percentage of cash buyers in our market runs at around 25%, chances are that a buyer shopping for a median-priced (plus or minus) isn’t going to have to beat a cash offer one out of every four times– it will be less often than that. Also, the amount that this financed buyer may have to fork up to outspend a cash buyer may not be as significant as one would think.
When struggling to find a decent home that one can afford, it’s easy to get frustrated when your offers are getting rejected. It’s also easy to blame that buyer swooping in with their California bucks and outbidding you. That does happen. It doesn’t happen as often as people might think though, and there’s no reason to treat the specter of a cash buyer as a serious impediment to your search. Is cash king? It’s a jack, at best.
