Rising mortgage rates aren’t deterring a majority of homebuyers in the marketplace. According to an analysis by Goldman Sachs Group, more than half the homes sold last year and so far this year have been all-cash transactions.
According to the analysis, published in The Wall Street Journal, an estimated 20 percent of homes sold before the housing market collapse were all-cash sales. But over the past seven years, that share of sales has been increasing.
Many of the buyers are investors taking advantage of the still-low home prices with the goal of unloading the property quickly as the market improves. “Given the low interest rate environment that has many investors sitting on cash that is literally earning next to nothing, the prospect of parlaying that cash to scoop up real estate at bargain prices — while avoiding the mortgage process — is pretty attractive,” says Greg McBride, senior financial analyst at Bankrate.
McBride adds that over time, as credit standards loosen up, buyers with an appetite for investment properties and vacation homes will begin financing again.
Borrowers are borrowing less, too
Currently, buyers who obtain a mortgage are financing less of the sale price of the home than they did before the housing crash. The report by Goldman Sachs estimates that for every $1 of a home’s sale price, 44 cents is financed, compared with 67 cents of every $1 before the crash.
Buyers who finance can still take advantage of the mortgage tax deduction, but McBride says whether Congress will eventually eliminate or reduce the deduction is a “wild card” in assessing the future mortgage maarket.
“The mortgage tax deduction further reduces the net borrowing cost, making a mortgage an attractive alternative to liquidating other assets,” he says. “But should the mortgage tax deduction be limited or go away entirely, this will alter the appeal of mortgage financing for buyers that can otherwise pay cash.”
Judy Martel
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