Cash Home Sales Rise to 23%
In July 2021, cash sales accounted for 23% of existing-home sales, a significant increase from 16% one year ago, according to the July REALTORS® Confidence Index Survey. The share of cash sales has generally trended up since the second half of 2021, peaking to a high of 25% in April. Ordinarily, sellers prefer cash sales ("cash is king") because they don't want the uncertainty of a sale falling through if the buyer can't obtain mortgage financing. However, the preference for cash sales has increased in a market where buyers are competing to make the best offer. Instant buyers or iBuyers1 and fin-tech companies2 are increasingly stepping into the market, not only making cash offers for their own account but also providing cash financing for buyers.
The rise of individual home purchasers making all-cash offers has been driven by intense competition from instant buyers (iBuyers) who make instant cash offers.
However, new models are developing where the institutional buyers are not buying the property for their account but purchasing the property for the buyer or providing cash for the buyer to make an offer. The objective is to increase the competitiveness of the buyer's offer by enabling the buyer to offer cash or assuring the seller that if the buyer can't find mortgage financing, the institutional buyers will buy the home for cash.
The role of financial tech companies or iBuyers in providing cash‑backed buyer offers or cash financing will likely only increase in the future to fill the need for buyers to become competitive in a market that is likely going to face a limited supply of homes for at least the next 10 years. There is a gap of 6.8 million underbuilt homes over the past 20 years, according to NAR/Rosen Consulting Group study. I also estimate that the housing supply gap as of June 2021 is at 1.85 million, which is the difference between the number of single-family and existing homes available at the end of the period for sale (1.536 million) and the supply needed at the current pace of demand that is equivalent to six months of supply (3.275 million).
Source: National Association of Realtors, Economics Outlook
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