Are all-cash home sales the new norm?
Could rates get so high that it turns into a cash-only market? It’s heading that way.
Interest rates are based on trading levels in the bond market. Bond traders began their day looking at significantly weaker levels (i.e. higher yields/rates) versus last Friday, but for no apparent reason. Actually, it would be more fair to say “for no new reason.”
Reasons for the rising rate momentum are apparent and ongoing. Decades-high inflation required decades-high rates to fix. The higher rates are supposed to be damaging the economy more than they have. Until that damage shows up, rates have a green light to continue higher.
As more and more market participants abandon their preconceived notions regarding an imminent rate reversal, the upward momentum takes on a certain glacial quality. In other words, it’s self-sustaining, often resulting in days like today where rates look like they’re acting on some obvious catalyst despite the absence of any such news.
Mortgage rates were already new 7.4% by the end of last week and today’s increases bring the average lender closer to 7.5%. This is the highest since late 2000. Lower rates are still available for certain scenarios and discount points, but many scenarios are also seeing higher rates.
Keith Jurow argues that all-cash purchases of homes, via investors and the rich, are perhaps becoming a new norm, not just a downturn-era trend. Jurow:
Recent articles have indicated that all-cash buying is picking up in markets beyond the three I’ve mentioned. The New England real estate news website, Banker & Tradesman, reported in mid-August that in the first half of 2011, nearly 37% of all purchases in Massachusetts were all-cash deals. More than 53% of sales in Cambridge were to all-cash buyers as were 50% of purchases in Edgartown and Provincetown as well.
File under: Let them eat cake