Historically low mortgage rates triggers less cash sales and higher home prices

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  • Pending sale up 31% from a year earlier.
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Historically low mortgage rates have triggered the smallest share of all cash home purchases since 2007, at just 24.3% of all homes sold in 2020, one percent lower than last year. The median home sale price increased 15% over the same period.

The technology-powered real estate brokerage Redfin released the report this week detailing key takeaways in the housing market among 400+ U.S. metro areas. Mortgage rates in the week ending December 17th fell to 2.67%, an all-time low in the U.S. housing market. Rates have remained below 3% since July.

Nassau County, New York’s share of home sales that were made all in cash spiked to 48.9% this year, the highest in the nation, and an increase of 12.5% over 2019. There the median sale price of a home was $530,000. In Oklahoma City, all cash purchases were just 22.3% this year, a decrease of 3.5% from the previous year. There the median home price is one of the lowest in the nation, at $214,900. The national median home price in 2020 was $336,000.

“With interest payments lower than ever before, many homebuyers would prefer taking out a home loan and putting their cash somewhere else, like the stock market, emergency savings accounts or home renovations,” said Redfin chief economist Daryl Fairweather. “Many of the buyers who are using all cash this year are probably trying to beat out other offers in a situation with multiple offers.”

Pending home sales were up 32% year over year and new listings of homes for sale were up 13%. The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to 99.5%—an all-time high and 1.5 percentage points higher than a year earlier. Mortgage purchase applications increased 2% week over week (seasonally adjusted) and were up 26% from a year earlier (unadjusted) during the week ending December 11.

“At a time of year when the housing market usually goes into hibernation, homebuyers are doing anything but hibernating,” said Fairweather. “With the coronavirus vaccine set to roll out just as the housing market typically kicks into full gear, a combination of seasonality and the pandemic’s final chapter is likely to keep the housing market hot well into 2021.”