Cash real estate transactions are on the rise. Nationwide, 23% of real estate transactions are cash sales. Those numbers are up from 17% the same time last year. It’s a similar story in Idaho. In July, the number of cash offers in Ada County made up 20% of all transactions, compared to 16.3% the year before. All while the median home price rose by 33.4% from July 2020 to July 2021 ($120k!). At Homie, we’ve seen many buyers lose out on a home they really wanted to another buyer who had cash. All of this has us wondering, is buying with cash the future of real estate?
Cash is still king. According to some research, all-cash offers increase homebuyers’ chances of getting a home by up to 290%. That’s some serious firepower, especially in a hyper-competitive market with limited supply. When the average Idaho home gets sold in five days and receives multiple offers, it only makes sense that someone would use the cash to get an edge, as long as they have it. The problem is, not just anybody has that kind of cash on hand—or in the bank. They are the ones missing out on getting the home they want in the current real estate market.
Some also worry about institutional investors like Blackrock using their cash to buy up more inventory, making it harder for the average American to compete, and forcing more people to rent. While it is true that investors are contributing to low inventory levels in Idaho and elsewhere (they make roughly 20% of real estate purchases nationwide), it’s not the full story. About half of investors use cash to pay for their investment properties, and that number hasn’t changed much in recent months. If anything, a smaller share of investors buy with cash now than they did several years ago. Investors aren’t doing all of the cash buying.
The increase of the cash-only offers is largely driven by wealthier, older individuals who have the equity to forgo a traditional mortgage. No one’s pointing fingers at these individuals for “ruining” the market. They’re people using what they have to get what they want. There’s nothing inherently wrong with that. But how does the everyday person compete when investors, institutions and incomers make the market more difficult? Will Californians flush with cash be the only consumers who win when they move to less expensive real estate markets?
Thankfully, you don’t have to be a Californian to make a cash offer in Idaho (though we wouldn’t blame you for coming here—it’s nice). Homie launched a program for Idaho homebuyers in August through the home loan part of the business that allows homebuyers to upgrade their offer to cash with an advance from the company to a qualified buyer, who later refinances.
That all looks good on paper, but will it actually work? We’ve already seen cash make a difference for several early buyers. One buyer looked at more than 20 homes and made three traditional offers well over asking price. They tried the traditional route for a month and got nowhere. The first cash offer they made got accepted. Even with cash, they were still concerned that the sellers would reject their offer. Who knows what could happen in this market? In this case, the cash helped them seal the deal. We think other Idaho companies will probably start offering similar services soon. I’m certain that we won’t be the only ones doing this once others see that it works.
Given all of this, we think that cash will play a big role in the real estate transactions of the future. The way things are going right now, it may be the only way to get a home in increasingly competitive housing markets like Idaho. Without access to cash, most people will get locked out of homeownership.
Homie and Homie Loans are affiliated businesses that both are owned by the same person. Both have operations in Idaho.